Additionality is a real increase in social value that would not have occurred in the absence of the intervention being appraised.
Adverse Selection may occur where asymmetric information restricts the quality of a traded good. This typically happens because the side with more information can negotiate a more favourable exchange than would otherwise be the case.
Affordability is an assessment of the costs of an intervention to the public sector taking into account current and expected future budgets.
Agglomeration benefits come when firms and/or people locate near one another in geographical clusters.
Appraisal is the process of defining objectives, examining options and weighing up the relevant costs, benefits, risks and uncertainties before a decision is made.
Assessment may refer to either an appraisal or an evaluation.
Business As Usual is the continuation of current arrangements as if the intervention under consideration were not to happen. This serves as a benchmark to compare alternative interventions.
Contingency provision should reflect the sum of measured risk (costs of risks avoided, shared and mitigated on an expected likelihood basis) and optimism bias adjustment estimated in nominal prices.
Contingent valuation is a different description of stated preference valuation, where individuals are asked how much they would be willing to pay to obtain a good or service, or how much they would require to compensate them to give it up.
Cost of capital is the cost of raising funds and is sometimes expressed as an annual percentage rate.
Deadweight refers to outcomes that would have occurred without the intervention. This is used to determine the difference that can be attributed to an intervention.
Diminishing marginal utility is the tendency for the satisfaction individuals derive from an additional unit of a good or service to diminish as more units are acquired or consumed.
Diminishing marginal utility of income states that the value of an additional pound of income is higher for a low income recipient and lower for a high income recipient.
Discounting is a technique used to compare costs and benefits occurring over different periods of time.
Discount rate is the annual percentage rate at which the present value of future monetary values are estimated to decrease over time.
Displacement is the degree to which an increase in economic activity promoted by an intervention is offset by reductions in economic activity elsewhere.
Do-minimum option as used in the Green Book refers to the minimum intervention required to deliver core objectives. This excludes any additional features that may also be possible and bring additional benefits.
Economic efficiency is achieved when nobody can be made better off without someone else being made worse off. Such efficiency enhances social welfare by ensuring resources are allocated and used in the most productive manner possible.
Effectiveness is a measure of the extent to which a proposed intervention achieves its objectives.
Evaluation is the systematic assessment of an intervention's design, implementation and outcomes.
Expected value is the weighted average of all possible values of a variable, where the weights are the probabilities.
External Benefits are benefits of production or consumption of a good which are not taken into account by individuals or included in the price of a good in a perfectly competitive market.
External Costs are costs of production or consumption of a good which are not taken into account by individuals or included in the price of a good in a perfectly competitive market.
Externalities occur when consuming or producing a good or service produces benefits or costs for others that are not directly involved in the consumption or production.
GDP deflator is an index of the general price level in the economy as a whole, measured by the ratio of gross domestic product (GDP) in nominal (i.e. cash) terms to GDP at constant prices.
Gold Plating is the inclusion in an option of additional features that add little value but add significantly to cost.
Hedonic pricing is a form of revealed preference valuation that uses data from related surrogate markets and econometric techniques to estimate a value for a good or service.
Information asymmetry is a difference in the information available to parties involved in a transaction that gives an advantage to one side. This is because it is relevant to determining an efficient contract, a fair price or for rewarding performance.
Intervention refers to a policy, programme or project that is being appraised.
Implementation refers to the activities required to deliver an intervention following approval.
Irreversibility describes an option that would create a significant change that practically or affordably cannot be undone.
Leakage describes the leakage of benefits intended for a recipient group or area into another group or area.
Long-list refers to the initial, wide set of possible options considered in the first stage of appraisal to achieve objectives.
Market failure is where, for one reason or another, the market mechanism alone cannot achieve economic efficiency.
Market value or price is the price at which a commodity can be bought or sold, determined through the interaction of buyers and sellers in a market.
Marginal utility is the change in satisfaction experienced by a consumer from a small change in the consumption of a good or service.
Monte Carlo Analysis is a simulation-based risk modelling technique that produces expected values and confidence intervals as a result of many simulations that model the collective impact of a number of uncertainties.
Moral Hazard occurs when an individual changes their behaviour and takes risks because they are protected from negative consequences and someone else bears the costs.
Multi Criteria Decision Analysis is a technique for dealing with complex unmonetisable values. It can be employed, in certain circumstances, at the long-listing stage to consider unmonetisable trade-offs.
Net Present Value (NPV) is a generic term for the sum of a stream of future values (that are already in real prices) that have been discounted (in the Green Book by the social time preference rate) to bring them to today's value.
Net Present Social Value (NPSV) is the present value of a stream of future costs and benefits to UK society (that are already in real prices) that have been discounted over the life of a proposal by the social time preference rate.
Opportunity cost is the value which reflects the best alternative use a good or service could be put to.
Optimism bias is the proven tendency for appraisers to be over-optimistic about key project parameters, including capital costs, operating costs, project duration and benefits delivery.
Options Framework is a process where an initial long-list is reduced to a short-list by breaking a proposal down into a sequence of strategic choices looking at scope, solution, delivery, implementation and funding.
Outcome refers to the consequences to society of a change in service or policy. For example, improved life expectancy of the population.
