ECON7740 COST BENEFIT ANALYSIS AND
PROJECT EVALUATION
Guidelines to Writing a CBA Report
References: Chapter 13, Social CBA and Economic Evaluation
Presenter: Dr Ammarr Aripin, School of Economics.
Employability Survey
2
We value your feedback and ask for 2
minutes of your time to comment on the
employability activities, within ECON7740
Cost Benefit Analysis & Project Evaluation.
1. Understand what makes a report an effective communication tool.
2. Create a CBA report including all relevant components.
3. Develop a critical reflection.
Learning Objectives
3
• CBA is a decision support tool not decision making tool.
- Results & findings are intended to inform the decision making process.
- Style of report must be user friendly and meaningful to the decision makers.
- Provide information directly relevant to the decision to be made.
• Report must provide:
- Information about the project
- Analysis directly relevant to the decision that has been made
- Context in which it is to be used.
• Writing a CBA report is an art. You will improve with practice.
Why is the Report Important in CBA?
4
• Where CBA fits in the decision making process?
- Make recommendations not decisions.
- CBA only one input into the decision making process.
- Difficult when resources are scarce.
- Push towards a more efficient resource allocation.
- Consider not just Net Social Benefits but also distributional effects in Disaggregated
Group Analysis.
Why is the Report Important in CBA?
5
• What is the report’s objective?
- Provide policy recommendations based on the CBA, focusing mainly on the
Disaggregated CBA results
• Who is the audience?
- Bureaucrats (policy makers) so make it short & precise
- Do not exceed page limit and present summary tables only in text
• Who do decision-makers represent?
- Assume that they represent their people, who are directly and indirectly affected by the
projects
Consider….
6
7
1. Specify the options or set of alternatives under
consideration.
2. Decide whose benefits and costs count.
3. Identify the impacts and select measurement
indicators.
4. Predict the impacts over the life of the proposed
project, program, or policy.
5. Monetise all impacts (attach $ values).
6. Discount future costs and benefits to obtain present
values.
7. Compute the net present value (NPV) of each
project.
8. Perform a sensitivity analysis.
9. Reach a conclusion.
The Key Steps in a CBA
8
9About APA 7th - APA 7th referencing style -
Library Guides at University of Queensland
Library (uq.edu.au)
1. Executive summary
2. Introduction/ Background
3. Methodology – Decision criteria, key variables, assumptions
4. Discussion of results – Base case, alternative scenarios if any
5. Sensitivity / Threshold analysis – identifying, discussion, ranking of alternatives
6. Conclusions & recommendations
Suggested Components for Sections
10
• One page only, benefit of decision maker
• Non-technical summary
• Not written till all analysis is complete
• Highlight
- Description of project, purpose, stakeholders, decision to be made
- Options (in any) & analysis undertaken, summarise main findings, make recommendations
1. Executive Summary
11
• Main body of the report is written independently of the Executive Summary.
• Provide a brief summary of the report, the players, the options to be analysed and compared.
• Do not contain too much detail about the project and the information used to undertake the
analysis.
• Provide the reader with a general description of what the project is about and what decision
the analysis intends to inform.
• Provide context!
2. Introduction/ Background
12
You need to cover:
– Social CBA approach
– Describe key variables and assumptions
Don’t describe variables and assumptions that are irrelevant to the project!
3. Approach and Methodology
13
• Questions to be answered
- Should either project be accepted? Which one?
- If applicable, is private firm or public entity likely to be interested in the preferred project?
- Will preferred project receive support from Disaggregated CBA stakeholders?
- Potential opponents of the preferred project? (Losers)
- Possible to deal with that? (Redistribution)
• Ensure you discuss the Base Case scenario in the results.
4. Discussion of Results
14
• Usually comes under the discussion heading.
• Deals with uncertainty about predicted impacts (refer to the relevant lecture topic)
• CBA is based on numbers: quantities and price:
- Reliability of estimated values?
- Risk of change over time (price of inputs and outputs)
• Gauge how outcome variables are affected by changes in one or more variables
- Influential variables: small change leads to large
change in NPV
- Will the project still be viable if those changes happen?
- Recommendations on how to mitigate negative effects
5. Sensitivity Analysis
15
• Controllable / policy variables
• Non-controllable / exogenous variables
• Varying 2 or more variables simultaneously constitutes a ‘scenario’; eg. ‘most optimistic’,
‘most pessimistic’ and ‘best guess’ or ‘base case’ scenarios
- Explicit decision about possible relationships between variables; correlated or not?
