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BBCF_Terminology_6
Section 6: The Economic Case II
| Term | Definition |
|---|---|
| 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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