Conducting Cost-Benefit Analysis: What am I Measuring?

Analysts often start a cost-benefit analysis with a policy option in mind. Sometimes, though, an analyst must tackle a policy question without predetermined policy options. This requires the analyst to spend serious time constructing policy options to address the given problem. This has been the focus of my last week working on Scioto Analysis’ current cost-benefit analysis. 

In policy analysis, this stage is often referred to as constructing the alternatives. “Alternatives” is a somewhat confusing phrase mainly used in policy analysis literature. When we talk about “alternatives,” what we mean are “policy options” worth considering.

The obvious alternative to consider in a cost-benefit analysis is the status quo. What is the current plan to address the issue of interest? What happens if policymakers do nothing and just let current trends continue? Knowing where you are currently is a great way to see what policy choices you have to adjust. 

Understanding the status quo is also important because projections about future trends could lead you to constructing different alternative policy options. For instance, a cost-benefit analysis of housing affordability policies in a city will require very different policy options if the population over the next ten years is projected to grow over the next ten years than if it is projected to stay flat.

Beyond the status quo, looking for similar situations in comparable states is a great way to find viable policy alternatives. Are neighboring cities or states dealing with the same problem? Have they been successful in their efforts? Are there further-off jurisdictions that might provide alternatives for more forward-thinking policymakers?

These sorts of general questions are a good way to get started when thinking about alternatives, but it is important to keep in mind that the more specific you can be with constructing an alternative, the better. When we are more specific about the mechanics of the policies we are analyzing, we can better predict what effects changes to current policy might have. 

For my current cost-benefit analysis, I was able to find that the policy choice I want to analyze has been adopted in slightly different forms across the country. Looking at other states in this context, I was able to find a few specific changes that the state of Ohio could adopt. 

Choosing policy alternatives from scratch can be a daunting proposition. But construction of alternatives can be one of the most useful steps in a cost-benefit analysis. If a policymaker is open to thinking of new solutions to a problem, this can be one of the most important parts of the analysis: bringing forth ideas in the policymaking process that weren’t there before. By fully understanding the current context of the problem and by finding how similar situations have been handled in the past, we can find practical, creative, and effective solutions to analyze and potentially implement in the public sector.

This blog post is part of a series of posts on conducting cost-benefit analysis for newcomers by Scioto Analysis Policy Analyst Michael Hartnett.