Making a Financial Case, Fourth Edition

6: Non-Financial Cost-Benefit Analysis

6 Non-Financial Cost-Benefit Analysis

The technique of cost-benefit analysis attempts to identify and quantify the non-financial costs and benefits of a project. For instance, if a county council wants to put a by-pass around a village, it will be able to calculate the capital costs of building the road in terms of labour and tarmac. But there are other costs associated with the by-pass, some of which are non-financial:

  • maintenance costs;

  • pollution from exhaust fumes and dirt;

  • water pollution from a mixture of rain and rubber, heavy metals and so on, which accumulate on the road through use, as the mixture runs off into ditches and fields;

  • noise;

  • loss of green fields;

  • general damage to the landscape.

There are benefits, though:

  • savings in journey time;

  • fewer accidents;

  • better quality of life for villagers along the existing road;

  • fewer large commercial vehicles may replace an extra number of smaller ones previously needed to handle smaller village roads.

Activity 24

Select one cost and one benefit of the by-pass project discussed above. How would you place a value on the effects?

_______________________________

_______________________________

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Some costs, such as maintenance, are financial in nature and can be estimated in monetary terms by including potential material and labour costs. Pollution is more difficult to quantify, but you can measure the costs of cleaning up pollution in the village over a few years. You can find a similar by-pass in another part of the country and work out the costs associated with cleaning up pollution...

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