Download - 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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Office of Best Practice Regulation
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]