The Cost Benefit Analysis for the Concept of a Smart City: How to Measure the Efficiency of Smart Solutions?

Abstract

This paper is dedicated, both theoretically and conceptually, to a methodical approach towards the efficiency evaluation of proposed smart city solutions. The implementation of smart solutions in proposed projects and activities is supported by a complex assessment of benefits and costs as part of a cost benefit analysis (CBA) with the goal of maximizing the efficiency of such a solution, especially in the case of public activities for which it is typical to lack a market evaluation. A smart solution can be defined as an innovative and functional approach towards solving situations in a responsible way and with positive consequences for society. These smart solutions represent the core of the smart city concept, which together with the smart region concept presents a new economic domain where new markets or market segments offering innovative and intelligent (tangible and intangible) solutions for said cities and regions can be developed. CBA and feasibility analyses represent suitable tools for evaluation of socially and economically acceptable projects and their implementation in real life. The efficiency of these solutions is then proved by benefit and cost comparisons under the condition that these outcomes are acceptable for all stakeholders. Methodically, the paper is structured inductively. The detailed literature review provides the basis for a formulation of general principles of using a CBA for innovative smart city solution efficiency evaluations based on chosen cases, for example, from the Moravia Silesian region. Due to the originality of each submitted project, it is possible to use this proposed methodical approach of CBA applications as a primary analytical frame and it is necessary to add the specific attributes of each solution that is being evaluated.

1. Introduction

“Smart cities” is a topic the key importance of which is increasingly being recognized across both academic disciplines and urban planning. The idea of a smart city is a dream of urban planners all over the world, and a subject of many research and business initiatives as well as policy debates [1].

Recently the smart city concept has developed; it is a frequently emphasized term that we would like to use to refer to the use of highly sophisticated analytical methods, approaches, communication methods and techniques for proposing aims, approaches and plans involving the whole field of transfer of smart solutions into tangible and intangible innovations in a particular locality. The smart cities and regions concept tries to appropriately utilize modern technology to create synergies between different sectors (transport, logistics, security, energy, building management, etc.) with regard to energy intensity and quality of life for a city or region [2]. To be precise, “smart city” represents the concept of a developed city on the basis of its sustainable economic development, and on the basis of its quality of life underpinned by effective usability of human and social capital as well as modern information and communication technologies [3]. A city is smart when it uses participatory governance and invests in human resources, social capital and both traditional and modern infrastructure, thus ensuring sustainable economic growth, a high quality of life and the efficient use of natural resources [4]. A smart city is a city that takes particular care of the quality of life of its inhabitants, and where citizens are actively involved in public affairs [5]. In this context, we deal with territorial implementation of individual smart solutions that represent an innovative and working approach to developing solutions for various situations in an appropriate and socially positive way [6,7]. Smart solutions must make cities more humane and not just technologically advanced [2]. From the definition already mentioned above, we can suggest that smart solutions must provide economic and social efficiency as part of their implementation in real public life. However, not every innovative solution is attractive and economically rational for the public. The ideas of the smart city (or sometimes also a smart village or smart region) will not be “smart” if the society-wide costs accrued in the introduction and employment of these ideas exceed their objective and subjective benefits for the subjects involved.

One of the tools commonly applied in assessing the efficiency of planned activities is the so-called cost–benefit analysis (CBA). CBAs are also used to assess proposed smart solutions, meaning CBA is the most suitable method [8] for developing a ratio approach in decision-making processes [9]. The employment methods of a CBA and its practical applications are relatively broad, and this is the reason why the CBA will be used in this article to assess smart activities, elements and solutions, especially involving the public sector and its institutions. The assessment of public projects is a crucial element in public policy decisions regarding the distribution of finances. An appropriate allocation of public costs is one of the main aims of smart governments as far as the three Es are concerned (the economy, effectiveness and efficiency) [2,10]. In line with this idea, all smart solutions must be allocated as efficiently as possible [11]. The appropriateness of employing a CBA for making decisions regarding a project’s efficiency has also been declared by the European Union, which considers it to be a useful analytical tool for assessing investment decisions [12].

The aim of this article, based on a wide range of available sources, is to express general elements and principles of CBA applications when assessing the efficiency of innovative solutions that fall within the smart city concept. We try to suggest a primary analytical framework, given the uniqueness of each smart solution, which would offer an all-purpose platform suitable for further specification of each assessed solution.

