Cost-Effectiveness Analysis

… a core concept used in Evaluation and Performance Measurement and Atlas108

Concept description

Leslie Pal (reference below) defines cost-effectiveness analysis as one that “compares different program alternatives for achieving a given set of goals; it is also applied by considering a fixed budget and choosing alternatives that provide the highest rate of goal achievement ” (p. 303).

Pal writes (p. 289):

“Cost-effectiveness analysis is closely related to cost-benefit analysis [see Cost-Benefit Analysis in Evaluation] and shares many of its concepts. It is a somewhat simpler and more limited technique, but one that acknowledges the shortcomings of cost-benefit approaches. Cost-effectiveness analysis restricts itself to comparing different program alternatives for achieving a given set of goals. It thus differs from cost-benefit analysis, which purports to compare programs with different goals in terms of a common denominator of benefits. Cost-effectiveness analysis refrains from efforts to monetize benefits. It simply takes program goals or outcomes as given, and then assesses different cost strategies for achieving those goals. It assumes that the least-cost strategy is the preferred alternative. Cost-effectiveness techniques can also be applied in reverse by assuming a fixed budget and choosing alternatives that provide the highest rate of goal achievement – the “biggest bang for the buck.” So, “cost-effectiveness analysis is most appropriately used where there is already general agreement on the nature of the program outcomes and where the outcomes of the alternatives being compared are the same or very similar” (Guess & Farnham, 2000, p. 251). …

“Cost-effectiveness analysis poses the same problems as cost-benefit analysis. Which costs to consider? … Defining the different types of costs and their relationship would also be necessary as would discounting for the project over the implementation period. But cost-effectiveness analysis makes no judgments of relative benefits; it passes these considerations on to decisionmakers, who apply other criteria. A cost-effectiveness analysis may help determine the cheapest way to build a fighter jet but is incapable of showing whether other uses of those funds would be of greater benefit to society.”

Atlas topic, subject, and course

The Study of Evaluation and Performance Measurement in the Public Sector (core topic) in Evaluation and Performance Measurement and Atlas108 Analytic Methods and Evaluation.

Sources

Leslie Pal (2014), Beyond Policy Analysis – Public Issue Management in Turbulent Times, Fifth Edition, Nelson Education, Toronto. See Beyond Policy Analysis – Book Highlights.

Gussman, T. (2006). Improving the profession of evaluation. Canadian Evaluation Society. A similar version is available at https://www.tbs-sct.gc.ca/cee/prof-eval-eng.asp, accessed 11 April 2017.

Page created by: Ian Clark, last modified 14 April 2017.

Image: Najera Consulting Group, at http://najeraconsulting.com/tuesdays-tool-of-the-trade-cost-benefit-analysis/, accessed 11 April 2017.