© Harry Campbell & Richard Brown
School of Economics
The University of Queensland
BENEFIT-COST ANALYSIS
BENEFIT-COST ANALYSIS
Financial and Economic
Financial and Economic
Appraisal using Spreadsheets
Appraisal using Spreadsheets
Ch. 1: Introduction
Benefit-Cost Analysis
“A systematic framework for economic
appraisal of proposed public and private
projects from a public interest point of view”
– based on Benefit-Cost Analysis: Financial and Economic
Appraisal using Spreadsheets by H. Campbell & R. Brown
(Cambridge University Press, 2003)
Who can benefit from this approach?
•the analyst
- a simple framework for applying a standard
methodology
- a check on the internal consistency of the analysis
• the decision-maker
- uniformity of approach to analysis
- check on internal consistency
- transparency of project data and assumptions
What is the standard methodology?
Decision
Undertake
the Project
Do not Undertake
the Project
Scarce Resources
Allocated to the Project
Scarce Resources Allocated
to Alternative Uses
Value of Project
Output Value of Output from
Resources in Alternative Uses
Project Benefit = $X Project Opportunity
Cost = $Y
If X>Y, recommend the project
Figure 1.1: The “With and Without” Approach to Cost-Benefit Analysis
“With” and “without” the project are hypothetical states;
“with and without” is not the same as “before and after”.
While the analyst might “recommend” the project,
it is up to the decision-maker to decide.
Benefit-cost analysis is intended to supplement the
decision-making process, not to supplant it.