58 Highway Engineering
3.3.8 Advantages and disadvantages of cost-benefit analysis
The final output from a cost-benefit analysis, in the opinion of Kelso (1964),
should be a cardinal number representing the dollar rate of the streams of net
prime benefits of the proposal that he termed ‘pure benefits’. Pure benefits mea-
sured the net benefits with the project in relation to net benefits without the
project. Hill (1973) believed that this statement, one that explicitly sets out the
basis for a traditional cost-benefit analysis, reveals some of the major deficien-
cies in the technique. Although there is some consideration of intangibles, they
tend not to enter fully into the analysis. As a result, the effect of those invest-
ments that can be measured in monetary terms, whether derived directly or indi-
rectly from the market, are implicitly treated as being more important, for the
sole reason that they are measurable in this way, when in reality the intangible
costs and benefits may have more significant consequences for the proposal. Fur-
thermore, cost-benefit analysis is most suitable for ranking or evaluating differ-
ent highway options, rather than for testing the absolute suitability of a project.
This is, to an extent, because all valuations of costs and benefits are subject to
error and uncertainty. Obtaining an absolute measure of suitability is an even
greater limitation.
The advantages and disadvantages of cost-benefit analysis can be summarised
as follows.Advantages
The use of the common unit of measurement, money, facilitates compar-
isons between alternative highway proposals and hence aids the decision-
making process.
Given that the focus of the method is on benefits and costs of the highway
in question to the community as a whole, it offers a broader perspective than
a narrow financial/investment appraisal concentrating only on the effects of
the project on the project developers, be that the government or a group of
investors funding a toll scheme.Disadvantages
The primary basis for constructing a highway project may be a societal or
environmental rather than an economic one. If the decision is based solely
on economic factors, however, an incorrect decision may result from the
confusion of the original primary purpose of a proposed project with its
secondary consequences, simply because the less important secondary
consequences are measurable in money terms.
The method is more suitable for comparing highway proposals designed to
meet a given transport objective, rather than evaluating the absolute desir-
ability of one project in isolation. This is partly because all estimates of costs