Guideline 8.2-- Use of Discount Rates

DOE-DP-STD-3023-98

weaken the resolving power of the RBP method appreciably, and the use of ranges

makes the RBP far less vulnerable to a hostile public relations assault. This was the

approach taken by the NRC when it went on record with a monetary assessment of

the value of lowering nuclear power plant risks in the Indian Point Special Proceeding

before the Atomic Safety Licensing Board in 1983.

9.8.2

Guideline 8.2-- Use of Discount Rates.. The total costs and benefits associated with

decision options should be based on net-present-value estimates developed through

an appropriate model of discounting. The discount rate should be clearly defined and

treated as an adjustable parameter in the RBP system.

Discussion. Implementation of a given decision option may yield a sequence of costs

and benefits that accrue long after the decision has been implemented. When costs

and benefits occur at different points in time, it is not appropriate to simply calculate

the benefits and costs. Discounting takes into account the fact that resources

available in a given year are worth more than identical resources available in a later

year. Discounting should be performed in accordance with the guidance in reference

(k).

a. Nonmonetary Costs and Benefits. Even those benefits that are hard to

quantify in monetary terms should still be discounted. For example, when

effects are measured in units that accrue later than when the costs are

incurred, such as the reduction of adverse health effects that occur after a long

period of exposure, the annualized cost per unit should be calculated after

discounting for the delay between accrual of the costs and the effects.

b. Source for Discount Rates. Basic guidance for determining discount rates to

be used is provided in reference (l), OMB Circular A-94. In general, the

discount rate should not be adjusted to account for the uncertainty of future

costs and benefits; rather, uncertainties in costs and benefits should be

addressed by conducting uncertainty and/or sensitivity analyses.

9.8.3

Guideline 8.3-- Ranking Decision Options.. If the prioritization system is designed to

rank activities, and those activities are independent, the ranking of activities should be

based on the ratio of incremental benefit to incremental cost. If significant

dependencies among activities exist, then portfolio effects should be taken into

account.

Discussion. The ranking of independent activities by the ratio of incremental benefit to

incremental cost generally ensures that the rule of top-down funding will produce the

greatest total benefit for the available budget. OMB cautions, however, that benefit-

cost ratios should be used with care, since in many cases the alternative with the

highest benefit-cost ratio will not yield the highest net benefits. Interdependencies

among activities (e.g., situations wherein the costs or benefits of conducting an

activity depend on whether another activity is conducted) can cause this rule to be

violated. Therefore, the presence of significant interdependencies requires more

sophisticated evaluation principles that take into account portfolio effects. To the