Page 62 - DLIS104_MANAGEMENT OF LIBRARIES AND INFORMATION CENTRES

Unit 8: Library Finance

Reference class forecasting was developed to increase accuracy in estimates of costs and benefits. Notes
Another challenge to cost benefit analysis comes from determining which costs should be included in
an analysis. This is often controversial because organizations or interest groups may think that
some costs should be included or excluded from a study. In the case of the Ford Pinto, the Ford
company’s decision was not to issue a recall. Ford’s cost-benefit analysis had estimated that based
on the number of cars in use and the probable accident rate, deaths due to the design flaw would
run about $49.5 million. This was estimated to be less than the cost of issuing a recall. In the event,
Ford overlooked the costs of the negative publicity so engendered, which turned out to be quite
significant.
In the field of health economics, some analysts think cost-benefit analysis can be an inadequate
measure because willingness-to-pay methods of determining the value of human life can be
subject to bias according to income inequity. They support use of variants such as cost-utility
analysis and quality-adjusted life year to analyze the effects of health policies. In the case of
environmental and occupational health regulation, it has been argued that if modern cost-benefit
analyses had been applied prospectively to proposed regulations such as removing lead from
gasoline, not turning the Grand Canyon into a hydroelectric dam, and regulating workers’ exposure
to vinyl chloride, these regulations would not have been implemented even though they are
considered to be highly successful in retrospect. The Clean Air Act has been cited in retrospective
studies as a case where benefits exceeded costs, but the knowledge of the benefits was not available
until many years later.

Self Assessment
Multiple choice questions:
6. The New Approach to Appraisal (NATA) was introduced in:
(a) U.K (b) Canada (c) U.S.A (d) None of these
7. PVB stands for
(a) Present value of benefits (b) Present value of balance

8.5 Summary

Budgeting is truly a year-round activity; its development can be broken down into various
stages.
The process begins with individual program review.
Cost-effectiveness analysis is a form of economic analysis that compares the relative costs
and outcomes of two or more courses of action.
Cost-effectiveness analysis is distinct from cost-benefit analysis, which assigns a monetary
value to the measure of effect. Cost-benefit analysis, sometimes called benefit-cost analysis,
is an economic decision-making approach, used particularly in government and business.
Deferred ordinary shares are a form of ordinary shares, which are entitled to a dividend
only after a certain date or if profits rise above a certain amount.
A rights issue provides a way of raising new share capital by means of an offer to existing
shareholders, inviting them to subscribe cash for new shares in proportion to their existing
holdings.
Preference shares have a fixed percentage dividend before any dividend is paid to the
ordinary shareholders.
However, dividend payments on preference shares are not tax deductible in the way that
interest payments on debt are.
Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative
costs and outcomes (effects) of two or more courses of action.
Cost-effectiveness analysis is often used in the field of health services, where it may be
inappropriate to monetize health effect.
Cost-effectiveness is typically expressed as an incremental cost-effectiveness ratio (ICER),
the ratio of change in costs to the change in effects.
There may be incentive for an organization not to develop or publish an analysis that does
not demonstrate the value of their product.
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