Cost–benefit analysis

Cost–benefit analysis (CBA), sometimes called benefit costs analysis (BCA), is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings (for example, in transactions, activities, and functional business requirements).[1] A CBA may be used to compare completed or potential courses of actions, or to estimate (or evaluate) the value against the cost of a decision, project, or policy. It is commonly used in commercial transactions, business or policy decisions (particularly public policy), and project investments.

CBA has two main applications:[2]

  1. To determine if an investment (or decision) is sound, ascertaining if – and by how much – its benefits outweigh its costs.
  2. To provide a basis for comparing investments (or decisions), comparing the total expected cost of each option with its total expected benefits.

CBA is related to cost-effectiveness analysis. Benefits and costs in CBA are expressed in monetary terms and are adjusted for the time value of money; all flows of benefits and costs over time are expressed on a common basis in terms of their net present value, regardless of whether they are incurred at different times. Other related techniques include cost–utility analysis, risk–benefit analysis, economic impact analysis, fiscal impact analysis, and social return on investment (SROI) analysis.

Cost–benefit analysis is often used by organizations to appraise the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of any alternatives and the status quo. CBA helps predict whether the benefits of a policy outweigh its costs (and by how much), relative to other alternatives. This allows the ranking of alternative policies in terms of a cost–benefit ratio.[3] Generally, accurate cost–benefit analysis identifies choices which increase welfare from a utilitarian perspective. Assuming an accurate CBA, changing the status quo by implementing the alternative with the lowest cost–benefit ratio can improve Pareto efficiency.[4] Although CBA can offer an informed estimate of the best alternative, a perfect appraisal of all present and future costs and benefits is difficult; perfection, in economic efficiency and social welfare, is not guaranteed.[5]

The value of a cost–benefit analysis depends on the accuracy of the individual cost and benefit estimates. Comparative studies indicate that such estimates are often flawed, preventing improvements in Pareto and Kaldor–Hicks efficiency. [6] Interest groups may attempt to include (or exclude) significant costs in an analysis to influence its outcome.[7]


French engineer and economist Jules Dupuit, credited with the creation of cost–benefit analysis

The concept of CBA dates back to an 1848 article by Jules Dupuit, and was formalized in subsequent works by Alfred Marshall.[8] Jules Dupuit pioneered this approach by first calculating “the social profitability of a project like the construction of a road or bridge”[9] In an attempt to answer this, Dupuit began to look at the utility users would gain from the project. He determined that the best method of measuring utility is by learning one’s willingness to pay for something. By taking the sum of each user’s willingness to pay, Dupuit illustrated that the social benefit of the thing (bridge or road or canal) could be measured. Some users may be willing to pay nearly nothing, others much more, but the sum of these would shed light on the benefit of it. It should be reiterated that Dupuit was not suggesting that the government perfectly price discriminate and charge each user exactly what they would pay. Rather, their willingness to pay provided a theoretical foundation on the societal worth or benefit of a project. The cost of the project proved much simpler to calculate. Simply taking the sum of the materials and labor, in addition to the maintenance afterward, would give one the cost. Now, the costs and benefits of the project could be accurately analyzed, and an informed decision could be made.

The Corps of Engineers initiated the use of CBA in the US, after the Federal Navigation Act of 1936 mandated cost–benefit analysis for proposed federal-waterway infrastructure.[10] The Flood Control Act of 1939 was instrumental in establishing CBA as federal policy, requiring that "the benefits to whomever they accrue [be] in excess of the estimated costs."[11]

Public policy

CBA's application to broader public policy began with the work of Otto Eckstein,[12] who laid out a welfare economics foundation for CBA and its application to water-resource development in 1958. It was applied in the US to water quality,[13] recreational travel,[14] and land conservation during the 1960s,[15] and the concept of option value was developed to represent the non-tangible value of resources such as national parks.[16]

CBA was expanded to address the intangible and tangible benefits of public policies relating to mental illness,[17] substance abuse,[18] college education,[19] and chemical waste.[20] In the US, the National Environmental Policy Act of 1969 required CBA for regulatory programs; since then, other governments have enacted similar rules. Government guidebooks for the application of CBA to public policies include the Canadian guide for regulatory analysis,[21] the Australian guide for regulation and finance,[22] and the US guides for health-care[23] and emergency-management programs.[24]

Transportation investment

CBA for transport investment began in the UK with the M1 motorway project and was later used for many projects, including the London Underground's Victoria line.[25] The New Approach to Appraisal (NATA) was later introduced by the Department for Transport, Environment and the Regions. This presented balanced cost–benefit results and detailed environmental impact assessments. NATA was first applied to national road schemes in the 1998 Roads Review, and was subsequently rolled out to all transport modes. Maintained and developed by the Department for Transport, it was a cornerstone of UK transport appraisal in 2011.

