introduction to cost-benefit analysis (cba)

7/28/2019 Introduction to Cost-Benefit Analysis (CBA)

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Office of Best Practice Regulation

Introduction to Cost-Benefit Analysis

CBA UnitOffice of Best Practice Regulation


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Outline

What is CBA?

need to know about it? Why you is it useful?

When should you use it?

How can the CBA Unit help?


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What is Cost Benefit Analysis?

CBA is an analytical framework used to assess the benefits

and costs of policy proposals

CBA focuses on economic efficiency

It calculates the net benefits for each policy proposal

Takes a long-term view and incorporates allrelevant costsand benefits


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Why youneed to know about CBA?

Recent government decisions give renewed focus to

CBA

Agencies need to build their capacity to use CBA toimprove the quality of regulatory analysis

Greater use of CBA expected by government for

regulatory proposals


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Why is CBA useful?

Takes a community-wide perspective

Allows the consideration of a range of policy options

Determines which policy maximises net benefits tothe community

Allows benefits and costs to be compared over time

Can showthe costs and benefits accruing to

different groups within the community


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When do you need to use CBA?

Using CBA techniques to quantify impacts is not

new it has always been part of the regulatory

assessment process

However there is now a greater focus on

quantification for regulatory proposals,

particularly those with important impacts

Agencies should devote resources toquantification to where stakes are greater


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CBA and the RIA process

1. Problem

2. Objectives

3. Options

4. Impact analysis

5. Consultation

6. Conclusion and recommended option

7. Implementation and review


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What are the basic stepsin a CBA?

Specify the set of options

Decide whose benefits and costs count (standing)

Identify the costs and benefits and selectmeasurement indicators

Predict the impacts over the life of the regulation


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Basic steps in a CBA(continued)

Attach dollar values to impacts

Discount future benefits and costs to obtain

present values

Compute the net present value of each policy

alternative

Perform sensitivity analysis

Make a recommendation


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Where possible,quantify important impacts

Now a greater focus on quantification for

regulatory proposals, particularly those with

important impacts

agencies should quantify to the maximumextent reasonable given time and resource

constraints

At the same time qualitative costs andbenefits should not be excluded from

consideration


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Qualitative impactspresent a challenge

Qualitative factors should be adequately considered

but not overplayed

If a proposal shows large quantified net costs thereshould be a clear explanation of why qualitative net

benefits justify proceeding with a policy option


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Different techniquescan be used

Different impacts may call for different

estimation techniques

Will depend on the nature and

complexity of issue and availability of

information

High quality analysis may require

expertise consultants can be useful


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Steps to ensuringa good CBA outcome

Proper resourcing

Getting the right skills

Collecting high quality information

Consulting with stakeholders

Consulting early with the OBPR


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How can the CBA Unit help?

Assistance on technical issues

Advice on how to improve CBA done in-house or

undertaken by a consultant Training/Workshops on CBA

Developing CBA guidance material on a needs

basis Provide examples of CBA reports


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Useful CBA References

Boardman, E.A., Greenberg, D.H., Vining, A.R. and Weimer, D.L. 2006 Cost-Benefit

Analysis: Concepts and Practice, 3rd edition.

Commonwealth of Australia 2006, Handbook of Cost Benefit Analysis, January.

Australian Government 2007, Best Practice Regulation Handbook, August.

OECD 2006, Cost-Benefit Analysis and the Environment: Recent Developments


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Further information

www.obpr.gov.au

e-mail: [email protected]

introduction to cost-benefit analysis (cba)

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