The Cost of Cost-Benefit Analysis

By | December 1, 2010

By Amy Kochanowsky, staff editor

As part of a recent Food for Thought discussion at the Sanford School of Public Policy, several professors discussed cost-benefit analysis (CBA), a tool widely used to evaluate public policy.  CBA is a useful way to quantify the impacts of a given policy by attaching a dollar value to each negative and positive outcome, and then weighing the negatives against the positives.  Policy makers can use CBA to determine if programs are effective, i.e. if their benefits outweigh their costs.  CBA is useful because it puts everything in terms of a value we can all understand: money.

While cost-benefit analysis is nearly ubiquitous in all fields of public policy, we must be cautious about when and where it is applied, because it assumes that all outcomes can be quantified in monetary terms.  If asked to conduct a cost-benefit analysis of a school program, would you be able to measure all of the outcomes?  Can you put a dollar value on the satisfaction and self confidence of a child?  When reducing results like this to a dollar value, you are most certainly losing something in the calculation.  This is the cost of CBA.

In the absence of a more perfect tool, CBA may be the best we can do.  However, it is important to realize the value judgments embedded in a public policy tool like this.  Understanding that a monetary value cannot capture every nuance of a policy outcome will allow policy makers to apply CBA more effectively.  Further, we all know that what is measured receives funding.  So perhaps reducing something to a dollar value is better than not measuring it at all.

One thought on “The Cost of Cost-Benefit Analysis

  1. D Elder

    CBA is not the only tool in the box. Perhaps the best way to look at it is as a cost-benefit analysis through time. That way the satisfaction and self esteem of a child can be factored in–or out–by the consequences society both visits on the child lacking, and on society as a whole. It’s no accident that nearly all the serial killers are once maltreated children, and mostly from the poorer households. This cannot be chopped up from fiscal year to fiscal year. I strongly suggest public policymakers look into the long term goals and try not to stop at their two, their four, or their six year tenure as elected officials. Putting the interests of those who are least able to participate in any market may cost more, but think of the intangible returns. For example, many of those who draw social security pensions can be found voluteering their time with the Red Cross or other organization, sweeping the sidewalks on their street, picking up trash, planting flowers, and just giving back. Their grandchildren are also cared for, as they are “built-in baby sitters. Try putting a dollar value on that, over time. The public benefits. Conversely, when a child is latchkey, because parents work such long hours just to put a roof over their heads, the public suffers. This isn’t across the board, but one can see that when people as children are ignored except when they do something wrong, this will be ingrained as an adult, and more likely to be negative to society as a whole. History, when we don’t learn from it, often does repeat itself.

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