Cost-Benefit Analysis Method (CBAM) is an analytical framework that assesses the economic efficiency of policy proposals by calculating their net benefits, which are determined by quantifying all relevant costs and benefits over the long term. CBAM is useful because it allows consideration of different policy options, determines which option maximizes net benefits, and shows costs and benefits for different stakeholder groups. Government agencies are expected to increasingly use CBAM for regulatory impact analysis, so understanding its basic steps - which include identifying and quantifying impacts, assigning monetary values, and comparing net present values of options - is important. The CBAM Unit can provide assistance and guidance to improve agencies' use of this technique.

1. Cost-Benefit Analysis Method
(CBAM)
Dr. Himanshu Hora
SRMS College of Engg. & Tech., Bareilly
INDIA

2. Outline
 What is CBAM?
 Why Need to know about it?
 Why is CBAM useful?
 When should you use it?
 How can the CBAM Unit help?

3. What is Cost Benefit Analysis
Method?
• CBAM is an analytical framework used to
assess the benefits and costs of policy
proposals
• CBAM focuses on economic efficiency
• It calculates the net benefits for each policy
proposal
• Takes a long-term view and incorporates all
relevant costs and benefits

4. Why we
need to know about CBAM?
 Recent government decisions give renewed
focus to CBAM
 Agencies need to build their capacity to use
CBAM to improve the quality of regulatory
analysis
 Greater use of CBAM expected by government
for regulatory proposals

5. Why is CBAM useful?
 Forces stakeholder to make scenario clear in
advance
 Allows the consideration of a range of policy
options
 Determines which policy maximizes net
benefits to the community
 Allows benefits and costs to be compared over
time
 Can show the costs and benefits accruing to
different groups within the community

6. When do you need to use CBAM?
 Using CBA techniques to quantify impacts is
not “new” it has always been part of the
regulatory assessment process
 However there is now a greater focus on
quantification for regulatory proposals,
particularly those with important impacts
 Agencies should devote resources to
quantification to where stakes are greater

7. What are the basic steps
in a CBAM?
 Specify the set of options
 Decide whose benefits and costs count
(standing)
 Identify the costs and benefits and select
measurement indicators
 Predict the impacts over the life of the
regulation

8. Basic steps in a CBAM
(continued…)
 Attach dollar values to impacts
 Discount future benefits and costs to obtain
present values
 Compute the net present value of each policy
alternative
 Perform sensitivity analysis
 Make a recommendation

9. Context for CBAM

10. Process flow diagram for the CBAM

11. Qualitative impacts
present a challenge
 Qualitative factors should be adequately
considered but not overplayed
 If a proposal shows large quantified net costs
there should be a clear explanation of why
qualitative net benefits justify proceeding with
a policy option

12. Different techniques
can be used
 Different impacts may call for different
estimation techniques
 Will depend on the nature and complexity of
issue and availability of information
 High quality analysis may require expertise
consultants can be useful

13. Steps to ensuring
a good CBAM outcome
 Proper resourcing
 Getting the right skills
 Collecting high quality information
 Consulting with stakeholders
 Consulting „early‟ with the OBPR

14. How can the CBAM Unit help?
 Assistance on technical issues
 Advice on how to improve CBAM done in-
house or undertaken by a consultant
 Training/Workshops on CBAM
 Developing CBAM guidance material on a
„needs basis‟
 Provide examples of CBAM reports

15. THANK YOU
Dr. Himanshu Hora
SRMS College of Engg. & Tech., Bareilly
INDIA