1.3 Proportionality of Analysis
The extent or depth of the analysis should be tailored to the relative size, impacts, and risks of the proposal. Not all proposals will require full cost benefit analysis or involve all the detailed elements listed above. Talk to your Treasury Vote team for guidance.
1.4 When to conduct Cost Benefit Analysis?
Cost Benefit Analysis is flexible and can generally be applied to assess most proposals. However, it has some limitations that mean it is not suitable for assessing every proposal. For example, it is often not possible to assign a monetary value to all costs and benefits. If the techniques described in chapters 2[9] and 4[10] do not provide a sufficient base from which to conduct CBA, alternative assessment techniques such as Cost Effectiveness Analysis (CEA) and Cost Utility Analysis (CUA) may prove useful.[11]
1.5 Relationship to other guidance
This primer is not intended to override or replace existing guidance. In particular, it is intended to complement existing guidance such as:
- Budget guidance
- Cabinet Office Step by Step Guide [12] for detailed expectations of policy proposals for Cabinet consideration
- Ministry of Economic Development Regulatory Impact Statement Guide [13] for detailed expectations of proposals with regulatory impacts
Links to other authoritative and related guidance are included where appropriate and are listed in the bibliography.
Notes
- [9]i.e. techniques to assist in the quantification of costs and benefits such as shadow prices, hedonic pricing etc.
- [10]i.e. qualitative analysis techniques such as Multi-Criteria Analysis (MCA).
- [11]Cost Effectiveness Analysis (CEA) is similar to Cost Benefit Analysis except that it does not attempt to place a value on the major benefits of the proposal. Instead, CEA compares the costs of alternative ways of producing the same or similar outputs/benefits. It is often used to find the option that meets a predefined objective at a minimum cost. CUA is a variant of CEA that measures the relative effectiveness of alternative interventions in achieving two or more given objectives. Both CEA and CUA provide measures of the relative effectiveness of alternative interventions in achieving a given objective (or two given objectives in the case of CUA).The unit of measurement is usually non-monetary. See Broadman et al (1996), Dixon (1991), Stokey and Zeckhauser (1978), Viscusi (1997), and Pradhan (1996).
- [12]http://www.dpmc.govt.nz/cabinet/guide/
- [13]http://www.med.govt.nz/buslt/compliance/risbccs/index.html
