Introduction to Cost Benefit Analysis Tuesday 15 July 2014 Billsley and Yardley Wood Community Centre, Birmingham #ourplaceCBA.

Introduction to Cost Benefit Analysis

Tuesday 15 July 2014

Billsley and Yardley Wood Community

Centre, Birmingham#ourplaceCBA

Emergency procedures

Please familiarise yourself with the

emergency evacuation procedures

located within the inside cover of your

delegate handbook.

Please turn mobile devices to silent mode

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Agenda

• The Our Place programme• What is CBA and why should areas apply it?• Case study exercises (in tables):

– Agreeing outcomes– Calculating delivery costs– Tracking impact

• Q&A and next steps

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The Our Place programme

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What is Cost Benefit Analysis?

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What do we mean by costs and benefits?

• Fiscal• Social• Economic

Costs

Benefits

All additional costs needed to deliver project

Fiscal Economic Social

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The CBA model – costs

Financial Case• Net Present Budget Impact

• Financial return on

investment

• Payback period

Economic Case• Net Present Public Value

• Value for Money Benefit Cost

Ratio

Cost Benefit Analysis

Tool

Costs• Capital

• Revenue• In Kind

Outcomes• Need

• Engagement• Impact

• Deadweight• Lag and drop-off

Cashability assumptions

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Approach to calculating costs

Which agencies bear

costs?

What types of costs are borne?

When are costs borne?

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The CBA model – outcomes

Financial Case• Net Present Budget Impact

• Financial return on

investment

• Payback period

Economic Case• Net Present Public Value

• Value for Money Benefit Cost

Ratio

Cost Benefit Analysis

Tool

Costs• Capital

• Revenue• In Kind

Outcomes• Need

• Engagement• Impact

• Deadweight• Lag and drop-off

Cashability assumptions

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Types of benefitsExample Fiscal benefits Public Value benefits

Employment mentoring programme for people with mental health problems

Reduction in unemployment payments

as individuals gain employment

Increased output resulting from increased employment

Improved health with related impacts on well-being (e.g. confidence and self esteem)

Programme to tackle antisocial behaviour

Reduction in police, housing and local authority time

spent responding to incidents.

Opportunity cost of avoided time spent by public sector agencies.

Increased patronage of local businesses resulting in net growth in local economy once displacement has been taken

into account.

Reduced fear of crime amongst local residents.

Drug treatment programme

Savings in reactive health and criminal justice costs - emergency hospital visits,

long term health costs, responses to crime.

Opportunity cost of avoided time spent by public sector agencies.

Improved health and life expectancy of individual

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Turning outcomes into benefitsOutcome Fiscal benefit Econ benefit Social benefit

Getting someone into a job (per annum) £9,800 £14,044

Gaining a Level 3 apprenticeship (per annum) £1,391 £1,925

Avoiding a child being taken into care (per annum) £63,362 £7,460

Reduced incident of crime (per incident) £609 £676 £1,648

Reduced Isolation (full distance travelled) £8,500

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Running the CBA model

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

At risk / affected

population%Engaged 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?

%Impact 1 - %optimism bias

How confident are

we in the evidence?

%Deadweight%Retained

How many will complete

the programme?

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Case study example - benefitsEmployment mentoring programme for people with low level mental health problems Key outcomes:

•Employment – moving off Employment Support Allowance•Improved mental health

Potential other outcomes• Reduced alcohol dependency

What questions do I need to ask to understand the benefits of improved outcomes?

Is the outcome relevant to the whole cohort (e.g. employment) or just a proportion (e.g. alcohol dependency)

What percentage of the cohort can we engage with?How many will remain engaged for the whole programme?

Do we have evidence of impact from local pilot schemes?Can we find evidence from elsewhere in the UK or abroad?

Do we have data on the success rates of the Business as Usual provision (e.g. Work Programme)?Does research evidence indicate what would happen anyway?

How soon will benefits start?How long will they last for?

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The CBA model – outputs

Financial Case• Net Present Budget Impact

• Financial return on

investment

• Payback period

Economic Case• Net Present Public Value

• Value for Money Benefit Cost

Ratio

Cost Benefit Analysis

Tool

Costs• Capital

• Revenue• In Kind

Outcomes• Need

• Engagement• Impact

• Deadweight• Lag and drop-off

Cashability assumptions

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LocalAuthority NHS

DWP (AME)Police

WorkProgramme

Primes

RSLsCJS (excl

Police)

Proactive Costs

Reactive Cost Savings

£-

£100,000

£200,000

£300,000

£400,000

£500,000

£600,000

£700,000

£800,000

£900,000

£1,000,000

£

Family Intervention Project

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Why should areas use CBA?

