Bokhus

Steps:

1. choose appraisal method: Social Cost Benefit Analysis or Social Cost Effectiveness Analysis
2. identify and value costs and benefits of each of the shortlisted options
3. estimate the financial cost to the public sector
4. remove inflation / bring all figures to real base year prices
5. qualitatively assess non-monetisable costs and benefits
6. apply appropriate Optimism Bias
7. generate Risk and Benefits Registers
8. assess Avoidable, Transferable and Retained Risk
9. build in additional Risk Costs and reduce Optimism Bias accordingly
10. sum the values of costs and benefits in each year
11. discount the yearly sums of costs and benefits in each year to produce Net Present Social Values (NPSVs)
12. add the NPSVs over time to produce The Net Present Social Value (NPSV) of each option
13. calculate BCRs if using CBA or Social Unit Costs if using CEA as appropriate

1. CBA or CEA

Social Cost Benefit Analysis (CBA):

• assesses the impact of different options on social welfare.
• all relevant costs and benefits are valued in monetary terms, unless it is not proportionate or possible to do so.
• is the recommended approach for detailed comparison of the shortlist of options.

Social Cost-Effectiveness Analysis (CEA)

• is a variant of Social CBA which compares the costs of alternative ways of producing the same or similar outputs.
• may sometimes be appropriate where:
  • wider social costs or benefits will remain broadly unchanged or for the delivery of a public good, such as defence
  • output may not be proportionately quantified

Where wider social outcomes are not affected by the decision being appraised, Social CBA and Social CEA are in effect equivalent.

Social CBA and Social CEA techniques are “marginal analysis” principally employed to consider changes between alternative options, and compare alternative options based on a static model of the world. Significant non-marginal issues involving fundamental changes in the relationships on which models, estimates, and forecasts are based must be analysed during the research phase in advance of the longlist stage. They are taken into account there, as is consideration of whether place based appraisal, or consideration of equalities or income distribution effects is required. The outcome of that analysis is fed into shortlist selection. At shortlist stage it may therefore be necessary to undertake appraisal form several perspectives in order to produce balanced advice.

2. Identify and value costs and benefits

– consider all the costs and benefits from the place of interest and nearby travel to work places, unless the proposal is a nation-wide policy;
– include all costs and benefits that can arise from an intervention unless it is not proportionate to do so;
– prioritise including those costs and benefits that are likely to be decisive in determining the preferred option;
– the cost of raising public funds (e.g., the cost of issuing debt or raising taxes) should not be included.

Classification of Cost and Benefits:
1. Costs:
1.1. Total direct public costs (to the organisation proposing the intervention): a) capital and b) revenue
1.2. Total indirect public costs (to other public sector organisations): a) capital and b) revenue
1.3. Wider costs to UK society: a) monetisable (incl, cash), b) quantifiable but unmonetisable, and c) qualitative unquantifiable
1.4. Total risk costs (the costs of mitigating or managing risk): a) optimism bias (this will be lower if the estimated costs of risks are included and larger if no risk costs are included) and b) estimated or measured risk costs

2. Benefits:
2.1. Direct public sector benefits (to the organisation proposing the intervention): a) cash releasing, b) monetisable but not cash releasing, c) quantifiable unmonetisable, and d) qualitative unquantifiable
2.2. Indirect public sector benefits (to other public sector organisations): a) cash releasing, b) monetisable but not cash releasing, c) quantifiable unmonetisable, and d) qualitative unquantifiable.
2.3. Wider benefits to UK society (e.g. households, individuals, business), these are unlikely to exist for place-based interventions: a) monetisable but not cash releasing, b) quantifiable unmonetisable, and c) qualitative unquantifiable