The article focuses on the theoretical description of the CBA method as well, which serves as an overview of practical CBA applications using good practice examples. The synthesis of both theoretical and practical CBA problems is used to develop CBA solutions and a universally applicable design as a primary tool for assessing the efficiency of proposed smart solutions. The real employment of this methodical framework is verified as a part of an experiment involving the projects’ activities from CZ.02.1.01/0.0/0.0/17_049/0008452 “SMART Technologies to Improve the Quality of Life in Cities and Regions”.

2. Cost–Benefit Analysis

CBA is an analytical tool and comparative approach [13] which is particularly commonly used for the assessment of public infrastructure developments. In the public sector, the profit of the public rather than the profits of investors is crucial. CBA is established on the analysis of all implicit as well as explicit costs and benefits, which quantifies the investments’ impacts on society. The assessment criterium is the net socio-economic surplus of the society or at least a part of it. On the one hand, there are all economic and social costs (harm, negative effects resulting from investment, all negative impacts on society) expressed in finances and on the other hand, there are all the benefits (positive effects of investment, all positive impacts on society) contributing to the prosperity of the society. By the aggregation of both forms of impacts, negative and positive, and by comparison of individual options among one another, we decide to choose such an option that maximizes the difference between the costs and benefits of the analyzed activity, or else the activity is implemented if the supposed benefits exceed the supposed costs. The aim of the CBA is to support a more effective allocation of sources and to demonstrate the appropriateness of the company [9,11,12]. The CBA creation is related to the creation of public activities and projects and their valuation (Flood Control Act, 1936) and this is what distinguishes the CBA from other analyses that emerged during the second half of the 20th century [14].

The prerequisite of CBA employment is the fact that the value of all the negative and positive impacts is both directly and indirectly measurable as far as finances are concerned. By achieving the prerequisite, expressing all the benefits and negative impacts in cash flow, it can be stated that it represents an advantage and thus the CBA can be applied to almost any activity. At the same time, however, the analysis itself is also disputable as plenty of input and output effects do not have material or financial structure, or because it is difficult to determine the individual effects. It should be also noted here that indirect effects are usually represented by externalities. An externality is an indication of activity when entities are causing involuntary costs or profits to other entities without compensation through the market [15]. Negative externalities associated with an activity create additional costs for other stakeholders, while positive externalities bring additional benefits for them to increase usefulness and satisfaction. Therefore, it is necessary to identify and evaluate for the CBA these indirect or intangible effects if it is possible [16]. Spillow effects are not practically determined or are confused with externalities. Both the definition and financial expression of the effects are closely related to the determination of the subjects that are to be affected in a certain way by the represented supposed activity (solution).

We distinguish between the two basic types of CBA, that is to say ex-ante analysis and ex-post analysis. The ex-ante CBA is conducted within the period preceding the activity itself. This type of analysis is a tool which helps with the decisions regarding the realization of a particular activity. On the other hand, the ex-post CBA is done right after the implementation of the solution or after the end of the activity and it is used to assess the given policy or project. Nevertheless, one of the disadvantages regarding the ex-post CBA is that the analysis is conducted after allocating all of the means. It can be stated that the latter type of CBA analysis is applied in order to specify the real impacts of the given activity in comparison with the assumed values and declared conclusions done before the implementation [17].

In its broader sense, the CBA (ex-ante) encompasses (1) the introduction, (2) the definition of the aims and research results of feasibility (the analysis of demand and technical description), (3) financial and economic analysis, (4) sensibility analysis and risk assessment and (5) the final assessment of the activity [8]. An extended CBA adds these elements such as description, or situational analysis which means that a particular activity is to be analyzed with the situation which, on the other hand, is not to be analyzed at all and as a result, the state remains unchanged, the so-called zero option. This approach can be narrowed to a particular part of CBA which is connected directly with the particular analysis of costs and benefits. In this sense, the CBA contains (1) benefits and costs analysis while a chosen activity (solution) is being implemented in practice and (2) the analysis of benefits which emerge after the realization of the activity (solution) itself [17]. It must be stated that the costs related to the preparation of the realized activity (solution; costs associated with the preparation of project documentation, administrative costs associated with the preparation of the implementation of the activity or the cost of the analysis itself, etc.) can be considered as the so-called sunk costs.

