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The Green Book

The Green Book

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Published by Shak Gohir
Appraisal and Evaluation in Central Government, HM Treasury
Appraisal and Evaluation in Central Government, HM Treasury

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Published by: Shak Gohir on Mar 29, 2011
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04/11/2013

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THE GREEN BOOK
Appraisal and Evaluation in Central Government
Treasury Guidance
LONDON:TSO
 
THE GREEN BOOK 
iv
C
ONTENTS
Page
Contents ivPreface vChapter 1 Introduction and background 1
Introduction 1When to use the Green Book 2
Chapter 2 Overview of appraisal andevaluation 3
Introduction 3The appraisal and evaluation cycle 3The role of appraisal 3Process for appraisal and evaluation 4Presenting the results 6Managing appraisals and evaluations 7Frameworks 8Issues relevant to appraisal and evaluation 9
Chapter 3 Justifying action 11
Introduction 11Reasons for government intervention 11Carrying out research 11
Chapter 4 Setting objectives 13
Introduction 13Objectives, outcomes, outputs and targets 13
Chapter 5 Appraising the options 17
Introduction 17Creating options 17Valuing the costs and benefits of options 19Adjustments to values of costs and benefits 24Discounting 26Adjusting for differences in tax between options 28Introduction to risk and uncertainty 28Adjusting for bias and risks 29Assessing uncertainty 32Preventing and mitigating risks and uncertainty 34Considering unvalued costs and benefits 34
Chapter 6 Developing and implementing thesolution 37
Introduction 37Selecting the best option 37Developing the solution 40Implementation 42
Chapter 7 Evaluation 45
Introduction 45Evaluation process 45
Page
Annex 1 Government intervention 51
Introduction 51Economic efficiency 51Equity 52Additionality 52Regeneration 54
Annex 2 Valuing non-market impacts 57
Introduction 57Valuing non-market impacts 57Current research/plausible estimates 59Valuing environmental impacts 63
Annex 3 Land and buildings 69
Introduction 69Acquisition and use of property 69Leases and rents 71Disposal of property 72Cost effective land use 72
Annex 4 Risk and uncertainty 79
Introduction 79Risk management 79Transferring risk 82Optimism bias 85Monte Carlo analysis 87Irreversible risk 88The cost of variability in outcomes 88
Annex 5 Distributional impacts 91
Introduction 91Distributional analysis 91Analysis of impacts according to relative prosperity 91Analysis of other distributional impacts 94
Annex 6 Discount rate 97
Introduction 97Social Time Preference Rate 97Long term discount rates 98Exceptions to the discount rate schedule 99Discount rate tables 100
Glossary 101Bibliography 107Index 109
 
T
he Government is committed to continuing improvement in the delivery of public services.A major part of this is ensuring that public funds are spent on activities that provide the greatest benefits to society, and thatthey are spent in the most efficient way.The Treasury has, for many years, provided guidance to other public sector bodies on how proposals should beappraised,before significant funds are committed – and how past and present activities should be evaluated.This newedition incorporates revised guidance,to encourage a more thorough,long-term and analytically robust approach toappraisal and evaluation. It is relevant to all appraisals and evaluations.Appraisal, done properly, is not rocket science, but it is crucially important and needs to be carried out carefully.Decisions taken at the appraisal stage affect the whole lifecycle of new policies, programmes and projects. Similarly,the proper evaluation of previous initiatives is essential in avoiding past mistakes and to enable us to learn fromexperience.The Green Book therefore constitutes binding guidance for departments and executive agencies.This edition of the Green Book is the first which has been preceded and helped by a consultation.The consultationprocess has proved invaluable in shaping the final guidance.While the results have shown widespread support for the main changes proposed,the consultation has particularly helped in making the guidance clearer and more closely tailored to users’ needs.Amongst the main changes are the following. First, there is a stronger emphasis on the identification, managementand realisation of benefits – in short, focusing on the end in sight, right from the beginning. Secondly, the new edition“unbundles” the discount rate, introducing a rate of 3.5% in real terms, based on social time preference, while takingaccount of the other factors which were in practice often implicitly bundled up in the old 6% real figure.In particular,the new Green Book includes,for the first time,an explicit adjustment procedure to redress the systematic optimism(“optimism bias”) that historically has afflicted the appraisal process.Finally,there is greater emphasis on assessing thedifferential impacts of proposals on the various groups in our society, where these are likely to be significant.The Treasury is grateful for the significant contributions to the development of this edition of the Green Book madeby many others, working across government and elsewhere. Particular gratitude is due to those who participated inthe consultation process and provided such detailed and valuable comments.We hope that the final version reflectsthe quality of these contributions.Joe GriceChief Economist and Director, Public ServicesHM Treasur
THE GREEN BOOK 
v
P
REFACE

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