Number 8 in our TBL-CBA traps series.
8. Muddying the Waters between Impacts and Benefits
Impact analysis captures the overall output and income resulting from a project i.e. “400 local jobs created” or “an increase of $3M in GDP”. But this is not cost-benefit analysis. Impact analysis is often a marketing exercise intended to curry favor with those whose stamp of approval is needed for the project to move ahead. One particularly egregious example is job creation. Jobs created as part of a project are costs to the project, not benefits in a societal cost-benefit framework. To count as a societal benefit, these workers would have to be paid more than they would otherwise or be unable to be employed elsewhere were the project not to go ahead. In this case, there is no net benefit unless there is a labor shortage so a project attracts new entrants to the profession. When trades are induced to work on a project because of higher wages, it is only this incremental wage that is a benefit. If a project hires from a pool of unemployed workers, their wages over what they would have received from any unemployment insurance scheme could be considered a benefit. But in general, the job itself is not a benefit.
Impact analysis = marketing hype. Cost-benefit analysis = sound economics.
Click here if you would like an infographic of the Top Ten TBL-CBA Traps.
Recaps:
Trap #1 – Re-inventing the wheel
Trap #2 – Forgetting Certain Stakeholders
Trap #4 – Letting the Loudest Voice Win
Trap #5 – Asking “Are We Doing the Right Project?” but Forgetting “Are We Doing the Project Right?”
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