1. Determine the problem and give alternative solutions. Sometimes needs assessment is useful in determining the problem. Once the problem is determined, decide what solutions (i.e., programs) should be considered. These are the choices. All other steps apply to these choices, so they should be very clearly labeled and defined in the first page or two. For example, if one choice is a new program, the explicit definition should include the size of the proposed program, its expected duration, and the number of people it would cover. Often the two choices are go and no go for a program. In such cases it is important to very specifically define both these terms for this program.
2. Determine all monetary costs associated with each choice. This section is usually quite short, because these costs can usually be considered the same as market prices, and can be taken right from the budget. Just to be sure, check whether there are opportunity costs or upcoming market changes that are not captured by the budget. (Usually there are none.)
3. List all possible benefits (outcomes) and estimate their size. This is the most important section of the paper. For a program evaluation, these benefits may be derived from a careful research design, such as before/after figures compared to a control group. If this is not possible, then both policy analyses and program evaluations must determine these benefits through informed estimation. One common method of estimation is comparison with similar programs at other times or in other jurisdictions. Defending all estimates: If some of the outcome estimates are drawn from published sources (or expert opinions), this analysis cannot simply assume they are correct. It must independently defend them: explain how the published source reached its estimates, indicate why the estimates seem correct, and discuss how they have been adjusted for this particular project.
4. For cost benefit analysis, turn these benefits into money estimates. There are five possible assessment techniques: survey, intermediate goods (including cost savings), travel costs, private market analog and implicit (hedonic) price. For political reasons, it is usually better not to monetize lives saved. If a monetary figure is used for lives, later run the sensitivity analysis with the monetized life figures excluded, to see how much they affect your overall answer.
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5. Array both costs and benefits in a time stream. Discount them. How long a time stream? Longer is usually more accurate. Stop the time stream only when the numbers are either very small, or too uncertain to be defended. What discount rate? If monetized figures are real-- i.e., inflation-free-- then a discount rate of roughly 8% is usually defensible -- in part because it is probably too high and thus conservative.
6. Indicate the choice with the largest net benefit. This, of course, is the projects central finding.
7. Conduct a sensitivity analysis. All estimates that are both uncertain and important should be sensitivity analyzed. In inserting higher and lower numbers for the sensitivity analysis, these new numbers must be defended just as the "best" estimates were: e.g., why does this seem the lowest plausible estimate for this outcome?
8. Summarize. The summary should give explicit attention to the unquantifiable aspects of each choice.
--------------------------- Although not part of the course project, two other steps are sometimes included in real- life analyses:
9. Consider any implementation problems associated with each choice.
10. Analyze and discuss any distribution (equity) differences between the choices. Conclude.