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DOING A POLICY ANALYSIS: EIGHT STEPS

1. Determine the problem and give alternative solutions.Sometimes needs assessment is useful in determining the problem. Once the

problem is determined, decide what solutions (i.e., programs) should be considered.These are the choices.

All other steps apply to these choices, so they should be very clearly labeled anddefined in the first page or two. For example, if one choice is a new program, the explicitdefinition should include the size of the proposed program, its expected duration, andthe number of people it would cover.

Often the two choices are go and no go for a program. In such cases it isimportant to very specifically define both these terms for this program.

2. Determine all monetary costs associated with each choice.This section is usually quite short, because these costs can usually be

considered the same as market prices, and can be taken right from the budget. Just tobe sure, check whether there are opportunity costs or upcoming market changes thatare not captured by the budget. (Usually there are none.)

3. List all possible benefits (outcomes) and estimate their size.This is the most im portant section of th e paper.

For a program evaluation, these benefits may be derived from a careful research

design, such as before/after figures compared to a control group.If this is not possible, then both policy analyses and program evaluations must

determine these benefits through informed estimation. One common method ofestimation is comparison with similar programs at other times or in other jurisdictions.

Defending all estimates: If some of the outcome estimates are drawn frompublished sources (or expert opinions), this analysis cannot simply assume they arecorrect. It must independently defend them: explain how the published source reachedits estimates, indicate why the estimates seem correct, and discuss how they have beenadjusted for this particular project.

4. For cost benefit analysis, turn these benefits into money estimates. There are five possible assessment techniques: survey, intermediate goods

(including cost savings), travel costs, private market analog and implicit (hedonic) price.For political reasons, it is usually better not to monetize lives saved. If a

monetary figure is used for lives, later run the sensitivity analysis with the monetized lifefigures excluded, to see how much they affect your overall answer.

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5. Array both costs and benefits in a time stream. Discount them.How long a time stream? Longer is usually more accurate. Stop the time stream

only when the numbers are either very small, or too uncertain to be defended.What discount rate? If monetized figures are real-- i.e., inflation-free-- then a

discount rate of roughly 8% is usually defensible -- in part because it is probably too highand thus conservative.

6. Indicate the choice with the largest net benefit.This, of course, is the projects central finding.

7. Conduct a sensitivity analysis.All estimates that are both uncertain and important should be sensitivity

analyzed. In inserting higher and lower numbers for the sensitivity analysis, these newnumbers must be defended just as the "best" estimates were: e.g., why does this seemthe lowest plausible estimate for this outcome?

8. Summarize.The summary should give explicit attention to the unquantifiable aspects of each

choice.

---------------------------Although not part of the course project, two other steps are sometimes included in real-life analyses:

9. Consider any implementation problems associated with each choice.

10. Analyze and discuss any distribution (equity) differences between the choices.Conclude.