Introduction • All impacts in money terms • No impacts in monetary terms • Some impacts in money terms • Risk & uncertainty

Some impacts in money terms

Where some impacts have been expressed in money terms, it is necessary to follow a three-stage process:

• Discounting and aggregation of impacts expressed in money terms.
• Comparison of non-monetised impacts (using pairwise comparison or ranking).
• Consideration of whether any differences in the non-monetised impacts are sufficient to change the selection of the preferred option.

Discounting and aggregation of impacts expressed in money terms

Discounting is undertaken in the same way in this case as that described for situations where all impacts can be expressed in money terms.

Comparison of non-monetised impacts

The comparison of non-monetised impacts should be undertaken using pairwise comparison or ranking.

Comparing non-monetised and monetised impacts

Once the impacts expressed in money terms have been discounted and aggregated and the non-monetised impacts compared in pairs and/or ranked, it is necessary to compare them to determine which option should be preferred.

The easiest way to do this is to first rank the options overall in terms of their Benefit-Cost ratio. The option with the highest Benefit-Cost ratio should be ranked 1, the second ranked 2 and so on.

The next step is to try and rank the options in terms of their non-monetised benefits. This is likely to require some understanding of which impact categories are considered most important. An alternative could be to first rank them in terms of each of categories (appreciation, knowledge, products and ecosystem services) before considering the relative importance of the overall categories. For the AST example for restoration works, the options may be ranked in the way shown in the table below.

The table below ranks the three options in terms of their non-monetised impacts (and it is assumed that ‘appreciation’ has been valued in money terms). In this case the ranking is quite straightforward, since the options always fall in the same rank order. The only exception is in ecosystem services, where soil provision sees Option 1 ranked above Option 3. Consideration of the other impacts, however, suggests that Option 3 should be preferred over Option 2 (i.e. the combination of the other ecosystem services categories is considered more important than soil provision).

It is clear from the table that Option 1 is not the preferred option, as it performs worst on three of the overall categories and equal on one. Therefore, it never outranks Options 2 and 3. The decision as to whether Option 2 or Option 3 is preferred depends upon the relative importance of knowledge and ecosystem services.

The benefit-cost ratios of the two options are:

• Option 2: benefit-cost ratio of 2.1 and NPV of £1.65 million; and
• Option 3: benefit-cost ratio of 1.4 and NPV of £0.4 million.

Therefore, Option 2 is preferred on the monetary impacts alone. Ranking the options in terms of non-money impacts is also important because Option 2 will be preferred if it is ranked higher than Option 3, however, Option 3 could still be preferred if it is ranked higher than Option 2 and if the additional non-money benefits it offers are worth at least £0.7 million (this would increase its benefit-cost ratio to 2.1, equal with that of Option 2). To decide if this is the case (or not), it is necessary to look back at the ASTs completed for the two options. The level of money benefits generated under ‘appreciation’ can be used to give an indication of whether an additional £0.7 million of benefits is likely. If so, Option 3 could be selected as the preferred option. If not, Option 2 would be preferred.