Further description:-  Cost benefit analysis 

Glossary Entry
A form of economic analysis in which costs and benefits are converted into monetary values for comparison 
Further description author's instructions

 

1 General approach

 

Any good practice approach to the selection process for the remediation of contaminated sites needs to consider the costs and benefits attributable between different options.  Many protocols have been developed, as decision support tools, to make such considerations, systematic, transparent and to a lesser or greater extent, reproducible.

 

CBA has a very broad scope and aims at expressing all positive and negative effects of an activity in a common unit, namely money. Economic and environmental considerations are all expressed as monetary values.  Typically, CBA begins with a determination of which costs and benefits are examined.  CBA then tries to value these costs and benefits and finally weighs them against each other. However, as an objective environmental decision making tool, CBA suffers from several limitations:

·             Monetary valuation of environmental benefits and impacts are hard to quantify on a reliable and consistent basis;

·             Concerns exist about discounting future effects to net present value, when the potential for deleterious (or positive) environmental effect in the long term is important;

·             The appropriateness, or lack of it, of a monetary value for less tangible environmental values e.g. biodiversity;

·             The loss of information value from converting all decision factors to a single dimension.

 

Cost-effectiveness analysis (CEA) is a simplified derivative of cost-benefit analysis.  The aim of CEA is to determine “… the least cost option of attaining a predefined target…” without a monetary measurement of benefits. Costs are calculated conventionally and benefits are scored individually.  An aggregate score for benefits is then divided by cost to provide a measure of “cost effectiveness”.

 

 

2 Financial Risk Assessment and Management

 

Financial risk assessment and management tools are used to estimate (and where possible control) the financial risks related to the management of land contamination problems.

 

The performance of remediation represents a significant source of financial risk, which, if ignored or mismanaged, can have a serious effect on the commercial success of a project or business. Financial risk management tools (as opposed to environmental risk management) are increasingly being applied to contaminated land remediation decision making, in particular in a commercial redevelopment context. Financial risk management relies heavily on accurate forecasts of the probability that remediation will fail to meet its objectives as well as the associated financial implications.  It has been suggested that such modelling should be interactive, allowing a user to develop optimal scenarios from his or her perspective.

 

 

3 Cost Benefit Analysis Tools

 

Decision support exists to help those who have to take decisions deal with the complex and wide-ranging information involved in contaminated land management. Decision support can be provided as written guidance (flow sheets, model procedures) and/or software. It aims not only to facilitate decision making and ensure that the process is transparent, documented, reproducible and robust, providing a coherent framework to explore the options available.  A “tool” is a document or software produced with the aim of supporting decision making, i.e. something that carries out a process in decision support. Cost benefit analysis tools use a variety of techniques to support decision making related to costs and benefits. The valuation of external factors, whose value is subjective, such as environmental impacts is the most contentious issue in the application of cost benefit analysis to contaminated land management.

 

 

Acknowledgement

 

Extracted from: Bardos, R.P., Lewis, A. J., Nortcliff, S., Mariotti, C., Marot, F. and Sullivan, T. (2002)  Review of Decision Support Tools for Contaminated Land Management, and their use in Europe.  Final Report.  Austrian Federal Environment Agency, 2002 on behalf of CLARINET, Spittelauer Lände 5, A-1090 Wien, Austria.  http://www.clarinet.at

 

Authors
Paul Bardos
r3 Environmental Technology Limited, United Kingdom

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