Glossary A-Z

📘 Glossary (A–C)

Advanced Training Program
A low-cost, operational improvement option focused on maximising the use of existing infrastructure through capacity-building efforts.

Alternatives/Options
Possible interventions or project designs considered in a CBA, including both low-cost and high-impact strategies, and the “do nothing” base case.

Analog System Upgrade
A moderate-cost project enhancement of existing infrastructure to improve reliability and coverage.

Anchoring Bias
A cognitive bias where people rely too heavily on the first piece of information they see (the “anchor”) when making decisions.

Analysis Bias
The distortion of CBA results due to selective data inclusion, framing, or overly optimistic assumptions that favour a preferred outcome.

Analytical Tools
Quantitative methods like NPV, IRR, BCR, and sensitivity analysis used to assess project viability.

Assumption of Static Conditions
The flawed assumption that future variables remain unchanged, potentially skewing long-term projections.

Arthur Cecil Pigou
A foundational economist who introduced the concept of externalities and welfare economics.

Averting Behaviour Method (ABM)
A method for estimating WTP for risk reduction by observing real protective expenditures (e.g., air purifiers, insurance).

Base Case (Counterfactual)
A scenario assuming no intervention, used to assess incremental impacts of a proposed project.

Bayesian Updating
A statistical technique to revise forecasts as new data becomes available.

Bequest Value
The value placed on preserving resources for future generations (part of Total Economic Value).

Behavioural Biases
Patterns like loss aversion or present bias that lead to predictable deviations from rational decision-making.

Behavioural CBA
A CBA approach incorporating behavioural economics to account for real-world decision-making biases.

Benefit Components
Types of gains a project yields: direct, indirect, and intangible.

Benefit Transfer
Applying economic values from existing studies to new contexts to save time and resources.

Benefit-Cost Ratio (BCR)
A ratio of present value of benefits to costs; BCR > 1 implies a positive return.

Bounded Rationality
The idea that people make decisions within cognitive, informational, and time constraints.

Capital Costs
Initial investment outlays for infrastructure, equipment, or systems.

Cash Flow Forecasting
Projection of inflows and outflows over a time horizon to evaluate project viability.

CBA Matrix
A table comparing different project options on criteria like cost, benefit, and feasibility.

Choice Architecture
Designing environments to guide choices without restricting freedom (e.g., default settings).

Choice Modelling (CM)
A stated preference method where people choose between hypothetical scenarios to reveal value trade-offs.

Cognitive Bias
Mental shortcuts that can distort perception and judgment, affecting CBA accuracy.

Comprehensive Evaluation
A key feature of CBA that includes all relevant social, economic, and environmental factors.

Confidence Interval
A statistical range within which a CBA outcome (e.g., NPV) is likely to fall.

Contingent Valuation (CV)
A survey-based method that asks people their WTP or WTA for non-market goods.

Cost Components
Types of costs in a project—capital, operations, maintenance, training, and opportunity cost.

Cost Forecasting
Estimating the timing and magnitude of future project expenses.

Cost of Illness (COI)
Estimates the economic burden of disease avoided through a project (e.g., treatment + productivity loss).

Cost-Benefit Analysis (CBA)
A systematic tool for comparing costs and benefits of alternative actions or policies.

Cultural and Ethical Intangibles
Non-monetary values like trust, justice, or cultural identity important in public appraisal.

📘 Glossary (D–H)

Decision Tree
A diagram-based tool used in Real Options Analysis to visualise and assess sequential decision paths under uncertainty.

Decision-Making Tool
CBA’s role in supporting policy decisions through structured, evidence-based comparisons of project alternatives.

Default Effect
A behavioural bias where people tend to stick with pre-set options, often used in policy to guide behaviour.

Delphi Method
An expert consensus technique involving iterative surveys, used when empirical data are lacking.

Declining Discount Rate (DDR)
A discounting model where rates decrease over time, giving more weight to long-term benefits.

Digital Radio System
A high-cost project alternative that significantly improves communication coverage and quality.

Direct Benefits
Easily measurable project gains such as cost savings, income increases, or lives saved.

Discount Rate
The rate used to convert future values to present terms, reflecting time preference and opportunity cost.

Discounting
The mathematical process of adjusting future costs and benefits to present value using a discount rate.

Distributional Effects
Analysis of how project benefits and costs are distributed across different social or demographic groups.

