Tool
When to Undertake a Cost Benefit Analysis
(identifying the preferred option)
Context
The purpose of these guidelines is to help groups decide if there is merit in undertaking a formal Cost
Benefit Analysis (CBA).
What to do?
1. Answer checklist
questions (Table 1)
2. Identify if information is
available for CBA (Table 2)
3. Make decision
What is a Cost Benefit Analysis?
Cost-benefit analysis is a term that refers to process of weighing the total expected costs against the total
expected benefits of two or more options to determine how best to allocate resources. Quantifying all costs
and benefits in monetary terms makes it possible to quantitatively rank alternative options for pest
management. The outcomes of this process provide decision-makers with a consistent basis for assessing
alternative pest management options and to be informed about the implications of each option.
For pest management, a CBA quantifies the impacts (usually in monetary terms) of implementing a pest
management programme against a baseline scenario of ‘do nothing’ or ‘maintaining the status quo’. The
process can be used to consider different pest management responses, different pest control options, or
both. Impacts and consequences can be positive and negative, direct and indirect, tangible and intangible.
Each option is assessed against a range of criteria including economic, environmental, socio-cultural or
public health with the aim of identifying all the significant effects and consequences for each option.
Undertaking a formalised cost benefit analysis can be complicated and is usually undertaken by a specialist
trained in this area. Therefore, the Coordination Team may choose to contract this step out to specialists if
internal expertise isn’t available or if there is considered to be benefit in having this step undertaken
independently.
Table 1 identifies key questions for a group to consider when deciding if a CBA is needed.
In general terms, the greater the number of ‘yes’ responses to the questions identified below the stronger
the justification for undertaking a CBA.

Table 1 Questions for determining when to undertake a CBA
Questions
Context/Explanation
Has the reasons why a CBA is necessary been sufficiently
It is important to identify what is intended to be achieved
identified?
through the CBA process and the reasons why a CBA is
considered necessary.
Will the results of the CBA improve on what is already
CBA is a flexible process and can generally be applied to
known?
assess most options however it is often not possible to
assign a monetary value to some costs and benefits.
If the costs and benefits cannot be adequately defined
then other assessment techniques should be explored.
Is an independent assessment required to justify decision-
In some cases it is beneficial to have a CBA analysis
making?
undertaken by an independent party. This may arise
particularly where there is no strong consensus on what is
the ‘best option’ for a project and there are two or more
competing proposals. Having an independent CBA can
assist in gaining consensus and in providing justification if
decisions are questioned.
Is the pest problem, impacts and possible management
The CBA is a useful tool to decide between competing
options understood well enough to identify the preferred
options once a problem has been sufficiently understood
management approach for assessment?
and all feasible options identified.
Is there stakeholder support for the process of undertaking a
It is important that key stakeholders understand the CBA
CBA?
process and have involvement is identifying the impacts to
be assessed as well as any ‘threshold’ values that need to
be maintained. Otherwise there may be limited acceptance
of the outcomes.
Do stakeholders understand the CBA process, what the
An essential element in undertaking pest management
outcomes will look like and how the information will be used
projects is getting stakeholder support. As a CBA can
in decision-making?
provide useful information that will help in decision making
and choosing between alternative management options it
is important that key stakeholders understand the options
being considered, what the threshold criteria are and how
the outcome will be used in decision-making.
Does any other related CBA exist that could be used?
For example, a CBA done for the same pest in a different
area/region could be relevant.
Can we achieve the desired outcome for
This usually becomes a key consideration when the
collaboration/decision-making/funding through other
resources are not available to undertake a CBA.
mechanisms?
At this stage there should be consideration of other
possible tools/approaches such as undertaking a
qualitative assessment or assessing the impacts and
options in consultation with key stakeholders etc.
CBA is only one of a number of tools and approaches that
Yes/No
could be used to identify a preferred option from a number
of options. Other tools and approaches could include multicriteria analysis, environmental impact assessment and /or
consultation. These different options should also be
considered as they may be less costly and resource
intensive.
Are the resources available (financial, technical and other) to
The cost of having a CBA carried out by a contracted
undertake a CBA?
agency can range in price significantly. A number of cost
estimates should be sought from experienced contractors
to assess this. A decision to undertake a CBA may involve
weighing up the relative cost of the CBA vs the cost of the
impacts current management approach.
There may also be the need for detailed technical
information to be supplied as part of the CBA (pest
characteristics, impacts, costs both operational,
managerial and training etc).
Table 2 outlines the information needed in order to undertake a CBA.

