Cost Benefit Analysis
Cost Benefit Analysis
The Greater Manchester Combined Authority (GMCA) Research Team (formerly New Economy) has pioneered the development of a cost benefit analysis (CBA) methodology that has become nationally leading in its approach to articulating the fiscal, economic and social value of interventions. The methodology has been subject to an ongoing process of development since it was initially produced in 2011, and was adopted as supplementary guidance to HM Treasury’s Green Book (gov.uk) in 2014. Representatives from a range of central government departments have supported the development process, and remain engaged in further refinement of the CBA model and accompanying resources.
Greater Manchester CBA model
CBA is a central element in the development of business cases for new and innovative ways of working in Greater Manchester. The CBA model is used to understand the value for money provided by an intervention, particularly in terms of the use of taxpayers’ money and the extent to which new delivery models might generate improved outcomes and related savings compared to ‘business as usual’ – the ‘financial case’ within the Green Book five case model. The CBA model also enables the wider ‘economic case’ or public value to be articulated, quantifying economic benefits that accrue to individuals and businesses, and social benefits in terms of improved individual health and well-being. CBA outputs include quantification of the estimated return on investment (ROI), and provided there is a positive ROI, the pay-back period – how long it might take before the benefits start to outweigh the costs.
The CBA approach can be used to consider the value for money offered by different interventions that might otherwise not be easily compared. It provides valuable intelligence on the equitability of funding – by demonstrating the money flows between organisations that invest in an intervention and those that derive the benefits, it can inform development of new investment models where local partnerships adopt a collective approach to resourcing activity and sharing the benefits from that activity.
The CBA model is used extensively across the country by public, private and voluntary and community sector partners. The methodology has been applied to a wide range of intervention types, including: supporting families and early help programmes; employment and skills initiatives; health and social care propositions; new approaches to delivering early years’ services; and redesigns of criminal justice system interventions and blue light services.
The CBA model (an Excel workbook) and accompanying guidance can be downloaded from the links below. The CBA model was updated in October 2022 to incorporate central government guidance on the valuation of carbon, energy and greenhouse gases, and to reflect recent changes to the Green Book methodology. We have developed a new ‘Low Carbon and Energy Projects Benefits Roadmap’ tool, commissioned by the Department for Business, Energy & Industrial Strategy (BEIS), also provided for download. The Roadmap is intended to support local partners in understanding and articulating the benefits of low carbon and energy projects, to provide inputs for CBA and related purposes. We are planning an update of the CBA guidance in 2023, to bring it up-to-date and ensure that it aligns fully with the refreshed Green Book.
- CBA Excel tool (Excel)
- Low Carbon and Energy Projects Benefits Roadmap (Excel)
- CBA guidance for local partnerships (PDF)
Unit cost database
Sitting alongside the CBA model, our unit cost database brings together some 900 cost estimates into a single place. The entries cover the following thematic areas:
- education and skills
- employment and economy
- social services.
Most of the database entries are drawn from national sources, including government reports and academic research, all of which have been quality assured by the GMCA Research Team with oversight from relevant central government departments. The costs can be used for a range of different purposes, including: financial modelling and CBA; business planning; strategy development; commissioning and decommissioning; and evaluation. They also provide consistent inputs for joint investment, social impact bond and payment by results models, and can be used to provide financial inputs as part of social value reporting (see the Greater Manchester Social Value Framework).
The current updated version of the Unit Cost Database was published in October 2022, and incorporates more than 300 revised cost entries, drawn mainly from recurrent annual publications that therefore become out of date. Future updates will be undertaken to incorporate newly published research and updated costs where new versions of source material have been released.
Cost benefit analysis training
We deliver CBA training that provides attendees with an understanding of the thinking underpinning CBA development and the practical skills required to populate the CBA tool. Attendees follow a worked example that replicates the CBA development process, exploring the inputs required, how to access initial data from discussions with the project team, and how to approach derivation of assumptions from wider evidence including secondary literature. The course is suitable for attendees from the public, private and voluntary and community sectors, and with varying levels of experience from CBA novices to those seeking to refresh their skills (note that a basic understanding of how to use Excel is an advantage). For more information about CBA and our training days, please email firstname.lastname@example.org.
The Cashability discussion paper addresses one of the key challenges that partnerships are likely to face in considering the implications of CBA findings – the extent to which predicted savings will prove ‘cashable’, and will therefore be available for benefits realisation and potential reinvestment.