Introduction to Cost Benefit Analysis

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

2. Emergency procedures Please familiarise yourself with the emergency evacuation procedures located within the inside cover of your delegate handbook.

3. Please turn mobile devices to silent mode

4. 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

5. The Our Place programme

6. What is Cost Benefit Analysis?

7. What do we mean by costs and benefits? Benefits Costs All additional costs needed to deliver project • Fiscal • Social • Economic Social Economic Fiscal

8. The CBA model – costs • Costs • Capital • Revenue • In Kind • Economic Case • Net Present Public Value • Value for Money Benefit Cost Ratio Cost Benefit Analysis Tool • Outcomes • Need • Engagement • Impact • Deadweight • Lag and drop-off • Financial Case • Net Present Budget Impact • Financial return on investment • Payback period Cashabilityassumptions

9. Approach to calculating costs What types of costs are borne? Which agencies bear costs? When are costs borne?

10. The CBA model – outcomes • Costs • Capital • Revenue • In Kind • Economic Case • Net Present Public Value • Value for Money Benefit Cost Ratio Cost Benefit Analysis Tool • Outcomes • Need • Engagement • Impact • Deadweight • Lag and drop-off • Financial Case • Net Present Budget Impact • Financial return on investment • Payback period Cashabilityassumptions

11. Types of benefits

12. Turning outcomes into benefits

13. Running the CBA model At risk / affectedpopulation %Retained %Impact 1 - %optimism bias %Engaged %Deadweight Value How many will complete the programme? How many will we reach? What is the value of the desired outcome? How confident are we in the evidence? How many potential beneficiaries? How many will achieve desired outcome? What would have occurred anyway? • Assumptions tested/updated via evaluation • Optimism Bias (OB) correction applied to data

14. Case study example - benefits • Employment 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

15. The CBA model – outputs • Costs • Capital • Revenue • In Kind • Economic Case • Net Present Public Value • Value for Money Benefit Cost Ratio Cost Benefit Analysis Tool • Outcomes • Need • Engagement • Impact • Deadweight • Lag and drop-off • Financial Case • Net Present Budget Impact • Financial return on investment • Payback period Cashabilityassumptions

16. Family Intervention Project

17. Why should areas use CBA? • Localities can use CBA to deliver: • Informed decision-making • Cost-effectivedecision-making • Equitabledecision-making

18. Refreshments

19. Exercise 1: Agreeing outcomes

20. Has Area X’s project been successful?

21. Project: Intended Impacts Key policy conditions Intended Outcomes Programme Objectives Activities Rationale Inputs Outputs Contextual conditions

22. Project: Greater Manchester Commitment Intended Impacts Reduced youth unemployment and NEET rates Improved labour force skills & productivity Reduction in employer skills shortages and staff turnover rates Key policy conditions National policy – Youth Contract, provides grants, work placements, advice and BIS Skills for Sustainable Growth strategy Local policy – each authority has their own scheme, FJF legacy Intended Outcomes Sustained employment for 16-24 year olds More GM providers working with cohort More GM employers offering apprenticeships More awareness of opportunities Better integrated system Draw down more central government expenditure Programme Objectives Increase employability and employment rate of GM 16-24 year olds Increase willingness of training providers to work with 16-24 and willingness of employers to recruit from this group Activities Marketing Administration Grant making Website Brokering vacancies Rationale Financial incentives work Cost < JSA Single GM system Training ethos Inputs £4.3m 3 FTEs Local authorities Training providers Outputs Vacancies Grant payments AGE payments Net outputs Leakage Deadweight Displacement 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

23. Task: Develop a Logic Chain for Poplar NCB case study

24. 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?

25. Project: Poplar neighbourhood community budget Intended Impacts Key policy conditions Intended Outcomes Programme Objectives Activities Rationale Inputs Outputs Contextual conditions

26. Lunch and networking

27. Exercise 2: Calculating your delivery costs

28. Approach to calculating costs What types of costs are borne? Which agencies bear costs? When are costs borne?

29. 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?

30. Task: Identify costs associated with Poplar NCB case study

31. Refreshments

32. Exercise 3: Tracking your impact

33. Maryland Scientific Method Scale

34. 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

35. Primary research techniques

36. 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/

37. 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

38. Task: Develop an evaluation framework for Poplar NCB

39. Q&A and next steps

40. Further informationjulian.cox@neweconomymanchester.comdavid.morris@neweconomymanchester.comrichard.waggot@neweconomymanchester.comKnowledge Hub – Greater Manchester CBA Network

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