EconSearch uses cost benefit analysis and other standard analytical techniques in the assessment of investment proposals in the natural resource industries. Depending on data and project objectives, project evaluation is typically undertaken using either:
- Cost Benefit Analysis
- Multi-Criteria Analysis.
Cost Benefit Analysis
Cost benefit analysis (CBA) is a method for organising information to aid decision makers in the allocation of scarce capital. The technique provides a quantitative comparison of alternative options.
Investments in infrastructure (water, roads, ports) research and development (rural industries, cooperative research centres) and natural resource management (weed control, natural resource utilisation) are examples of the types of investments EconSearch has analysed for public and private sector clients. These types of investments are critical to economic development, particularly in regional and rural locations.
There are two main perspectives from which this analysis and evaluation may be undertaken:
- An economic perspective, in which the focus is on the overall impact on the material well-being of the society as a whole
- A financial perspective, in which the focus is on the monetary return to the proponent of the project.
Although there is considerable common ground in the techniques that are applied in undertaking these two forms of analysis, they are distinctly different.
It is also important to distinguish between economic evaluation and economic impact analysis.
Economic evaluation is normative: it is designed to assess whether or not a project will, on balance, improve economic welfare.
Economic impact analysis is descriptive: it is intended to describe the effect that a project will have on certain measures of economic activity, but provides no direct guidance on whether or not a project is worthwhile.
It is impossible to try to reduce all values in society to a monetary value. In some cases, where there is no market to reveal a monetary value, available techniques of valuation, such as stated and revealed preference methods (contingent valuation, travel cost method, choice modelling, etc.), are expensive to implement and often provide unreliable value estimates.
An alternative approach to that of monetary valuation of all benefits and costs is the method of multi-criteria analysis. Multi-criteria analysis (MCA) is a structured framework for investigating, analysing and resolving decision problems constrained by multiple objectives and criteria (Nijkamp et al.1990, Voogd 1983). It is seen by many as an alternative to CBA primarily because it does not require all impacts to be expressed in monetary units.
In its most basic form, a multi-criteria analysis (MCA) model is comprised of a set of evaluative criteria, a set of weights indicating the importance of those criteria, a set of alternatives (scenarios or alternative projects), and a set of performance measures indicating the performance of each alternative against each criterion. This method of analysis is aimed at supporting decision makers when faced with making numerous and conflicting evaluations.