Social Cost Benefit

Analysis

Cost Benefit Analysis

Quantitative analytical tool to aid decisionmakers in the efficient allocation of resources
Identifies and attempts to quantify the costs
and benefits of a programme or activity and
converts available data into manageable
information
It provides a framework for analysing data in
a logical and consistent way
It makes explicit the links between inputs and
outcomes, clarifies the underlying
assumptions, and points to gaps in
information

Cost Benefit Analysis

CBA helps managers answer the
following questions:
Does the proposal provide a net benefit
to the community as a whole?
Should the proposed project,
programme or policy be undertaken?
Should the project or programme be
continued?
Which of various alternative projects or
programmes should be undertaken?

Cost Benefit Analysis

CBA is a useful tool in programme evaluation.
It examines whether a particular use of
resources generates net returns. A particular
use of funds may be effective in terms of
achieving the objectives of a programme, but
may still generate a negative net return to the
community if the benefits from these
objectives are judged not to be worth the costs
involved.
Alternatively, an investment could achieve a
positive return for the community but fall short
of achieving the objectives of a particular
programme.

Cost Benefit Analysis

Outputs and Outcomes:
Outputs are physical deliverables
over which managers have a high
degree of control whereas outcomes
reflect the real programme impacts
or benefits

Cost Benefit Analysis

Valuing the Outcomes:
Additional future earnings of trainees
compared with what they would have
gained otherwise may provide an indication
of the benefit of a training programme.
When valuing the cost of aircraft noise, the
difference between house prices under
aircraft flight paths and those not under
them may provide a reasonable guide.
Undertaking Cost effectiveness Analysis
(Useful in health, accident safety and education)

Objectives of Social Cost Benefit Analysis

Optimal allocation of scarce resources in
competing projects
This involves making a rational choice between
various alternative projects and selecting the best
possible one according to the criterion of
maximization of net societal benefit.
Increasing the total national income (growth
objective)
and
improving
the
income
distribution(equity objective)
Ensuring that a selected project subscribes to
employment generation, self-reliance, balanced
regional
development,
protection
and
improvement of environment

Use of Social Cost Benefit Analysis

Infrastructure (road, rail, dams)

Agricultural
Environmental
Scientific research
Information technology

Why to Undertake a CBA

CBA facilitates meaningful
comparisons
CBA is conducive to good programme
management
CBA and distributional impact
CBA encourages clear thinking about
the true value added
CBA as integral to an evaluation
strategy
CBA can help to meet legislative

When is a CBA Used

Analysing capital expenditure

Analysing a policy option
Using or disposing of an existing asset
Post evaluation of a project or
programme

Important Steps in CBA Process

Determine scope and objectives

Identify the constraints
List feasible alternatives
Specify costs and benefits
Quantify costs and benefits
Discount future stream of benefits and
costs to calculate NPV
Sensitivity test for uncertainty
Outline equity issues

Determine scope and objectives

What is the programme, project or activity

trying to achieve?
How do these achievements relate to the
agencys objectives?
Do the objectives take into account the
interests of the economy and the public?
What factors are critical in achieving the
objectives?
Are the objectives measurable?
Do the objectives reflect outputs or outcomes?
Are the objectives consistent with relevant
Government policies?

Identify the constraints

Financial
Distributional
Institutional
Managerial
Environmental and
Political

List feasible alternatives

An agency is considering whether to purchase
a commercial property. The CBA alternative
options can be:

Doing nothing,
Acquisition of the property, or
Upgrading/renovating the existing
property

Identify Quantify Costs and Benefits

Costs and Benefits of a Toll Motorway:
Costs:

Labour, capital and material costs to construct

the road and
The value of the land as reflected in the loss of
the use of the land for alternative purposes
Benefits:

lives saved, reduced travel time (which

generally results in fuel and productivity
benefits) and
possibly the reduction of traffic on alternative
routes, including the impact on inlet and outlet
roads.