Undertaking a cost-benefit analysis assessment
Performing cost-benefit analysis doesn’t have to be complex, detailed, or expensive. Even a simple analysis can be informative and cost-effectively support decision-making. We know this because a cost-benefit analysis “framework” is primarily a process for organising the available information in a logical and methodical way.
There are 6 broad steps to cost-benefit analysis.
Key steps
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Step 1:
Define the problem or business need – the objective.
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Step 2:
Define a base case and range of alternative options. In most cases, the base case and options should achieve the objective.
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Step 3:
Identify and value, where appropriate, the incremental economic, social, and environmental costs and benefits of the options. This is relative to the base case.
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Step 4:
Compare the costs and benefits of the options to the base case to identify the expected net present value (NPV) and benefit-cost ratio (BCR).
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Step 5:
Account for key risks and uncertainties that could impact the economic, environmental, and social costs and benefits of the options.
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Step 6:
Undertake distributional analysis to identify the options’ beneficiaries and cost-bearers.
More information
Guidelines
Read the document section About the water conservation cost-benefit analysis guidelines to find out more about why the guidelines were developed and how they can benefit good decision-making.