In the social CBA, the prices of inputs (and outputs), which do not reflect their true value to the society, are adjusted. This process is referred to as shadow pricing, and involves adjusting the market prices by given adjustment factors.

In assessing the project’s contribution to the objectives(s), we only consider additional (i.e., marginal or incremental) changes in costs and benefits and not the total costs and benefits. That is, we net out the costs and benefits without the project from the costs and benefits with the project. This is referred to as the incremental approach.

Transfer payments should be carefully treated. A transfer payment is the money flow from one group in the community (e.g., the government) to another. For instance, if part of the costs of inputs (e.g., investment costs) are subsidized by the federal government, it will reduce the financial costs of the project, but not the economic or social opportunity costs of the project. User fees paid by households to City Government constitute a benefit in the financial B-C analysis to be done for the city. In the community social B-C analysis, however, it is just a transfer of money from one part of the community to the other. In the latter analysis, both the City Government and general public should be treated as two parts of the same community.

Items such as taxes, subsidies, loans, and debt service (i.e., payment of interest and repayment of principal) should not be included in the social benefit-cost analysis. The discount rate used in B-C analysis already takes into account interest rate. The discounting procedure reduces the stream of costs to their present values. Thus, once again, the inclusion of interest as a cost item would result in double counting. This applies to both financial and social B-C analyses.

Similarly, depreciation of capital cost items (i.e., including the used value of capital in the annual costs) is not included as a cost item in CBA. Since the total IIC is already included in the cost, including depreciation will lead to double counting.

All costs in B-C analysis must be in present day or constant price terms. That is, costs incurred over the project life must be valued at prices prevailing at the time of the project’s appraisal. This means that the project cash flows (benefits and costs) are expressed in real rather than nominal terms.