Sunday, July 21, 2013
Cost-Benefit Analysis of Doing Cost-Benefit Analysis???
While cost-benefit analysis (CBA) has been made mandatory by some governments before launching any program that has significant consequence in the society, the debate has often raised a question whether doing CBA is necessary or not (see a recent controversy in the US). We have learned from textbook analysis that there is a vast disagreement between CBA experts and government agencies regarding the way the CBA is carried out (analysts vs. guardians) but its usefulness in itself cannot be underestimated. Some have even argued that CBA undermines democracy but conducing CBA help allocate resources most efficiently in the society which in fact reinforces democratic norms. Whether it is necessary to do CBA or not depends pretty much on how much effect the project leaves in the society when it is implemented. When a project under consideration is miniscule in size and isn’t expected to have much impact in the society, paying hefty amount to analysts to conduct CBA obviously doesn’t make sense but medium-to-large size projects deserves to be scrutinized by regulatory agencies requiring them to do CBA because such projects have long-term impacts in the society which must be scrutinized.
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My own thoughts on this CBA of doing CBA, would be that no doubt CBA should be mandatory everywhere before launching any program that could or potentially have major consequences to the society as a whole. Politically speaking I undoubtedly disagree with the fact that CBA undermines democracy but rather is an excellent way to measure and allocate resources most efficiently. Basically the optimal use of CBA is when medium-to-large size projects are being implemented. Very small programs that have very insignificant impacts to the society would not need costly CBA done.
ReplyDeleteAs my thought, cost-benefit analysis is subject to conflicting interpretations. Usually, cost-benefit analysis provides a summary statistic for the efficiency of a project, but the efficiency is only one consideration of many. Doing a successful cost-benefit analysis is making sure to include all the costs and all the benefits and properly quantify them. It is the fundamental assessment behind business decision, due to the simple fact that business managers do not want to spend money unless the benefits that derive from the expenditure are expected to exceed the costs. As companies increasingly seek to cut costs and improve productivity, cost-benefit analysis has become a valuable tool for evaluating a wide range of business opportunities, such as major purchases, organizational changes, and expansions.
ReplyDeleteIt seems interesting to me that while many would suggest that in this era of the corporitization of government and privatization of state assets that there is a disagreement of whether or not CBA is necessary. CBA ensures that the decisions being made always move towards Pareto efficiency within an economy, maximizing the utility of dollars spent in terms of benefiting a nations citizens (which should be a governments primary function).
ReplyDeleteHowever, perhaps a CBA does not need to be conducted for each and every project. If one project is very similar to another (i.e cost of materials, time-frame, demographics, scale, etc.) then perhaps the CBA may be forgone. In addition, should the project be rather small in scale then CBA may not be required. But with projects that have a significant cost (and potential benefit) to society then a CBA should be conducted to ensure the optimum path for society is taken.
in our class, we learnt that CBA is the method to evaluating that estimates the value of projects to determine whether the they are undertaking or contiuing.but CBA is not all the way to use for measurement. for instance, when you are considering implementing an employees bonus program, you will incur costs. in exchange, you may receive benefits such as gained employee satisfaction, decreased turnover and greater productivity, so the benefit are significant and could not to compare all the time.
ReplyDeleteAs we know that CBA always used by company and government. Cause it can provide the information efficiency. It is less common in our daily life. Because it has a cost when we doing CBA. This cost is including labor and time. If our project too small that benefit not even to pay the cost of doing CBA. That is not necessary to do CBA. Obvious CBA used in large-size project. And related to the large-size project, do CBA is the way to use minimum cost to produce the maximum profits.
ReplyDeleteThe understanding i have obtained from this CBA is, that it is apparently useful, but on the other hand it seems quite debatable. Its utilization is costly in terms of spending money. CBA can benefit to few in the society as a whole. In my opinion, the analysis can be conducted where it is needed but not there where it isn't required. It shouldn't be implemented.
ReplyDeleteCost Benefit analysis is required for many large scale projects in Canada and in the United States however there are some constraints in terms of time and budget, that does not mean that CBA should not be utilized. I believe the argument Tenenbaum uses based on the timeliness of implementing policie is invalid in this instance. They are not ‘required’ by law to perform a CBA, but it would be something that would be good for businesses. He basically is saying that it doesn’t matter to the committee what the costs are to business when new rules are implemented, they are mandated to be timely when create consumer public safety rules. I believe they should include the costs that business, but this could also be taken to a very extreme. The rules are in place for a reason, and businesses should be conscious of public safety guidelines. I do understand the position that Adler is taking, the democratic member who “always thought we needed to have cost benefit analysis of cost benefit analyses,” he is attempting to exaggerate the amount of resources that are devoted to the CBA.
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