4. Using productivity metrics to complement cost-benefit analysis
It is important to recognise that cost benefit analysis (CBA) is the only way to estimate the net benefits (benefits minus costs) of an initiative, and therefore will remain the primary tool to appraise and prioritise initiatives (see T2).
However, productivity metrics can complement the CBA results by providing an additional layer of information to aid decision-makers. Ways in which the concept can be used include:
- Information on productivity impacts can simply be highlighted to reveal the value of individual initiatives or entire programs.
- Productivity metrics may be included in the Strategic Merit Test (see F3) where improving productivity is a program objective.
- Productivity metrics can be presented in the Appraisal Summary Table (see F3) for decision-makers to consider alongside information on the initiative’s impacts and full CBA results.
- Productivity metrics could prove valuable in cases of major investment decisions where the initiative proponent has decided to undertake economy-wide modelling (using a computable general equilibrium, CGE model) since the productivity benefits are required as inputs in the CGE model.
- For major initiatives, productivity metrics can be used for estimating changes in future tax revenues associated with productivity improvements.