“So what skills are likely to be needed by public servants and their managers to match governments’ evolving role in the 21st century?….. the wider policy and regulatory challenges will require strong analytic capabilities, including in evaluating the costs and benefits of different courses of action.” – Gary Banks, former Chair of the Productivity Commission and former Dean of ANZSOG.
An understanding of economic evaluation and decision-making skills is vital for making better decisions about public policies, programs and regulations, and hence important for public sector leaders as they progress their careers.
Professor Ross Guest, Emeritus Professor at Griffith University and a subject leader in ANZSOG’s Executive Master of Public Administration, says that public leaders who understand how to do an economic evaluation – including the strengths and weaknesses of the different methods available – will be better placed to spend their scarce resources effectively.
He will be teaching a two-day ANZSOG online workshop Economic evaluation and decision-making on 23-24 March which will focus on giving participants an understanding of how to use economic evaluations to make better decisions about how to use resources.
“Every government activity uses resources that have alternative uses, so we must always ensure that the benefits of using the resources are better than those of alternative uses – what we call the opportunity costs – so that the benefits of the activity justify the cost,” Professor Guest said.
“The role of an economic evaluation is to analyse a course of action, in terms of resource use and consequences, in comparison with one or more alternatives, so we can determine if it represents better public value than another program or the status quo.”
He said that public leaders sometimes seem not to appreciate the full costs of programs and regulations, or what was involved in a true economic evaluation.
“There are costs of government programs and regulations in terms of running government agencies, compliance costs of regulations, and costs of collecting taxes such as the disincentives to work, save and invest,” he said.
“Likewise some things should not be included in an economic analysis. For example if you are analysing the impact of a policy that cuts tolls on freeways you should NOT include the savings to motorists, as these are a transfer payment between members of society.
“We often see ‘double counting’ when it comes to governments promoting their new infrastructure projects. Governments like to count the output that’s created and also the jobs that are generated, but that’s double counting because the jobs create the output.”
Different kinds of economic evaluation
He said that a good economic evaluation went beyond a cost-benefit analysis and involved other tools aimed at identifying and measuring the true impacts of policies on the economy and society more broadly. These methods include:
- Multi-criteria analysis: this takes into account more than just costs and benefits and looks at risks; effects on different groups of people; and effects on well-being that are difficult to measure;
- Cost-utility analysis: replaces dollar benefits with a non-financial metric such as Quality Adjusted Life Years in the context of public health policies and programs such as an obesity-reduction program.
- Economic impact analysis: looks at the effects on economic variables such as employment, national or regional output of goods and services, interest rates or exchange rates.
Within evaluation methods, economists use the tool of discounting to identify benefits over time and balance costs now with benefits in the future, or vice versa. Discounting is important too which can impact decisions, so an understanding of it is necessary for economic evaluations.
Professor Guest said that good evaluations chose appropriate tools so they took into account all the costs and benefits of a proposed or actual program.
“For example, the evaluation of the National Disability Insurance Scheme by the Productivity Commission, which gave the green light to program, showed that the true economic costs to society of the NDIS were not the expenditure by government on benefits to disability recipients – that’s a transfer payment. The true cost is the disincentive effects of taxes required to fund the scheme.
The limits of economic evaluations
He said that it was important for public leaders to understand that there were limits to economic evaluations, such as the difficulty in measuring different kinds of social benefits, and in weighing up impacts on different groups in society.
“For example, what if we were to try and measure the social and psychological impacts of the COVID-19 lockdowns, and then set them against the benefits of the lockdowns in saving lives? That question is hard to answer, it’s not that you can’t do an evaluation but if you do it will involve a lot of assumptions and some value judgments, and its important to recognise these value judgments for what they are,” he said.
“On other issues it can be hard to weigh up the impacts of government programs on different parts of society. If a program involves costs of $10 million on people from lower socio-economic backgrounds but benefits of $10 million for higher socio-economic groups, is that a zero sum game? How do we value the benefits of building infrastructure in regional areas which have done it tough or been affected by natural disasters, compared to building in other areas?”
He said that the Economic evaluation and decision-making workshop would give participants a basic understanding of the role of different kinds of economic evaluation, and their limitations.
“But just as important, I want them to know how to ask the right questions in evaluating policies, programs and regulations – for example what are we comparing with, what are the alternatives?
“Many economic arguments, even so-called mainstream economic propositions, are in fact contestable, often depending on assumptions, values and context. There are a number of examples we see every day and this particular course will provide some insights into that.”
“I’d like the participants to have the ability and confidence in making the economic case for and against government interventions of various kinds, and to contribute thoughtfully to economic debates that occur at their work.”
Registrations for Professor Guest’s Economic evaluation and decision-making are now open. The workshop will be held online on 23-24 March and is designed for team leaders through to executives in the public service and NGO sector who have no or limited exposure to economic evaluation processes and thinking.
The workshop will explore the rationale and methodologies for the economic evaluation of programs, regulations and policies in a public sector and NGO context. Professor Guest will lead participants through interactive group discussions and small group breakout sessions where participants will engage with each other through applied learning activities.
This program will explore real case studies and examples of the use of economic evaluation methods in evaluating public sector programs, policies and regulations. These methods include cost-benefit analysis, multi-criteria analysis, socio-economic impact analysis, among others. The examples will be drawn from a range of portfolio areas including the environment, public health, energy, infrastructure, education and housing.