Historically, the World Bank’s reputation for rigorous analysis was built on its use of cost-benefit analysis. Such analysis served to demonstrate its commitment to measuring results and ensuring accountability. It was the Bank’s answer to the results agenda long before that term became popular.

IEG's evaluation reveals that the percentage of World Bank projects justified by cost-benefit analysis has been declining for several decades, due to both a decline in adherence to policy and difficulty in applying cost-benefit analysis. This study highlights that the Bank needs to revisit the policy for cost-benefit analysis to account for difficulties in quantifying benefits yet preserve a high degree of rigor in justifying projects. The study recommends that the Bank implement reforms to ensure quality, rigor, and objectivity in its cost-benefit analysis, and use the results to influence decisions and improve development assistance.

Recommendations

  • Cost-benefit estimates should be available and used in advance of decisions

    To ensure transparency and informed decision making, cost-benefit estimates should be available and used in advance of decisions. The cost-benefit analysis should be summarized, preferably in a single table that includes the major benefits and costs. Such table should be submitted along with a discussion of the main assumptions or empirical evidence that lies behind the numbers. Additionally, spreadsheets behind the appraisal analysis should be saved for review during implementation and final evaluation. This will help promote and strengthen the World Bank's agenda to focus on results.
     
  • Project justification needs to include a discussion of whether the project is producing a public good and why the project was chosen over alternatives

    The weak points in economic analysis of projects are fundamental issues such as the public sector rationale, comparison against alternatives, and measurement of benefits against a without-project counterfactual. Project justification needs to include a discussion of whether the project is producing a public good and why the project was chosen over alternatives.
     
  • Take responsibility

    Responsibility for funding, conducting, and directing the cost-benefit analysis should not lie with those who have vested interests in the outcome.

 

Cost-Benefit Analysis and the Results Agenda

In recent years, the managing for results agenda has been dominated by discussions about measuring results, using logical frameworks to frame the monitoring and evaluation efforts, and impact evaluation to measure impact in a more accurate and rigorous way. These efforts complement each other and also complement cost-benefit analysis. Yet in practice they are often treated separately, leading to unnecessary fragmentation.

It is easy to find cost-benefit analysis that does not mention or use impact evaluation results, despite the fact that measurement of benefits against the counterfactual is integral to cost-benefit assessment. Similarly, it is rare to find impact evaluation studies that embed the results they obtain in a cost-benefit setting. For example, suppose that an intervention is designed to raise rice yields. The value of the increase in yields would be part of the benefit flow in the cost-benefit analysis, and the analyst typically would make an informed estimate of what yields would have been without intervention and then compute the value of the change in yields. An impact evaluation would provide that figure more accurately. Similarly, an impact evaluation that went no further than providing estimates of the increase in yields would be an incomplete evaluation for decision makers wanting to know whether to repeat the project. What was the value of the increase in yields, how does that compare with the costs? In this example the information from the impact evaluation and the cost-benefit framework complement each other and provide better analysis.