The significance of the planned realization of any activity or innovative solution needs to be based on two assumptions: (1) The existence of social demand for the specific activity or solution (demand limits) and (2) the declaration that the given activity or solution can be realized in a presented and required form (limitations of the offer).

The key component of the CBA is the financial and economic analysis. In order to express the time value of money, it is necessary to determine the level of social (“right”) discount rate with based on the concept of the so-called golden principle of intergenerational justice. The principle is established on the assumption that the rate of capital return (together with the interest rate) is the same as the economic growth which equals the population growth [18]. Theoretically speaking, it is recommended to distinguish between nominal and real discount rate taking into consideration the discount of nominal flows or real flows and inflation. The issue of setting the right interest rate is usually viewed as difficult [19] and that is the reason why we work with an officially set discount rate, which is lower than the market interest rate and at the same time, it reflects the social demand that prefers sustainable economic development to the granting of future incomes [20,21]. Following the recommendations of the European Commission in the programming period 2014–2020, the real discount rate is set to be 4% as a referential parameter for long term investment projects (values may be adjusted on the basis of Member States’ macroeconomic performance, the nature of the investment and the industry sector. From the point of view of time, the medium-term convention is used to determine financial flows in the sense that all cash flows are considered as having occurred in the middle of the financial year [12]). Furthermore, a significant time fluctuation of the discount rates discussed above is a reflection of the economic instability which indirectly affects the CBA as well and thus the CBA becomes inaccurate.

The financial analysis aims to define the financial efficiency of the project. The financial analysis mainly encompasses investment quantification, calculation of costs and benefits of the project, a planned project’s cash flow and quantification of the project’s financial efficiency indicators [12]. The analysis must have explicit financial costs and benefits. Efficiency, however, has a significant role, too.

Economic analyses view the activities from the society-wide point of view and they are assessed by indicators which can be compared with those of financial analysis (Slavík (2017) recommends adjusting the cash flows calculated in the financial analysis by (1) the part that is returned to public budgets (indirect taxes, levies, etc.); (2) wage distortions caused by the malfunctioning labor market and the grey economy; (3) non-market-wide influences expressed in monetary units (externalities)). Moreover, justice and primarily the influence on the overall benefit of the society belong among the basic criteria for assessing whether the activity is suitable or not. In this context, accounting profit is not a key indicator of the appropriateness of the activity [22], which is predetermined by the growth of assets and a society that is able to produce economic benefits in the future. The assessed activity should contribute to the growth of society-wide prosperity [23]. It is also important that other aspects of social responsibility, i.e., social, environmental and economic, are also taken into account when assessing the suitability of the activity [24].

Among the main financial as well as economic analysis indicators belong (1) net present value, or also economic net present value (NPV or also ENPV); (2) internal rate of return, or also economic rate of return (IRR or ERR); and (3) benefit-cost ratio (BCR or B/C).

The CBA is further complemented by sensitivity and risk analysis. The sensitivity analysis of the projects defines the factors which have the biggest influence on the activity’s efficiency and it deals with the influence of unsure assumptions of the activity regarding its financial efficiency. Risk assessment, on the other hand, assesses events which may negatively influence the activity’s realization in terms of its size, impact and probability of the risk.

In its Manual [12], the European Union determines the following of the CBA procedure, see Figure 1. Boardman et al. (2006), Sieber (2004), Nas (1996), Kunreuther et al (2001), Lee et al. (2009) or Mishan and Quah (2007) [17,18,25,26,27,28] propose other methods. The recommended approach when analysing the CBA by other authors differs in the number of methods as some of the authors join more partial phases into one or, on the other hand, divide them into individual parts.

Combining the proposed procedure CBA by the EU and the information provided above, the authors´ article defines partial methodical steps which are to be further observed using content analysis or relevant sources. As a result of this, it will be possible to shape and specify the key elements and the principles of CBA application when assessing the efficiency of the innovative solutions concerning the smart city concept. Furthermore, we will study the extension of the individual CBA parts in relation to good practice. Within the field of the research, the individual methodical steps are formulated into the questions below:

• Is specification/the basis of the intention stated in socio-economic, institutional and political contexts? Is there any social demand for the stated solution?
• Are there any alternative possibilities or are they analyzed (including zero option)?
• Are the groups of subjects and economic sectors identified?
• Speaking of direct and indirect, implicit and explicit costs and benefits, are they defined? Which indirect costs are expressed in monetary units? What are the financial sources? Are the non-market impacts taken into consideration? Moreover, are taxes and donations also taken into consideration?
• Do they work with interest rates? If so, which interest rate is it? Are time dynamics of the project and length of the project with its impact taken into consideration? Which method was chosen to assess the intentions?
• Were sensitivity analysis and risk assessment done?
• What decision was made as far as the intention’s acceptability and funding are concerned or what option was chosen?

