Economic Appraisal Guidance
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NI Practical Guide to the Green Book

Step by Step Appraisal Guidance

2.7  

Step Seven
   

Weigh Up Non-Monetary Costs and Benefits
(including New TSN and Equality)
2.7.1   Where possible, costs and benefits should be valued in money terms, using techniques such as those presented in Annex 2 of the Green Book. However, it is not always cost-effective or practical to value costs and benefits in money terms. In many assessments there are non-monetary impacts such as environmental, social or health effects that can not be valued cost-effectively. These non-monetary costs and benefits must be taken into account and should not be assumed to be any less important than the monetary values. They may be crucial to the decisions needed.
2.7.2   The aim therefore is to find a suitable way to assess non-monetary factors and present them alongside the money values. In the simplest cases, it may be adequate just to list and describe them. However, it will often be appropriate to use a more sophisticated technique. The umbrella term Multi-Criteria Analysis (MCA) is frequently used to describe the range of techniques available.
2.7.3   MCA brings structure and transparency to judgement of how options compare regarding factors that are not expressed in money values. It should generally relate closely to the stated objectives of the project, and consists of comparative assessments, both quantitative and qualitative, of how well each option meets the objectives. Sometimes the stated project objectives are sufficient to serve as the relevant criteria for the MCA, in other cases they may need to be developed into a set of more detailed criteria.
2.7.4   The nature of the option assessment can vary from (in the simplest cases) qualitative description, or ticking a box to indicate that an option satisfies a particular constraint; or (in larger or more complex cases) measurement of impact in suitable non-monetary units, or the use of relative weights for each criterion and explicit scoring or ranking of each option.
2.7.5   MCA techniques include, for example:-
  • Impact statements or performance matrices. This method tabulates the impact of each option upon each non-monetary factor. This is a versatile approach that is generally recommended by DFP - see para 2.7.9 below for explanation.
  • The weighted scoring method. This involves assigning numerical weights to each factor to reflect its comparative importance; scoring the performance of each option against each factor on a numerical scale; and calculating a 'weighted score' for each option. Detailed guidance on the use of this approach is given in Appendix 6 - The Weighting and Scoring Method.
2.7.6   Multi criteria analysis can be used as a way to bring data expressed in units other than money values into the appraisal process. It can be used to rank options or choose a preferred option, and usually involves an explicit relative weighting system for the different criteria relevant to the decision. This often involves an implicit monetisation of different impacts - especially once the performance against the various criteria is compared to the costs that are deemed worth spending to secure or to avoid them.
2.7.7   The available techniques should be considered carefully before choosing the method most appropriate to the case in hand. It is good practice is to cover all non-monetary factors by either the impact statement method or the weighted scoring method. It is not helpful to cover some factors in a weighted scoring calculation and others in an impact statement. This can cause confusion and invalidate the rankings emerging from the weighted scores. For example, it is not generally helpful to treat New TSN or Equality separately from a weighted scoring of other factors.
2.7.8   Whatever the technique adopted:-
  • It is important to make clear how the options compare in regard to the non-monetary factors. Information should be presented in a way that facilitates this e.g. by use of suitable tables or matrices.
  • Costs and benefits should be quantified in suitable non-monetary units where possible. For example, performance indicators may be used to differentiate the performance of options in relation to achievement of the needs and objectives established at the outset of the appraisal. Research may be needed to determine the best units of measurement.
  • Details of the methods and assumptions used should be recorded.
2.7.9   The impact statement approach lends itself to most situations and is the method generally recommended by DFP. In essence, it consists of a table summarising the impact of each option upon each objective or 'difficult to quantify' factor. The cells of the table should contain suitable quantitative impact measures or indicators; and/or qualitative impact analysis. The size of the table can be scaled to suit the needs of the case in hand. An accompanying commentary summarising the main trade-offs and other features of the analysis should generally be provided. Departmental economists can advise on the design of suitable impact statements and may be able to provide examples.

Impact Statement
  Option 1 Option 2 Option 3
Objective 1      
Objective 2      
Objective 3      
2.7.10   If the weighted scoring method is used, DFP requires the figure work to be supplemented by explanations of:-
  • what the chosen non-marketed outputs (or "attributes") mean;
  • why particular weightings have been chosen; and
  • the reasoning behind the choice of each option score.

Failure to explain weights and scores properly has been a feature of a number of past appraisals, and can delay approvals. DFP will not accept figures that are not fully explained.
2.7.11   In some cases the primary concern of an appraisal may be to determine the least-cost option for achieving a specified level of service provision. However, even in these cases there may be a need to appraise benefits as well as costs. It is rarely the case that options offer identical benefits; there will usually be some differences in performance that need to be appraised along with the cost information.
   

Integrated Impact Assessment
2.7.12   An inter-Departmental group led by the Economic Policy Unit of OFMDFM has produced guidance on and a tool to assist with integrated impact assessment. These are tailored specifically to suit local policy requirements and are available at http://www.ofmdfmni.gov.uk/policylink-integrated-impact-assessment. They are being piloted initially but are available for use by Departments as a good practice tool. More detailed guidance is available on specific types of impacts, for example health, environment, or equality impacts, both via the IIA website and directly from the relevant Departments or, in the case of equality, the Equality Commission (see reference at 2.7.18 below). Departmental economists can advise on the more specific guidance that is available.
   

