Cost, Benefit, and Risk — Keys to Evaluation of Policy Alternatives

by H. G. Massey

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What does it cost? In describing the analyst's task in identifying "true" costs, the author explores some of the central concepts and problems of cost analysis. Within the framework of the basic purpose of analysis — to shed light on a future decision or choice among alternative ways to allocate resources — the analyst must evaluate the alternatives in terms of their costs, benefits, and risks. Several factors besides dollar expenditures must be considered: the distinction between fixed costs and variable costs; sunk costs; "external costs"; life-cycle costs; and time-phasing of costs. A new approach to the problem of external costs is described. Called System Impact Assessment, this approach attempts to evaluate the impact of system alternatives on the environment and other segments of society, along with the financial costs and user services. A scorecard provides the decisionmaker with the comprehensive view of the relative strengths and weaknesses of each alternative.

This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

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