The proposed primary analytical framework will reflect the particular CBA elements which were realized when assessing smart activities and solutions within the selected research of available specialised sources.

3. Analysis of Realized Smart Activities and Smart Solutions

In this part of the contribution, the chosen case studies for the implemented smart solutions will be analyzed, the objective of which will be to identify the key stages and moments of the applied CBA in practice. Based on the research of generally accessible sources, 25 studies have been chosen in which the CBA method is applied and which are looking for the answers to the above-mentioned questions (see Figure 1).

The analyzed CBAs were randomly searched on the Web of Science (in some case on the Internet) based on a combination of words such as smart city, CBA, case study, smart solution and the studies were from the year 2000 and earlier. In the outcomes of the report, studies containing the CBA that corresponded to the aim of this paper were selected.

The choice of the selected indicators in each CBA refers to the Manual [12]. Given the complete diversity of the individual CBAs analyzed and the lack of information on some of the standard CBA elements, there was devoted considerable space for cost and benefit in

Table A1. CBA research on selected Smart City solutions (author´s adjustment, 2019).

Source	Smart Solution	Sector	Broader Presentation in a Social Context	Link to Demand Analysis	Alternatives	Descripted Subjects	Category of Costs	Direct Costs (Benefits) in CBA—Measured Parameters	Indirect Costs and Benefits (Measured)	Other Specific	Methods	Interest Rate	Sensitivity and/or Risk Analysis	Concrete Solution
[29]	car vs. bicycle, Copenhagen	private-mobility	short	yes	yes (1 alt)	people	private and social	Vehicle operating costs Time costs Accident costs	Benefits: Health, Prolonged life, Perceived safety Costs: Discomfort, Branding /tourism, Air pollution, Climate change, Noise, Road deterioration, Congestion	for each year	simple price calculation (static); comparison	no	no	general solution: the bike is 6x better than a car
[30]	car vs. bicycle, Calgery	private-mobility	yes	general	yes (1 alt)	people	private and social	Vehicle operating costs Time costs	Benefits: Health, Prolonged life Costs: Collisions/Accidents, Air pollution, Climate change, Noise, Road deterioration, Congestion, Winter Maintenance	for each year	simple price calculation (static); comparison	no	no	general solution: the bike is 10x better than a car
[31]	Transportation system, Newark	PP–mobility	no	general	no	no	undivided	Capital cost Operation cost Maintenance cost Other cost	Benefits: Reduced travel time, Less fuel and energy consumption, Safety, Reduced gas emission Greenhouse gases, Noise, Economic impact	---	NPV; Benefit-Cost ratio	n = 30; r = 2.7%	no	the project is not be profitable within 30 years
[32]	E-car sharing, Prague	private–mobility	short	yes (questionnaire)	yes (2 alt)	5 categories	undivided	Investment cost: Electric vehicles Charging station IT system Camera system Operating costs	Benefits included in EA: Consumer surplus Negative externalities Quantification of economic benefits (net of taxes, subsidies or other transfer payments	analysed for two periods	NPV and IRR ENPV, ERR, B/C ratio	r=4%; er=5%	yes	FA—ineffective EA-effective
[33]	Smart mobility-Ostrava	public-mobility	no	general	yes (zero var.)	citizens	undivided	Costs: investment costs; reinvestment costs; operating costs; incremental operating costs; Benefits: revenues from fares	Benefits: change in air pollution; climate change; noise pollution; passenger time savings	supplemented by socioeconomic effects	ENPV, ERR, B/C	n = 30; er = 5%	yes	this project is social and cost- effective
[34]	Public transport-Czechia	public-mobility	no	general	yes (4 alt)	citizens, passenger	by carrier, public sector and third parties	Subsidies to carriers, cost of purchasing alternative fuel vehicles, fuel costs, maintenance costs, construction infrastructure for pumping PH	Economical quantification of savings pollutant emissions, fuel cost savings, subsidies for the purchase of alternative fuel vehicles	analysis of the current situation	simple price calculation (static)	no	no	one alternative is cost-effective
[35]	Smart grids, Évora	PP-energy	no	no	no	no	undivided	Investment cost: Infrastructure (5 indicators) Information system (7 indicators)	main indirect benefits category: economic, reliability, environmental and security (in total 23 indicators)	externalities, social & enviro. impact	NPV; Benefit-Cost ratio	n = 19; r?	yes	---