Distributional Effects (including New TSN and Equality)
2.7.13   Policies, programmes and projects may give rise to distributional effects, for example, between people of different incomes, ages, genders, religions, ethnic groups, health states, skills, or locations. Expenditures or other policy proposals often lead to both gainers and losers, and information on how the costs and benefits are distributed among different individuals, organisations, or sectors of the economy can be very important. In general, proposals that deliver greater net benefits to lower income groups should be rated more favourably than those that benefit higher income groups.
2.7.14   Significant distributional effects should be identified and, as far as possible, quantified in appraisals and evaluations. How the options differ regarding these effects should be analysed in much the same way as for other non-monetary factors. For instance, where an impact statement is being used, the distributional impacts should be summarised in it, together with those of all the other non-monetary factors. Alternatively, they may be scored as attributes in a weighted scoring exercise.
2.7.15   The new Green Book lays greater emphasis upon assessment of distributional impacts. Paras 5.33 - 5.41 and Annex 5 of the new Green Book give general guidance on the subject. DFP generally endorses this guidance. However, in Northern Ireland particular attention should be paid to local policies and legislation including, for example, the Statutory Equality Obligations of the Northern Ireland Act 1998 and the Government initiative of New Targeting Social Need (New TSN). Further details of how to assess equality impact and New TSN impact are given below.
2.7.16   The Green Book includes a method for applying explicit distributional weights. NI Departments should consider this method carefully before deciding to use it. Clearly, it is only applicable in cases where benefits to income groups are actually valued monetarily, and this can require a substantial effort in terms of information collection and analysis. Judgement of the appropriate approach should be informed by consideration of the scale and significance of the distributional impact of the proposal in view; and the ease or cost-effectiveness with which distributional impacts can be measured.
   

Equality of Opportunity
2.7.17   Section 75 and Schedule 9 of the Northern Ireland Act 1998 came into force on 1st January 2000 and provided the legislative basis for the replacement of the previous Policy Appraisal and Fair Treatment (PAFT) guidelines. The legislation places a statutory obligation on public authorities (including some UK Departments operating in Northern Ireland) in carrying out their functions, to have due regard to the need to promote equality of opportunity between the range of social categories (i.e. religious belief, political opinion, gender, marital status, having or not having dependants, ethnicity, disability, age, or sexual orientation); and, without prejudice to this obligation, to have regard to the desirability of promoting good relations between persons of different religious belief, political opinion or racial group.
2.7.18   The main vehicle by which a public authority fulfils its statutory obligations is through its Equality Scheme and the commitment to carry out Equality Impact Assessments (EQIAs) on new policies which satisfy the screening criteria set out in the Equality Commission for Northern Ireland "Guide to the statutory duties" (pages 36 and 37). The Guide can be found on the Commission's website at www.equalityni.org (click on 'Recent Publications' and then 'Statutory Duty'). The Commission has also issued guidelines on carrying out EQIAs, "Practical Guidance on Equality Impact Assessments" which can be found at the same website.
2.7.19   The legislation only requires an EQIA for new policies that meet the Equality Commission's screening criteria. However, this does not mean that equality issues are irrelevant in other cases. When appraising or evaluating other policies (i.e. existing policies and new policies that do not meet the screening criteria) and individual projects, it is still important to consider whether there will be any equality impact. In some cases, there may be no significant equality issues at all. In other cases, there may be some equality impacts to take into account, in which event the principles in the EQIA guidance may be applied, with proportionate effort. The appropriate depth of analysis is a matter for judgement depending upon the importance of the equality issues in individual cases.
2.7.20   Equality Impact, where relevant, should be taken into consideration in the broadly the same way as Environmental Impact, Health Impact, Transport Impact and so on - but subject to the proviso that is backed by a statutory equality duty. As noted above, the Equality Commission has issued specific guidance on how to conduct an EQIA, and they can offer advice to Departments on their requirements under the statutory obligations. The Equality Directorate within OFMDFM provides general advice on equality issues - see 12.4.8 below for contact details. In addition, all Departments have Equality branches, usually located within Central Management Units. The IIA website includes pro formas which can be used for equality screening and for documenting the results of an EQIA.

   

New Targeting Social Need (New TSN)
2.7.21   New TSN was announced in the Partnership for Equality White Paper (Cm 3890) published in March 1998. Its aim is to tackle social need and social exclusion in Northern Ireland by targeting its efforts and available resources on people, groups and areas in greatest social need. New TSN targets social need objectively, wherever it is found, and does not favour or discriminate against any section of the community. It is complementary to the Statutory Equality Obligations, but has a different focus6. New TSN comprises three complementary elements:
  • It has a particular focus upon tackling the problems of unemployment and increasing employability
  • It aims to tackle inequalities in areas such as health, housing and education, and the problems of disadvantaged areas
  • It includes Promoting Social Inclusion (PSI), through which Departments work together, and with partners outside Government, to identify and tackle factors which can contribute to social exclusion; and to undertake positive initiatives to improve and enhance the life and circumstances of the most deprived and marginalised people in our community.
2.7.22   New TSN is not a spending programme. There is no separate New TSN budget. It is a policy running through all relevant existing spending programmes, across all Northern Ireland Departments, including Next Steps Agencies, Non-Departmental Public Bodies and North-South Implementation Bodies. It means changing the way they target the money they have, so that more of it can be used to benefit those who are most disadvantaged.
2.7.23   Appendix 5 - Appraising and Evaluating New Targeting Social Need explains how to take appropriate account of New TSN in economic appraisals and evaluations. Further general information is given in the New TSN Annual Reports. Personnel seeking to address New TSN in appraisals and evaluations should have a grasp of the contents of these and subsequent Annual Reports and Action Plans. General advice on New TSN is available from the New TSN Unit - see 12.4.8 for contact details.

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6New TSN should contribute to the aims of Statutory Equality Obligations by reducing unfair social and economic differentials. The Statutory Equality Obligations have a much wider scope in that it is not confined to socio-economic issues and seeks to take account of the impact of the Government's actions on a broader range of social groups.