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Guide to Social Cost Benefit Analysis

Foreword

Anybody can make decisions. But if the decision involves other people's money, then it behoves us to think about the impacts on them. This is much harder than to think about the impacts on ourselves.

One thing that is dear to my heart, both as a citizen and as a public servant, is to improve government decision-making. Good decision-making means good government. To be able to make good decisions, we need to be well informed about how the decisions impact on people.

But many government decisions are about matters that have very complex and varied consequences. Ministers - in fact anyone who makes significant decisions - need help in obtaining and organising information in a way that helps decision-making.

This is where cost benefit analysis comes in. Cost benefit analysis is first and foremost an organising principle. It is a way of organising information in a consistent and systematic way. It is about making best use of whatever information is available.

It is about evidence-based policy development.

This guide is called ‘social' cost benefit analysis because at its most basic, a cost benefit analysis that the Government is interested in must identify all the economic (including social and environmental) impacts of decisions on people, whether or not they can be quantified.

But comparison of different alternatives is not possible unless decision-makers form a view about the relative size of the various impacts.

Fortunately, the cost benefit analysis literature has developed a tool-box of techniques for helping decision-makers with the sizing problem.

This guide is not a comprehensive textbook or manual for teaching those techniques. It has three main purposes: to outline the main steps and organising principles that advisors to decision-makers should adopt, to give project managers a sense of what they can expect from cost benefit analysts, and to provide analysts who carry out cost benefit analysis with guidance on some short-cuts, or standard values that will generally be acceptable for inclusion in their analysis.

I commend this guide to all those who are interested in better decision-making.

For myself, I will always expect to see a cost benefit analysis (CBA) when the Government is being asked to make a significant decision.

Gabriel Makhlouf
Secretary to the Treasury

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