Review of the DWP Cost Benefit Framework and how it has been applied
Funded by: Department for Work and Pensions
February 2012 to March 2012
Background, summary and aims
Background and Aims
The Department for Work and Pensions wishes to commission a short review of its Cost-Benefit Framework (CBF). The review will:
- Critically assess the way in which the CBF has been applied and the validity of the conclusions drawn from its application
- Review the Department’s current work to update and refine its cost-benefit estimates
- Assess the appropriateness of the revisions being made to the methodology and recommend how these estimates can be improved in the short-term given using existing evidence
We will review all the pertinent written DWP documents passed by the project manager, which we understand to include the CBF itself, 2004/5 CBA’s produced, any 2005/6 results available, internal CBF review documents, and cost-effectiveness analyses (New Deals and Employment Zones). The review will critically assess internal CBA’s and how improvements can be made to these in the short term, as well as to the relative cost effectiveness estimates and their formulae. In addition, we will examine the general cost-benefit literature on specific points that arise from the review of DWP documents. In particular, we will attempt to address how to improve the consistency of the evaluation evidence base for programmes in order to improve comparability across cost-benefit analyses.
A number of interviews with DWP analysts will also be conducted. Ideally these interviews would take place sequentially on one day, with a joint session, perhaps over lunch, to discuss and identify any generic issues those interviewed found with implementing the CBF, as well as the proposed changes to it. It is expected that the DWP project manager will provide details of who should be interviewed, and assist in arranging the interviews by providing with contact details and other relevant information. A proforma of a set of questions will be used to establish consistency in the information gathered. This exercise will gather more details of the cost-benefit analyses previously carried out, and establish an opinion base regarding the feasibility of improving the evidence base for different programmes.
As a result of the review, the report will make recommendations clearly addressing each of the issues set out in the research objectives of the ITT. Some of the issues that will be addressed include the value of CBA’s that are based on additional benefit exits, rather than additional employment entries, and how CBA’s can include other dimensions of additionality such as faster entries to jobs or ‘better jobs’. The review of the CBF and internal documents will also result in recommendations for how DWP cost-benefit estimates might be improved in the medium and longer term.
Importance of Research
The importance attached to cost-benefit analysis is increasing, also at DWP. Both the 2004 and 2007 Spending Review settlements have shifted the policy focus away from ‘what works?’ towards ‘what is cost-effective?’. Cost-benefit analysis is seen as an essential part of efforts to prioritise spending as the budget available for active labour market programmes reduces.