Federal regulations play a key role in helping to ensure that the products we consume are safe, the environment in which we live is adequately protected and the marketplaces in which our businesses operate are fair, open and competitive.

But regulations can also impose significant costs on both businesses and consumers – costs that can have a chilling effect on hiring and growth. That is why it is important that regulators consider the impacts of potential regulations before they go into effect. Doing so can both prevent a regulation from causing an unintended harm and make a regulation more effective at achieving its goal.

One of the best ways to ensure that regulations are as smart as they can be is to conduct cost-benefit analyses on proposed rules.

Simply put, cost-benefit analysis is a formal technique that enables regulators, policymakers and the public to weigh the potential implications of a proposal. When it comes to federal regulation, the nonpartisan Congressional Research Service says that cost-benefit analysis involves a systematic identification and analysis of all costs and benefits associated with a forthcoming regulatory action.

For decades, driven by congressional and executive action, federal agencies have conducted cost-benefit analyses on their most impactful rules. Unfortunately, evidence suggests that these agencies often fall short of what is required of them and their analyses. Even when cost-benefit analysis is required, agencies do not always complete a study and so-called independent regulatory agencies are not required to conduct analyses at all. Further, simply conducting an analysis may not be enough if the conclusion is misleading or incorrect, if the analysis is insufficiently transparent, if the model relies on faulty assumptions, and/or the analysis is designed to support decisions already made.

Cost-benefit analysis is an essential tool for crafting sound regulations and Business Roundtable CEOs believe agencies can do a better job of using it. Congress can codify key executive requirements for conducting sound analyses, require that all federal agencies, including independent boards and commissions, conduct cost-benefit analyses on major rules and provide resources for oversight. The Office of Management and Budget can require agencies to conduct more thorough analyses and create greater transparency so that experts outside of the government can reproduce analyses.

Many agree that America needs a smarter approach to regulation. Conducting sound cost-benefit analyses on proposed rules is a good place to start.

Read more about the importance of cost-benefit analysis in crafting smart regulation in the new Business Roundtable primer, Using Cost-Benefit Analysis to Craft Smart Regulation.