Cost/benefit analysis

A cost-benefit analysis involves calculating the total costs estimated for a project and comparing these to the calculated cost-benefit of a project. This can be applied to the development of a National Water Safety Plan, demonstrating the anticipated financial benefits that implementation of the plan will have against the anticipated investments required.  

There are five major steps to performing a cost-benefit analysis: 

Step 1:

Make a list of all potential costs associated with implementation of a water safety plan.  

These should include: 

• Direct costs: the prices of specific materials, products or services required for plan implementation, such as the employment of staff to deliver water safety education sessions. 
• Indirect costs: costs that are not specific to items or services, but will occur as a result of plan implementation. Examples include overhead costs such as rent and utilities, or any administrative costs. 
• Opportunity costs: funding opportunities not accessed due to alternative pathways being taken to fund plan implementation. 
• Costs of potential risks: all planned costs associated with a risk, multiplied by the probability that the risk will occur. 

Step 2:

Make a second list of all benefits that are anticipated to be achieved through the implementation of the water safety plan.  

These should include: 

• All potential revenue earned: for example, payments received for participation in a water safety program made available as part of the water safety plan. 
• Money saved as a result of plan implementation: for example, savings in costs associated with rescue and resuscitation due to improved water safety skills resulting from plan implementation.  
• Intangible benefits: such as increasing people’s confidence in or around water. 

Step 3:

Assign a cash value to each anticipated cost. It may be particularly difficult to assign cost values to intangible costs, opportunity costs and costs of potential risks. Estimates made for these costs should be reviewed and discussed by a panel of stakeholders until consensus is reached.  

Step 4:

Assign a cash value to each benefit. This may be challenging as future water safety plan impact will be difficult to predict. Ensure all estimates are reviewed and discussed by multiple stakeholders for consensus.  

Step 5:

Add together all values allocated to costs and benefits. Compare both cash values. Do the costs and benefits outweigh each other? If costs are higher than benefits, the water safety plan may not be financially feasible to implement. You may then need to find a way to increase plan benefits and/or decrease plan costs.   

Advantages

• A cost/benefit analysis can be used to investigate the financial feasibility of implementing a National Water Safety Plan. 
• It can be used to justify funding requests. 
• It is a method of identifying and removing aspects of the plan which are unlikely to return cost benefit. 

Disadvantages

• Many cost estimates required for a cost-benefit analysis are subjective. It is therefore necessary to have multiple people involved in the cost-assigning process to increase accuracy. 
• Changes to funding may occur over the water safety plans implementation, requiring the analysis to be re-done. 
• Underestimating costs and overestimating benefits can cause large financial problems for plan implementation. 
• The value of costs and benefits may change over time. 

Context

A cost-benefit analysis should be performed after a detailed National Water Safety Plan has been developed and prior to plan implementation. It may be beneficial to review previous analyses for similar plans and projects to gain a better idea on the types of costs that may be incurred.