- Present results in matrix or grid
- avoid information overload
• Consider whether a Threshold Analysis should
be conduced.
5. Sensitivity Analysis
16
• Summary of findings (base case)
• • Recommended scenarios:
- Why?
- Rank (if more than one project is considered)
• • Influential variables and assumptions (sensitivity?)
- How is the NPV affected?
- Recommendations on how to reduce risk (if possible)?
6. Conclusion & recommendations
17
• Should the project be approved, rejected or improved (if possible)? Which option?
• Are there any areas that would require further, more rigorous analysis before
recommendation?
• Criteria for recommendation
- Overall improvement (at least potential Pareto improvement for the Social CBA?)
- Distribution effects
• Gains/losses for the stakeholders with standing acceptable?
Recommendations!
18
• Significant qualitative or non - monetary impacts identified but not quantified
• The final recommendation in a way that its implications and qualifications are easily
understood by decision makers – present supporting evidence; justify decision.
• Biases, limitations and deficiencies of the analysis, including areas for further investigation.
You Should Also Consider
19
Part 1 – Excel CBA Spreadsheet Task worth 15%
MUST be submitted as an Excel file (.xls or .xlsx) / Save file name: ECON7740 CBA Case Study - Sport Facilities -
LAST NAME_FIRST NAME_STUDENT ID
Part 2 – Written Report Task worth 15%
MUST be submitted as a Word file (.doc or docx) / Save file name: PART 2 - ECON7740 CBA Case Study - LAST
NAME_FIRST NAME_STUDENT ID
Part 3 – Reflective Assessment Task worth 10%
MUST be submitted as a Word file (.doc or .docx) / Save file name: PART 3 - ECON7740 CBA Case Study - LAST
NAME_FIRST NAME_STUDENT ID
CASE STUDY OVERVIEW
20
• Minor errors
- Some incorrect formulae
- Trivial mistakes
• Major errors reduce marks
• Numbers entered in spreadsheets other than variables sheet
• Incorrect important formulae
• Results and Formulae
- Results must be derived “calculated” not “typed-in numbers”
- Different formulae producing same results acceptable
• All files will be checked
CASE STUDY – EXCEL (15%)
21
• You must follow best practice as discussed throughout the semester. Input values only once.
Values should be linked.
• Summary results for sensitivity/threshold analysis can be saved as ‘values’ but we must be
able to replicate them, so you must show clearly what assumed input values each
sensitivity/threshold result is based on.
• You are welcome to use note, textboxes or comments to indicate any aspects you wish to
highlight.
CASE STUDY – EXCEL CONT (15%)
22
• ENSURE YOU READ THE TASK SHEET AND COVER THE REQUIRED COMPONENTS.
• Written interpretation of the results in the report
- Clear discussion; How accurately are the results transferred from the spreadsheet to tables &
text in report
• Ensure that the relevant results are discussed
- don’t waste space discussing results not relevant to the main conclusions
• Minor - one or two incorrect numbers quoted in text
• Major - irrelevant numbers discussed in the text
• Draw on the information discussed in this lecture to help you write the report.
CASE STUDY – REPORT (15%)
23
Critically reflect on the CBA task from the Individual Case Study and Pitch Deck Group
assessments. In your answer,
1) determine and establish the relevance and authenticity of the case study task as part of
your development in a professional context.
2) how did you integrate the feedback provided by the Industry Expert in Week 13 into your
approach for this CBA assessment?
CASE STUDY – REFLECTION (10%)
24
1. looking back at something (often an event i.e. something that happened, but could also be
an idea or object).
2. Analyse/interpret the event or idea (with the use of theory or relevant models).
3. Thinking carefully about what the event or idea means for you and your ongoing progress
as a learner and/or practising professional.
What is critical reflection?
25
Example Models
26
S
• Situation
T
• Task
A
• Action
R
• Response
Example
27
https://www.jcu.edu.au/__data/assets/pdf_file/0004/120478/jcu_128366.pdf -
DO NOT COPY THIS
EXAMPLE!
Example
28
https://www.westernsydney.edu.au/__data/assets/pdf_file/0
005/1631480/Reflective_Writing.pdf
Research interests
• Environmental economics, natural
resources economics.
• Fisheries and aquaculture economics.
• Climate change is REAL!
• Teaching and learning of CBA.
Contact
Email: a.aripin@uq.edu.au
Dr Ammarr Aripin
THANK YOU!!
KEEP IN TOUCH >>>