Steps in regulatory impact assessment

Implementing a RIA involves six main steps, described below.

Step 1: Identifying the problem

  • Describe the nature and extent of the problem that is being addressed.
  • Identify the key players and affected populations.
  • Establish the underlying causes of the problem.
  • Is the problem in the government's remit to act? Does it pass the necessity and value added test?
  • Develop a clear baseline scenario, including, where necessary, sensitivity analysis, and risk assessment.

Step 2: Define the objectives

  • Set objectives that correspond to the problem and its root causes.
  • Establish objectives at a number of levels, going from the general to the specific and operational.
  • Ensure that the objectives are coherent with existing governmental policies and strategies.

Step 3: Develop main policy objectives

  • Identify policy options and, where appropriate, distinguish between the options for content and the ones for delivery mechanisms (i.e., regulatory and non-regulatory approaches).
  • Verify the proportionality principle.
  • Begin to narrow the range through screening for technical and other constraints, and by measuring against criteria of effectiveness, efficiency, and coherence.
  • Draw-up a shortlist of potentially valid options for further analysis.

Step 4: Analyse the impacts of the options

  • Identify the direct and indirect economic, social, gender, and environmental impacts and how they occur (causality).
  • Identify who is affected and how they are affected.
  • Assess the impacts against the baseline in qualitative, quantitative, and monetary terms – if quantification is not possible explain why this is the case.
  • Identify and assess the administrative burden or simplification benefits, or provide a justification if this is not done.
  • Consider the risks and uncertainties in the policy choices, including obstacles to transposition and compliance.

Step 5: Compare the options

  • Consider the positive and negative impacts for each option on the basis of criteria clearly linked to the objectives.
  • Where feasible, display aggregated and disaggregated results.
  • Present comparisons between options by categories of impact or affected stakeholder.
  • Identify, where possible and appropriate, a preferred option.

Step 6: Outline policy monitoring and evaluation

  • Identify core progress indicators for the key objectives of the possible intervention.
  • Provide a broad outline of possible monitoring and evaluation arrangements.

How to identify and screen policy options

When developing policy options, it is important to first think wide and draw up an extensive list of possible options that are likely to be able to achieve the proposed objectives. This initial list of options can then be reduced by a first screening of their likely impact in order to arrive at a shorter list of options that can then be analysed in depth.

During this process it is necessary to keep the following points in mind:(1)

  • All options should be realistic – you should avoid the trap of considering only the 'no new action' option, the 'preferred' option, and the 'extreme' option, which is not credible.
  • Keep an open mind – even if a particular option seems to be a clear front-runner, other promising options should not be excluded outright. You should also consider how the impact of this 'front runner' option will vary if key parameters change, for example allowing more time for objectives to be met or aiming for more or less ambitious objectives. You can use 'sensitivity analyses' for this.
  • The option of 'no action' must always be considered as a viable option.
  • Where legislation is already in place, better enforcement and implementation should always be considered, perhaps coupled with improved guidance.
  • Less can be more: again, where legislation is already in place, a 'doing less' option can be considered. If existing measures do not produce the desired effects, creating a new instrument may not be the best remedy. Streamlining, simplifying, or even repealing the existing legislation may produce better results.
  • Always consider alternative approaches to 'classical' forms of regulation. Consider the full range of alternative actions available to the Commission. Is self-regulation a feasible option? Could the objectives be met through a voluntary agreement? Is an information and education campaign sufficient?
  • Take account of existing policies and laws. You should also take account of existing or planned policies or international agreements that might affect the impact of an option.
  • Do not just look at the different legal and implementation options, but also at the content. The choice between directives, regulations, recommendations, etc., should be clearly driven by what needs to be done in order to achieve the objectives.
  • Examine closely the options that can count on considerable support, but be aware that public or political support alone cannot be the sole determining factor in defining and analysing alternative options. You should be careful about discarding too quickly options which do not have considerable support from a certain sector.
  • Options should be 'complete' and sufficiently well developed to allow you to differentiate them on the basis of their performance against the criteria of effectiveness, efficiency, and their coherence with other government objectives. You should also avoid 'bundling' individual elements or sub-options of different possibilities into a 'preferred' option after the analysis, as this makes it difficult to assess the impact of the preferred option as a whole against the baseline. Where you do adopt this approach, you should carry out an analysis of this preferred option.

The aim of all interventions is of course to provide benefits that exceed any possible negative impact. In the terminology of cost-benefit analysis this means that you should select options that promise the greatest net benefits.

Some evaluation techniques

When it comes to appraising policy or regulatory alternatives, a range of evaluation techniques can be applied. Among these, the most common are:

Cost–Benefit Analysis

This method tries to appraise all benefits and costs associated with a regulation. Usually this technique is chosen when deciding whether an existing regulation or regulatory regime should be maintained or modified. It evaluates as precisely as possible the economic effects of regulation (i.e., benefits and costs, both static or dynamic). The choice of measures affect analysis (e.g., putting social or welfare costs into financial terms). See advocacy Tool 2: "Costing proposals".

Economic Performance Indicators

Develops a list of regulatory performance indicators.

The OECD constructs indices to compare product market regulations that affect competition in OECD countries.

Micro Measurement Studies

These come in many forms – mostly involve case studies based on the detailed analysis of regulatory impacts affecting individual companies. Conducted through in-depth interviews with managers in a small number of companies, direct observations of activities, and the use of diaries by managers in different companies.

Business Surveys

Involves the use of questionnaires sent to a random sample of firms that are statistically representative of a given (or whole) population of firms, including firms owned by women. Estimates provided by respondents are then extrapolated to provide aggregate estimates of the cost of administrative compliance for that business sector.

It aims to understand how firms behave in regard to regulatory burdens or regulatory reforms.

Benchmarking

Solves some of the "subjective" and opinion-based problems encountered with business surveys. This approach avoids collecting data directly from businesses but rely on paid experts to investigate and corroborate the data before sending back their findings. Through a periodic application of such evaluations, it becomes possible to rank countries according to indexes and to study trends among the indicators (e.g., Doing Business).


(1) European Commission: Impact Assessment Guidelines (Brussels, 2007).