Table 2 Information needed to undertake a CBA
Information needed for a CBA
Explanation
Importance
Identification of baseline and alternative
An important part of a CBA is to identify the baseline scenario
Essential
options for assessment. Could be ‘do
against which the preferred options can be assessed.
nothing’, minimal intervention’ or ‘no
Sometimes a CBA may be undertaken when an existing
change to existing programme’.
programme is found to be ineffective and new options for
management need to be assessed.
Note: A CBA normally explores the costs and benefits of at
least two options, one being the ‘status quo’ or “do nothing”.
It is usually best to keep the number of options being
considered to a minimum so consider if some options can be
ruled out without the need to assess through CBA?
Identification of preferred options for assessment?
If there are a number of options what are they, are we
confident that we have identified the best options for
consideration by the CBA?
Characterisation of impacts across
Earlier toolbox steps have identified the need to describe the
economic, socio-cultural, environmental
pest issue including spread, biology and impact identification.
and heath aspects. Also direct, indirect,
This baseline information is a necessary precursor to
current and future impacts
undertaking a CBA. The majority of this information should be
Essential
available from earlier steps in the process.
Identification of costs for options being
The estimation of costs for intangibles such as environmental
assessed. Need to consider full range of
quality or biodiversity is very difficult. There are a range of
costs including operational, programme
approaches to this issue that are in use (refer to further links
management, logistics education etc. Also
and resources). However, often these are considered to be
estimations of costs for environmental and
‘estimations’ at best.
other intangible impacts.
Essential
Information needed for a CBA
Explanation
Importance
Level of confidence regarding information
Considered as part of the CBA to inform confidence levels in
Desirable
and inputs to the process.
the outcomes.
Agreed acceptance thresholds on
This is referring to identifying the agreed threshold values for
constraints to options, costs or risks to
options. For example this could include costs of options,
values such as human health or
capability (human and technical to implement), value
environment
constraints such as human health or social acceptance of
Desirable
options etc
It may be necessary to discuss constraints and some decision
criteria with the person undertaking the CBA as this may
impact on the outcomes
What do the results of a CBA look like?
http://www.biosecurity.govt.nz/pests-diseases/plants/didymo/economic-impact.htm
How to use a CBA?
A CBA considers and identifies a great deal of information regarding the costs and benefits for each
management/control option considered. As part of the CBA process, a report should be prepared by either
the contractor or individual undertaking the CBA. This will make recommendations based on the
acceptance threshold values and decision criteria defined by Coordination / Leadership Team.
This report should then be discussed and considered by the Leadership Team with input as needed by the
Coordination and Technical Teams. Decisions should then be made on the recommendations made in the
CBA report.
A.1
Tool – Cost Benefit Analysis …..Understanding the steps
The below diagram illustrates the key steps in a CBA process. For further guidance on undertaking these
steps in detail refer to the links for further resources.
Step 1: Define the problem

Define the problem to be addressed by the analysis.

Establish the perspective and scope and determine the structure and composition of the CBA.
Step 2: Select the options

Select the options to be assessed

This is usually assessment of a single proposed response in relation to the baseline option or
comparison of two or more options in terms of their net benefits/costs.
Step 3: Specify the baseline scenario

Specify the baseline scenario. Options generally include no intervention, a minimum level of
intervention or continuation of the current level and form of intervention.
Step 4: Estimate costs for the options

Estimate the costs of the options at market values and in real terms (usually at the price level at the
time of analysis), allowing for any significant changes in unit costs over time.

Express the costs of each control option as a time series of annual expenditure, reflecting the pattern
of activities over time, and indicate any ongoing or subsequent expenses.
Step 5: Identify the impacts of the options

Identify all significant consequences and impacts of the options (even if not quantified and valued):
consider positive and negative, direct and indirect, tangible and intangible across environmental,
socio-cultural and economic aspects.

Define these effects in terms of specific outcomes.
Step 6: Quantify these impacts

Quantify the identified effects in terms of annual outcomes relative to the baseline scenario.
Step 7: Value these effects

Value effects in real terms (usually at the price level at the time of analysis), allowing for any
significant changes in real unit values over time.

Apply market values, where available, or measures of cost value (costs saved, avoided or incurred)
or benefit value (willingness-to-pay, as revealed by transactions in related markets or stated in
surveys of consumer preferences).
Step 8: Consider the timing of these effects

Express the positive and negative effects of the options as time series of annual benefits and costs.

Model these annual benefits and costs according to when the effects commence and how they
develop over time.

Assess and compare control options over appropriate analysis periods.
Step 9: Discount annual costs and benefits

Discount annual costs and benefits to their present values in the base year (usually the year at the
time of analysis).
Step 10: Calculate decision criteria

Rank the options according to the decision criteria in order to identify the preferred option.

Compare the decision criteria with the accepted threshold values for accepting options in preference
to the baseline scenario.
Step 11: Perform sensitivity analysis

Examine the sensitivity of the findings to the values adopted for those values which are considered to
be uncertain or variable.

This analysis is used to investigate how much the finding change with the values adopted. (i.e. those
values which considered to be uncertain).
Step 12: Report on the CBA

Prepare final report on outcomes of the analysis, finding and recommendations for consideration by
the Leadership Team
Other links and resources on CBA
Treasure Cost Benefit Analysis Primer http://www.treasury.govt.nz/publications/guidance/planning/costbenefitanalysis/primer/cba-primer-v12.pdf