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BENEFITCOST ANALYSIS Financial and Economic Appraisal using Spreadsheets
Ch. 1: Introduction
© Harry Campbell & Richard Brown School of Economics
The University of Queensland
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? Figure 1.1: The “With and Without” Approach to Cost-Benefit Analysis
Decision
Undertake the Project
Scarce Resources Allocated to the Project
Value of Project Output
Project Benefit = $X
Do not Undertake the Project
Scarce Resources Allocated to Alternative Uses
Value of Output from Resources in Alternative Uses
Project Opportunity Cost = $Y
If X>Y, recommend the project
“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.
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