Distributional Weighting
Applying weights in CBA to reflect that benefits to lower-income individuals may have higher social value.

Dual-Process Theory
A psychological model of decision-making involving fast (System 1) and slow (System 2) thinking.

Dynamic Adaptive Policy Pathways (DAPP)
A planning approach that maps flexible sequences of actions using signposts and triggers for adaptation over time.

Dynamic Cost-Benefit Analysis (Dynamic CBA)
An appraisal method that incorporates time-dependent changes, uncertainty, and flexibility in investments.

Dynamic Efficiency
Optimising outcomes over time rather than at a fixed point; considers sustainability and future needs.

Emergency Communication System
A practical case study used to demonstrate the eight-step CBA process in public infrastructure evaluation.

Endowment Effect
A bias where people assign a higher value to things they already own, influencing WTA > WTP.

Environmental Cost-Benefit Analysis (ECBA)
An expanded CBA that includes environmental values such as biodiversity and ecosystem services.

Equity Consideration
Evaluating how fairly a project distributes costs and benefits among different groups.

Equity Weights
Numerical adjustments in CBA to account for social inequality, often used to boost fairness.

Evidence-Based Policy
A policymaking approach rooted in systematic analysis, like CBA, rather than intuition or ideology.

Existence Value
The value people place on knowing something exists (e.g., a forest or species), regardless of direct use.

Executive Summary
A high-level summary of the CBA findings and recommendations for decision-makers.

Externalities
Costs or benefits of a project not reflected in market prices, such as pollution or public health impacts.

Feedback Loops
Interactions where project outcomes influence future conditions, amplifying long-term effects.

Financial Evaluation Techniques
Tools like NPV, IRR, and Payback Period are used to assess the monetary viability of projects.

Forecasting
Projecting future cost and benefit flows to inform economic evaluation.

Framing Effect
The influence of presentation format on decision-making, e.g., gain vs. loss framing.

Function Transfer
A benefit transfer method using a valuation function (e.g., WTP as a function of income) to adapt values to new contexts.

Framing Effects
Changes in interpretation or preference due to how choices or data are presented.

Hedonic Pricing
A method that infers the value of non-market attributes (e.g., safety) from property prices.

Hybrid System
A project approach combining technology investment and training to improve effectiveness and equity.

Hyperbolic Discounting
A time preference model where people heavily discount immediate future rewards more than distant ones.

📘 Glossary (I–M)

Implementation Delay
A project risk factor where rollout lags increase costs or postpone benefits, affecting the overall net present value.

Inaccurate Discount Rate
Using a rate that improperly reflects time preference or risk, potentially distorting the valuation of future outcomes.

Income Elasticity of WTP
The responsiveness of willingness to pay to changes in income, often used in benefit transfer adjustments.

Indirect Benefits
Secondary effects of a project such as improved health, job creation, or ecosystem preservation.

Initial Investment
The total upfront capital outlay required to launch a project.

Integrated CBA Framework
A holistic evaluation model that combines economic, social, and environmental dimensions, aligned with sustainability goals.

Intergenerational Equity
A fairness principle ensuring that future generations’ needs are accounted for in present-day decision-making.

Internal Rate of Return (IRR)
The discount rate that makes a project’s net present value zero; used to assess investment profitability.

Intangible Benefits
Positive outcomes (like peace of mind or improved trust) that are difficult to measure in monetary terms.

Intangible Costs
Non-monetary harms, such as social disruption or emotional distress often excluded from standard valuation.

Intangible Factors
Qualitative variables (e.g., dignity, safety perception) that affect project value but lack direct price tags.

Justification of Public Expenditure
One of CBA’s purposes—ensuring public funds are allocated where they generate the most social value.

Life Cycle Assessment (LCA)
An environmental tool that evaluates resource use and emissions over a project’s entire lifespan.

Life Satisfaction / Subjective Wellbeing (SWB) Valuation
A method that values non-market outcomes by linking policy impacts to changes in self-reported wellbeing.

Liquidity Consideration
A factor in project selection where faster cost recovery may be prioritised, often assessed via Payback Period.

Loss Aversion
A behavioural principle stating that losses hurt more than gains feel good, often inflating WTA over WTP.

Maintenance Costs
Recurring expenses related to keeping infrastructure or systems functional over time.

Marginal Utility of Income
The concept that each additional dollar has less value to wealthier individuals, justifying equity weighting in CBA.

