Cost Benefit Analysis (CBA) checklist
This is a summary of HSE’s view of what should and should not be
considered in a duty holder’s CBA for health and safety ALARP determinations.
A CBA can help a duty holder make judgements on whether further risk reduction
measures are reasonably practicable.
Something is reasonably practicable unless its costs are grossly
disproportionate to the benefits. Put simply if;
where DF is the ‘disproportion factor’ then the measure can
be considered not worth doing for the risk reduction achieved. DFs that
may be considered gross vary from upwards of 1 depending on a number of
factors including the magnitude of the consequences and the frequency of
realising those consequences, i.e. the greater the risk, the greater the
DF. For further detail on this see: Principles and
guidelines to assist HSE in its judgements that duty-holders have reduced
risk as low as reasonably practicable.
General points for a CBA presented as part of an ALARP demonstration:
- A CBA cannot be used to argue against the implementation of relevant
good practice, unless the alternative measures are demonstrated unequivocally
to be at least as effective.
- The depth of analysis should be fit for purpose, i.e. more rigour is
required where the risk is higher or the consequences themselves are great
e.g. multiple fatalities.
- A sensitivity analysis is usually required to support any conclusions
suggesting that the costs are disproportionate to benefits of implementing
- A CBA on its own;
- Does not constitute an ALARP case
- Cannot be used to argue against statutory duties
- Cannot justify risks that are intolerable, or justify what is evidently poor engineering.
HSE’s main interest in assessing CBAs is to ensure that all the
appropriate costs have been included and to challenge where costs appear
extraneous or excessive.
- It would be proper to include the costs of installation, operation,
training and any additional maintenance, and the business losses that
would follow from any shutdown of the plant undertaken solely for the
purpose of putting the measure into place.
- All claimed costs must be those incurred by the duty holder (costs
incurred by other parties, e.g. members of the public should not be counted)
- Sacrifice implies non-recoverable cost e.g. if a measure implies lost
production only the lost production during the delay can be counted.
- If lost production is actually deferred production (i.e. the life of
the plant is based on operating rather than calendar time) then it should
only take account of “interest” on the lost production plus
allowance for operational costs during the implementation time and potential
increase in operational costs at the end of life. (For example oil or
gas remaining in an oil/gas field while work is carried out on a platform
should not be counted as lost production).
- If the lost production costs are a strong influence on a decision not
to implement, the duty holder should show that phasing or scheduling the
work to coincide with planned downtimes (e.g. for maintenance) would not
change the balance.
- The costs considered should only be those necessary and sufficient
for the purpose of implementing the risk reduction measure (no gold plating
or deluxe measures)
- Ongoing production losses as a result of the measure (e.g. if things
are slowed down or the new plant requires more maintenance) can be counted.
- Any savings as a result of the measure (e.g. reduced operational costs,
avoidance of damage and reinstatement costs if relevant) should be offset
against the above costs. These are not considered safety benefits but
are counted as ‘ cost savings’ i.e. they reduce the overall
cost of implementing a measure.
- The costs claimed should be shown only to relate to the measure being
implemented for safety.
- Translation into monetary costs is often uncertain and all should be
HSE’s main interest is to ensure that all benefits of implementing
a health and safety improvement measure are included and that the benefits
associated with the measure are not underestimated in any way.
- The benefits should include all reduction in risk to members of the
public, to workers and to the wider community. I.e. benefits can be broken
down into prevented:
- Injuries (major to minor)
- Ill health
- Environmental damage if relevant (e.g. COMAH)
- Benefits can include avoidance of deployment of emergency services
and avoidance of countermeasures such as evacuation and post accident
decontamination if appropriate.
- The cash valuations of preventing health and safety effects on people
are presented in the table below;
|| Values (2003 Q3) 
||£1,336,800 (times 2 for cancer)
|Permanently incapacitating injury
|| Moderate to severe pain for 1-4 weeks. Thereafter some pain gradually
reducing but may recur when taking part in some activities. Some permanent
restrictions to leisure and possibly some work activities.
|| Slight to moderate pain for 2-7 days. Thereafter some pain/discomfort
for several weeks. Some restrictions to work and/or leisure activities
for several weeks/months. After 3-4 monthsreturn to normal health with
no permanent disability.
||Injury involving minor cuts and bruises with a quick and complete
|Permanently incapacitating illness
||Same as for injury.
|Other cases of ill health
||Over one week absence. No permanent health consequences.
||£2,300 + £180 per day of absence
||Up to one-week absence. No permanent health consequences.
