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Section 6: The Economic Case II

Cost benefit analysis (CBA) (CBA) Analysis quantifies in monetary terms as many of the costs of a proposal as feasible (financials), including those items for which the market does not provide a satisfactory measure of economic value (non-financials).
Cost effectiveness Cost effectiveness analysis is used instead of a full cost-benefit appraisal where the objective is to compare the cost of different ways of achieving a given effect (such as a customer level of service), or of comparing the relative cost of different strategies with different effects.
Cost effectiveness analysis (CEA) (CEA) Analysis that compares the cost of alternative ways of producing the same or similar outputs.
Discount rate The annual percentage rate at which the present value of a pound, or other unit of account, is assumed to fall away through time.
Discounted cash flow (DCF) A technique for appraising investments. It reflects the principle that the value to an investor of a sum of money depends on when it is received.
Discounting A method used to convert future costs or benefits to present values using a discount rate.
Economic appraisal See Appraisal. This specifically takes into account the economic costs. Also used as a general term to cover cost benefit analysis (CBA).
Internal rate of return The discount rate that would give a project a present value of zero.
Monte Carlo analysis A technique that allows assessment of the consequences of simultaneous uncertainty about key inputs, taking account of correlation between these inputs.
Opportunity cost The value of the most valuable alternative uses or the cost of something in terms of an opportunity missed.
PPP Public private partnerships
Public Sector Comparator (PSC) A hypothetical risk-adjusted costing by the public sector as a supplier to an output specification, generally used in connection with a PPP procurement exercise.
Sensitivity analysis Analysis of the effects on an appraisal of varying the projected values of important variables.
Switching values The point at which the choice of the preferred option would switch to another option due to any uncertain costs and/ or benefits.
Transfer payment A payment for which no goods or services are received in return.
Willingness to pay The amount that someone is willing to receive or accept to give up a good or service.
Base case The best estimate of how much a proposal will cost in economic terms, including an allowance for risk and optimism.
Created by: Sarah Ironmonger
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