Market-Based Rates
Discount rates derived from market returns, often used to reflect opportunity cost in financial CBAs.

Meta-Analytic Benefit Transfer
A valuation technique using statistical summaries of prior studies to predict values in new contexts.

Monetary Valuation
The process of assigning dollar values to project impacts for inclusion in cost-benefit analysis.

Monte Carlo Estimation
A simulation method that models uncertainty in CBA inputs, generating a range of outcomes like NPV or BCR.

Monte Carlo Simulation
A probabilistic tool used to assess project risks by running thousands of scenarios with randomly sampled variables.

Multi-Attribute Utility Theory (MAUT)
A structured decision framework combining weighted preferences and risk attitudes across multiple criteria.

Multi-Criteria Analysis (MCA)
An evaluation method that considers multiple non-monetised and monetised impacts without aggregating into a single value.

Multi-Criteria Decision Analysis (MCDA)
An appraisal technique that ranks alternatives based on performance across multiple dimensions, incorporating stakeholder preferences.

📘 Glossary (N–S)

Narrative Scenario
A qualitative tool in scenario analysis that describes plausible futures in story form to contextualise uncertainty and guide decision-making.

Net Benefit
The difference between the total present value of benefits and costs; a key metric in assessing project worthiness.

Net Environmental Benefit (NEB)
The sum of all environmental gains (market and non-market) produced by a project, adjusted over time using discounting.

Net Present Value (NPV)
The total net gain from a project expressed in today’s dollars, calculated by subtracting present value of costs from benefits.

Non-Market Values
Benefits or costs not traded in markets, such as biodiversity, clean air, or emotional security.

Objectives Tree / Results Chain
A logical framework that links project inputs to outputs, outcomes, and impacts for evaluation and monitoring.

Operating Costs
Regular expenditures required to run a project, including staff, energy, maintenance, and administration.

Opportunity Cost
The value of the best alternative forgone when a resource is committed to a project.

Option Value
The value of preserving the potential to use a resource or pursue an action in the future.

Options Matrix
A comparative tool summarising costs, benefits, risks, and feasibility across different policy or project alternatives.

Overconfidence Bias
The tendency to overestimate one’s ability to predict outcomes, leading to optimistic forecasts and underestimated risks.

Participatory Valuation
An approach where stakeholders co-produce value estimates through deliberation, improving legitimacy and inclusivity.

Path Dependency
The influence of early decisions in locking in future choices, particularly in long-term or infrastructure investments.

Payback Period
The time it takes for a project’s cumulative benefits to recover its initial investment.

Policy Support
The function of CBA in guiding public policy by comparing trade-offs and aligning choices with societal goals.

Precautionary Principle
A guideline recommending caution and protective action when facing uncertain but potentially serious risks.

Present Bias
A behavioural tendency to overly prioritise immediate rewards over larger, delayed benefits.

Present Value (PV)
The current worth of a future sum of money or stream of benefits/costs discounted to today’s terms.

Probabilistic Modelling
The use of random variables and probability distributions to simulate outcomes under uncertainty.

Probabilistic NPV (Stochastic NPV)
An estimate of NPV derived from simulations accounting for input variability and risk, rather than fixed values.

Project Efficiency
The ratio of total benefits to costs, often used to compare alternative projects’ economic effectiveness.

Prospect Theory
A behavioural economics theory explaining how people evaluate gains and losses relative to a reference point rather than final outcomes.

Public Choice Theory
An economic approach that analyses how political and bureaucratic incentives may distort supposedly neutral tools like CBA.

Public Sector Applications of CBA
The use of cost-benefit analysis to evaluate public investments in areas like health, education, infrastructure, and safety.

Real Option
The embedded flexibility in a project to adapt over time—such as delaying, expanding, or abandoning—depending on how circumstances evolve.

Real Options Analysis (ROA)
A method that applies financial option theory to value managerial flexibility in uncertain investment environments.

Revealed Preference Methods
Valuation approaches that derive preferences from actual behaviour, such as travel cost, hedonic pricing, or averting behaviour.

Reference Class Forecasting (RCF)
A debiasing technique comparing a project to a “class” of similar past projects to adjust overly optimistic estimates.

Reference-Dependent Preferences
A concept in behavioural economics where individuals judge outcomes relative to reference points, not absolute values.

Report and Recommendation
The concluding output of a CBA summarising findings, assumptions, and policy guidance.

