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Cost Benefit Analysis overview

Outline
Background Overview of methodology Some examples

How does CBA support Community Budgets?


CBA can be used to deliver:
Informed decision-making

Cost-effective decision-making
Equitable decision-making

Background
GM Spatial Pilots Early Years and Better Life Chances Phase 1 Community Budgets Other partnership approaches Greater use of Payment by Results and novel investment models Whole Place Community Budgets

What role can CBA play in decision making? Economic tool to assess whether interventions represent value for money Calculates the ratio of benefits to cost Decision support tool
Benefit cost ratio: 0 1 2 3 4..

Not financially justified

Financially justified

What do we mean by costs and benefits?

All additional costs needed to deliver project

Fiscal

Costs

Fiscal Social Benefits Economic


Economic Social

Types of benefits
Fiscal benefits Savings to the taxpayer e.g. reduced health service, police or education costs; Gains to: individuals e.g. increased earnings or the whole economy e.g. increased Gross Value Added (GVA) due to higher skills levels Gains to society e.g. improved health and wellbeing or increased community cohesion

Economic benefits

Social benefits

Types of benefits
Example: Employment mentoring for individuals with mental health problems Fiscal benefits Reduction in unemployment payments as individuals gain employment Economic benefits Social benefits Improved Increased income of confidence, self individuals gaining esteem and employment reduced isolation of individual

Initiative to tackle Antisocial Behaviour

Reduction in police, housing and local Increased authority time spent patronage of local responding to businesses incidents Savings in reactive health costs Reduced outgoings Emergency hospital spent on drugs visits, long term health costs

Reduced fear of crime of residents

Drug treatment programme

Improved health and life expectancy of individual

Different approaches/uses of CBA?


The approach taken for CBA will depend on what decisions need to be made e.g. For Greater Manchester: the priority is on making savings to the public sector the meet the challenge of reducing fiscal focus budgets For governments as a whole decisions may be needed to determine the best way to maintain and improve economic focus standards of living Charities (and their funders) are most interested in social focus improvements to peoples lives

Regardless of the focus, we should consider all 3 types of benefits.

Greater Manchester CBA methodology

The GM CBA model costs


Costs Predicted efficiency savings

Capital Revenue In Kind


Benefits Fiscal Economic Social

Cost Benefit Analysis Tool

Benefit Cost Ratios Payback period

Outcomes

GM approach to calculating costs

What types of costs are borne?

Which agencies bear costs?

When are costs borne?

GM approach to calculating costs (2)


Proactive What we do Early intervention Health visit, employment support, parenting class, skills training COST Reactive Consequence of what we dont do Incident/crisis response Arrest, eviction, hospital visit, benefit payment (DIS)BENEFIT

The GM CBA model outcomes


Costs Predicted efficiency savings

Capital Revenue In Kind


Benefits Fiscal Economic Social

Cost Benefit Analysis Tool

Benefit Cost Ratios Payback period

Outcomes

Outcomes included in the GM CBA model


Level 2 skills Worklessness benefit payments Mental health

Eviction Looked after children A&E visits

ASB incidents

Drug/alcohol dependency

Homelessness

Offending

Individual well-being

Family well-being

Childrens well-being

Community well-being

Outcomes Framework

Turning outcomes into benefits


Outcome Getting someone into a job Gaining a Level 3 qualification Child taken into care Reduced incident of crime Reduced Isolation (full distance travelled) Fiscal benefit 9,176 1,391 35,000 3,316 3,843 Econ benefit Social benefit 2,947 1,925 7,640 8,553 2,640

The GM CBA model analysis


Costs Predicted efficiency savings

Capital Revenue In Kind


Benefits Fiscal Economic Social

Cost Benefit Analysis Tool

Benefit Cost Ratios Payback period

Outcomes

Running the GM CBA model


Target population

Engaged

Impact

Deadweight

Value

How many potential beneficiaries?

How many will we reach?

How many will achieve desired outcome?

What would have occurred anyway?

What is the value of the desired outcome?

Assumptions tested/updated via evaluation Optimism Bias (OB) correction applied to data

Evidence-based policy data quality issues


Confidence grade
Colour coding

Data source
Independently audited cost data Formal service delivery contract costs Practitioner monitored costs Costs developed from ready reckonners

Age of data
Current Data (<1 year old)

Known Data error +-2%

OB correction 0%

1-2 years old

+-5%

+5%

2-3 years old

+-10%

+10%

3-4 years old

+-15%

+15%

4-5 years old

+-20%

+25%

Uncorroborated expert judgement

>5 years old

+-25%

+40%

The GM CBA model outputs


Costs Predicted efficiency savings

Capital Revenue In Kind


Benefits Fiscal Economic Social

Cost Benefit Analysis Tool

Benefit Cost Ratios Payback period

Outcomes

Example outputs

Example outputs from GM CBA model


Intervention Family intervention project Intensive Community Orders Fiscal BCR 1.4 14.5 Payback period 5 years <1 year

Integrated Health and Social Care

0.9

N/A

Family Intervention Project fiscal value of outcomes


Percentage split between outcomes
Improved mental health, 1.7% Reduced alcohol dependency, 3.7% Reduced drug dependency, 19.4% Reduced A&E attendance, 0.1% Increased parental employment, 27.5%

Reduced homelessness, 0.5%

Reduced incidences of taking children into care, 28.6%

Reduced ASB, 17.5%

Reduced housing evictions, 1.1%

Family Intervention Project


1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 Local Authority NHS

Reactive Cost Savings DWP (AME) Police Work Programme Primes Proactive Costs RSLs CJS (excl Police)

New investment model applying CBA


Ex-ante appraisal Performance monitoring

Ex-post evaluation

Forecast savings

Track savings

Confirm savings

Who invests? How much? What to decommission?

Stop activity? Continue? Redraft agreement?

Apportion Reinvest into single pot Update model

Any questions?

julian.cox@neweconomymanchester.com