The European Union's Developing Harmonised European Approaches for Transport Costing and Project Assessment (HEATCO) project, part of the EU's Sixth Framework Programme, reviewed transport appraisal guidance of EU member states and found significant national differences.[26] HEATCO aimed to develop guidelines to harmonise transport appraisal practice across the EU.[27]

Transport Canada promoted CBA for major transport investments with the 1994 publication of its guidebook.[28] US federal and state transport departments commonly apply CBA with a variety of software tools, including HERS, BCA.Net, StatBenCost, Cal-BC, and TREDIS. Guides are available from the Federal Highway Administration,[29][30] Federal Aviation Administration,[31] Minnesota Department of Transportation,[32] California Department of Transportation (Caltrans),[33] and the Transportation Research Board's Transportation Economics Committee.[34]


In the case of the Ford Pinto (where, because of design flaws, the Pinto was liable to burst into flames in a rear-impact collision), the company decided not to issue a recall. Ford's cost–benefit analysis had estimated that based on the number of cars in use and the probable accident rate, deaths due to the design flaw would cost it about $49.5 million in wrongful death lawsuits; a recall would cost $137.5 million. The company failed to consider the costs of negative publicity, which forced a recall and reduced Ford sales.[35]

In health economics, CBA may be an inadequate measure because willingness-to-pay methods of determining the value of human life can be influenced by income level. Variants, such as cost–utility analysis, QALY and DALY to analyze the effects of health policies, may be more suitable.[36] [37]

For some environmental effects, cost–benefit analysis can be replaced by cost-effectiveness analysis. This is especially true when one type of physical outcome is sought, such as a reduction in energy use by an increase in energy efficiency. Using cost-effectiveness analysis is less laborious and time-consuming, since it does not involve the monetization of outcomes (which can be difficult in some cases).[38]

It has been argued that if modern cost–benefit analyses had been applied to decisions such as whether to mandate the removal of lead from gasoline, block the construction of two proposed dams just above and below the Grand Canyon on the Colorado River, and regulate workers' exposure to vinyl chloride, the measures would not have been implemented (although all are considered highly successful).[39] The US Clean Air Act has been cited in retrospective studies as a case in which benefits exceeded costs, but knowledge of the benefits (attributable largely to the benefits of reducing particulate pollution) was not available until many years later.[39]


A generic cost–benefit analysis has the following steps:[40]

  1. Define the goals and objectives of the action.
  2. List alternative actions.
  3. List stakeholders.
  4. Select measurement(s) and measure all cost and benefit elements.
  5. Predict outcome of costs and benefits over the relevant time period.
  6. Convert all costs and benefits into a common currency.
  7. Apply discount rate.
  8. Calculate the net present value of actions under consideration.
  9. Perform sensitivity analysis.
  10. Adopt the recommended course of action.


CBA attempts to measure the positive or negative consequences of a project. A similar approach is used in the environmental analysis of total economic value. Both costs and benefits can be diverse. Costs tend to be most thoroughly represented in cost–benefit analyses due to relatively-abundant market data. The net benefits of a project may incorporate cost savings, public willingness to pay (implying that the public has no legal right to the benefits of the policy), or willingness to accept compensation (implying that the public has a right to the benefits of the policy) for the policy's welfare change. The guiding principle of evaluating benefits is to list all parties affected by an intervention and add the positive or negative value (usually monetary) that they ascribe to its effect on their welfare.

The actual compensation an individual would require to have their welfare unchanged by a policy is inexact at best. Surveys (stated preferences) or market behavior (revealed preferences) are often used to estimate compensation associated with a policy. Stated preferences are a direct way of assessing willingness to pay for an environmental feature, for example.[41] Survey respondents often misreport their true preferences, however, and market behavior does not provide information about important non-market welfare impacts. Revealed preference is an indirect approach to individual willingness to pay. People make market choices of items with different environmental characteristics, for example, revealing the value placed on environmental factors. [42]

The value of human life is controversial when assessing road-safety measures or life-saving medicines. Controversy can sometimes be avoided by using the related technique of cost-utility analysis, in which benefits are expressed in non-monetary units such as quality-adjusted life years. Road safety can be measured in cost per life saved, without assigning a financial value to the life. However, non-monetary metrics have limited usefulness for evaluating policies with substantially different outcomes. Other benefits may also accrue from a policy, and metrics such as cost per life saved may lead to a substantially-different ranking of alternatives than CBA.

Another metric is valuing the environment, which in the 21st century is typically assessed by valuing ecosystem services to humans (such as air and water quality and pollution).[43] Monetary values may also be assigned to other intangible effects such as business reputation, market penetration, or long-term enterprise strategy alignment.

Time and discounting

CBA generally attempts to put all relevant costs and benefits on a common temporal footing, using time value of money calculations. This is often done by converting the future expected streams of costs and benefits into a present value amount with a discount rate.

