There is a range of techniques that can aid decision-making concerning investment appraisal. Cost – Benefit Analysis and Multi Criteria Analysis are two techniques amongst many.
We see Cost – Benefit Analysis as part of a more general procedure termed Environmental Assessment. This is because CBA is concerned with a particular ‘product’ (the benefit-cost ratio or Net Present Value as the measure of the economic return from that investment).
Environmental assessment is first and foremost more concerned with a process of incorporating information on all environmental attributes, values and changes into the decision-making sequences.
On the other hand, Multi-Criteria Analysis attempts to quantify in some way all aspects of environmental and economic significance related to a particular decision, and weight them so that a simple range of indices can be developed that capture all adverse and beneficial results – or potential adverse and beneficial results – from an investment decision.
- Cost – Benefit Analysis can provide a sophisticated means of comparing very different investments and outcomes by reducing them all to a common monetary form. It is limited to consideration of those impacts to which a value can be attached but it leads to a simple parameter on which choices can be made.
- Multi-Criteria Analysis can be used to broaden the scope of analysis, but brings significant difficulties in terms of determining the appropriate weights to use or the different criteria involved.
Environmental Assessment is broader still, but lacks the precision (or apparent precision) of CBA, and can avoid the kind of discipline involved in quantification that both CBA and MCA bring to the decision-making process.