A standard expected cost-benefit approach would consider the net benefits of different program outcomes in different states of the world, and take an expectation over all outcomes and possible states of the world.
Our proposed methodology disaggregates the expected benefits of a program into different components: probable benefits in different states of the world (the scenarios); different types of benefits; different types of risks. The disaggregation serves several purposes. First, we hope that the disaggregation aids in assessing the program components by providing a reasonably detailed list of the factors that enter an overall cost-benefit analysis. Second, some of the components are easier to measure (e.g., economic benefits) than others (security benefits). The disaggregation allows precise measures where warranted and avoids oversimplifications in the latter case. Similarly, greater consensus exists about the magnitudes of some risks (e.g., for program success) than others (potential states of the world). We hope to clarify debate over the value of programs by allowing common estimates where appropriate and isolating the less easily measured, or more controversial components of the calculations. Finally, a standard expected cost/benefit analysis equates a high-risk/high-benefit program with a low-risk/low-benefit program (even if the former should be further saddled with a risk-discount). The disaggregated approach clarifies whether a program is particularly risky or a relatively sure thing, and thus aids in assessing whether the DOE’s overall portfolio has a mix that is appropriate for a public applied energy R&D program.
Risks associated with the programs fall into two broad categories: the Probability of Meeting Program Goals and the Probability of Market Success.