Risk Engineering

Benefit-cost analysis
Socio-economic assessment of projects


Overview

The scales of
justice Public decisions on questions related to industrial safety must take multiple, partially conflicting criteria into account:

  • protection of human lives and health
  • environmental considerations
  • economic aspects: profits, jobs
  • societal demand for greater transparency

Different people put different weights on these criteria, which are not expressed in the same units. Decision-makers need tools to help them establish tradeoffs between these considerations and to explain decisions to stakeholders and citizens.

Benefit-cost analysis is a method to assess projects or decisions by comparing their societal benefits (fewer fatalities, cleaner water, economic development) with their cost. BCA involves monetizing these criteria, based on citizens’ preferences and their “willingness to pay” for marginal changes in risk. The technique is widely used in the USA & Anglo-Saxon countries, and is used at the EU level (eg. CAFE legislation) for regulatory impact assessment.

This submodule is a part of the risk management module.

Learning objectives

Upon completion of this submodule, you should be able to:

  • understand the economic concepts underlying benefit-cost analysis

  • critically review a benefit-cost analysis of a proposed project

  • assess whether the sources of data used for an analysis are fit for purpose

  • argue whether the conclusions of an analysis are robust given uncertainty in the input data

Course material

Introduction to benefit-cost analysis of safety investments

Lecture slides (PDF)
View on SlideShare

Case study: benefit-cost analysis for land-use planning decisions

Case study description (PDF)

Other resources

We recommend the following sources of further information on this topic:

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