Cost benefit analysis

Cost benefit analysis demonstrates the value of an intervention – when you are still planning it or once you have delivered it. Although it looks technical, in practice it is about being logical and distilling your intervention to its essence.

Cost benefit analysis is often used to demonstrate the effectiveness of service transformation for both the system and its citizens, while you’re still planning or delivering it.

Cost benefit analysis
The diagram above shows the components of the cost and benefit calculations: volumes and values, costs and benefits.

The process is broken down into five basic steps to producing a cost-benefit analysis of an intervention or programme:

1. Describe – Set out the process

The first step in any cost-benefit analysis is to describe what you are trying to achieve and how you will go about it. This is known as a theory of change, a logic chain or a logic model.

2. Measure – Quantify costs and benefits

There are three different types of cost which need to be considered: capital costs, revenue costs and in kind costs.

3. Identify – Assess the timing of your benefits and who benefits

Is the time horizon for your analysis one year? Five years? Twenty five years? And when are costs incurred and benefits realised?

4. Calculate – The ratio between your costs and the different types of benefit

The next step is to put all the data you have collected in a spreadsheet – a template is available from New Economy.

5. Present – Communicate what the figures mean

The next step is to put all the data you have collected in a spreadsheet – the New Economy model is straightforward to use and will automatically perform the calculations below.

Where can I find out more?

Read our guide to Cost Benefit Analysis