I am looking for guidance on particular economic assessment processes, methods and variables
This page provides guidance on particular economic assessment processes, methods and variables. The information here assumes a fair level of understanding of the introductory definitions and concepts and some level of experience with economic assessment.
Introductory information on the key definitions and concepts, including some good practice principles to guide economic assessments is also available.
Guidance on the development of options
The identification and development of options to be considered in an economic assessment is a critical part of the process.
This guidance on the development of options Guidance-on-the-development-of-options-internet.DOCX (DOCX 92.42 KB) outlines the importance of clearly specifying the issue to be addressed and the objective of an intervention, and leading practice on the range of options to be included in an economic assessment.
Guidance on undertaking economic assessments
This decision tree can help you select the most appropriate method to use when weighing costs and benefits. This decision tree can help you select the most appropriate method to use when estimating economic impacts.
This checklist Checklist-assessing-a-cost-benefit-analysis-internet.DOCX (DOCX 25.07 KB) can help you specify your requirements for and assess the quality of a cost-benefit analysis.
Guidance on cost-benefit analysis
Cost-benefit analysis (CBA) is the preferred form of economic assessment to inform decision making. Introductory information on CBA is available.
The following are examples of the many publications written on how to undertake CBA by Australian and other jurisdictions.
Victorian Government (Department of Treasury and Finance) 2014 Victorian Guide to Regulation Toolkit 2: cost-benefit analysis – checklist and alternatives
Department of the Prime Minister and Cabinet 2016 Cost-benefit analysis guidance note
HM Treasury (UK Government) 2003 The Green Book: Appraisal and Evaluation in Central Government
Government of Canada 2007 Canadian cost-benefit analysis guide: Regulatory proposals
It may not be practical to undertake a CBA for all proposals, for example, where the cost of undertaking the CBA is disproportionate to the size of the investment or its expected impact, or there is limited data available to support a CBA.
Economic assessments should be guided by the principle of proportionality such that the method chosen requires effort that is proportionate to the size and impact of the proposal.
Here is a checklist Checklist-assessing-a-cost-benefit-analysis-internet.DOCX (DOCX 25.07 KB) to help you specify your requirements for a cost-benefit analysis and assess the quality of a cost-benefit analysis.
Guidance on quantifying and monetising non-market impacts
Non-market impacts are the expected costs and benefits of an initiative that can't be easily measured in dollar terms using market values. Nevertheless, these impacts are often critical to whether a proposal should go ahead and need to be incorporated into economic assessments.
This guidance on valuing non-market impacts Guidance-on-valuing-non-market-impacts-internet.DOCX (DOCX 616.77 KB) outlines when to quantify and monetise such impacts, which methods are most likely to be appropriate and some of the pros and cons of each.
This checklist can help you design a high quality stated preference valuation study Checklist-stated-preference-study-internet.docx (DOCX 30.61 KB).
This checklist can help you design a high quality revealed preference valuation study Checklist-revealed-preference-study-internet.docx (DOCX 29.28 KB).
Guidance on addressing risk and uncertainty
Most policies and initiatives will involve some degree of risk and/or uncertainty, either in the delivery/implementation (e.g. the risk that a lack of resources will lead to milestones being missed), or in whether, when and to what extent outcomes are achieved. This is because most of the types of investments that governments make are in complex situations with many influencing factors and multiple public good objectives.
For some proposals, this risk and/or uncertainty will need to be addressed in the economic assessment to provide decision-makers with the best information available.
This guidance on addressing risk and uncertainty Guidance-on-addressing-risk-and-uncertainty-internet.DOCX (DOCX 260.4 KB) presents a number of different approaches depending on the nature and scale of the proposed investment.
Guidance on economic assessment for post implementation evaluation
Ex-post (after the event) evaluations are evaluations of proposals that are complete or already implemented. Not all ex-post evaluations will involve economic assessment. For guidance on when to conduct an economic assessment for an evaluation purpose, consult your department's monitoring and evaluation policy.
If an economic assessment is necessary for the ex-post evaluation, the process would be the same as for any other economic assessment. Please refer to the introductory definitions and concepts and other guidance on this page as relevant to your particular situation.
Guidance on discount rates
The discount rate chosen reflects a judgement about the value of an outcome to future users as compared to current users. The discount rate also reflects the alternative uses of the capital proposed for use in the investment
There is no single discount rate that is appropriate for every project: there will always be uncertainty about what the alternative uses for the capital used by a proposal would have been, and what the capital would have produced in those uses. Furthermore, fundamental issues exist in determining the conceptual basis for discount rates.
Department of Treasury and Finance technical guidelines on economic evaluation currently recommend a discount rate of 4% or 7% depending on the category of investment.
This guidance on discount rates Guidance-on-discount-rates-internet.DOCX (DOCX 92.04 KB) provides a further discussion of the issues.
Guidance on using cost-benefit analysis versus computable general equilibrium modelling to estimate net social benefit
While cost-benefit analysis (CBA) is the preferred method for estimating the net social benefit of an initiative, computable-general equilibrium (CGE) modelling can also be used as long as the model explicitly includes measures of 'economic welfare' (economic welfare refers to all the benefits that consumers and producers gain above and beyond financial benefits). This guidance on using CBA versus CGE briefly discusses the differences between the two approaches and provides some 'rules of thumb' for when to use each.
Page last updated: 18 December 2019