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How to do a rough CBA

192.Because almost inevitably, decision-makers will carry out a CBA in their heads if no formal CBA is available, advisors can help them organise their thoughts even with a rough or ‘back-of-the-envelope’ CBA, if it is done methodically and on paper. This part of the guide sets out the basic principles and the minimum steps that such a ‘back-of-the-envelope’ CBA should follow. A worked example is provided in appendix 2.

The roughest CBA

193.Preliminaries: Before embarking on the CBA, it is useful to

  • Re-clarify the nature of the problem or opportunity that is being considered, and the decision that decision-makers will be asked to make.
  • Clarify whether the purpose of the analysis is to assess how the proposal fits in with decision-makers' objectives (in this case a multi-criteria analysis would be appropriate), or whether it is to assess how the proposal impacts on the public.

194.A CBA is appropriate if the purpose of the evaluation is to assess how the proposal impacts on the public. In almost all cases, it should be possible to do the following:

Step 1: Define the proposal, its alternatives and the counterfactual.

Step 2: Identify the people who gain and those who lose.

Step 3: Identify the benefits and costs and define them in concrete terms, i.e. in terms that have observable consequences. This should avoid the risk of double counting. It may also be possible to determine in which time periods they will occur.

Step 6: Determine whether it is worth investing in more research in order to quantify the costs and benefits (steps 4 and 5), and what the nature of that research should be.

Step 7: Write the report, including a summary CBA table with rows setting out the benefits and costs, and columns identifying the main proposal alternatives.

195.Together with the preliminary considerations, these steps provide useful information to a decision-maker, as they help to:

  • understand the problem or opportunity and the possible solutions,
  • by summarising them in a table on one page, put the expected benefits and costs into perspective, even if they have not been quantified,
  • determine the nature of any research that may be required to undertake a fuller CBA with quantified costs and benefits, and
  • determine whether carrying out a fuller CBA is justified.

The next level up

196.It is often possible to undertake:

Step 4: Quantify costs and benefits in terms of orders of magnitude, using ranges.

Step 5: Discount to a common period, compare benefits with costs.

197.In many cases such rough quantification can provide surprisingly useful information even if arrived at through introspection.

198.If there is a cost or benefit that really can’t be quantified, then it should be included at the bottom of the CBA summary table (but with no quantification), so that it is not overlooked by the decision-maker.

199.See appendix 2 for an example of a ‘rough CBA’.

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