Cost benefit analysis
Quantitative (monetary) assessment of all negative and positive impacts associated with a given action. Cost benefit analysis enables comparison of different interventions, investments or strategies and reveals how a given investment or policy effort pays off for a particular stakeholder.
1. Cost benefit analysis requires quantifying and aggregating together all benefits (and costs). However, some benefits may be difficult to quantify or measure in uniform units that enable them to be aggregated such as social impacts, damage to cultural assets, damage to the environment and externalities. It is also typically dependent on several key assumptions – such as the time horizon that is being evaluated, and the discount rate used to aggregate costs and benefits over time.
2. Possible alternate assessment methods to cost benefit analysis could include multi-criteria analysis, expert elicitation methods like Delphi, and methods that analyze the effects of not taking action.
3. "Benefit cost analysis" is an equivalent to "Cost benefit analysis" and offers an evidence-based evaluation of options that can help in data-driven decision making.
Modified from IPCC (2018).
Cost benefit analysis findings – GDh Thinadhoo
The Republic of Maldives is an archipelagic state of 26 atolls in the South Asian region of the Indian Ocean. Thinadhoo Island is located approximately 410km from the capital city Malé. Heavy rainfall often results in flooding. However, flooding has only become prominent after land reclamation began in the 1990s.
Thinadhoo’s geographic location also means it is exposed to swell waves, storm surges and tsunamis in addition to flooding due to increased intensity of rains. Assessments suggested that a severe tsunami would result in great loss of life. Multiple protection scenarios were drawn up – “Safe Island Protection”, “Selected Safe Island Protection” and “Limited Protection”, in descending order of cost. Variable costs were assessed for ongoing maintenance, and benefits were estimated as a percentage reduction in losses. Cost benefit analysis findings indicated that the optimum benefits would be delivered in the limited protection scenario, and a full suite of measures may not be the most cost-effective approach.
Source: Venton, Cabot. (2009, September). Cost Benefit Study of Disaster Risk Mitigation Measures in Three Islands in the Maldives. UNDP.