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Page Title: Guideline 8.2-- Use of Discount Rates
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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.
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
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.
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
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

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