Cost benefit and cost-effectiveness analysis
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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.
ADVANTAGES:
- 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.
DISADVANTAGES:
- 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.
COST:
Varies greatly, depending on scope of analysis and availability of data.
SKILLS REQUIRED:
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.
TIME REQUIRED:
Varies greatly depending on scope of analysis and availability of data.
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