The selection of a discount rate for this calculation is subjective. A smaller rate values the current generation and future generations equally. Larger rates (a market rate of return, for example) reflects human present bias or hyperbolic discounting: valuing money which they will receive in the near future more than money they will receive in the distant future. Empirical studies suggest that people discount future benefits in a way similar to these calculations.[44] The choice makes a large difference in assessing interventions with long-term effects. An example is the equity premium puzzle, which suggests that long-term returns on equities may be higher than they should be after controlling for risk and uncertainty. If so, market rates of return should not be used to determine the discount rate because they would undervalue the distant future.[45]

Risk and uncertainty

Risk associated with project outcomes is usually handled with probability theory. Although it can be factored into the discount rate (to have uncertainty increasing over time), it is usually considered separately. Particular consideration is often given to agent risk aversion: preferring a situation with less uncertainty to one with greater uncertainty, even if the latter has a higher expected return.

Uncertainty in CBA parameters can be evaluated with a sensitivity analysis, which indicates how results respond to parameter changes. A more formal risk analysis may also be undertaken with the Monte Carlo method.[46] However, even a low parameter of uncertainty does not guarantee the success of a project.

CBA under US administrations

The increased use of CBA in the US regulatory process is often associated with President Ronald Reagan's administration. Although CBA in US policy-making dates back several decades, Reagan's Executive Order 12291 mandated its use in the regulatory process. After campaigning on a deregulation platform, he issued the 1981 EO authorizing the Office of Information and Regulatory Affairs (OIRA) to review agency regulations and requiring federal agencies to produce regulatory impact analyses when the estimated annual impact exceeded $100 million. During the 1980s, academic and institutional critiques of CBA emerged. The three main criticisms were:[47]

  1. That CBA could be used for political goals. Debates on the merits of cost and benefit comparisons can be used to sidestep political or philosophical goals, rules and regulations.
  2. That CBA is inherently anti-regulatory, and therefore a biased tool. The monetization of policy impacts is an inappropriate tool for assessing mortality risks and distributional impacts.
  3. That the length of time necessary to complete CBA can create significant delays, which can impede policy regulation.

These criticisms continued under the Clinton administration during the 1990s. Clinton furthered the anti-regulatory environment with his Executive Order 12866.[48] The order changed some of Reagan's language, requiring benefits to justify (rather than exceeding) costs and adding "reduction of discrimination or bias" as a benefit to be analyzed. Criticisms of CBA (including uncertainty valuations, discounting future values, and the calculation of risk) were used to argue that it should play no part in the regulatory process.[49] The use of CBA in the regulatory process continued under the Obama administration, along with the debate about its practical and objective value. Some analysts oppose the use of CBA in policy-making, and those in favor of it support improvements in analysis and calculations.

