Introduction to Cost Benefit Analysis

Course Presenter: :
Joanne Leung, Ministry of Transport
Kirsten Jensen, NZ Treasury

Date/Time: 16, 20, 23 and 31 March 2020, 9am – 1pm

Location: The Treasury, Level 3, 1 Terrace, Wellington.

There will be a 15-minute morning afternoon break in each session. Coffee and tea will be provided.

Description

Many public policy decisions involve balancing costs and benefits. Cost-benefit analysis provides a structured framework for comparing costs to benefits and analysing which are greater overall. The objective of this course is to provide participants with an appreciation of that framework, gain a broad understanding of the economic theory that underlies cost-benefit analysis, as well as the specific quantitative steps necessary to execute a cost-benefit analysis.

Course Learning Objectives

On completion of this course, participants should be able to:
• identify when a policy question or issue would benefit from cost-benefit analysis;
• where appropriate, to translate a generic statement of a policy question or issue into an properly framed cost-benefit analysis;
• appreciate how costs and benefits that occur over time should be handled, including discussion of the choice and application of a discount rate;
• aware of the methods for quantifying costs and benefits that are not immediately measurable in economic terms and their roles in cost-benefit analysis;
• recognise and appropriately incorporate costs and benefits that are not possible to quantify;
• present the results of cost-benefit analysis to decision-makers in an effective manner (including how to complete NZ Treasury’s template).

Session outline and delivery

Day Topic outline
Day 1 Introduction and learning objectives
Structure of a cost-benefit analysis (CBA)
The roles of CBA in policy development process
Framing a cost-benefit analysis
Day 2 Components of a cost-benefit analysis
Intervention logic mapping
Identifying cost and benefit items
Carrying out a qualitative cost-benefit analysis
Day 3 Overview of valuation of costs and benefits
Sourcing cost and benefit values
Key steps to carry out a quantitative cost-benefit analysis
Day 4 Handling costs and benefits over time
Treatment of uncertainty
Presentation of analysis, results and recommendation

The course will have a mixture of presentations, discussions and group exercise. About half of the time will be set aside for discussions and group exercise. We will use a range of real-life examples to illustrate the concepts, approach and process. Although it is not possible to cover all sectors or policy fields, the principles and framework to be discussed will apply to a wide range of applications. Active participant engagement and interaction in classes is expected. During the course, tutors will also go through Treasury’s CBAx tool.

Target audience and assumed background

This course will be most helpful to policy advisors who need to understand the basic mechanics of a cost-benefit analysis, to conduct or be able to critically review cost-benefit analyses done by others.
No previous knowledge of economics is assumed. Some familiarity with economic thinking and terminologies would be helpful. The course will sometimes mention a modest amount of mathematical formula or analysis. However, the emphasis will be around awareness of the methodology and its underlying institution rather than the actual mathematical calculation. You will not be asked to carry out any mathematical exercise as part of the assessment for this course. This course does require a willingness and ability to take part in class and group exercise.

Course Costs

This course is provided by the Government Economics Network (GEN) at a cost of $300 plus GST per person.

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