Option appraisal should provide an assessment of whether a proposal is worthwhile. Once options are developed, the appraisal process assesses option performance, usually by comparing the consequences of ‘do something’ options against some baseline option (usually ‘do nothing’). Appraisers should only be interested in these differences. Benefit–cost analysis is normally used to make comparisons and judgments on these differences, whilst other techniques such as Multi Criteria Analysis can improve this comparison stage.
An initial sensitivity analysis should ideally be undertaken at the start of the project appraisal process, and not at the end, in order to understand how sensitive the choice is to the accuracy of data or methods being used. An experienced appraiser should be able to anticipate those parameters to which the estimated benefits and costs are most sensitive. It is those parameters that should be progressively refined as the analysis progresses.
The consequences of the different options often differ in terms of:
- Who is affected
- What is affected
- How they are affected
- When this effect occurs
Thus, all appraisals should identify these effects, and any comparison between options will involve judgments about how these different consequences can be brought to a common base.
Penning-Rowsell, E.C., Priest, S., Parker, D., Morris, J., Tunstall, S. Viavattene, C., Chatterton, J.B., and Owen, D. (2013) Flood and Coastal Erosion Risk Management: A Manual for Economic Appraisal. London: Routledge.