See also


  1. ^ David, Rodreck; Ngulube, Patrick; Dube, Adock (16 July 2013). "A cost–benefit analysis of document management strategies used at a financial institution in Zimbabwe: A case study". SA Journal of Information Management. 15 (2). doi:10.4102/sajim.v15i2.540.
  2. ^ [1] Archived October 16, 2008, at the Wayback Machine
  3. ^ Cellini, Stephanie Riegg; Kee, James Edwin. "Cost-Effectiveness and Cost–Benefit Analysis" (PDF).
  4. ^
  5. ^ Weimer, D.; Vining, A. (2005). Policy Analysis: Concepts and Practice (Fourth ed.). Upper Saddle River, NJ: Pearson Prentice Hall. ISBN 978-0-13-183001-1.
  6. ^ Pamela, Misuraca (2014). "The Effectiveness of a Costs and Benefits Analysis in Making Federal Government Decisions: A Literature Review" (PDF). The MITRE Corporation.
  7. ^ Huesemann, Michael H., and Joyce A. Huesemann (2011). Technofix: Why Technology Won’t Save Us or the Environment, Chapter 8, “The Positive Biases of Technology Assessments and Cost Benefit Analyses”, New Society Publishers, Gabriola Island, British Columbia, Canada, ISBN 0865717044, 464 pp.
  8. ^ Wiener, Jonathan B. (2013). "The Diffusion of Regulatory Oversight". In Livermore, Michael A.; Revesz, Richard L. (eds.). The Globalization of Cost–Benefit Analysis in Environmental Policy. New York: Oxford University Press. ISBN 978-0-199-93438-6.
  9. ^ Sandmo, Agnar (2011). Economics evolving : a history of economic thought. Princeton University Press. ISBN 9780691148427. OCLC 799499179.
  10. ^ "History of Benefit-Cost Analysis" (PDF). Proceedings of the 2006 Cost Benefit Conference. Archived from the original (PDF) on 2006-06-16.
  11. ^ Guess, George M.; Farnham, Paul G. (2000). Cases in Public Policy Analysis. Washington, DC: Georgetown University Press. pp. 304–308. ISBN 978-0-87840-768-2.
  12. ^ Eckstein, Otto (1958). Water Resource Development: The Economics of Project Evaluation. Cambridge: Harvard University Press.
  13. ^ Kneese, A. V. (1964). The Economics of Regional Water Quality Management. Baltimore: Johns Hopkins Press.
  14. ^ Clawson, M.; Knetsch, J. L. (1966). Economics of Outdoor Recreation. Baltimore: Johns Hopkins Press.
  15. ^ Krutilla, J. V. (1967). "Conservation Reconsidered". American Economic Review. 57 (4): 777–786. JSTOR 1815368.
  16. ^ Weisbrod, Burton A. (1964). "Collective-Consumption Services of Individual-Consumption Goods". Quarterly Journal of Economics. 78 (3): 471–477. doi:10.2307/1879478. JSTOR 1879478.
  17. ^ Weisbrod, Burton A. (1981). "Benefit-Cost Analysis of a Controlled Experiment: Treating the Mentally Ill". Journal of Human Resources. 16 (4): 523–548. doi:10.2307/145235. JSTOR 145235.
  18. ^ Plotnick, Robert D. (1994). "Applying Benefit-Cost Analysis to Substance Abuse Prevention Programs". International Journal of the Addictions. 29 (3): 339–359. doi:10.3109/10826089409047385.
  19. ^ Weisbrod, Burton A.; Hansen, W. Lee (1969). Benefits, Costs, and Finance of Public Higher Education. Markham.
  20. ^ Moll, K. S.; et al. (1975). Hazardous wastes: A Risk-Benefit Framework Applied to Cadmium and Asbestos. Menlo Park, CA: Stanford Research Institute.
  21. ^ Canadian Cost–Benefit Guide: Regulatory Proposals, Treasury Canada, 2007. [2]
  22. ^ Australian Government, 2006. Introduction to Cost–Benefit Analysis and Alternative Evaluation Methodologies and Handbook of Cost–Benefit Analysis, Finance Circular 2006/01.
  23. ^ US Department of Health and Human Services, 1993. Feasibility, Alternatives, And Cost/Benefit Analysis Guide, Administration for Children and Families, and Health Care Finance Administration.
  24. ^ Federal Emergency Management Administration, 1022. Guide to Benefit Cost Analysis.
  25. ^ Hugh Coombs; Ellis Jenkins; David Hobbs (18 April 2005). Management Accounting: Principles and Applications. SAGE Publications. pp. 278–. ISBN 978-1-84787-711-6.
  26. ^ "HEATCO project site". Retrieved 2013-04-21.
  27. ^ [3] Guide to Cost–Benefit Analysis of Major Projects. Evaluation Unit, DG Regional Policy, European Commission, 2008.
  28. ^ Guide to Benefit-Cost Analysis in Transport Canada. Transport Canada. Economic Evaluation Branch, Transport Canada, Ottawa, 1994 [4]
  29. ^ US Federal Highway Administration: Economic Analysis Primer: Benefit-Cost Analysis 2003 [5]
  30. ^ US Federal Highway Administration: Cost–Benefit Forecasting Toolbox for Highways, Circa 2001 [6]
  31. ^ US Federal Aviation Administration: Airport Benefit-Cost Analysis Guidance, 1999 [7] [8]
  32. ^ Minnesota Department of Transportation: Benefit Cost Analysis. MN DOT Office of Investment Management [9]
  33. ^ California Department of Transportation: Benefit-Cost Analysis Guide for Transportation Planning [10]
  34. ^ Transportation Research Board, Transportation Economics Committee: Transportation Benefit-Cost Analysis [11]
  35. ^ "Ford Fuel Fires". Archived from the original on July 15, 2011. Retrieved 29 December 2011.
  36. ^ Phelps, Charles (2009). Health Economics (4th ed.). New York: Pearson/Addison-Wesley. ISBN 978-0-321-59457-0.
  37. ^ Buekers, J (2015). "Health impact model for modal shift from car use to cycling or walking in Flanders: application to two bicycle highways". Journal of Transport and Health. 2 (4): 549–562. doi:10.1016/j.jth.2015.08.003.
  38. ^ Tuominen, Pekka; Reda, Francesco; Dawoud, Waled; Elboshy, Bahaa; Elshafei, Ghada; Negm, Abdelazim (2015). "Economic Appraisal of Energy Efficiency in Buildings Using Cost-effectiveness Assessment". Procedia Economics and Finance. 21: 422–430. doi:10.1016/S2212-5671(15)00195-1.
  39. ^ a b Ackerman; et al. (2005). "Applying Cost–Benefit to Past Decisions: Was Environmental Protection Ever a Good Idea?". Administrative Law Review. 57: 155.
  40. ^ Boardman, N. E. (2006). Cost–benefit Analysis: Concepts and Practice (3rd ed.). Upper Saddle River, NJ: Prentice Hall. ISBN 978-0-13-143583-4.
  41. ^ Field, Barry C; Field, Martha K (2016). ENVIRONMENTAL ECONOMICS: AN INTRODUCTION, SEVENTH EDITION. America: McGraw-Hill. p. 144. ISBN 978-0-07-802189-3.
  42. ^ Field, Barry C; Field, Martha K (2016). ENVIRONMENTAL ECONOMICS: AN INTRODUCTION, SEVENTH EDITION. America: McGraw-Hill. p. 138. ISBN 978-0-07-802189-3.
  43. ^ Campbell, Harry F.; Brown, Richard (2003). "Valuing Traded and Non-Traded Commodities in Benefit-Cost Analysis". Benefit-Cost Analysis: Financial and Economic Appraisal using Spreadsheets. Cambridge: Cambridge University Press. ISBN 978-0-521-52898-6. Ch. 8 provides a useful discussion of non-market valuation methods for CBA.
  44. ^ Dunn, William N. (2009). Public Policy Analysis: An Introduction. New York: Longman. ISBN 978-0-13-615554-6.
  45. ^ Newell, R. G. (2003). "Discounting the Distant Future: How Much Do Uncertain Rates Increase Valuations?". Journal of Environmental Economics and Management. 46 (1): 52–71. doi:10.1016/S0095-0696(02)00031-1.
  46. ^ Campbell, Harry F.; Brown, Richard (2003). "Incorporating Risk in Benefit-Cost Analysis". Benefit-Cost Analysis: Financial and Economic Appraisal using Spreadsheets. Cambridge: Cambridge University Press. ISBN 978-0-521-52898-6. Ch. 9 provides a useful discussion of sensitivity analysis and risk modelling in cost benefits analysis. CBA.
  47. ^
  48. ^ "Executive Order 12866: Regulatory Planning and Review".
  49. ^ Heinzerling, L. (2000), "The Rights of Statistical People", Harvard Environmental Law Review 24, 189–208.