[36]	Smart electricity grids	PP-energy	yes	general	no	people	undivided	---	Only Benefits: (1) economic benefits: optimized generator operation, reduced ancillary service cost, reduced distribution operation …; (2) reliability benefits: reduced restoration cost, reduced momentary outages…; (3) environmental benefits: reduced CO2, SOx, NOx emissions, reduced landscape use; (4) energy security benefits (reduced wide-scale blackouts)	environ-mental, energy, economic, societal impacts	simple price calculation (static)	no	no	smart electricity grids are socially desirable
[37]	Energy system, Great Britain	public-energy	yes	general	yes (2 alt)	domestic and non-domestic sector	undivided	Costs: (1) In Premises Costs: Installation of Meters…; (2) DCC Related Costs: External Service Provider Costs…; (3) Suppliers’ and Other Participants’ System Costs…; (4) Other Costs: Organisational Costs…; (5) Projected Future Costs	Benefits: (1) Consumer Benefits: Time and Energy Savings; (2) Supplier Benefits: Reduced Theft and Losses, Customer Calls…; (3) Demand Shifting Benefits; (4) Network Benefits: Better Informed Investment Decisions…; (5) Carbon and Air Quality Benefits	---	NPV; Benefit-Cost ratio	n = 22; r = 3.5%	yes	use Smart meter is more efficient than advanced and traditional system
[38]	Electricity system	public-energy	no	general	no	no	undivided	Advanced PV inverters, Advanced wind turbines	Benefits: Reduced ancillary service cost, equipment failures, distribution operations cost, electricity losses & costs, sustained outages, major outages, restoration cost, momentary outages, sags & swells, emissions, wide-scale blackouts. Deferred distribution investments.	describe benefitciary (utility, customers, society, owners)	NPV; Benefit-Cost ratio	n = 15; r = 8%; π = 3%	yes, but shortly	this project is cost-effective
[39]	Smart grids-Turin	public-energy	no	general	yes (4 alt)	people	social	Standard cost and benefits	Benefits: energy performance and environmental impacts, energy savings and running benefits, real estate market value, green jobs creation	---	ERR	discount social rate	no	a general ERR conclusion
[40]	Smart biofuel-Norway	PP-energy	short	general	no	people	undivided	Fixed costs (acquiring land, establishing the infrastructure & equipment cost), operation & maintenance costs: fuel and electricity or equipment, work force & maintenance of the equipment	no indirect costs and benefits are considered	---	simple price calculation (static) and comparison	n = 10	no	payback period of the propose plant is four years
[41]	Metering roll-out	PP-energy	no	general	yes (3 alt)	relevant actors	undivided	Fixed costs: financing, investments, transmitssion network fees & losses. Variable costs: market price of energy changing over time and electricity demand from the consumers; demand fluctuations	Benefits: energy saving, reduced risk of demand fluctuation and peak-consumption,	it depends on each of the actors	---	---	---	the profit of the three scenarios differ in time
[42]	Distribution grids, Czechia	PP-energy	no	general	no	households	undivided	Costs: investment costs (Advanced Metering Management devices development, installation and introduction into operation and maintenance costs)	9 categories of benefits: for example: Benefits of increased price of energy; B. of electromobility utilization; B. of cross-border monitoring; B. of mutual concurrence between various energy commodities	---	NPV	n = 20; r = 8%	no	this project is not cost-effective
[43]	Gas Smart Metering Rollout, Ireland	PP-energy	no	general	no	individuals (residential and small businesses)	undivided	Costs: investment cost and incremental costs Benefits: energy saving	Networks Related Costs (Meter Capital Costs, Smart Communication Module Failures, Smart Metering IT Systems Costs, Electricity Smart Metering Interface) and Benefits (Reading, Siteworks Savings, Meter Exchanges, Prepayment—Meter Exchanges and Operations, Fuel Gas Savings, Revenue Protection—Theft of Gas, System Reinforcement)	---	NPV	n = 4; r = 4%	yes	the project would be profitable
[44]	Smart agriculture	PP–agriculture	short	general	yes (3 alt)	households	undivided	Cost and benefits of CBA practices were collected from the household surveys (initial investment etc.)	---	---	NPV; IRR; payback period	n = 3-15; r = 9,10,12%	no	all are profitable, how depends on of locations
[45]	Smart agriculture—Southern Africa	private–agriculture	short	general	yes (9 al)	households	undivided	Analysed data: (1) gain yield, biomass, labour, inputs used & cost; (2) resource constraints & market access; (3) households characteristics; (4) social capital & information; (5) agroclimatic characteristics	---	choice of growing technologies	NPV; IRR	no	yes	depends on area and alternative
