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Cost-benefit analysis

  • Stakeholders. Investors, municipal governments and planners, and private urban development companies.
  • Mode of assessment. Explore and examine. 
  • Method. Cost-benefit analysis (CBA) provides an overview of the effects, risks and uncertainties of a measure and the resulting costs and benefits to society as a whole. CBA provides insights in the welfare effects of the measure and shows its pros and cons in order to answer the question whether the economic and social costs outweigh the economic and social benefits. This includes those aspects of wellbeing for which there is no market prices, such as nature, landscape or cultural heritage.
  • How to apply the method. CBA involves eight main steps: (1) Problem analysis: what’s the problem or opportunity and how is it expected to develop, what’s the policy objective, what are the most promising options? (2) Establish baseline alternative: most likely scenario in absence of a policy. (3) Define policy alternatives: measures to be taken, which packages of measures can be distinguished, which alternatives or variants can be defined. (4) Determine effects and benefits: identify effects, quantify effects, value (monetise) effects. (5) Determine costs: resources consumed to implement the solution, fixed and variable costs both in the baseline and the policy alternatives. (6) Analyse variants and risks: identify main uncertainties and risks and analyse the consequences for the outcomes. (7) Provide an overview of the costs and benefits: calculate all costs and benefits discounted to the same base year and calculate the balance, present all effects including non-quantified and/or non-monetised effects. (8) Present the results: present them in a relevant, understandable and clear presentation, explain transparency and reproducibility and interpret what the decision-maker can learn from the CBA.
  • When to apply the method. CBA is in most cases used to evaluate concrete plans and compare them with other alternatives or with a business-as-usual alternative. It’s used for judging whether a decision to proceed or not with a policy measure can be justified on the basis of the balance of benefits and costs. CBA is useful earlier in the decision process, when plans are being created.
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Multi-criteria decision analysis

  • Stakeholders. Municipal governments and planners, investors, and private urban development companies.  
  • Mode of assessment.  Explore and examine.
  • Method. Multi-criteria decision analysis (MCDA) provides a systematic methodology to support complex decisions (e.g. combine outcomes of environmental assessments) and evaluate alternative actions (e.g. decision and policy options). This happens by bringing  together environmental information, with cost-benefit assessments and stakeholder preferences. MCDA is used to discover and quantify decision maker and stakeholder considerations about various non-monetary factors in order to compare alternative courses of action.
  • How to apply the method. This method can be applied through five main steps: (1) a GIS-based data analysis for each potential housing site; (2) application of indicators and respective threshold values to assess the performance of each indicator at each site; (3) aggregation of all indicators, including their transformation into a standardised ranking; (4) multiplication of individual indicator weights in accordance with the respective end-user; and (5) utility analysis. 
  • When to apply the method. MCDA can applied for the preparation of plans, for the ex-ante or ex-post revisions of plans and for prioritizing development steps in existing plans in accordance with sustainability criteria. 
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