Tools for Policy Analysis

Reporter: Emelyn E. Tano

The following are the questions on the significant of tools for policy analysis:
 What were the policy makers were thinking when they enacted the policy?
 What was their expectation about the outcome?
 Intended effects and implications e.g. in welfare policy children, their caregiver (usually women)
receive economic resources, medical aid, and/or food stamps. Thus, others may gain
employment and/or customers as a result of the policy.
 How about unintended effects?

Cost–benefit analysis (CBA)

is a method for assessing the economic efficiency of proposed public policies through the systematic
prediction of social costs and social benefits. The concepts of ‘willingness to pay’ and ‘opportunity cost’
guide the valuation of projected policy effects in terms of a money metric.

When economic efficiency is the only relevant social goal, CBA provides an appropriate decision rule:
choose the policy, or set of policies, that maximizes net social benefits.

 A more rational, scientific, objective, and evidence-based approach to prioritizing programs can
be made with the use of cost–benefit analysis (CBA), where expected monetary benefits and
monetary costs of interventions were compared.
 But one difficulty with cost-benefit analysis is that every government agency has an incentive to
estimate favourable ratios for its own projects. It must, after all, compete with other agencies for
funds.
 CBA could also not directly measure (in non-monetary terms) the day-to-day health and
functional benefits (e.g., ability to walk, lack of pain) that individuals could receive from a
successful intervention thus, Cost-effectiveness analysis (CEA) is used.
Cost-effectiveness analysis (CEA)
- is an alternative to cost-benefit analysis (CBA). The technique compares the relative costs to the
outcomes (effects) of two or more courses of action.

- is most useful when analysts face constraints which prevent them from conducting cost-benefit
analysis. The most common constraint is the inability of analysts to monetize benefits. CEA is commonly
used in healthcare, for example, where it is difficult to put a value on outcomes, but where outcomes
themselves can be counted and compared, e.g. ‘the number of lives saved’.

Linear Programming

 uses a mathematical or graphical technique to find the optimal way to use limited resources.
 When you have a problem that involves a variety of resource constraints, linear programming
can generate the best possible solution. Whether it's maximizing things like profit or space, or
minimizing factors like cost and waste, using this tool is a quick and efficient way to structure the
problem, and find a solution.
 Business/welfare problems involve so many variables and constraints that you wouldn't (or
couldn't) try a manual solution. Linear programming software programs can solve the equations
quickly and easily, and they provide a great deal of information about the various points within
the possible set. You can also run "what if" scenarios to determine things such as which
additional machinery to buy, or whether to add an extra shift of workers.

DECISION TREE ANALYSIS

Decision tree analysis is the process of drawing a decision tree, which is a graphic representation of
various alternative solutions that are available to solve a given problem, in order to determine the most
effective courses of action. Decision trees are comprised of nodes and branches - nodes represent a test
on an attribute and branches represent potential alternative outcomes.

A decision tree is a tree-like model that acts as a decision support tool, visually displaying decisions and
their potential outcomes, consequences, and costs.

Decision tree analysis is helpful for solving problems, revealing potential opportunities, and making
complex decisions regarding cost management, operations management, organization strategies, project
selection, and production methods.

Decision trees are commonly used in operations research, specifically in decision analysis, to help
identify a strategy most likely to reach a goal, but are also a popular tool in machine learning.

Advantages and disadvantages

Decision trees remain popular for reasons like these:

 How easy they are to understand
 They can be useful with or without hard data, and any data requires minimal preparation
 New options can be added to existing trees
 Their value in picking out the best of several options
 How easily they combine with other decision-making tools

Decision Tree – Classification

Decision tree builds classification or regression models in the form of a tree structure. It breaks down a
dataset into smaller and smaller subsets while at the same time an associated decision tree is
incrementally developed. The final result is a tree with decision nodes and leaf nodes. A decision node
(e.g., Outlook) has two or more branches (e.g., Sunny, Overcast and Rainy). Leaf node (e.g., Play)
represents a classification or decision. The topmost decision node in a tree which corresponds to the
best predictor called root node. Decision trees can handle both categorical and numerical data.

Decision Nodes - A decision node is a node in an activity at which the flow branches into several optional
flows. There is exactly one incoming edge and an arbitrary number of outgoing edges, which each have a
condition. It represented by a square, shows a decision to be made
  A Chance Node - represented by a circle, shows the probabilities of certain results.
 An End Node - represented by triangle, shows the final outcome of a decision path.


SAMPLE OF DECISION TREE (whether to play golf)

References:
 https://books.google.com.ph/books?id=hU0XBAAAQBAJ&pg=PA25&redir_esc=y#v=onepage&q&f=false
 https://www.sciencedirect.com/science/article/pii/B0080430767022397
 https://www.cdc.gov/policy/polaris/economics/cost-benefit/index.html
 https://www.sciencedirect.com/topics/psychology/cost-benefit-analysis#:~:text=Cost%E2%80%93benefit
%20analysis%20(CBA)%20is%20a%20method%20for%20assessing,terms%20of%20a%20money
%20metric.
 https://www.britannica.com/topic/government-economic-policy/Cost-benefit-analysis
 https://www.betterevaluation.org/en/evaluation-options/CostEffectivenessAnalysis
 https://www.analyticsvidhya.com/blog/2017/02/lintroductory-guide-on-linear-programming-explained-
in-simple-english/
 https://www.mindtools.com/pages/article/newTED_82.htm#:~:text=Linear%20programming%20uses
%20a%20mathematical,generate%20the%20best%20possible%20solution.
 https://www.heavy.ai/technical-glossary/decision-tree-analysis
 https://en.wikipedia.org/wiki/Decision_tree#Analysis_example
 https://www.saedsayad.com/decision_tree.htm
 https://www.lucidchart.com/pages/decision-tree/#section_4