[46]	Smart agriculture—Guatemala	public–agriculture	short	general	yes (8 alt)	people	undivided	Costs: installation costs and maintenance costs (materials, labour)	External effects: biodiversity, carbon sequestration and soil and water contamination Social effects: employment	external and social effects	IRR; ENPV, payback period	er = 12%	no	the results have information function
[47]	Close-to-nature adaptation	PP–environment	short	general	yes (4 alt)	people	financial, non-financial	Costs: (investment, operating and administrative costs)	Indirect valuable benefits: energy saving, reducing water volume in sewage treatment plants, flood risk, improving water quality, noise reduction, soil & CO2 erosion air quality improvement etc.	valuable and in-valuable effects	B/C	---	sensitivity analysis	all alternatives are social and cost-effective
[48]	Forestry in city, Lisbon	public–environment	short	general	no	people	undivided	Costs: management planting, removals, control of pests and diseases, watering, administration costs: inspections, other costs	Benefits: Energy saving, Atmospheric carbon dioxide reductions, Air quality benefits, Stormwater runoff reductions, Property value benefits	for each year	NPV; Benefit-Cost ratio	no	no	general solution: the trees in the street are desirable
[49]	Cluster; Moravian-Silesian region	PP-business (other)	no	demand directly by the subject	no	stakeholders	undivided	standard fixed costs and operation costs	Benefits: increasing the number of orders & hence the sales of firms in the cluster; increasing the number of employees in both professional and manual professions; increase the number of joint projects involving a cluster member; number of cluster services used	---	simple price calculation	---	yes	is not clearly defined
[50]	Swimming areal—Ústí nad Labem	public–sport (other)	yes	general (city demand)	yes (3 alt)	especially residents	undivided	Fixed costs: investment costs and operation costs (for electricity, material, wages, overheads, maintenance and repairs, etc.)	Direct income: from swimming pool and swimming pool operation, sauna operation, fitness centre operation etc. Indirect cost: savings associated with job creation and a positive impact on the health and morbidity of the population	---	NPV; ENPV; IRR; ERR	n = 15; er = 5%	yes	the project is effective if the subsidy is included in income
[51]	Smart grids technologies, Sweden	other	short—social welfare	general	Effects: (1) most common: Costs of energy production, Technical energy losses in transmission & distributional grids, Operational costs for transmission and distributional grids, Emissions of CO2, NOX & SO2. (2) common: not specified whether positive or negative, Security of supply (value of lost load, fewer disruptions), Power Quality, Congestion costs, Costs for reserve capacity, Restoration costs, Management costs, Monitoring costs (if not included in grid operational costs), Customer service costs, Costs of theft/fraud, Security. (3) little common: Electro technology industry development, Quality of service.					effects not specified if positive or negative	---	---	---	---
[52]	Drinking water, Sweden	public-water management (other)	yes	general	yes (5 alt)	yes (33 categories of stakeholders)	undivided	All category together: (1) Water utility costs & benefits (Investments, Operational & maintenance costs, Other costs and benefits) (2) Water supply reliability effects (Lost value added in economic sectors, Losses for residential consumers), (3) Water-related health effects (Costs for health care, Lost production, Discomfort & loss of life), (4) Effects on ecosystem services (Drinking water, Irrigation, Hydropower, Industrial water use, Recreational activities, Flood & erosion risk reduction, Other water services, Retention of contaminants), (5) Effects on agriculture, forestry & industry due to water protection restrictions		---	NPV	n1 = 30; n2 =70; r1 =1.4%; r2 = 3.5%	no	theoretical comparison of results
[53]	Freetime Park—České Budějovice	public–sports (other)	yes	general (city demand)	yes (zero variant)	tourists, local citizens, other visitors	undivided	the cost of acquiring tangible fixed assets and current assets	socio-economic effects: (1) benefits for the city and other municipalities (corporate income tax payments; investment support; economic development of these municipalities); (2) benefits for the state & public institutions (payroll tax for new workers, social & health insurance, reduction of unemployment benefit payments, value added tax); (3) benefits for businesses in the region (increase in net profit)	financial and economic analysis; valuable and invaluable effects	NPV; IRR; profitability index IRR/I; payback period	r = 5%	risk analysis	this project is social and cost-effective

