Cost Benefit Analysis

Cost benefit analysis (CBA) is a method for organising information to aid decision makers in the allocation of scarce capital. The technique provides a quantitative comparison of alternative options.

Investments in infrastructure (water, roads, ports) research and development (rural industries, cooperative research centres) and natural resource management (weed control, natural resource utilisation) are examples of the types of investments Perennial Economics has analysed for public and private sector clients. These types of investments are critical to economic development, particularly in regional and rural locations.

There are two main perspectives from which this analysis and evaluation may be undertaken:

• An economic perspective, in which the focus is on the overall impact on the material well-being of the society as a whole
• A financial perspective, in which the focus is on the monetary return to the proponent of the project

Although there is considerable common ground in the techniques that are applied in undertaking these two forms of analysis, they are distinctly different.

It is also important to distinguish between economic evaluation and economic impact analysis.

Economic evaluation is normative: it is designed to assess whether or not a project will, on balance, improve economic welfare.

Economic impact analysis is descriptive: it is intended to describe the effect that a project will have on certain measures of economic activity, but provides no direct guidance on whether or not a project is worthwhile.