Ri Insights

How Cost-Benefit Analysis Can Help Kuwait

What is “Cost-Benefit Analysis” in a Policy Making Context?

Cost-benefit analysis (often referred to as CBA) is a systematic approach used to calculate the costs and compare the benefits of policy options in order to identify the best direction for government decisions, policies and projects. It is a process used to determine the strengths and weaknesses of policy alternatives.

While economic concepts underlie cost-benefit analysis in business, the same logic and approach can be applied to a wide range of government policy measures affecting health, transportation, economic diversification, the environment, and virtually any matter within government purview.

Benefits and costs are expressed in both monetary and non-monetary terms; it goes beyond normal accounting methodology. This type of analysis considers matters such as total lifecycle project costs (time value of money), risks, and both the potential positive and negative impacts on citizens.

Examples

Derived from mainstream economic theory, cost-benefit analysis dates back to the mid 1800s. Engineers and the engineering field were the first to make use of this analytical approach for infrastructure and transportation projects. However, cost-benefit analysis gained popularity in the 1960s and 70s and began expanding to the broader public policy arena.

Governments across the globe have increasingly relied on cost-benefit analysis to make important program and policy decisions, especially those that require an investment of public funds. There are multiple examples worldwide.

To illustrate the range of public policy applications in the USA, a 1964 cost-benefit analysis focussed on the building of dams in the Grand Canyon, while a 1984 CBA showed that early childhood intervention programs resulted in significant long-term social benefits for children and considerable cost savings to the public.

Governments have gone as far as producing guidebooks on the application of cost-benefit analysis to the public policy sphere. For example, Canada produced a guidebook for major transportation investments, Australia published a guide for regulation and finance matters, and the USA issued a guide for using CBA to assess health care programs. In fact, governments worldwide including the European Commission favour putting cost-benefit analysis at the centre of regulatory analysis.

Erudite and scholarly articles abound on the advantages of applying cost-benefit analysis. Some authors have argued that CBA should be applied to all government policies from the broad categories referenced above to narrower, specific topics like drug control and security. While academics, researchers and policy thinkers alike acknowledge the challenges in producing accurate and reliable cost-benefit analyses, the exercise at least documents the assumptions underlying the forecasted outcomes.

Simply put, it is the most rational basis we have at our disposal for adopting, changing or keeping a given policy.

The Role of an Independent Research & Studies Institute in Cost-Benefit Analysis

Citizens want their leaders to make the soundest possible decisions on their behalf. Thus, whenever a public policy matter has significant social, economic or environmental implications, a rational cost-benefit analysis should be at the heart of these key government decisions.

The RAI Institute proposes making CBA a routine and integral component of law and policy-making.

Cost-benefit analysis is a powerful and widely-used tool that effectively aids decision-makers in:

  • setting priorities among the many competing demands;
  • determining how much the policy change will cost, whether as a one-time investment or over time;
  • calculating the tangible and intangible benefits of a given decision  (e.g. cost savings, improved economic outputs and quality of life for citizens); and
  • enhancing fiscal accountability through the discipline of determining and tracking costs of programs and services through systematic data collection and analysis.

There is no single recipe for fail-safe cost-benefit analysis since each policy decision is unique and requires careful attention, tailored thought, and possibly innovative analysis. Independent research institutes and think tanks are uniquely positioned to produce reliable and objective cost-benefit analyses because their methodology is systematic and their agenda is unbiased.

Independent think tanks and research institutes, with their focus on evidence-based research and impartial analysis, can produce cost-benefit studies to confirm whether specific policy decisions will, in fact, serve the public interest. Cost–benefit analysis by Kuwait’s first independent think tank must become an essential tool for advising and informing policy makers on how best to protect our health, safety, and the environment while bolstering Kuwait’s economic growth.What is “Cost-Benefit Analysis” in a Policy Making Context?

Cost-benefit analysis (often referred to as CBA) is a systematic approach used to calculate the costs and compare the benefits of policy options in order to identify the best direction for government decisions, policies and projects. It is a process used to determine the strengths and weaknesses of policy alternatives.
While economic concepts underlie cost-benefit analysis in business, the same logic and approach can be applied to a wide range of government policy measures affecting health, transportation, economic diversification, the environment, and virtually any matter within government purview.
Benefits and costs are expressed in both monetary and non-monetary terms; it goes beyond normal accounting methodology. This type of analysis considers matters such as total lifecycle project costs (time value of money), risks, and both the potential positive and negative impacts on citizens.

 

Examples

Derived from mainstream economic theory, cost-benefit analysis dates back to the mid 1800s. Engineers and the engineering field were the first to make use of this analytical approach for infrastructure and transportation projects. However, cost-benefit analysis gained popularity in the 1960s and 70s and began expanding to the broader public policy arena.
Governments across the globe have increasingly relied on cost-benefit analysis to make important program and policy decisions, especially those that require an investment of public funds. There are multiple examples worldwide.
To illustrate the range of public policy applications in the USA, a 1964 cost-benefit analysis focussed on the building of dams in the Grand Canyon, while a 1984 CBA showed that early childhood intervention programs resulted in significant long-term social benefits for children and considerable cost savings to the public.
Governments have gone as far as producing guidebooks on the application of cost-benefit analysis to the public policy sphere. For example, Canada produced a guidebook for major transportation investments, Australia published a guide for regulation and finance matters, and the USA issued a guide for using CBA to assess health care programs. In fact, governments worldwide including the European Commission favour putting cost-benefit analysis at the centre of regulatory analysis.
Erudite and scholarly articles abound on the advantages of applying cost-benefit analysis. Some authors have argued that CBA should be applied to all government policies from the broad categories referenced above to narrower, specific topics like drug control and security. While academics, researchers and policy thinkers alike acknowledge the challenges in producing accurate and reliable cost-benefit analyses, the exercise at least documents the assumptions underlying the forecasted outcomes.
Simply put, it is the most rational basis we have at our disposal for adopting, changing or keeping a given policy.

The Role of an Independent Research & Studies Institute in Cost-Benefit Analysis

 

Citizens want their leaders to make the soundest possible decisions on their behalf. Thus, whenever a public policy matter has significant social, economic or environmental implications, a rational cost-benefit analysis should be at the heart of these key government decisions.

 

The RAI Institute proposes making CBA a routine and integral component of law and policy-making.

 

Cost-benefit analysis is a powerful and widely-used tool that effectively aids decision-makers in:

 

    • setting priorities among the many competing demands;

 

    • determining how much the policy change will cost, whether as a one-time investment or over time;

 

    • calculating the tangible and intangible benefits of a given decision (e.g. cost savings, improved economic outputs and quality of life for citizens); and

 

    • enhancing fiscal accountability through the discipline of determining and tracking costs of programs and services through systematic data collection and analysis.

 
There is no single recipe for fail-safe cost-benefit analysis since each policy decision is unique and requires careful attention, tailored thought, and possibly innovative analysis. Independent research institutes and think tanks are uniquely positioned to produce reliable and objective cost-benefit analyses because their methodology is systematic and their agenda is unbiased.

Independent think tanks and research institutes, with their focus on evidence-based research and impartial analysis, can produce cost-benefit studies to confirm whether specific policy decisions will, in fact, serve the public interest. Cost–benefit analysis by Kuwait’s first independent think tank must become an essential tool for advising and informing policy makers on how best to protect our health, safety, and the environment while bolstering Kuwait’s economic growth.