Note: PP—public private; LR—long run; FA—financial analysis, EA—economic analysis.

(in Appendix A), their determination and possible quantification of which is crucial for the compilation of the relevant CBA. There are a lot of authors that do not distinguish between indirect costs or benefits and only use the category of external effects or use not always understandable self-classification.

All of the information presented in Table A1 in the Appendix A is based on specific studies and reflects these factors and the CBA methods contained therein [29,30,31,32,33,34,35,36,37,38,39,40,41,42,43,44,45,46,47,48,49,50,51,52,53]. The data in the table is sorted by smart solution area (mobility (six smart solutions), energy (9 smart solutions), agriculture (three smart solutions), environment (two smart solutions) and other (five smart solutions)). This ensures better orientation in the categories of costs and benefits, which are crucial in the creation of the CBA.

Unlike in the theoretical concept of the CBA, the research of the practically applied CBA regarding the smart city showed several simplifications, which are sufficient for the general construction of the simplified procedure for the pilot evaluation of smart solutions. There is no need for information such as the financial sources, the types of costs or benefits, the sensitivity analysis and the risk analysis. The characteristics of the society-wide contribution get explicitly reflected in the demand. The analysis of the alternatives can be done parallelly, yet separately, with subsequent comparison of the proposed solutions against each other. The indirect benefits and costs are most often stated in the form of positive and negative externalities without any specific relation to the individual subjects. Only the ones which can be financially evaluated are mentioned. Generally, society is considered as a whole, in a narrower sense we speak about households (citizens).

The most frequently used method is the NPV method, which takes into consideration all quantifiable costs, i.e., direct and indirect, by which the known and expected direct and indirect benefits are reduced. In practice, the financial analysis is interconnected with the economic analysis, and the NPV and ENPV methods are considered the same.

4. The Primary Analytical Framework for CBA in the Context of Smart City

The research of the above-mentioned CBA regarding the smart solutions and activities within the concept of smart city enabled us to synthetize and specify their significant part related to CBA, which is the subject of the research. These findings are confronted with the theoretical definition of CBA and subordinated to the conditions of logic, comprehensibility, transparency and practicality. The objective is to formulate general elements and principles for the use of CBA when evaluating the efficiency of innovative solutions within the concept of smart city, and propose a primary analytical framework which would provide a universal platform suitable for the primal verification of the smart solutions. This general platform has also its parallel in the construction of questions, the answers of which will provide basic input data for the formation of the pilot version of CBA for a specific solution (or project) [54].

Figure 2 schematically depicts the key elements and relations that need to be determined or quantified in order to define the content of the specific CBA. This primary analytical framework is a simplified model of CBA designed by us, which abstracts away from the extensive textual part and accentuates merely the substantial features in relation to the determination of ex ante efficiency of the given specific smart solution.

Using the analysis of the implemented CBA, we can define a set of several questions, clearly stated, which will provide us with the key answers necessary for the pilot formation of CBA:

• What does the proposed smart solution concern? Provided that it is an innovative solution, what is the current state (starting point), or will there be any alternative solutions? What is the contribution of the solution to the society (what is the added value?) or to the individual subjects (why are we doing it?)
• Did the subjects mention the necessity of the solution? How is (was) it detected?
• What input (direct) costs are expected and what is their amount (investment costs, service purchases, tangible property and material, intangible property, etc.)?
• Will it be necessary to finance the solutions in the following years, too? If yes, what will be the estimated direct operating costs in the individual years (energy, repairs, maintenance, personal expenses, service purchases, reinvestment expenses, etc.)?
• Are any direct benefits in the course of the solution expected? If yes, which and what amount and in which years? What is the number of users that the benefits will concern?
• What indirect social, utility and other benefits and costs and at what amount can we expect (positive and negative externalities) with the solutions will concern the households, firms and the public sector as well?

