"Cost–benefit analysis (CBA), sometimes also called benefit–cost analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives. It is used to determine options which provide the best approach to achieving benefits while preserving savings in transactions, activities, and functional business requirements."
Examines the economic efficiency of policy choices by comparing the costs and benefits of alternative courses of action.
Introduction to Cost-Benefit Analysis: Understanding the concept of cost-benefit analysis, its purpose, and the steps involved in conducting a proper analysis.
Economic Theory of Public Policy: Understanding the economic theory that underpins public policy analysis, including public goods, externalities, and market failures.
Social Welfare Function: Learning how to measure social welfare and the concept of social preferences in cost-benefit analysis.
Valuation Techniques: Understanding different valuation techniques and their application in measuring the costs and benefits of public policy measures.
Discounting: Understanding the concept of discounting and its importance in evaluating long-term costs and benefits.
Decision Criterion: Learning about different decision criteria used in cost-benefit analysis, such as the net present value (NPV), benefit-cost ratio (BCR), and internal rate of return (IRR).
Sensitivity Analysis: Understanding the importance of sensitivity analysis in assessing the robustness of cost-benefit analysis results.
Risk Assessment: Learning about different methods to assess risks associated with public policy measures and how they can affect the cost-benefit analysis.
Equity Analysis: Understanding the importance of equity considerations in cost-benefit analysis, such as distributional impacts and fairness.
Ethics and Values: Learning about ethical and value considerations in public policy analysis, such as the importance of transparency and accountability.
Standard cost-benefit analysis: This is the most common type of cost-benefit analysis, where all the costs and benefits are measured in monetary terms.
Cost-effectiveness analysis: This method is used when outcomes cannot be easily measured in monetary terms, and comparisons are made based on ratios of costs to non-monetary outcomes.
CEA/CBA hybrid: This approach combines elements of cost-effectiveness analysis and traditional cost-benefit analysis. It is useful for situations where some outcomes can be measured in monetary terms, while others cannot.
Distributional cost-benefit analysis: This method takes into account how costs and benefits are distributed across different groups in society. This is particularly important when assessing the impact of public policy on vulnerable or disadvantaged groups.
Shadow pricing: This is a technique used when there is no market value for a good or service. Economists will assign an estimated value to the good or service based on its opportunity cost or alternative use.
Multi-criteria decision analysis: This approach considers multiple criteria beyond just costs and benefits. It allows decision-makers to weigh certain outcomes more heavily than others.
Risk analysis: This method allows for the consideration of uncertainty in estimated costs and benefits. This is particularly important when dealing with long-term projects or policies.
Conjoint analysis: This technique is used to determine how much consumers are willing to pay for certain features or attributes of a product. It can be used to determine the added value of certain policy interventions.
Contingent valuation: This method is used to estimate the value of goods or services for which there is no market value. It involves asking individuals how much they would be willing to pay for the good or service in question.
Social return on investment (SROI): This method is a framework that extends traditional cost-benefit analysis to include social and environmental outcomes. It allows decision-makers to evaluate the social and environmental impact of various policy options.
"A CBA may be used to compare completed or potential courses of action, and to estimate or evaluate the value against the cost of a decision, project, or policy. It is commonly used to evaluate business or policy decisions (particularly public policy), commercial transactions, and project investments."
"CBA is related to cost-effectiveness analysis. Benefits and costs in CBA are expressed in monetary terms and are adjusted for the time value of money; all flows of benefits and costs over time are expressed on a common basis in terms of their net present value, regardless of whether they are incurred at different times. Other related techniques include cost–utility analysis, risk–benefit analysis, economic impact analysis, fiscal impact analysis, and social return on investment (SROI) analysis."
"CBA is often used by organizations to appraise the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of any alternatives and the status quo. CBA helps predict whether the benefits of a policy outweigh its costs (and by how much), relative to other alternatives."
"This allows the ranking of alternative policies in terms of a cost–benefit ratio."
"Generally, accurate cost–benefit analysis identifies choices which increase welfare from a utilitarian perspective. Assuming an accurate CBA, changing the status quo by implementing the alternative with the lowest cost–benefit ratio can improve Pareto efficiency. Although CBA can offer an informed estimate of the best alternative, a perfect appraisal of all present and future costs and benefits is difficult; perfection, in economic efficiency and social welfare, is not guaranteed."
"Benefits and costs in CBA are expressed in monetary terms and are adjusted for the time value of money; all flows of benefits and costs over time are expressed on a common basis in terms of their net present value, regardless of whether they are incurred at different times."
"For example, the U.S. Securities and Exchange Commission must conduct cost-benefit analyses before instituting regulations or deregulations."
"Changing the status quo by implementing the alternative with the lowest cost–benefit ratio can improve Pareto efficiency."
"The value of a cost–benefit analysis depends on the accuracy of the individual cost and benefit estimates."
"Comparative studies indicate that such estimates are often flawed, preventing improvements in Pareto and Kaldor–Hicks efficiency."
"Interest groups may attempt to include (or exclude) significant costs in an analysis to influence its outcome."
"CBA has two main applications: To determine if an investment (or decision) is sound, ascertaining if – and by how much – its benefits outweigh its costs."
"It is used to determine options which provide the best approach to achieving benefits while preserving savings in transactions, activities, and functional business requirements."
"Other related techniques include cost–utility analysis, risk–benefit analysis, economic impact analysis, fiscal impact analysis, and social return on investment (SROI) analysis."
"It is commonly used to evaluate business or policy decisions (particularly public policy), commercial transactions, and project investments."
"Benefits and costs in CBA are expressed in monetary terms and are adjusted for the time value of money."
"It is used to determine options which provide the best approach to achieving benefits while preserving savings in transactions, activities, and functional business requirements."
"Generally, accurate cost–benefit analysis identifies choices which increase welfare from a utilitarian perspective."
"A CBA may be used to compare completed or potential courses of action, and to estimate or evaluate the value against the cost of a decision, project, or policy."