Handling non-monetised factors in project, programme and policy appraisal
Since the 1980s there has been an increasing emphasis in UK government policy, programme and project appraisal on the monetisation of factors for which there is no appropriate market value. Much progress has been made and it is a trend that should be welcomed and encouraged. It appeals to the natural instincts of economists and of decision makers, who welcome the clarity and simplicity that monetisation provides or appears to provide.
However, there has been much less emphasis on procedures for addressing and presenting factors that cannot be monetised, alongside monetised analysis. For the most part, non-monetised factors are addressed in an ad hoc way, if at all. This paper attempts to review and record the current situation, clarifies some simpler aspects such as terminology and the limits of monetisation, and discusses some obstacles and potential steps forward.
- Government policy, programme and project appraisal is based in many fields on the principles of cost benefit analysis, in which as many costs and benefits as possible are monetised. But there are nearly always other important factors that, for one good reason or another, are not monetised.
- Currently, in appraisals that are led by economists for immediate decision making, it is normal practice to record what are perceived to be significant non-monetised core analysis impacts in an ad hoc way; leaving trade-offs to be clarified and assessed outside of the analytical process.
- Sometimes the assessment of trade-offs between core analysis outputs and issues that are outside the core analysis are sufficient, but sometimes more could usefully be done.
- Although government activities are extraordinarily diverse some generic recommendations can be made:
- In appraisal, the tendency for factors to be of less concern if they cannot be monetised should be more strongly resisted.
- For any significant appraisal, but especially when there are significant non-monetised factors, criteria should always be clearly established against which the options are to be compared.
- The Appraisal Summary Table (AST) approach is an effective way of establishing criteria and presenting non-monetised and monetised information against these.
- Multi-criteria decision analysis (MCDA), as developed within the discipline of operational research, is the most powerful technique for establishing criteria and comparing options on the basis of monetised and non-monetised information.
- For effective handling of non-monetised factors in the core analysis of appraisal, interdisciplinary working is often important, especially where the analysis is led by economists.
- In interdisciplinary working, economists and other specialists should be better encouraged to welcome the use of methods of data collection and presentation with which they are not familiar.