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BCA is based on three key concepts:
 | Opportunity cost, i.e. the return that is foregone because the next best alternative investment was not chosen, e.g., if research into herbicides was the preferred option for investment in weed management, then the opportunity cost may be the return foregone if the same amount had been invested in biological control research.
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| Willingness to pay (WTP), i.e. what a person would be willing to pay in order to purchase, or consume, a set quantity of a good or service, e.g. how much would a person be willing to pay to clear a weed infestation from an area of land.
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| Net Social Benefit 'A project is acceptable where, subject to budget constraints and certain other conditions, net social benefits valued according to the opportunity cost and willingness to pay principles are positive rather than
negative.' (Australian Department of Finance
1991, p ix). |
BCA attempts to place a monetary value on all aspects of any project. In doing so, results of the BCA analysis may be influenced by definition of the scope of the analysis, and by methods used in the analysis. Subjective decisions must be made at various levels in BCA including the
following:
| Scope of the project definition. Did the BCA focus on one group, several groups or look at society as a whole, and have all of the direct and indirect costs and benefits been taken into account?
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| Method(s) used to value the costs and benefits.
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| Working assumptions made during the BCA.
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| The discount rate.
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| Ranking projects.
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| Sensitivity tests. Were sensitivity tests performed to determine the
variables which most influence the rankings of the projects (See
Perkins 1994).
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| Uncertainty. Clark (1991)
and Gittinger (1982)
provide an explanation of how risk, adoption rates, probability of success,
inter- and intra-generational concerns, etc. can influence a BCA. |
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David Adamson
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