Output refers to the change in the level or quality of a service delivered. For example, more cardiovascular operations carried out.
PPP refers to a Public Private Partnership. This includes PFI, or Private Finance Initiative, which involves the private sector in the design, creation (or construction), operation and initial financing of a publicly provided service. PF2 is a specific form of Private Finance Initiative.
Precautionary principle refers to the concept that where the potential consequences of a perceived risk are significantly adverse, action may still be justified even if the probability of occurrence is low.
Preferred Option is the option preferred after a detailed analysis of the short-list. Comparison of each short-list option, and their advantages over Business As Usual allows identification of the best option for the delivery of public value.
Preferred Way Forward, found using the options framework, is the option most likely to deliver SMART objectives at the long-list stage. This option, together with Business As Usual, a viable do-minimum and other alternatives are taken forward as a short-list for more detailed appraisal.
Price index is a standardised measure of price levels over time. General price indices cover a wide range of prices and include the GDP deflator, the Consumer Price Index (CPI) and the Retail Price Index (RPI). There are also separate price indices that apply to one commodity or type of commodity.
Proposal refers to a policy, programme or project that is being appraised. See also Intervention.
Prosperity is measured by the level of social value as defined in the Green Book, so that an increase in social value is an increase in prosperity and a decrease in social value is a fall in prosperity.
Public Sector Comparator or Comparable Public Option is an option for direct public provision with comparable output assumptions to a Public Private Partnership option, including allowances for risk and tax. This creates a level playing field in support of a true comparison in social value terms.
Real option theory or analysis is used to estimate the benefit of delaying a decision by retaining flexibility in situations, where knowledge is increasing significantly over time, leading to potentially better informed decisions.
Real price is the nominal price (i.e. current cash price at the time) deflated by a measure of inflation.
Real terms is a reference to the value of expenditure at a specified general price level (calculated by dividing a nominal cash value by a general price index).
Relative price effect is the movement over time of a specific price index (such as Information Technology) relative to a general price index (such as the GDP deflator).
Relevant costs and benefits are the costs and benefits to UK society overall that affect or can be affected by a proposal or decision.
Resources in the Green Book is used to mean real goods and services excluding other costs. It is widely used in other ways that have different meanings depending on context.
Resource Cost is used in the Green Book in the economic sense to mean the costs of goods and services excluding transfer payments such as for example VAT. In resource accounting, 'resource costs' are accruals expressed in real terms.
Revealed preference is a value shown or inferred hedas a result of people's actions.
Risks are specific uncertainties that arise in the design, planning and implementation of an intervention.
Risk costs are the costs of avoiding, transferring or mitigating risks associated with a specific project, programme or policy. The costs of risk mitigation are based on a combination of likelihood of a risk materialising and its cost.
Risk register refers to a tool used to record, the risks specific to a proposal, their likelihood and value and the assignment of risk management responsibility.
Sensitivity Analysis involves exploring the sensitivity of expected outcomes of an intervention to potential changes in key input variables. It can be used to test the impact of changes in assumptions and should be clearly presented in the results of appraisal.
Shadow price refers to an estimated value of a good where market prices are not available, or do not reflect total costs and benefits.
Short-list refers to the filtered set of viable options to be taken forward to the more detailed analysis stage of appraisal.
Social Benefits are the total increase in the welfare of society from an economic action - the sum of the benefit to the agent performing the action plus the benefit accruing to society as a result of the action (external benefits).
Social Cost is the total cost to society of an economic activity - the sum of the opportunity costs of the resources used by the agent carrying out the activity, plus any additional costs imposed on society from the activity (external costs).
Social Cost Benefit Analysis quantifies in monetary terms all effects on UK social welfare. Costs to society are given a negative value and benefits to society a positive value. Costs to the public sector are counted as a social welfare cost.
Social Cost-Effectiveness Analysis compares the costs of alternative ways of producing the same or similar outputs.
Social Time Preference Rate or STPR is defined as the value society attaches to present, as opposed to future, consumption.
Social Value is the net measure of total welfare resulting from an option or intervention. Alternatively, it is the sum of total benefits and total costs of an intervention, including private and social costs and benefits.
Stated preference is a technique for eliciting willingness to pay for something that is non-marketed, and is derived from responses to expertly designed surveys.
Substitution where firms or consumers substitute one activity for another as a result of intervention. As economic activity changes, it may lead to productivity changes which are costs or benefits.
Switching value refers to the value a key input variable would need to take for a proposed intervention to switch from a recommended option to another option, or a proposal not to receive funding approval.
Systematic risk is the variation in outputs that is correlated with movements in the wider economy and which cannot therefore be reduced by diversification or other means of risk management.
Transfer payments pass purchasing power from one person to another and do not involve the consumption of resources. They include the transfer of resources between people such as gifts, taxes or social security payments and should be excluded from the overall estimate of social value.
Willingness to Accept is a technique for the inference of value of a non-marketed good or service from the amount that respondents to a survey are willing to accept to give up a good or service.
Willingness to Pay is a technique for the inference of value of a non-marketed good or service from statements of the amount that respondents to an expertly designed survey are willing to pay to acquire a good or service.