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Learn about the role of Cost-Benefit Analysis (CBA) as an economic tool supporting public service reform and informed decision-making. Explore CBA methodology, various models, outcomes, benefits, and examples. Understand how to calculate the ratio of benefits to costs and make financially justified decisions.
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Outline Background Overview of methodology Some examples
How does CBA support Public Service Reform? CBA can be used to deliver: • Informed decision-making • Cost-effectivedecision-making • Equitabledecision-making
Background GM Spatial Pilots – Early Years and Better Life Chances Phase 1 Community Budgets Other partnership approaches Greater use of Payment by Results and novel investment models Whole Place Community Budgets
What role can CBA play in decision making? Economic tool to assess whether interventions represent value for money Calculates the ratio of benefits to cost Decision support tool Financial return on investment ratio: 0 1 2 3 4….. Not financially justified Financially justified
What do we mean by costs and benefits? Fiscal Social Economic Benefits Costs All additional costs needed to deliver project Social Economic Fiscal
Different approaches/uses of CBA? The approach taken for CBA will depend on what decisions need to be made – e.g. • For individual public sector agencies the priority is likely to be on making savings to their future reactive spend requirements in order to meet the challenge of reducing budgets • For government as a whole: the priority is often on overall growth and prosperity • For charities and their funders the priority may be focussed on certain aspects of a project and the impact on people’s lives Regardless of the focus, we should consider all types of benefits. fiscal focus public value focus Focus on specific social outcomes
The CBA model – costs • Costs • Capital • Revenue • In Kind • Economic Case • Net Present Public Value • Value for Money Benefit Cost Ratio Cost Benefit Analysis Tool • Outcomes • Need • Engagement • Impact • Deadweight • Lag and drop-off • Financial Case • Net Present Budget Impact • Financial return on investment • Payback period Cashability assumptions
GM approach to calculating costs What types of costs are borne? When are costs borne? Which agencies bear costs?
The CBA model – outcomes • Costs • Capital • Revenue • In Kind • Economic Case • Net Present Public Value • Value for Money Benefit Cost Ratio Cost Benefit Analysis Tool • Outcomes • Need • Engagement • Impact • Deadweight • Lag and drop-off • Financial Case • Net Present Budget Impact • Financial return on investment • Payback period Cashability assumptions
Outcomes included in the GM CBA model Level 2 skills Mental health Worklessness benefit payments Eviction ASB incidents Looked after children A&E visits Offending Drug/alcohol dependency Homelessness Community well-being Children’s well-being Individual well-being Family well-being
Running the CBA model At risk / affectedpopulation %Retained %Impact 1 - %optimism bias %Engaged %Deadweight Value How many will complete the programme? How many will we reach? What is the value of the desired outcome? How confident are we in the evidence? How many potential beneficiaries? How many will achieve desired outcome? What would have occurred anyway? • Assumptions tested/updated via evaluation • Optimism Bias (OB) correction applied to data
The GM CBA model – outputs Net present value • Costs • Capital • Revenue • In Kind Cost Benefit Analysis Tool Benefit – Cost Ratios Outcomes • Benefits • Fiscal • Economic • Social Payback period
New investment model – applying CBA Performance monitoring Ex-ante appraisal Ex-post evaluation £ £ Track savings Confirm savings Forecast savings Who invests? How much? What to decommission? Stop activity? Continue? Redraft agreement? Apportion Reinvest into single pot Update model
