Question

Exercise 3: Major steps of Cost Benefit Analysis

Enumerate and briefly explain all 9 major steps for realizing a Cost Benefit Analysis.

Answer 1

Set the basis for the analysis. Specify the change in programme or policy and the current status quo, or the state of the world compared to after, before implementation.

Decide on what cost advantages should be remembered. To narrow the communities affected by the policy, you need to assess the regional reach of the study.

Identify and categorize expenditures and advantages. In order to ensure you consider the impact of each expense and profit, it is important to mark costs and benefits as direct (intended costs / benefits)/indirect (unintended costs / benefits), tangible (easy to calculate and quantify)/intangible (hard to define and calculate), and actual (anything that adds to the bottom line net-benefits)/transfer (money change hands).

Costs of the initiative and savings over the duration of the programme. Assess because next year the costs and benefits will change. Even before you start to put numbers on items, it is important to do this.

Costs of moneytize. Make sure that all expenses are put in the same unit.

Monetize rewards. Make sure that all incentives are put in the same unit,

Expenses and advantages of .Discount to receive new prices. This implies translating potential risks and advantages into current value. It is also known as the rate of social discount, or the rate at which tradeoffs are created over time by society. Each organisation appears to have a particular rate of discount. Generally, it varies from 2-7%.

Compute the current net values. By subtracting expenses from benefits, this is achieved. When a positive outcome is achieved, the policy is deemed efficient; however, it is necessary to think about the effectiveness and social justice of the policy.

Execute sensitivity analysis. This move enables you to verify your projections and conclusions for accuracy. This is usually achieved by changing, increasing and lowering the social discount rate used. If after this phase you always get a positive number, then the policy should be approved. If during this process you get a negative number, then you can determine where zero is the balancing point.

Set out a recommendation. Evaluate all success and account for other contextual considerations.