Further reading

  • Campbell, Harry; Brown, Richard (2003). Benefit-Cost Analysis: Financial and Economic Appraisal Using Spreadsheets. Cambridge University Press. ISBN 978-0-521-82146-9.
  • Chakravarty, Sukhamoy (1987). "Cost–benefit analysis". The New Palgrave: A Dictionary of Economics. 1. London: Macmillan. pp. 687–690. ISBN 978-0-333-37235-7.
  • David, R., Ngulube, P. & Dube, A., 2013, "A cost–benefit analysis of document management strategies used at a financial institution in Zimbabwe: A case study", SA Journal of Information Management 15(2), Art. #540, 10 pages.
  • Dupuit, Jules (1969). "On the Measurement of the Utility of Public Works". In Arrow, Kenneth J.; Scitovsky, Tibor (eds.). Readings in Welfare Economics. London: Allen and Unwin. ISBN 978-0-04-338038-3.
  • Eckstein, Otto (1958). Water-resource Development: The Economics of Project Evaluation. Cambridge: Harvard University Press.
  • Folland, Sherman; Goodman, Allen C.; Stano, Miron (2007). The Economics of Health and Health Care (Fifth ed.). New Jersey: Pearson Prentice Hall. pp. 83–84. ISBN 978-0-13-227942-0.
  • Ferrara, A. (2010). Cost–Benefit Analysis of Multi-Level Government: The Case of EU Cohesion Policy and US Federal Investment Policies. London and New York: Routledge. ISBN 978-0-415-56821-0.
  • Frank, Robert H. (2000). "Why is Cost–Benefit Analysis so Controversial?". Journal of Legal Studies. 29 (S2): 913–930. doi:10.1086/468099.
  • Hirshleifer, Jack (1960). Water Supply: Economics, Technology, and Policy. Chicago: University of Chicago Press.
  • Huesemann, Michael H., and Joyce A. Huesemann (2011). Technofix: Why Technology Won’t Save Us or the Environment, Chapter 8, “The Positive Biases of Technology Assessments and Cost Benefit Analyses”, New Society Publishers, Gabriola Island, British Columbia, Canada, ISBN 0865717044, 464 pp.
  • Maass, Arthur, ed. (1962). Design of Water-resource Systems: New Techniques for Relating Economic Objectives, Engineering Analysis, and Governmental Planning. Cambridge: Harvard University Press.
  • McKean, Roland N. (1958). Efficiency in Government through Systems Analysis: With Emphasis on Water Resources Development. New York: Wiley.
  • Nas, Tevfik F. (1996). Cost–Benefit Analysis: Theory and Application. Thousand Oaks, CA: Sage. ISBN 978-0-8039-7133-2.
  • Richardson, Henry S. (2000). "The Stupidity of the Cost–Benefit Analysis". Journal of Legal Studies. 29 (S2): 971–1003. doi:10.1086/468102.
  • Quigley, John; Walls, Lesley (2003). "Cost–Benefit Modelling for Reliability Growth". Journal of the Operational Research Society. 54 (12): 1234–1241. doi:10.1057/palgrave.jors.2601633.
  • Sen, Amartya (2000). "The Discipline of Cost–Benefit Analysis". Journal of Legal Studies. 29 (S2): 931–952. doi:10.1086/468100.

External links

Benefit–cost ratio

A benefit-cost ratio (BCR) is an indicator, used in cost-benefit analysis, that attempts to summarize the overall value for money of a project or proposal. A BCR is the ratio of the benefits of a project or proposal, expressed in monetary terms, relative to its costs, also expressed in monetary terms. All benefits and costs should be expressed in discounted present values. A BCR can be a profitability index in for-profit contexts. A BCR takes into account the amount of monetary gain realized by performing a project versus the amount it costs to execute the project. The higher the BCR the better the investment. General rule of thumb is that if the benefit is higher than the cost the project is a good investment.

