Cost benefit and cost-effectiveness analysis
Cost-Benefit and Cost-Effectiveness Analysis
What are they?
Cost-benefit and cost-effectiveness analysis are tools for assessing whether or not the costs of an activity can be justified by the outcomes and impacts. Cost-benefit analysis measures both inputs and outputs in monetary terms. Cost-effectiveness analysis estimates inputs in monetary terms and outcomes in non-monetary quantitative terms (such as improvements in student reading scores).
What can we use them for?
- Informing decisions about the most efficient allocation of resources.
- Identifying projects that offer the highest rate of return on investment.
- Good quality approach for estimating the efficiency of programs and projects.
- Makes explicit the economic assumptions that might otherwise remain implicit or
overlooked at the design stage.
- Useful for convincing policy-makers and funders that the benefits justify the activity.
- Fairly technical, requiring adequate financial and human resources available.
- Requisite data for cost-benefit calculations may not be available, and projected
results may be highly dependent on assumptions made.
- Results must be interpreted with care, particularly in projects where benefits are
difficult to quantify.
Varies greatly, depending on scope of analysis and availability of data.
The procedures used in both types of analyses are often highly technical. They require skill in economic analysis and availability of relevant economic and cost data.
Varies greatly depending on scope of analysis and availability of data.