Resource Allocation
The distribution of resources among competing uses to maximise social returns.

Risk-Adjusted Discounting
A discounting method where higher-risk projects are evaluated using higher discount rates to reflect greater uncertainty.

Scenario Analysis
An appraisal tool evaluating how project performance varies under different plausible future conditions.

Scenario Planning
A strategic foresight tool exploring diverse future states to guide robust and adaptive policymaking.

Screening Tool
A simplified evaluation method using quick metrics like BCR or Payback Period to filter unfeasible options.

Sensitivity Analysis
A technique used to test how changes in key assumptions (e.g., costs, discount rate) affect project outcomes.

Sensitivity Web (Spider Chart)
A graphical representation showing how sensitive project results are to changes in input parameters.

Social Cost of Carbon (SCC)
A monetised estimate of climate damage from emitting one additional ton of CO₂, used to assess carbon-related policies.

Social Opportunity Cost of Capital (SOC)
The return society sacrifices when allocating capital to public projects instead of private investments.

Social Return on Investment (SROI)
An extended form of CBA that quantifies social and environmental value alongside financial returns.

Social Surplus
The total net benefit to society from a project, including both producer and consumer gains.

Social Time Preference Rate (STPR)
A discount rate reflecting society’s preference for current versus future consumption, used in public investment appraisal.

Stakeholder Engagement
The process of involving affected parties in project planning and valuation to enhance legitimacy and responsiveness.

Stakeholder Mapping
A technique to identify and categorise groups affected by a project, aiding in impact assessment and communication.

Stated Preference Methods
Survey-based techniques (e.g., contingent valuation, choice modelling) to elicit values for non-market goods.

Status Quo Bias
A cognitive bias where individuals irrationally prefer current conditions, even when alternatives may be better.

Sustainability
The ability of a project to deliver long-term benefits without compromising future generations’ needs or resources.

📘 Glossary (T–Z)

Tangible Factors
Quantifiable impacts that can be measured directly in physical or financial terms, such as construction costs, equipment, or labour hours.

TEV (Total Economic Value)
A valuation framework that includes both use values (e.g., direct and indirect benefits) and non-use values (e.g., existence, bequest, option) for public goods and services.

Time-Dependent Valuation
An approach recognising that project benefits and costs evolve over time—e.g., delayed ramp-up, obsolescence, or compounding effects—requiring dynamic modelling.

Time Preference
The tendency to prefer immediate benefits over future ones, forming the basis for discounting in CBA.

Time Value of Money (TVM)
A financial principle stating that money has greater value now than in the future due to its earning potential and opportunity cost.

Total Economic Value (TEV)
A comprehensive approach to valuation that captures all dimensions of value: direct, indirect, use, non-use, existence, option, and bequest values.

Training Costs
Expenses incurred to build the capacity of personnel, such as for technical skills or system operations.

Transformational Investment
Projects that create broad, long-lasting social or environmental change, typically requiring dynamic and adaptive evaluation frameworks.

Transparency and Accountability
Principles upheld by structured, evidence-based CBAs, making assumptions and trade-offs visible to stakeholders and decision-makers.

Travel Cost Method (TCM)
A revealed preference approach that values recreational or environmental goods based on how much people spend in time and money to access them.

Unit Value Transfer
A basic benefit transfer method that applies a single willingness-to-pay (WTP) estimate from one context to another, often adjusted for income differences.

Utility Maximisation (Intertemporal)
The concept of optimising individual or social welfare across time, balancing short-term benefits against long-term outcomes.

Valuation Methods
Approaches used to assign monetary value to impacts in CBA, including market pricing, revealed and stated preference, and shadow pricing.

Valuation Proxies
Estimated values used when direct measurement is impractical, such as using WTP for green space as a proxy for mental well-being.

Value of a Statistical Life (VSL)
An economic estimate used in CBAs to quantify the value of reducing the risk of death, typically derived from labour market or risk preference studies.

Visualisation Tools
Dashboards, graphs, and charts that communicate CBA findings—especially under uncertainty—clearly and effectively to decision-makers.

Willingness to Accept (WTA)
The minimum compensation an individual requires to accept a negative change; often higher than WTP due to loss aversion.

Willingness to Pay (WTP)
The maximum amount someone is willing to pay for a benefit or improvement in a public good; commonly used in contingent valuation and choice modelling.