• Localities can use CBA to deliver:

– Informed decision-making

– Cost-effective decision-making

– Equitable decision-making

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Refreshments

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Exercise 1: Agreeing outcomes

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Has Area X’s project been successful?

Contextual conditions

Key policy conditions

Rationale Inputs Activities

Intended Outcomes

Outputs

Intended Impacts

Programme Objectives

Project:

Contextual conditions

High rates of youth unemployment and inactivity vs. other groups

Issue has been getting worse since start of economic downturn, esp. GM

Limited employer engagement/satisfaction with training market

Key policy conditionsNational policy – Youth Contract, provides grants, work placements, advice and BIS Skills for Sustainable Growth strategyLocal policy – each authority has their own scheme, FJF legacy

RationaleFinancial incentives workCost < JSASingle GM systemTraining ethos

Inputs£4.3m3 FTEsLocal authoritiesTraining providers

ActivitiesMarketingAdministrationGrant makingWebsiteBrokering vacancies

Intended OutcomesSustained employment for 16-24 year oldsMore GM providers working with cohortMore GM employers offering apprenticeshipsMore awareness of opportunitiesBetter integrated systemDraw down more central government expenditure

OutputsVacanciesGrant paymentsAGE paymentsNet outputsLeakageDeadweightDisplacement

Intended ImpactsReduced youth unemployment and NEET ratesImproved labour force skills & productivityReduction in employer skills shortages and staff turnover rates

Programme ObjectivesIncrease employability and employment rate of GM 16-24 year oldsIncrease willingness of training providers to work with 16-24 and willingness of employers to recruit from this group

Project: Greater Manchester Commitment

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Task: Develop a Logic Chain for Poplar NCB case study

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Prompts

• What does the intervention involve?• How will support be delivered?• Where will it be operating? And when?• How many people will be eligible for the project?• What outcomes does the project aim to deliver?• Has baseline work been undertaken?• Which agencies are involved in the project?

Contextual conditions

Key policy conditions

Rationale Inputs Activities

Intended Outcomes

Outputs

Intended Impacts

Programme Objectives

Project: Poplar neighbourhood community budget

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Lunch and networking

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Exercise 2: Calculating your delivery costs

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Approach to calculating costs

Which agencies bear

costs?

What types of costs are borne?

When are costs borne?

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Case study example – building up costs

Integrated multi-agency safeguarding programme (Children’s Services and Domestic Abuse)• Cross-agency key worker model• Co-location of staff• Better identification, sequencing and availability of interventions

What are the relative costs compared to business as usual?

Potential increases Potential efficiency savings

New posts (key workers, supervision) Staff time – avoidance of duplication of effort

Training costs Premises costs

Increased referrals to other agencies

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Task: Identify costs associated with Poplar NCB case study

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Refreshments

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Exercise 3: Tracking your impact

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Maryland Scientific Method ScaleLevel Criteria

1 Correlation – Our Place clients less likely to be under threat of eviction than non-clients

2 Before & after – number of clients under threat of eviction fell after Our Place support

3 Single control - number of clients under threat of eviction fell after Our Place support and same fall not seen in another group

4 Multiple controls - number of clients, by gender/race/education level etc, under threat of eviction fell after Our Place support and same fall not seen in same groups elsewhere

5 Randomisation – Our Place team offered or refused support on random basis, supported group shows greater decrease in those under threat of eviction

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As a bare minimum, an evaluation should...• Move beyond correlation to causation• Focus on outcomes as much as outputs• Derive uniform, comparable data• Combine quantitative and qualitative methods• When writing up findings:

– Include a description of the project– Make its research method clear

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Primary research techniques

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Secondary research techniques

Early Intervention Foundation (EIF) www.earlyinterventionfoundation.org.uk/evidence

National Institute for Clinical Excellence (NICE) http://www.nice.org.uk/#panel6

Coalition for Evidence-Based Policy http://coalition4evidence.org/

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More advanced evaluations will include...• A review of the delivery process• Consideration of Deadweight• Longitudinal tracking of clients• Value for Money calculations• Valuing of outcomes – leading to CBA• Strategic added value assessments• Action learning approaches

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Task: Develop an evaluation framework for Poplar NCB

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Q&A and next steps

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Further information

[email protected] [email protected]

[email protected] Knowledge Hub – Greater Manchester CBA Network

Introduction to Cost Benefit Analysis

Tuesday 15 July 2014

Billsley and Yardley Wood Community

Centre, Birmingham#ourplaceCBA