The practice of cost benefit analysis in some countries refers to the BCR as the cost-benefit ratio, but this is still calculated as the ratio of benefits to costs.

Bicycle poverty reduction

Bicycle poverty reduction is the concept that access to bicycles and the transportation infrastructure to support them can dramatically reduce poverty. This has been demonstrated in various pilot projects in South Asia and Africa. Experiments done in Africa (Uganda and Tanzania) and Sri Lanka on hundreds of households have shown that a bicycle can increase the income of a poor family by as much as 35%. Transport, if analyzed for the cost–benefit analysis for rural poverty alleviation, has given one of the best returns in this regard. For example, road investments in India were a staggering 3–10 times more effective than almost all other investments and subsidies in rural economy in the decade of the 1990s. What a road does at a macro level to increase transport, the bicycle supports at the micro level. The bicycle, in that sense, can be one of the best means to eradicate poverty in poor nations.

Chief financial officer

The chief financial officer (CFO) is the officer of a company that has primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financial reporting. In some sectors, the CFO is also responsible for analysis of data. Some CFOs have the title CFOO for chief financial and operating officer. In the United Kingdom, the typical term for a CFO is finance director (FD). The CFO typically reports to the chief executive officer (CEO) and the board of directors and may additionally have a seat on the board.

The CFO supervises the finance unit and is the chief financial spokesperson for the organization. The CFO directly assists the chief operating officer (COO) on all strategic and tactical matters relating to budget management, cost–benefit analysis, forecasting needs, and securing of new funding.

Committee on Capital Markets Regulation

The Committee on Capital Markets Regulation is an independent and nonpartisan 501(c)(3) research organization financed by contributions from individuals, foundations, and corporations.

Copenhagen Consensus

Copenhagen Consensus is a project that seeks to establish priorities for advancing global welfare using methodologies based on the theory of welfare economics, using cost–benefit analysis. It was conceived and organized by Bjørn Lomborg, the author of The Skeptical Environmentalist and the then director of the Danish government's Environmental Assessment Institute.

The project is run by the Copenhagen Consensus Center, which is directed by Lomborg and was part of the Copenhagen Business School, but it is now an independent 501(c)(3) non-profit organisation registered in the USA. The project considers possible solutions to a wide range of problems, presented by experts in each field. These are evaluated and ranked by a panel of economists. The emphasis is on rational prioritization by economic analysis. The panel is given an arbitrary budget constraint and instructed to use cost–benefit analysis to focus on a bottom line approach in solving/ranking presented problems. The approach is justified as a corrective to standard practice in international development, where, it is alleged, media attention and the "court of public opinion" results in priorities that are often far from optimal.

Cost-effectiveness analysis

Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative costs and outcomes (effects) of different courses of action. Cost-effectiveness analysis is distinct from cost–benefit analysis, which assigns a monetary value to the measure of effect. Cost-effectiveness analysis is often used in the field of health services, where it may be inappropriate to monetize health effect. Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a measure (years of life, premature births averted, sight-years gained) and the numerator is the cost associated with the health gain. The most commonly used outcome measure is quality-adjusted life years (QALY).Cost–utility analysis is similar to cost-effectiveness analysis. Cost-effectiveness analyses are often visualized on a plane consisting of four-quadrants, the cost represented on one axis and the effectiveness on the other axis. Cost-effectiveness analysis focuses on maximising the average level of an outcome, distributional cost-effectiveness analysis extends the core methods of CEA to incorporate concerns for the distribution of outcomes as well as their average level and make trade-offs between equity and efficiency, these more sophisticated methods are of particular interest when analysing interventions to tackle health inequality.

Economics of global warming

The economics of global warming concerns the economic aspects of global warming; this can inform policies that governments might consider in response. A number of factors make this a difficult problem from both economic and political perspectives: it is a long-term, intergenerational problem; benefits and costs are distributed unequally both within and across countries; and scientific and public opinions may diverge.

One of the most important greenhouse gases is carbon dioxide (CO2). Around 20% of carbon dioxide which is emitted due to human activities can remain in the atmosphere for many thousands of years. The long time scales and uncertainty associated with global warming have led analysts to develop "scenarios" of future environmental, social and economic changes. These scenarios can help governments understand the potential consequences of their decisions.

The impacts of climate change include the loss of biodiversity, sea level rise, increased frequency and severity of some extreme weather events, and acidification of the oceans. Economists have attempted to quantify these impacts in monetary terms, but these assessments can be controversial.The two main policy responses to global warming are to reduce greenhouse gas emissions (climate change mitigation) and to adapt to the impacts of global warming (e.g., by building levees in response to sea level rise). Another policy response which has recently received greater attention is geoengineering of the climate system (e.g. injecting aerosols into the atmosphere to reflect sunlight away from the Earth's surface).One of the responses to the uncertainties of global warming is to adopt a strategy of sequential decision making. This strategy recognizes that decisions on global warming need to be made with incomplete information, and that decisions in the near term will have potentially long-term impacts. Governments might choose to use risk management as part of their policy response to global warming. For instance, a risk-based approach can be applied to climate impacts which are difficult to quantify in economic terms, e.g., the impacts of global warming on indigenous peoples.

