Operational Safety Economics

Chapter 5Cost-Benefit Analysis

5.1 An Introduction to Cost-Benefit Analysis

A cost-benefit analysis (CBA) is an economic evaluation in which all costs and consequences of a certain decision are expressed in the same units, usually money [1]. Such an analysis may be employed in relation to operational safety, to aid normative decisions about safety investments. One should keep in mind, however, that CBAs cannot demonstrate whether one safety investment is intrinsically better than another. Nevertheless, a CBA allows decision-makers to improve their decisions by adding appropriate information on costs and benefits to certain prevention or mitigation investment decisions. As decisions on safety investments involve choices between different possible risk management options, CBAs can be very useful. Moreover, decisions may be straightforward in some cases, but this may not always be true. Especially in the process industries or the nuclear sector, for instance, where there are obviously important type I as well as type II risks that should be managed and controlled, and a variety of both of them, risk management options may be difficult and not at all obvious. Moreover, CBA is not a pure science and sometimes needs to employ debatable concepts, such as the value of human life (see also Chapter 4), the value of body parts, the question of who pays the prevention costs, and who receives the safety benefits.

There are two types of CBA. On the one hand, it is possible to carry out a ...