Cost Benefit Analysis for Social Investments
Page updated 10 Sep 2015
To find the best way to get better results for people whose needs are not being met by existing social services, we need to look at the costs and benefits of different approaches.
Cost-benefit analysis (CBA) enables comparison of different options on a consistent basis, when options and impacts can be like comparing apples and oranges.
The Treasury's guidance is in Guide to Social Cost Benefit Analysis. To help agencies to compare different social investment options in New Zealand, the Treasury has developed a CBA tool called CBAx. CBAx is a spreadsheet model that contains a common database that helps agencies monetise impacts, provides a common measurement basis, and makes it easier to do return on investment analysis.
International Example: 'Apples to oranges to plums'
The Robin Hood Foundation is an example of an international non-government organisation that uses return-on-investment analysis to deliver on its promise to use money in the most powerful, effective way possible to reduce poverty in New York. This approach is described in the video Our Approach: 'Apples to oranges to plums' from Robin Hood on Vimeo.
This international example helps to explain why the CBAx tool is helpful for New Zealand organisations.
Governments aim to use taxpayers' money to invest in programmes and initiatives that will have the most powerful impact on raising living standards for New Zealanders, in the most efficient and effective way possible. Public sector agencies provide Budget bids for programmes and initiatives to raise living standards of New Zealanders. Whatever the initiative is, the government (through the Treasury) needs a way to compare the impacts of these very different initiatives ('apples to oranges to plums').
Applying this kind of analysis is important for agencies, as it provides information to inform implementation and evaluation of initiatives to ensure they are having their desired impact.
The government (through the Treasury) needs a disciplined system to help compare the impacts of initiatives no matter how different they are. The Treasury needs a transparent, comparable way of assessing the impact of the proposed programmes and initiatives (both existing and new ones).
In order to make decisions on which programmes and initiatives the government should invest in, decision-makers require a strong investment case (such as strategic alignment; economic, fiscal and social impacts; assessment of affordability; planning for procurement; and a plan for implementation). The Treasury's Cost Benefit Analysis Tool - CBAx is a spreadsheet that enables transparent, comparable cost benefit analysis.