Whatever happened to the idea of getting the most ‘bang for the buck’? No, we don’t mean it in the literal sense of more firepower, as when the Eisenhower administration introduced the term in the 50’s. Nor do we refer to a derivative from the Cannabis plant, contrary to what an Indian colleague adamantly claimed was the origin of the term. We mean it in the unglamorous but important sense of getting the most benefit from the money and efforts spent by the World Bank, on its projects and other client support. Why is this imperative? Every dollar badly spent is a life that wasn’t saved; a child that didn’t receive education; a climate risk that wasn’t properly addressed. Such shortcomings make the Bank’s main targets, poverty eradication and inclusive growth, more difficult to attain.
An obvious comparative advantage of the World Bank Group in meeting fundamental client and global needs is its ability to carry out sophisticated project analysis, on the basis of its high-quality and motivated staff. The analysis of benefits and costs of projects takes two main forms. The first is more traditional (ex ante) cost-benefit analysis, CBA, or related efficiency analyses of projects, to ensure that expected client benefits are maximized for given costs. High quality CBA that builds on a prior record of expected project outcomes and ex post actual project outcomes can help guard against inefficiencies related to public investments in client countries. Project impact evaluations, IEs, are designed to give rigorous estimates of projects’ ex post impacts – the actual client benefits. The Bank’s use of IEs is on the rise, even though evidence gaps still remain and the use of the ensuing evidence can be improved. While the Bank has historically been a leader in developing and applying CBA in developing-country contexts, recent reviews of WBG projects have found the Bank in recent years to be much weaker in using CBAs. A forthcoming Working Paper by IEG will provide further insights into stakeholders’ interest (or lack thereof) in producing and utilizing CBA for decision-making.
So, why this recent growth in the Bank’s use of IEs, but no similar increase in the use of CBAs? Common concerns often voiced against CBA are that it delays and complicates the project process; and that it is of little use as project outcomes and impacts cannot be quantified nor monetized. In our view both objections are exaggerated. Project preparation processes can be streamlined by the Bank so as not to hold up projects in the vast majority of cases. As for the difficulty of quantifying and monetizing benefits, with the increased availability of IEs that measure project development outcomes, and with the science of valuation evolving, this belief is becoming increasingly untenable and ultimately harmful. What is not quantified is too often ignored. Opportunities for improved development effectiveness are being missed by not providing maximal information about values of alternatives before project decisions are made.
We here argue that the roles of both CBA and IE can be further substantially enhanced if the two types of analysis are effectively combined, by subjecting projects that have already been subject to an ex ante CBA, to ex post impact evaluations for key outcome indicators/benefits. This will imply several advantages over today’s practice with little connection between the two types of analysis. IEs of projects that already have been through a CBA process in the Bank will provide essential information about the validity of the benefit assumptions which went into the CBA in the first place. This should feed into subsequent CBA analyses to provide more realistic ex ante assessments of project benefits. It should also serve to harmonize the impacts and benefit measures sought by IE and CBA; possibly by seeking more explicit results measures for IEs (by more often seeking to monetize these outcomes).
It is true that the time period from project planning, with CBA of project alternatives, to evaluation of project outcomes, using IE, will span a number of years. However, existing IE findings (ideally summarized in systematic reviews or meta-analyses if several similar impact evaluations exist) can be used to inform future CBAs, in addition to serving to verify whether projects were subject to adequate initial CBAs. The Bank could here serve a key and important global role by showcasing “best practices”, and demonstrating the usefulness of both types of analyses, and their combination.
High-quality CBA is a global public good that the Bank is uniquely positioned to provide. The additional cost of producing it should hence take into account good practice in financing of such public goods. In our view, this will help deliver more ‘Bank for the buck’.