Analysts have assessed global warming in relation to sustainable development. Sustainable development considers how future generations might be affected by the actions of the current generation. In some areas, policies designed to address global warming may contribute positively towards other development objectives. In other areas, the cost of global warming policies may divert resources away from other socially and environmentally beneficial investments (the opportunity costs of climate change policy).

European Network of Transmission System Operators for Electricity

ENTSO-E, the European Network of Transmission System Operators, represents 43 electricity transmission system operators (TSOs) from 36 countries across Europe, thus extending beyond EU borders. ENTSO-E was established and given legal mandates by the EU’s Third Package for the Internal energy market in 2009, which aims at further liberalising the gas and electricity markets in the EU.

Fairview DART depot

Fairview DART depot is a railway depot used for servicing electrical multiple units on the Dublin Area Rapid Transit system. There is a three road shed, train wash and sidings. It is located just south of Clontarf Road DART station on the Dublin-Belfast railway line. However, maintenance on DART units is also carried out at Inchicore Works. There is no wheel lathe at the depot and as a result, out of service Commuter 29000 Class DMUs tow DART trains to the Drogheda Commuter depot in order to receive new wheels.

This Depot is also used for the change of drivers on the DART line – much to the dissatisfaction of northside commuters, as the depot is 50 metres from the platform at Clontarf Road Station, making it the most logical point at which to change drivers. Recent cost–benefit analysis has determined that this inefficiency costs the Irish economy c. €750,000 per annum in lost time.

Fleet serviced at the depot8100 Class

8500, 8510 and 8520 Classes

Health management system

The health management system (HMS) is an evolutionary medicine regulative process proposed by Nicholas Humphrey in which actuarial assessment of fitness and economic-type cost–benefit analysis determines the body’s regulation of its physiology and health. This incorporation of cost–benefit calculations into body regulation provides a science grounded approach to mind–body phenomena such as placebos that are otherwise not explainable by low level, noneconomic, and purely feedback based homeostatic or allostatic theories.

Many medical symptoms such as inflammation, fever, pain, sickness behavior, or morning sickness have an evolutionary medicine function of enabling the body to protect, heal or restore itself from injury, infection or other physiological disruption.

The deployment of self-treatments have costs as well as benefits with the result that evolution has selected management processes in the brain such that self-treatments are used only when they provide an overall cost–benefit advantage. The brain controls such physiological process through top–down regulation.

External treatment and the availability of support is factored into the health management system’s cost–benefit assessment as to whether to deploy or not an evolved self-treatment.Placebos are explained as the result of false information about the availability of external treatment and support that mislead the health management system into not deploying evolved self-treatments. This results in the placebo suppression of medical symptoms.

Least-cost planning methodology

Least-cost planning methodology (LCPM), also referred to as "least-cost planning" (LCP) is a relatively new technique used by economists for making rational decisions about investments in transport and other urban infrastructure projects.

It is based on cost–benefit analysis. However, it is more comprehensive in that it looks at not only the total costs and total benefits for an individual project, but it also examines the total costs and benefits for all alternatives or combinations thereof and treats them on an "equal footing." These alternatives include not only construction projects but also demand reduction measures, such as road pricing, developing more walkable neighbourhoods and promoting telecommuting.

Equal footing means that there is no discrimination against some alternatives based on political or ideological factors.

LCPM itself is generally more costly than cost–benefit analysis, because of the requirement to study objectively all potential alternatives. However, it can provide large savings to taxpayers because it will do a better job of selecting those projects which maximise benefits while minimising costs.

There has been a trend in the US towards making LCPM mandatory for regional transport plans. For example, it has been required by Washington State law (RCW 47.80.030) for regional transport plans since July 1, 1994.

Master of Public Policy

The Master of Public Policy (MPP), one of several public policy degrees, is a master's level professional degree that provides training in policy analysis and program evaluation at public policy schools. The MPP program places a focus on the systematic analysis of issues related to public policy and the decision processes associated with them. This includes training in the role of economic and political factors in public decision-making and policy formulation; microeconomic analysis of policy options and issues; resource allocation and decision modeling; cost/benefit analysis; statistical methods; and various applications to specific public policy topics. MPP recipients serve or have served in the public sector, at the international, national, subnational, and local levels.

Online transaction processing

In Online transaction processing (OLTP), information systems typically facilitate and manage transaction-oriented applications.

The term "transaction" can have two different meanings, both of which might apply: in the realm of computers or database transactions it denotes an atomic change of state, whereas in the realm of business or finance, the term typically denotes an exchange of economic entities (as used by, e.g., Transaction Processing Performance Council or commercial transactions.) OLTP may use transactions of the first type to record transactions of the second.