- All benefits of a measure should be included. If a risk reduction measure
is identified for one type of accident but reduces other risks as well
e.g. health risks, all benefits should be counted.
- It should be noted that duty holders might need to treat re-instatement
costs as a benefit rather than offsetting them against costs. This would
be the case if the plant being re-instated were a safety related plant
(e.g. one that treats hazardous waste). This can represent a bias in favour of safety. This is because the gross disproportion
factor is applied to all benefits prior to them being compared to the
There are a number of features within an analysis that can have influence
on the outcome. The following points should be considered when assessing
the suitability of a CBA.
- Discounting of monetary values to translate future benefits/costs to
present values is permitted.
- If there are significant future costs, a duty holder must consider discounting
to see if this might change the outcome of a finely balanced analysis,
i.e. where a measure is deemed not reasonably practicable without discounting
they need to show that the outcome would not differ if discounting was
applied. Discounting of future costs, particularly if they are significant,
may make a measure more favourable than if discounting was ignored. This
is because higher effective discount rates are applied to costs than to
health and safety benefits.
- Future health and safety benefits should not be discounted at rates
greater than 1.5% (2003 figure).
- Future costs and cost savings should be discounted at a rate no less
than 3.5% (2003 figure)
- Discount periods in excess of 50 yr are problematic and indications
that a measure is not indicated as a result of such an analysis feature
should be viewed with caution.
- The analysis should be shown to be robust by appropriate sensitivity
analyses, in line with the precautionary approach. In particular, the
results of any CBA associated with major accident hazards will be subject
to uncertainty owing to the need to estimate how severe and how often
the accidents might be. By their nature these accidents are rare but when
they do happen, they can have very high consequences.
- In some cases the inputs to the CBA may have sensitivity ranges of
factors of 3 or more. Unless the extreme value has been used in the analysis
an outcome where the gross DF was exceeded by less than this factor would
not be a compelling indication that the improvement was not reasonably
practicable. Duty holders should provide adequate justification that they
have used conservative inputs to the CBA or that the sensitivity range
factors are appropriate.
- The analysis should justify an appropriate DF.
- In the event of a major accident occurring, significant issues for
duty holders include:
- Share price
- Customer base and market share.
Although these issues are not ones that HSE would require a duty holder
to consider they can often play a significant part of any judgement on whether
to invest in new and safer technology.
A simple method for coarse screening of measures is presented below. This
puts the costs and benefits into a common format of ‘£s per
year’ for the lifetime of a plant.
Consider a chemical plant with a process that if it were to explode could
- 20 fatalities
- 40 permanently injured
- 100 seriously injured
- 200 slightly injured
The rate of this explosion happening has been analysed to be about 1 x
10-5 per year, which is 1 in 100,000 per year. The plant has an estimated
lifetime of 25 years.
How much could the company reasonably spend to eliminate (reduce to zero)
the risk from the explosion?
If the risk of explosion were to be eliminated the benefits can be assessed
||x 1 x 10-5
||x 25 yrs
||x 1 x 10-5
||x 25 yrs
|| = 2072
|| x 20,500
||x 1 x 10-5
||x 25 yrs
||x 1 x 10-5
||x 25 yrs
The sum of £9,283 is the estimated benefit of eliminating the major
accident explosion at the plant on the basis of avoidance of casualties.
(This method does not include discounting or take account of inflation.)
For a measure to be deemed not reasonably practicable, the cost has to
be grossly disproportionate to the benefits. This is taken into account
by the disproportion factor (DF). In this case, the DF will reflect that
the consequences of such explosions are high. A DF of more than 10 is unlikely.
Therefore it might be reasonably practicable to spend up to somewhere in
the region of £93,000 (£9300 x 10) to eliminate the risk of
an explosion. The duty holder would have to justify use of a smaller DF.
This type of simple analysis can be used to eliminate or include some
measures by costing various alternative methods of eliminating or reducing
- Values based on data from “The costs to Britain of workplace accidents
and work-related ill health in 1995/96”, HSE; “Highways Economic
Note no. 1 2002”, DfT; and J. Hopkin and H. Simpson, (1995), “Valuation
of road accidents”, Transport Research Laboratory Report 163, DfT.
All values are average figures and include human cost, lost output and
medical costs. The difference between the figures for a permanently incapacitating
injury and a permanently incapacitating illness accounts for the larger
human cost attributed to injuries due to their short-term effect.