Social Cost Benefit and Cost Effectiveness Analysis

5.2 Social Cost Benefit Analysis (CBA) assesses the impact of different options on social welfare. All relevant costs and benefits are valued in monetary terms, unless it is not proportionate or possible to do so.7

5.3 Social CBA is the recommended approach for detailed comparison of the short-list of options. Social Cost-Effectiveness Analysis (CEA) is a variant of Social CBA which compares the costs of alternative ways of producing the same or similar outputs. Social CEA may sometimes be appropriate where:

wider social costs or benefits will remain broadly unchanged or for the delivery of a public good, such as defence

output may not be proportionately quantified

5.4 Where wider social outcomes are not affected by the decision being appraised, Social CBA and Social CEA are in effect equivalent. The assumption that there will be no change in output or welfare needs to be objectively validated before choosing the appropriate technique.

5.5 Social CBA and Social CEA are "marginal analysis" techniques. They are generally most appropriate where the broader environment (e.g. the price of goods and services in the economy) can be assumed to be unchanged by the intervention. These techniques work less well where there are potential non-marginal effects or changes in underlying relationships. This is due to the difficulties inherent in pricing such changes. It is possible to adapt Social CBA in these cases, for example when appraising the cumulative impact of interventions on Natural Capital. Significant non-marginal issues which cannot be reflected in Social CBA need to be appraised and considered at the long-list stage.

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7 Costs to society are given a negative value and benefits a positive value. After adjusting for inflation and discounting, costs and benefits can be added together to calculate the Net Present Social Value (NPSV) for each option.