8. Budget Impact Analysis

Budget impact analysis examines the extent to which the introduction of a new strategy in an existing program affects an agency’s budget. Not only does the method provide information about the costs generated by a new intervention or treatment, but it also assesses how the new strategy will affect the overall supply of services and the amount of resources devoted to them. The approach may serve for instance to evaluate the impact of a new drug on the health care system, or be part of a budget planning process in order to analyze multiple scenarios. The present chapter first offers an introduction to the method (Sect. 8.1). The analytical framework is then presented in the case of a single supply, e.g., one school, one drug or more generally one service or strategy (Sect. 8.2). The setting is extended to several supplies and compares the current environment with a new one in which an additional strategy is added (Sect. 8.3). An example is performed using an Excel spreadsheet with information about the distribution of populations, exit rates and costs among different strategies (Sect. 8.4). A deterministic sensitivity analysis is based on this example and uses visual basic tools to examine how the budget impact reacts to the changes in forecast assumptions (Sect. 8.5).