The role of benefit-cost analysis in water supply and sanitation project decisions: A qualitative study of three multilateral development banks

Every day, billions of people rely on water that flows from a tap and sanitation systems that carry waste away safely. These services are not just about convenience; they are the foundation of human health, allowing children to survive, families to save time, and communities to grow. Yet, despite the clear need, billions of people still lack access, and the money available to build these systems is limited. Governments and international organizations must decide where to spend every dollar, choosing between competing projects in different countries or different sectors. To make these choices fairly and effectively, they often turn to a method called benefit-cost analysis. In simple terms, this is a way of weighing the total good a project will bring against the total cost of building and running it. It attempts to put a value on things like fewer sick days, cleaner rivers, and time saved, to see if the investment is truly worth it.

For decades, major international lenders known as multilateral development banks have used this method to decide which water and sanitation projects to fund. These banks, including the World Bank, the Asian Development Bank, and the African Development Bank, have poured over eighteen billion dollars into the sector in the last decade alone. However, while the math behind these decisions is well-known, the human process of how these calculations are actually made, and how they truly influence the final "yes" or "no" on a project, has remained a mystery. A new study by researchers at the London School of Hygiene & Tropical Medicine and the School of Oriental and African Studies pulls back the curtain on this process. By speaking directly with the staff who design and approve these projects, the researchers uncovered how these economic evaluations work in the real world, where they succeed, and where they struggle.

The researchers conducted a detailed investigation by interviewing staff members from the three largest development banks. They spoke with fifteen people, including project managers, economists, and consultants, who had worked on thirteen recent water and sanitation projects across Africa, Asia, and Europe. The team also held group discussions with a subset of these staff members to dig deeper into their experiences. They asked specific questions about how the benefit-cost analysis was created, who was involved in the process, what data was used, and how the final numbers influenced the decision to approve a project. The goal was not to look at the spreadsheets themselves, but to understand the story behind them: the challenges the staff faced, the rules they followed, and the reality of how these economic tools are used when millions of dollars are on the line.

The study found that for these banks, the benefit-cost analysis is a mandatory step that happens before a project is ever approved. It is treated as a critical checkpoint to ensure that the bank is not wasting its limited resources on projects that do not make economic sense. The process usually begins early, often when a project is just a concept, and continues through the detailed planning phase. Staff members follow internal guidelines and international standards to build their models, and the work is subject to rigorous internal reviews by peers and senior economists. However, the researchers discovered that the process is far from perfect. One of the biggest hurdles is the quality of data. In many of the countries where these projects take place, reliable records on health, water usage, or local economics simply do not exist. Staff often have to rely on estimates or data from neighboring countries, which makes it difficult to calculate the true value of a project with precision.

Another significant finding is the difficulty in measuring the full range of benefits. While it is relatively easy to count the cost of pipes and pumps, it is much harder to put a number on the value of a child staying in school because they are not sick, or the time a woman saves by not having to walk miles for water. The study showed that staff often struggle to quantify these "non-health" benefits, and sometimes social or environmental gains are overlooked because they are too complex to measure. Furthermore, once a project is approved and funding is released, the focus often shifts entirely to spending the money and building the infrastructure. The plan to track whether the predicted benefits actually happen after the project is finished is frequently neglected. This means the banks rarely get the chance to see if their original calculations were correct, making it hard to learn and improve for future projects.

Perhaps the most revealing insight from the interviews concerns how these analyses influence the final decision. The staff confirmed that a project with a negative economic result generally cannot move forward; it simply will not be approved. However, the researchers also found that if a project initially shows a poor result, the team often goes back and redesigns it. They might adjust the costs, change the scope, or try to find new ways to count the benefits—such as including climate change impacts or job creation—until the numbers turn positive. This suggests that while the analysis is a powerful gatekeeper, it can also be a flexible tool that is tweaked to fit a project that stakeholders already want to build. The decision-making process is not driven by the economic analysis alone; it is a mix of economic viability, social impact, political priorities, and environmental concerns. In some cases, a project with a weak economic case might still be approved if it has a very strong social need, but this is the exception rather than the rule.

The study concludes that while the benefit-cost analysis is a central part of how these banks operate, the system needs improvement to be more effective. The researchers suggest that the banks should update their guidelines to make it easier to identify and measure different types of benefits, especially those related to health and the environment. They recommend creating a shared database where staff can access data and models from past projects, which would help them avoid starting from scratch every time and improve the accuracy of their calculations. Additionally, more training is needed to help staff navigate the complexities of these models, particularly in regions where data is scarce. By making these changes, the banks could ensure that their economic evaluations are not just a bureaucratic hurdle, but a genuine tool that helps them deliver the most value for the people who need clean water and sanitation the most.