Based on the discovered data, the implementer of CBA will consider which method of evaluating the efficiency of the solution will be used, taking into consideration whether the solution is realised and evaluated in the course of one year or in the course of several years. The expert on indirect socio-economic effects will evaluate the relevance of the defined explicit costs and benefits and will adjust their number if need be (it is necessary to realize that often the categorization of one or another effect on the desired and undesirable (positive and negative) is determined by the judge’s point of view and the specific situation (sometimes barking dog warns us about thieves, sometimes it doesn’t let us sleep). At the same time, they will determine specific measurable indicators and will define their value for their financial formulation. The next step is to determine the total cost and benefit flows in the individual years and define the proportionate interest rate, on the basis of which the suitable indicator will be calculated.

The comparison of the value of the indicator with its referential value will eventually determine the primary efficiency of the realized smart solution. The pilot revised efficiency of the solution forms ex ante relevant initial stage of the properly processed CBA.

5. Discussion and Conclusions

The criterion of efficiency (satisfaction of the society-wide welfare) when deciding about the implementation of any new solution or method into the current system of social-economic relations is crucial and it becomes a tool for improvement of the allocation of sources. When comparing the financial and economic analysis of benefits and costs, the economic analysis unequivocally shows to be a more suitable tool, inherently accepting the implicit, indirect effects. CBA, for which the economic, or financial analysis, is crucial, is a widely acknowledged method that has long been used to compare the effects of planned solutions and alternatives in a range of areas of human actions [12,55].

Concluding from the research of expert resources as well as specific case studies, the aim of the article was to stipulate the key elements of CBA, which are relevant with respect to the general methodical approach of evaluation of pilot efficiency of the suggested solutions realized within the perception of the concept of smart city. It was intended to create general analytical framework of CBA, a primary tool which may be transferrable across disciplines, well-arranged and intelligible, and which determines the basic method when evaluating ex ante the suitability of any proposed solution (within the project of the solved experimental evaluations).

This methodical procedure that we have created can be included in other especially practically oriented CBA creation procedures focused specifically on the solution within the smart city concept and based on real practice.

By reviewing the practically applied solutions and projects in the context of the elements of smart city, several simplifications of the theoretically presented CBA emerged, which may be summarized into the following points: (1) A wider description of socio-economic sectors and concerned subjects is not necessary; (2) financial and economic analysis is not distinguished; (3) the most frequent method how to evaluate the efficiency is NPV, in which the total costs and benefits are dealt with directly without classifying them into direct and indirect; (4) the risk analysis and sensitivity analysis are minimally included in the empirical CBA, yet their significance cannot be underestimated regarding the emphasis on the minimalization of the difference of the evaluated efficiency (ex ante) from the real one (ex post); (5) the number of categories of implicit and explicit costs and benefits makes the evaluation of the entire efficiency for the society more accurate, yet their quantification may logically create a barrier of the efficiency of the implemented CBA itself. To have an adequate CBA, the deliberate choice of the number and types of costs and benefits is crucial.

The primary analytical framework of CBA designed by us fully reflects in its decisive features the scientifically and practically set content of CBA. On a general level, CBA contains three mains steps. These are identification, quantification and evaluation of the benefits and costs [35]. The theoretical foundation of CBA defines benefits as increases in human well-being and costs as reductions in human well-being [56]. Individuals’ well-being depends on market goods and services as well as nonmarket goods and services, such as health and environmental quality [37]. The most difficult part of the entire CBA is the financial quantification of non-market benefits and costs into the form of monetary units and the choice of suitable indicators that characterise these indirect (non-market) effects [57]. The total costs and benefits that are usually included within CBA are the grand total of these explicit and implicit effects, and it is uncommon to separate them in practice. At the same time, it is necessary to become aware of the fact that all ex ante implemented CBA are not exact by their nature, yet they can be expected and predicative. Despite all that, CBA is considered to be the most suitable tool for evaluating the efficiency of new solutions, projects and activities; all this due to its relative simplicity, clear arrangement, transferability, intelligibility and conceptual character, see, for example, [10,19,24,36,58,59]. With the development of the concept of smart city, the method of CBA may be considered as the key tool for the relevant estimate of the suitability of the chosen smart solution, or for its ex ante primary, pilot evaluation.