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The Benefit of Cost Benefit Analysis?

17 Apr 2013 - 12:21 by Nigel Rose

Salford Foundation is one of the very few VCS organisation in Greater Manchester that has trialed the cost benefit analysis (CBA) model developed by New Economy and a central plank of the Greater Manchester Community Budgets pilot. The CBA was carried out on the Together Women Project as part of ongoing attempts to prove the worth of the project and attract funding from public authorities. The project continues to be under threat despite ample evidence from independent evaluations of the impact that it makes on women's lives.

CBA is used to calculate a monetary value for the impact of the service, a concrete measure of the saving to public authorities. This can then be used to argue for funding from the public authorities who accrue the saving. The argument becomes that it would cost more for a public authority not to commission the service. The CBA for Together Women Project showed considerable savings but the Local Authority did not accept the findings.

According to Sir Peter Collins, the Chief Executive of Salford Foundation the problem is that CBA is too limited and insufficiently rigorous. As with any analysis only a limited number of factors are taken into consideration. These tend to concentrate on end product - reduction in number of children in care, reduction in number of women going to prison. Some are big ticket factors. Stopping one child going into care saves a huge amount of money whereas stopping someone going into prison is worth far less (as it is very difficult to realise the savings unless a significant part of the prison is closed). The limited number of factors included in the analysis skews the outcome by missing much of the true value of the service - the many and various contributions that a service might make to a final shared outcome.

The second problem is the rigour of the analysis and how incontrovertible it is. Despite major cost and time, much of it spent in trawling through past case files to assess where the women involved in the project started and where they ended up, the conclusion of the analysis is always open to question. The main problem is one of attribution. When the women involved with the project have complex lives and are receiving services from a variety of sources how does one decided which service made the difference and by how much? Was the Together Women Project responsible for 100% or 50% of the factors that led to a child not going into care and how does one decide? How many of the children would not have gone into care anyway (this is known as deadweight in a CBA)? When push came to shove the Local Authority rejected the findings of the CBA on the basis of their knowledge and understanding of the huge range of factors and services that might impact on savings to public authorities.

Sir Peter Collins has not lost faith in the process but feels that they suffered to some extent from being an early adopter. He believes that CBA is an essential part of the evidence that goes to prove the worth of a service but that it needs to be more rigorous and broader in scope. It is important to be in the game and to be in active partnership with the process of public sector reform. All services need to be clear about outcomes and how they measure what they have achieved and CBA is part of the picture. It is a complex and time-consuming process which is difficult to apply to a single service and taxed a medium-sized organisation (Salford Foundation has approximately 50 staff). It is hard to imagine how smaller organisations could use CBA.

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