NCJ Number
49443
Date Published
1977
Length
14 pages
Annotation
THE MAJOR TASKS IN CONDUCTING BENEFIT COST (B/C) ANALYSIS ARE ADDRESSED, AND ISSUES IN COMPUTING COSTS AND BENEFITS ARE DEALT WITH. ALTERNATIVE APPROACHES TO PROGRAM EVALUATION ARE EXAMINED.
Abstract
B/C ANALYSIS IS SUITABLE FOR EVALUATION OF PROGRAM FOR WHICH ECONOMICAL CONSIDERATIONS ARE IMPORTANT, AND IN WHICH BENEFITS CAN BE QUALIFIED. THE ANALYSIS CAN BE CARRIED OUT BEFORE THE PROGRAM -- EX ANTE -- OR AFTER IT HAS BEEN IN OPERATION FOR SOME TIME -- EX POST. THE PROCESS INCLUDES THE FOLLOWING STEPS: DEFINITION OF OBJECTIVES; IDENTIFICATION OF GUIDING PRINCIPLES (PERTAINS ONLY TO EX ANTE ANALYSIS); IDENTIFICATION OF ALTERNATIVES (PERTAINS ONLY TO EX ANTE ANALYSIS); LISTING OF COSTS; LISTING OF BENEFITS; QUANTIFICATION OF COSTS AND BENEFITS; AND CALCULATION OF ESTIMATORS. IN ESTIMATING COSTS, IT IS IMPORTANT TO REMEMBER THAT THE PURPOSE OF THE EVALUATION IS TO MEASURE THE CHANGE, IF ANY, IN THE WELL-BEING OF CITIZENS IN RELATION TO ONE PARTICULAR USE OF RESOURCES AS OPPOSED TO AN ALTERNATIVE USE OF THE SAME RESOURCES. COSTS ARE DESCRIBED FOR A MANPOWER TRAINING PROGRAM, AND THEY ARE DIVIDED INTO CATEGORIES OF BUDGETARY AND ECONOMICAL COSTS. THE GOOD OF THE PROGRAM WILL BE EQUAL TO THE DIFFERENCE BETWEEN OUTPUT WHILE THE PROGRAM IS IN EFFECT AND OUTPUT WHILE THE PROGRAM IS NOT IN EFFECT. THIS IS THE RULE FOR ESTIMATING BENEFITS; HOWEVER, BENEFITS ARE NOT DIRECTLY MEASUREABLE SO TECHNIQUES ARE SUGGESTED FOR QUANTIFICATION. BENEFIT WITH RELATION TO MANPOWER TRAINING IS GENERALLY CONSIDERED TO BE THE INCREASE IN THE LIFETIME EARNINGS OF TRAINEES RESULTING FROM THE TRAINING. THE BENEFIT-COST ESTIMATOR IS THE KEY FACTOR IN SUMMARIZING THE RESULTS OF THE ANALYSIS, AND IT WILL BE USED FOR DECISIONMAKING. THIS ESTIMATOR IS A NUMERICAL VALUE GENERATED FROM ONE OF THE ALTERNATIVE B/C TECHNIQUES, AND IT IS OFTEN DIFFICULT TO COMPUTE DUE TO COMMENSURABILITY PROBLEMS. ALTERNATIVE APPROACHES TO PROGRAM EVALUATION ARE EXAMINED, USING THE SAME DISCOUNT RATES. THE ADVANTAGES AND DISADVANTAGES OF THE FLLOWING ARE DISCUSSED: (1) THE PRESENT-VALUE-OF-NET-BENEFIT APPRACH; (2) THE BENEFIT-COST APPROACH; AND (3) THE RATE-OF-RETURN APPROACH. MAJOR CRITICISM OF B/C ANALYSIS COMING FROM ECONOMISTS CONCENS THE PROBLEMS WITH COMMENSURABILITY AND QUANTIFICATION. SOCIAL SCIENTISTS OFTEN FEEL THAT IT DOES NOT ANSWER QUESTIONS THAT HAVE INTEREST FOR THEM, AND MANAGEMENT CONSIDERS B/C ANALYSIS TOO COSTLY AND TIME-CONSUMING. IT IS AN ECONOMIC APPROACH TO PROGRAM EVALUATION AND, THUS, NOT A COMPLETE METHOD. CAREFUL INTERPRETATION OF RESULTS IS CRITICAL TO ITS EFFECTIVENESS AS WELL AS THE CREATION OF A PROPER DATA BASE. (DAG)