We all know from experience that the cheapest product is not always the best. For example, one pair of shoes may cost £ 20 but wears out in only two months, while another pair that costs £ 60 will last for a year. The more expensive shoes are actually better value for money, as the cost per month of wear is only half of that for the cheaper shoes.
On the other hand, a programme can be very effective without being efficient. For example, intensive one-to-one tutorials are generally very effective in producing good examination results, but are a very expensive way of doing so.
We need another term to express the balance between effectiveness and efficiency. Cost-effectiveness is that term.
The most common measure of cost-effectiveness is the average cost per graduate, which is simply a variant of the Average Costs Equation. In this context, the term ‘graduate’ refers to a student who successfully completes a subject/course/programme rather than someone who holds a qualification from an institution of higher education.
Equation for Average Cost per Graduate:
- ACg = TC ÷ TNg
- ACg = average cost per graduate
- TC = total costs for programme or institution as a whole
- TNg = total number of graduates
Keeping these reservations in mind, it is possible to compare the cost-effectiveness of one programme in relation to another, or of one institution relative to another. The term cost-effectiveness ratio is used to refer to the relationship between the average cost per graduate in one programme, institution or system of education and the average cost per graduate in another programme, institution or system. The equation for calculating the cost-effectiveness ratio is the same as that for the efficiency ratio, but the average cost per graduate is used in place of the average cost per student.
EQUATION for Cost-Effectiveness Ratio
- CER = ACGODL ÷ ACGC
- CER = cost-effectiveness ratio
- ACGODL = average cost per graduate of ODL programme/institution
- ACGC = average cost per graduate of conventional programme/institution
The cost-effectiveness ratio is concerned not only with average unit costs, but also with the relative success rates of different systems. In this respect, it factors in an assessment of positive learning outcomes. The cost-effectiveness ratio should be interpreted as follows:
- When the ratio equals 1.00, then both modes are equally cost-effective.
- When the cost-effectiveness ratio is less than 1.00, then ODL is more cost-effective.
- When the cost-effectiveness ratio is greater than 1.00, then ODL is less cost-effective.
Exercise 9.4 illustrates a situation where providing a course through open and distance learning is much more efficient than conventional classroom-based education, but is less cost-effective.