OLTP has also been used to refer to processing in which the system responds immediately to user requests. An automated teller machine (ATM) for a bank is an example of a commercial transaction processing application. Online transaction processing applications have high throughput and are insert- or update-intensive in database management. These applications are used concurrently by hundreds of users. The key goals of OLTP applications are availability, speed, concurrency and recoverability. Reduced paper trails and the faster, more accurate forecast for revenues and expenses are both examples of how OLTP makes things simpler for businesses. However, like many modern online information technology solutions, some systems require offline maintenance, which further affects the cost-benefit analysis of an online transaction processing system.

OLTP is typically contrasted to OLAP (online analytical processing), which is generally characterized by much more complex queries, in a smaller volume, for the purpose of business intelligence or reporting rather than to process transactions. Whereas OLTP systems process all kinds of queries (read, insert, update and delete), OLAP is generally optimized for read only and might not even support other kinds of queries. OLTP also operates differently from batch processing and grid computing.OLTP is contrasted to OLEP (online event processing), which is based on distributed event logs to offer strong consistency in large-scale heterogeneous systems. Whereas OLTP is associated with short atomic transactions, OLEP allows for more flexible distribution patterns and higher scalability, but with increased latency and without guaranteed upper bound to the processing time.

Option value (cost–benefit analysis)

In cost–benefit analysis and social welfare economics, the term option value refers to the value that is placed on private willingness to pay for maintaining or preserving a public asset or service even if there is little or no likelihood of the individual actually ever using it. The concept is most commonly used in public policy assessment to justify continuing investment in parks, wildlife refuges and land conservation, as well as rail transportation facilities and services. It is also recognized as an element of the total economic value of environmental resources.

This concept of "option value" in cost–benefit analysis is different from the concept used in finance, where the term refers to the valuation of a financial instrument that provides for a future purchase of an asset. (See Option time value.) However, the two can be related insofar as both can be interpreted as a valuation of risk factors.

Project appraisal

Project appraisal is the process of assessing, in a structured way, the case for proceeding with a project or proposal, or the project's viability. It often involves comparing various options, using economic appraisal or some other decision analysis technique.

The entire project should be objectively appraised for the same feasibility study should be taken in its principal dimensions, technical, economic, financial, social and so far to establish the justification of the project or The project appraisal is the process of judging whether the project is profitable or not to client.or it is process of detailed examination of several aspects of a given project before recommending of some projects.

Public economics

Public economics (or economics of the public sector) is the study of government policy through the lens of economic efficiency and equity. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare.

Public economics provides a framework for thinking about whether or not the government should participate in economic markets and to what extent it should do so. Microeconomic theory is utilized to assess whether the private market is likely to provide efficient outcomes in the absence of governmental interference; this study involves the analysis of government taxation and expenditures.

This subject encompasses a host of topics including market failures, externalities, and the creation and implementation of government policy.Broad methods and topics include:

the theory and application of public finance

analysis and design of public policy

distributional effects of taxation and government expenditures

analysis of market failure and government failure.Emphasis is on analytical and scientific methods and normative-ethical analysis, as distinguished from ideology. Examples of topics covered are tax incidence, optimal taxation, and the theory of public goods.

Regulation (magazine)

Regulation is a quarterly periodical about policy published by the Cato Institute. It was started as a bimonthly magazine in 1977 by the American Enterprise Institute and acquired by Cato in 1989. Past editors have included former Supreme Court justice Antonin Scalia, Murray Weidenbaum, Christopher DeMuth, Walter Olson, and Peter Huber. Peter Van Doren has edited the magazine since 1999.

In the late 1970s and early 1980s, the magazine was pivotal in promoting deregulation and the importance of cost–benefit analysis.

Social discount rate

Social discount rate (SDR) is the discount rate used in computing the value of funds spent on social projects. Determining this rate is not always easy and can be the subject of discrepancies in the true net benefit to certain projects, plans and policies. The discount rate is considered as a critical element in cost-benefit analysis when the costs and the benefits differ in their distribution over time, this usually occurs when the project that is being studied is over a long period of time.

Triple bottom line cost–benefit analysis

Triple bottom line cost–benefit analysis (TBL-CBA) is an evidence-based economic method that combines cost–benefit analysis (CBA) and life-cycle cost analysis (LCCA) across the triple bottom line (TBL) to weigh costs and benefits to project stakeholders. The TBL-CBA process quantifies total net present value, return on investment, and project payback. TBL-CBA uses location-specific data to give asset owners and design professionals the flexibility and capability to provide a rigorous analysis of investment alternatives through all stages of planning and design.

Because it calculates both financial results and monetary values for social and environmental design impacts (valuing what have traditionally been considered intangible benefits such as reduced air pollution or enhanced property values), it provides a common basis for evaluating the entire impact of a project across all three bottom lines (social, environmental or ecological, and financial).

Major topics
Concepts of quality
Health care evaluations
Costs and benefits

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