11.5.2 The Actors
Persons associated in the decision making process may be divided into three types:
Analyst : Looking in the right perspective
Guardian: Auditor, shopkeeper ¼ one cent is one cent
Spender : Consumer society ¼ why bother to save if one can spend?
While the analyst is expected to do the right thing through a proper and objective
analysis, Boardman (2001) explains that this is not always easy, as the reports
somehow may get contaminated with the views of two types of people: the guardians
and the spenders, who are caricatured below.
Guardians
Guardians are people working in central budgetary agencies, and/or hold accounting
posts within line agencies. They tend to be obsessed with a bottom-line budgetary
orientation. They naturally tend to equate benefits with revenue flowing into their
organisation or other governmental coffers and to associate costs with revenue
flowing out from their organisation or other governmental coffers. They generally
wish to use a high social discount rate. Either due to their agency’s culture or their
financial education, their natural preference goes to a financial market discount rate,
which is usually higher than the relevant or corresponding social discount rate. They
are well aware that high discount rates will render most projects quite difficult to
justify because costs usually occur before benefits (whose discounted values
decrease rapidly, with higher discount rates). Thus, it is easier to reduce the number
of spenders who, most likely, underestimate costs, overestimate benefits, and generally spend money less efficiently than the private sector. In that sense, they are
truly the watchdog (guardians) of the coffers.
Table 11.14 (continued)
Sr.
No. Steps
Features
there is uncertainty about both. The sensitivity
analysis tries to examine the effect, on the NPV, of
varying one parameter, while keeping the others
constant. Rather than varying everything, it is
judicious to focus on the most important assumptions, using most probable scenarios.
9
Produce recommendations based on
the NPV and sensitivity analysis
The project alternative with the largest NPV is
deemed to be the best. However, the sensitivity
analysis might suggest otherwise.
Analysts produce recommendations, but do not
take decisions.
11.5 Using Cost Benefit Analysis for Resilience
323
Persons associated in the decision making process may be divided into three types:
Analyst : Looking in the right perspective
Guardian: Auditor, shopkeeper ¼ one cent is one cent
Spender : Consumer society ¼ why bother to save if one can spend?
While the analyst is expected to do the right thing through a proper and objective
analysis, Boardman (2001) explains that this is not always easy, as the reports
somehow may get contaminated with the views of two types of people: the guardians
and the spenders, who are caricatured below.
Guardians
Guardians are people working in central budgetary agencies, and/or hold accounting
posts within line agencies. They tend to be obsessed with a bottom-line budgetary
orientation. They naturally tend to equate benefits with revenue flowing into their
organisation or other governmental coffers and to associate costs with revenue
flowing out from their organisation or other governmental coffers. They generally
wish to use a high social discount rate. Either due to their agency’s culture or their
financial education, their natural preference goes to a financial market discount rate,
which is usually higher than the relevant or corresponding social discount rate. They
are well aware that high discount rates will render most projects quite difficult to
justify because costs usually occur before benefits (whose discounted values
decrease rapidly, with higher discount rates). Thus, it is easier to reduce the number
of spenders who, most likely, underestimate costs, overestimate benefits, and generally spend money less efficiently than the private sector. In that sense, they are
truly the watchdog (guardians) of the coffers.
Table 11.14 (continued)
Sr.
No. Steps
Features
there is uncertainty about both. The sensitivity
analysis tries to examine the effect, on the NPV, of
varying one parameter, while keeping the others
constant. Rather than varying everything, it is
judicious to focus on the most important assumptions, using most probable scenarios.
9
Produce recommendations based on
the NPV and sensitivity analysis
The project alternative with the largest NPV is
deemed to be the best. However, the sensitivity
analysis might suggest otherwise.
Analysts produce recommendations, but do not
take decisions.
11.5 Using Cost Benefit Analysis for Resilience
323