Regulatory Impact Analysis (RIA) is a process of systematically identifying and assessing the expected effects of regulatory proposal, using a consistent analytical method such as cost-benefit analysis. It is a comparative process which is based on determining the underlying regulatory objectives sought and identifying all the policy interventions that are capable of achieving them. These “feasible alternatives” are assessed using the same method to inform decision – makers about the effectiveness and efficiency of different options and enable the most effective and efficient options to be systematically chosen.
Regulations are an essential part of the policy instruments governments can use to achieve their objectives but regulations usually have widespread effect, i.e., they affect many different groups in society and the effects may be of many different types. Many of the effects are “hidden”, or difficult to identify when a regulation is being considered. Therefore, RIA can help us to have a good understanding of who will affected by regulation and how.
RIA can help us to ensure that regulations are as efficient and effective as possible. Effectives regulations are regulations that achieve the policy objective for which they were made. Efficient regulations achieve these objectives at the lowest total cost to all members of society. Efficiency and effectiveness are important because there are limits to the amount and types of regulations that are able to be absorbed within economies and enforced effectively by governments. Regulations have costs as well as benefits, and inappropriate regulations can stifle economic growth by putting obstacles in the way of doing business and by creating perceptions of a negative environment. Making and enforcing regulations also places large demands of government administrations. It is important therefore that regulations are well designed.
RIA can help us to improve the decision –making process that shapes the final regulation. In particular, RIA helps to promote systematic decision-making and a comparative approach to policy decisions. RIA requires us to ask; • What is the problem to be addressed? • What is the specific policy objective to be achieved? • What are the different ways of achieving the policy objective? A common mistake when starting analysis is to confuse the “means” and “ends”. The policy objective is the “end” outcome that the government wants to achieve. For example, a policy objective is to reduce the number of death due to road accidents. Reducing speeding is just one means of achieving the objectives but is not the objective itself. Other means could include requiring safety harnesses or improving road conditions. This means that there will almost always be several options to achieve a policy objective.
In some cases our initial analysis using RIA tools will lead us to the view that is not desirable to regulate. We may find that another type of policy tool is likely to achieve the objectives more effectively or efficiently. In such cases RIA can assist in providing and understanding of the likely impacts of alternative approaches to regulation to achieve government policy objectives. Alternatively, our analysis may reveal that there is no strong case for any government action.
After we have identified the objective of the proposed regulation (or policy action) we focus on assessing the nature and the size of the policy problem that is intended to be solved by the regulation or policy actions. This involves identifying: • What groups in society are being affected • What is the size of each group • What is the nature of the impact on each group • How large are these effects and; • How long will these effects persist?
There is no specific rule to be applied to determine whether a problem is large enough to justify government action. However, we should consider: • The limited ability of government to make and enforce regulations effectively; • The size of the identified problems as compared to others being considered as possibly requiring regulation; • The ability of affected groups to take actions themselves to address the problems identified and; • Whether the problems are likely to be long – lasting, or whether they may change relatively quickly due external factors.
Information on benefits and cost can be of two basic types: qualitative. Quantitative information is that which is expressed in numerical (Sometimes monetary) terms. It is most useful to policy-makers in that it is effective in allowing the size of the benefits and costs being analysed to be understood readily and especially where effects are expressed in dollar terms in allowing the impacts of different regulations or policy proposals to be compared. This means that we should try to obtain quantitative information on the size of the policy problem, the costs of regulatory actions and the expected benefits wherever possible. However, in most cases it will not be possible to assess all of these issues quantitatively. Thus, qualitative information must also an important part of our analysis.
Cost-Benefit Analysis (CBA) can be considered both in general terms as an approach to guiding decision-making and as a specific methodology for conducting RIA. All RIA can be considered to be based on the use of the cost-benefit principle. This means that the objective of conducting RIA is to try to ensure that regulation is only made when the benefits of the regulation are larger than the costs imposes. This must be the case if society as a whole is to be made better off by the regulation. Without the use of RIA, there is real risk that regulation will unintentionally result in costs being imposed that are larger than the benefits obtained. This is likely to occur because those who stand to benefit from a regulation will often push strongly for it to be made. On the other hand, those that bear the costs may not be aware of the extent of these costs, or they may not individually bear a very large cost though collectively the costs may be great. In these circumstances, those that bear the costs may not lobby against the regulation particularly if they are not well-organised into larger groups.
The most effective way of calculating regulatory costs to business is obtain estimates of the amount of a particular identified cost for an individual business and then combine this with: • An estimate of the number of businesses likely to be affected and • Our knowledge of the number of times the regulations is likely to require businesses to incur the costs (i.e., per year)
Obtaining high-quality data is basic challenge for RIA. Without good data, RIA will contribute relatively little to good – policy making. However data collection can be a time-consuming and expensive exercise. This means that we must adopt a careful and strategic approach to data collection. In general terms, the external of the RIA conducted should be proportionate to the likely impacts or the likely impacts of the regulatory proposal. This means that we should invest more time and resources in collecting data consulting stakeholders and conducting analysis when the proposed regulation is likely to have a major impact and when the extra analytical effort is likely to be used by decision makers. Data collection strategies that we should consider when commencing a RIA are: • Survey; • Focus group discussion • Review of experience in other countries; • Other Government departments and agencies; • Literature reviews and • Consultation