Social cost–benefit analysis is a well-established method for guiding decisions about safety investments, particularly in situations in which it is possible to make accurate predictions of future performance. However, its direct applicability to situations involving large degrees of uncertainty is less obvious and this raises the question of the extent to which social cost–benefit analysis can provide a useful input to the decision framework that has been explicitly developed to deal with safety decisions in which uncertainty is a major factor, namely risk analysis. This is the main focus of the arguments developed in this paper. In particular, we provide new insights by examining the fundamentals of both approaches and our principal conclusion is that social cost–benefit analysis and risk analysis represent complementary input bases to the decision-making process, and even in the case of large uncertainties social cost–benefit analysis may provide very useful decision support. What is required is the establishment of a proper contextual framework which structures and gives adequate weight to the uncertainties. An application to the possibility of a robbery at a cash depot is examined as a practical example.
Over the past few decades there has been a growing tendency to rely on some form of social cost–benefit analysis (CBA) as a means of informing decisions concerning investment and regulation related to the safety of members of public, as well as workplace safety. More specifically, significant research efforts have been directed towards the definition and estimation of monetary values of safety, which can then be used to quantify the benefits of a proposed safety improvement in terms that are directly comparable with its costs of implementation and hence facilitate a decision as to whether or not the benefits are sufficient to justify the costs.
However, quite apart from the conceptual and practical difficulties posed by the task of defining and estimating monetary values of safety, there are, in addition, several other substantial problems that must be dealt with in the decision-making process. For example, how is one to obtain reliable estimates of the outcomes of any given safety improvement in terms of lives saved, injuries avoided and the prevention of damage to buildings and property? And how is one to take account of the fact that such estimates will almost inevitably be subject to a greater or lesser degree of uncertainty? And how are safety effects – even when estimated and quantified in monetary terms – to be weighed against or aggregated with other effects, such as the impact on public confidence or goodwill, or social stability, which may not be so readily amenable to quantification in monetary terms? And so on.
Arguably, it is at this point that risk analysis comes to the rescue. Essentially, risk analysis provides a carefully and clearly specified framework within which difficult decisions with uncertain outcomes can be structured, analysed and undertaken in a systematic and balanced manner, with due allowance being made for the risk and uncertainty associated with each aspect of the decision concerned. Thus, rather than consisting of a largely mechanical procedure in which pre-determined values of safety are applied to unique estimates of fatal and non-fatal injuries avoided – as well as physical damage to plant and equipment – in order to establish whether the benefits of a safety improvement will exceed its costs of implementation, risk analysis facilitates a very much more circumspect and reflective assessment of potential gains and losses as well as their likelihood of occurrence. In addition, considerations that do not lend themselves naturally to monetary quantification – such as social or political consequences – can also be weighed in the decision-making process. This having been said, there can be little doubt that clearly specified values of safety and the estimated costs of safety improvement will still constitute vitally important inputs to the decision-making process. The key point is that within the framework of risk analysis, these values and costs will not constitute the only input, nor will they, on their own, provide the final answer. In short, risk analysis can perhaps most fruitfully be viewed as providing a decision-making framework within which cost–benefit analysis plays a key role, but is not the only spanner in the analytical toolbox.
In the next two sections of the paper the key features of safety-related cost–benefit analysis and risk analysis will therefore be outlined. The application of these techniques – in their role as essentially complementary rather than competing analytical devices – will then be illustrated via their use in assessment of the appropriateness (or otherwise) of the location of a cash depot in a Norwegian residential area in the vicinity of a kindergarten, with the obvious risks to residents and/or children in the event of a robbery at the depot.
We have studied a case where the risk related to a robbery at a cash depot is examined, to demonstrate that social cost–benefit analysis together with risk analysis can be used as mutually reinforcing analytical tools in the appraisal of proposed safety investment projects in situations involving large degrees of uncertainty. In such situations, what is required is an integrated framework that not only provides a basis for the monetary valuation of potential gains and losses, but also structures and gives adequate weight to the uncertainty associated with possible outcomes. Applied in isolation, both social cost–benefit analysis and risk analysis leave potentially important questions unanswered, but used together they constitute essentially complementary and very powerful analytical tools.
