E – Technical References

This section sets out key technical and parameter values needed for quantifying costs and conducting economic appraisals (e.g. discount rates and shadow costs)

Quantification of Costs

Quantifying costs for the purposes of financial analysis is an important step in business cases, appraisals as well as evaluations. The estimation of the staff costs and the related overhead component is outlined in E1 Calculation of Staff Costs.

Economic Appraisal Parameters


Overview

The main economic appraisal parameter values have been revised by the Department of Public Expenditure and Reform. This updates previous guidance outlined in the Proposed Working Rules for Cost Benefit Analysis published in 1999 as well as the VFM circular letter of May 2007.

These new parameter values apply to all economic appraisals and evaluations undertaken under the Public Spending Code. They should be used by those undertaking economic appraisals in Government Departments and Agencies as well as practitioners undertaking appraisals commissioned by these bodies for public expenditure programmes, projects and proposals e.g. academics, consultants. It is intended to revise the parameters on a periodic basis and to add new parameters as appropriate. This document and the notes on each parameter should be read in conjunction with section D3 of the Public Spending Code – “Guide to Economic Appraisal”.

Objectives

The objectives of providing a central list of appraisal parameters are to:

  • Promote rigour in the conduct of economic appraisals across the public sector
  • Ensure that there is consistency in the preparation of economic appraisals
  • Support practitioners in the development of appraisals to inform spending decisions

The key values were revised based on a review of the literature and consultation with the Irish Government Economic and Evaluation Service (IGEES) network, formerly known as the Public Service Evaluation Network.

New Parameter Values

The updated values are summarised in Table 1.  The individual documents provide more detail on each parameter. While precise estimates for parameters can be a matter of debate, the overall aim is to anchor appraisals in a set of central values which facilitates consistency and clarity.

Table 1   Summary of appraisal parameters
 Reference Central Parameters Values
 E2 Discount Rate 5%
 E3 Shadow Price of Labour Range of between 80% and 100%
 E4 Shadow Price of Public Funds 130%
 E5 Shadow Price of Carbon Market pricing – See E5 for more detail

Sectoral Parameters

The list of parameters in Table 1 is not exhaustive. Individual Departments and Agencies should also quantify additional parameters applicable in their own sectors where relevant expertise and project experience have developed over time. Departments are also responsible for providing more detailed guidance regarding the application of parameters for their specific sectors of responsibility.

Sectoral Appraisal Frameworks

Departments with responsibility for oversight over sectoral guidance are required to ensure that their appraisal frameworks are consistent with the Public Spending Code. Revisions and updates to sectoral appraisal frameworks must be approved by the Department of Public Expenditure and Reform (i.e. through the relevant Vote Section and the Central Expenditure Evaluation Unit). Further, Departments developing or overseeing new sectoral appraisal and evaluation frameworks for the first time are required to submit these to the Department of Public Expenditure and Reform for approval.