The cost-benefit and decision analysis valuation framework is structured as 15-step valuation process. The steps are grouped into four main activities depicting the key stages of valuation process:
Define the Scope of the Analysis: The first four steps of the valuation process provide a brief overview of the PSH project under consideration, describe the technology, formulate the valuation question by considering the valuation context and purpose, identify the set of alternatives or alternative solutions, determine all relevant stakeholders, and define the boundaries of analysis.
Develop Valuation Criteria: The goal of the next two steps is to catalog all PSH impacts and identify those that are most relevant for the valuation of PSH project under consideration. In addition, appropriate metrics that can be used to measure those impacts and their costs and benefits are also identified.
Design the Analysis: Having identified the key impacts and metrics for the valuation analysis, these three steps serve to determine the evaluation approach, select the evaluation methods and tools, and develop assumptions and input data for the analysis.
Determine and Evaluate Results: This final group of steps includes the assessment and quantification of key PSH impacts, integration of valuation results, and conducting the cost-benefit and risk assessment analyses. If several alternatives were examined during the valuation process, a multi-criteria decision analysis can be applied to perform a tradeoff analysis among different impacts and develop the ranking of alternatives. The last step in the valuation process is to compare valuation results, document the analysis, and report findings to decision makers.
The PSH valuation framework was designed to allow for an economic valuation of PSH projects that accounts for all costs and benefits of the project, regardless of who is incurring the costs or is receiving the benefits. In principle, the framework allows for a cost-benefit analysis to be performed from a societal perspective, thus helping the analyst determine the economic value of the project for the society as a whole. In addition to the societal perspective, the framework also allows for cost-benefit analyses to be performed from specific perspectives of different stakeholders.
Many of the data and information developed while applying the valuation framework for the economic cost-benefit analysis can also be used to perform a detailed financial analysis of the project. To determine the financial viability of the project, the financial analysis normally takes into account only project costs and benefits that are relevant for its developer or investor.