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DOING A POLICY ANALYSIS: EIGHT STEPS

1. Determine the problem and give alternative solutions.
Sometimes needs assessment is useful in determining the problem. Once the
problem is determined, decide what solutions (i.e., programs) should be considered.
These are the choices.
All other steps apply to these choices, so they should be very clearly labeled and
defined in the first page or two. For example, if one choice is a new program, the explicit
definition should include the size of the proposed program, its expected duration, and
the number of people it would cover.
Often the two choices are go and no go for a program. In such cases it is
important to very specifically define both these terms for this program.




2. Determine all monetary costs associated with each choice.
This section is usually quite short, because these costs can usually be
considered the same as market prices, and can be taken right from the budget. Just to
be sure, check whether there are opportunity costs or upcoming market changes that
are not captured by the budget. (Usually there are none.)




3. List all possible benefits (outcomes) and estimate their size.
This is the most important section of the paper.
For a program evaluation, these benefits may be derived from a careful research
design, such as before/after figures compared to a control group.
If this is not possible, then both policy analyses and program evaluations must
determine these benefits through informed estimation. One common method of
estimation is comparison with similar programs at other times or in other jurisdictions.
Defending all estimates: If some of the outcome estimates are drawn from
published sources (or expert opinions), this analysis cannot simply assume they are
correct. It must independently defend them: explain how the published source reached
its estimates, indicate why the estimates seem correct, and discuss how they have been
adjusted for this particular project.




4. For cost benefit analysis, turn these benefits into money estimates.
There are five possible assessment techniques: survey, intermediate goods
(including cost savings), travel costs, private market analog and implicit (hedonic) price.
For political reasons, it is usually better not to monetize lives saved. If a
monetary figure is used for lives, later run the sensitivity analysis with the monetized life
figures excluded, to see how much they affect your overall answer.




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5. Array both costs and benefits in a time stream. Discount them.
How long a time stream? Longer is usually more accurate. Stop the time stream
only when the numbers are either very small, or too uncertain to be defended.
What discount rate? If monetized figures are real-- i.e., inflation-free-- then a
discount rate of roughly 8% is usually defensible -- in part because it is probably too high
and thus conservative.




6. Indicate the choice with the largest net benefit.
This, of course, is the projects central finding.




7. Conduct a sensitivity analysis.
All estimates that are both uncertain and important should be sensitivity
analyzed. In inserting higher and lower numbers for the sensitivity analysis, these new
numbers must be defended just as the "best" estimates were: e.g., why does this seem
the lowest plausible estimate for this outcome?




8. Summarize.
The summary should give explicit attention to the unquantifiable aspects of each
choice.




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Although not part of the course project, two other steps are sometimes included in real-
life analyses:


9. Consider any implementation problems associated with each choice.


10. Analyze and discuss any distribution (equity) differences between the choices.
Conclude.