Improving cost benefit analysis

The Government’s use of cost benefit analysis must improve if crucial investments in the country’s infrastructure are to succeed. 

How to value infrastructure: Improving cost benefit analysis argues that with a quarter of a trillion pounds (£250bn) worth of infrastructure investment expected over the next five years, the Government cannot afford expensive mistakes and unnecessary delays.

Cost benefit analysis is the best way for government to assess the economic value of projects but it is often misused, inconsistently applied and poorly communicated. This risks the wrong projects being approved while valuable projects are either turned down or delayed. The report argues that cost benefit analysis is sometimes used by ministers to justify decisions that have already been made: not only does this erode public trust in government, it also harms the country’s long-term competitiveness.

However, the report finds that cost benefit analysis can, when used properly, improve decision making and so shouldn’t be abandoned. The authors recommend that the Treasury and relevant departments, including the Department for Transport, publish clearer guidance for analysts, based on more and better data, with more consistent assessment. Ministers must be more transparent about the way they make they make difficult infrastructure decisions.

Getting better at cost benefit analysis could go a long way towards enabling the Government to commission projects that will help transform the UK economy, and avoid expensive overruns like the Channel Tunnel or the embarrassing u-turns of the rail electrification programme.

Download our ‘Time to get real on infrastructure costs’ infographic.

Original source – The Institute for Government

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