Question

Exercise 2: Limitation of Cost Benefit Analysis (CBA)

An analyst for the U.S. Navy was asked to evaluate alternatives for forward-basing a destroyer flotilla. He decided to do the evaluation as a CBA. The major categories of costs were related to obtaining and maintaining the facilities. The major category of bene t was reduced sailing time to patrol routes. The analyst recommended the forward base with the largest net benefits. The admiral, his client, rejected the recommendation because the CBA did not include the risks to the forward bases from surprise attack and the risks of being unexpectedly ejected from the bases because of changes in political regimes of the host countries. Was the analyst's work wasted?

Answer 1

analyst was mistaken in attempting to apply CBA as a decision rule to policies whicht had implications that could not easily be monetized.

However, the analysis can be redeployed as a multigoal analysis with three goals: maximization of economic efficiency, lower the vulnerability to surprise attack, and mitugation of risks from political changes in host country.

In this analysis, the net benefits estimated in the CBA can be taken as a parameter for ranking options in terms of maximization of economic efficiency.

Hence, CBA was an effective precursor to other tools uses for decisions making and efforts were not wasted.

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