Project: USAID Guidelines for the Analysis of Risk and Uncertainty

How can USAID account for risk and uncertainty in cost-benefit analysis? 

Following the Assessment of USAID’s CBA Guidelines and conducting more than 15 CBAs for USAID under the Learning, Evaluation, and Analysis Project (Leap III), Limestone identified a lack of practical guidance for the analysis of risk and uncertainty in CBAs. While the technical approaches for expected value analysis, sensitivity analysis, scenario analysis, and monte-carlo analysis are discussed in various literature in isolation, there is no guidance on how to use these methods together in analyzing the risk and uncertainty. 

The resulting product – guide to handling risk and uncertainty in cost-benefit analysis – includes a set of practical steps for identifying and assessing risks and uncertainties, selecting appropriate methods for quantifying and valuing risks, and using various techniques to assess the robustness of the CBA results or compare alternative design decisions.

The guide is accompanied by example spreadsheets. They are publicly accessible using the following links:

• Handling Risk and Uncertainty in Cost-Benefit Analysis: A Practitioner’s Guide
• Handling Risk and Uncertainty in CBA – attachment 1 – Risk Analysis Example (Lesotho Water Case)
• Handling Risk and Uncertainty in CBA – attachment 2 – Correlation, Parameterization, and Probabilities