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ANNEX 1 (h) Interpretation of cost benefit analysis results
Figure 1h1- Cost benefit analysis
In order to interpret the results of the CBA presented in this report, it is essential to understand the methodology. To facilitate this process we present the above diagrammatic representation and the following bullet points.
- The factual or baseline scenario is represented in Figure 1h1 by LG which in our analysis was equivalent to £141 million in today's money equivalent. These are the baseline surveillance 'costs' in the cost benefit analysis against which the benefits will be judged. They represent the sum of all ex-ante investments that will reduce the risk of BTV outbreaks and/or reduce their severity in Scotland.
- A series of hypothetical or counterfactual BTV incursion scenarios 0 to 5 are introduced. For illustrative purposes these are placed in order of linearly increasing total BTV losses A to F expressed in today's money terms. These are the 'benefits' in the cost benefit analysis as they are the total of all losses due to BTV avoided because of the investment in the baseline surveillance 'costs'. These benefits will include any expenditure on vaccination (control options C2 to C5 in our analysis).
- In scenario 3 the benefits of BTV losses avoided exactly balance the baseline costs. In this case we have breakeven i.e. the cost benefit ratio ( CBR) = 1.0.
- For scenarios 0 to 2 benefits A, B and C are less than the baseline surveillance costs, CBR< 1.0. The net present value ( NPV) (e.g. J-C) for the investment in the disease control is negative (grey area). If this situation is known to prevail, then the costs of preventing BTV incursion exceed the benefits of keeping it out i.e. in financial terms, the precautions taken are excessive.
- For scenarios 4 and 5, benefits E and F are more than the baseline surveillance costs, CBR> 1.0. The net present value ( NPV) (e.g. E-H) for the investment in baseline surveillance costs is positive (green area). If this situation is known to prevail, then the baseline surveillance costs of preventing/reducing BTV incursion are justified in financial terms.
- A limitation arises in this ex-ante study as the incursions we appraised are only 5 of an infinite number of possible scenarios that are not mutually exclusive. Furthermore, it was not possible to assess the risk of each incursion scenario taking place. We therefore could not weight the benefits by their probability of occurrence (R). Our benefits were therefore ranked within incursion scenarios. Our benefits were therefore much greater than the expected benefits if one assumes only one incursion scenario is possible but not inevitable. However, more than one incursion is possible and the losses from each are partially additive, leading to higher expected benefits. In the absence of prior knowledge of the exact nature of the BTV incursions, we felt it reasonable to take R=1 for the incursion of interest and R=0 for all other incursions. This precluded comparisons between incursion scenarios.
- A potential difficulty of interpretation occurs because vaccination strategy is part of the disease losses avoided (benefits) not part of the baseline costs. Higher benefits stem from greater disease losses avoided. As the risk of incursion is unknown, and the only other variable in the incursion scenarios is vaccination strategy, the scenarios with the highest benefits are associated with the most costly vaccination strategies. For example, vaccination strategy C2 (Border PZ, 100% vaccinated) always delivered the highest benefits but was therefore the vaccination strategy with the highest avoided disease losses (output losses due to BTV plus control costs including costs of vaccine). The reverse was true for vaccination strategy C4 (all Scotland PZ, 50% vaccinated).
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