We all think it's the best way to do business. I am certain I have invoked the phrase here a couple of dozen times, and likely a hundred times in real life. Tim Harford has an interesting review of a Bent Flyvbjerg and Dirk Bester journal article that dampens my enthusiasm considerably. Not because it is a bad idea in theory, but because as a practical reality it allows us to hide important assumptions (guilty) and to underestimate costs and overestimate benefits in ways that fall in with the general ideas around us (also guilty). Which are likely not accurate. I liked the line "The problem is not that every project engineer in the world is incapable
of delivering to a reasonable budget; it is that the budgets are never
reasonable." That does add up, doesn't it? We are very used to assuming, whenever we hear an estimate on a bridge or a building or a new program that it is actually going to cost much more. Shouldn't that tell us something about initial estimates in general?
Having argued that cost-benefit analysis is “broken”, Flyvbjerg and Bester propose fixing rather than replacing it — for example by improving the accuracy of cost estimates through better data, independent audits and performance incentives. I agree. The method is open to misuse but is too valuable to abandon.
We don't have anything better. But this is so bad that perhaps we should do something. CS Lewis once asserted ("Why I am not a Pacifist") that wars never do half the good that the belligerents promise, which I have taken as a wise caution. Yet I think it is worse than that. From recent history of western nations, we can say that whenever war is proposed, it will cost ten times what we initially think. On the plus side for the US, the loss of our human life is likely to be one-tenth what we fear. This inverse relationship may not be accidental. But to go the next step, the benefit we derive will not be as advertised. It may not be only one-tents as much, which would be lovely poetry and arithmetic, yet it is certainly much less. If we knew wars were going to deliver only a quarter as much but cost twelve times as much, would we still go forward? Sometimes yes. Sometimes there is no real other choice. But America has had the luxury of choice for most of its history.
There are analyses that show similar worse results for the War on Poverty or the War on Drugs, or any number of other endeavors, while others, such as the early space program, seem to have paid off better because of the primary research needed. So CBA, yes. Except we don't really do that now, we do an imitation to save face.