The use of cost-benefit analysis (CBA) to assess regulatory proposals is an important tool in better decision making. A CBA involves a systematic evaluation of the impacts of a regulatory proposal, accounting for all the effects on the community and economy, not just the immediate or direct effects, financial effects or effects on one group. It emphasises, to the extent possible, valuing the gains and losses from a regulatory proposal in monetary terms.
CBA provides an objective framework for weighing up different impacts and impacts which occur in different time periods. This objectivity is supported by converting all impacts into present value dollar terms. Even when full quantification of impacts is not possible, CBA can still be useful in providing a clear decision making framework.
The Office of Best Practice Regulation (OBPR) provides training, advice and technical assistance to officers in Commonwealth Agencies on CBA and risk analysis. If you have been advised by the OBPR that your proposal will require a formal CBA, you can request assistance or arrange to attend a CBA training course by contacting the OBPR.
CBA guidance notes
For Australian Government RISs, it is a requirement that Long Form RISs contain a formal CBA.
Further information on undertaking CBAs for Australian Government RISs is available at Cost-benefit analysis guidance note.
Further information on undertaking CBA for Council of Australian Governments (COAG) regulatory proposals is available in Appendix C of the COAG Best Practice Regulation guide.
Guidance on how to quantify the benefits of regulation designed to reduce the risk of physical harm (such as the use of a value of statistical life – VSL) can be found at Best Practice Regulation Guidance Note: Value of Statistical Life.
Where regulation is designed to reduce the risk of physical or economic harm, the CBA should include a risk analysis detailing how the regulation will change the likelihood, frequency or consequences of an adverse event occurring.
Examples of CBA
- Cost-benefit analysis of proposed new health warnings on tobacco products, prepared for Commonwealth Department of Health and Ageing, December 2003 (Department of the Treasury archived website)
- Benefit cost analysis of Country of Origin Labelling, prepared for Food Standards Australia New Zealand, September 2005 - DOC 376 KB | PDF 441 KB (FSANZ website)
Other useful CBA reference material
- Cost Benefit Analysis and Historic Heritage Regulation Working Paper
- Establishing a monetary value for lives saved: issues and controversies working paper
- Boardman, E.A., Greenberg, D.H., Vining, A.R. and Weimer, D.L., 2006, Cost-Benefit Analysis Concepts and Practice, 3rd edition, Pearson Prentice Hall.
- Commonwealth of Australia (Department of Finance and Administration) 2006, Handbook of Cost-Benefit Analysis, January.
- OECD, Pearce, D., Atkinson, G. and Mourato, S., 2006, Cost-Benefit Analysis and the Environment: Recent Developments, OECD Publishing.
- Sinden, J.A. and Thampapillai, D.J., 1995, Introduction to Benefit-Cost Analysis, Longman.