Cost-Benefit Analysis

Cost-benefit analysis (CBA) examines activities as a trade-off or balancing mode and has been used for making decisions in the water sector for more than 50 years. CBA quantifies in monetary terms as many of the costs and benefits of a proposal as feasible, including items for which the market does not provide a satisfactory measure of economic value. CBA examines whether the total benefits of a project, evaluated in terms of money, exceed the costs of utilizing resources.  

The essence of CBA lies in:

    • Identifying items of benefit and cost in the flood management project from an economic viewpoint, i.e. taking into account all the benefits accruing to and all the costs incurred by the economy or society as a whole

    • Selecting appropriate prices for evaluating the benefits and costs in monetary terms

    • Adjusting the future prices of costs and benefits to present values to make them comparable

Being a monetary-based analysis, CBA does not take into account any moral issues, such as distributional equity. People living in inferior circumstances (lower income, educational level, social status) are unlikely to be able to express their preferences in monetary terms due to their economic, political and technological constraints. 

In order to provide a comprehensive overview of cost-benefit analysis in the context of flood management, this subchapter addresses the following issues:

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