Table 1 The pros and cons of balance sheets

The aim of a balance sheet is to help decision makers develop an accurate understanding of the important consequences of the options being compared. Balance sheets help to achieve this in a number of ways. Firstly, they condense the most important information, thus enabling efficient consideration. Secondly, balance sheets focus attention on the most important outcomes. This increases the likelihood that decision makers will gain an accurate perception of what is known about the impacts of the options being considered and the important consequences. Thirdly, the act of constructing a balance sheet is a helpful mechanism for organising thinking, structuring evidence analysis, and focusing debate. Fourthly, balance sheets can help to develop more explicit judgements about what the most important consequences of policy options are, the underlying evidence, and subsequent judgements about the balance between the relative advantages and disadvantages of the various options. Lastly, balance sheets can provide other decision makers with 'raw information', thereby helping them to apply their own judgements about the trade-offs between desirable and undesirable consequences.

But two important limitations also need to be considered when using balance sheets in decision making. Firstly, when there are complicated trade-offs between multiple outcomes, judgements may require a high level of information processing by policymakers. Secondly, when weighing up different outcomes, the value judgements employed by policymakers could remain implicit. Formal economic modelling may help to address these limitations by making any underlying assumptions (including value judgements) more explicit. This enables the use of sensitivity analyses to explore the effects of both uncertainties and varying assumptions on the results.