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Educational Management

Notes Ostensible concerns for cost-efficiency in education are not surprising. United States is second in
size only to the health care sector in terms of its drain on national resources. It is considerably larger
than the military sector. When one includes formal education and the various forms of training, it
has been estimated that about 10 percent of the gross domestic product-about three-quarters of a
trillion dollars in 1998-is allocated to education, encompassing formal education and various forms
of training.
There is considerable criticism of the effectiveness of elementary and secondary schools, particular
for minorities, immigrants, and the poor.
In higher education, there are serious challenges with regard to both costs and productivity. Cost-
efficiency analysis provides a method of comparing alternatives for their relative costs and results
and providing guidelines on which of the alternatives provides the most impact relative to cost. It
differs from its close relation, cost-benefit analysis, which requires monetary measures of impact
relative to costs. But it is possible to measure academic achievement and other measures of school
quality and efficiency. Accordingly, cost-efficiency analysis enables measures of learning, as well as
other appropriate indicators to be used to assess educational outcomes relative to costs.
Cost-efficiency analysis emerged in the 1960s as an important method for choosing among costly
weapons systems.

A cost benefit analysis is done to determine how well, or how poorly, a planned action will turn out.
Although a cost benefit analysis can be used for almost anything. Since the cost benefit analysis
relies on the addition of positive factors and the subtraction of negative ones to determine a net
result, it is also known as running the numbers.

14.1 Meaning of Cost Benefit Analysis

A cost benefit analysis finds quantifies, and adds all the positive factors. These are the benefits.
Then it identifies, quantifies, and subtracts all the negatives, the costs. The difference between the
two indicates whether the planned action is advisable. The real trick to doing a cost benefit analysis
well is making sure you include all the costs and all the benefits and properly quantify them.
The term ‘cost-benefit analysis’ implies a systematic comparison of the magnitude of the costs and
benefits of a form of investment in order to assess its economic profitability. All forms of investment
involve a sacrifice of present consumption in order secure future benefits in the form of higher
levels of output or income. Cost-benefit analysis (or rate-of-return analysis, which is the type of
cost-benefit analysis most frequently applied to education) provides a means of appraising these
future benefits in the light of the costs that must be incurred in the present. The purpose of the
analysis is to provide a measure of the expected yield of the investment as a guide to rational
allocation of resources.

14.2 Aims of Cost Benefit Analysis

Investment in Human Capital

Education is now universally recognized as a form of investment in human capital that yields
economic benefits and contributes to a country’s future wealth by increasing the productive capacity
of its people. Thus expenditure on education can be partially justified in terms of the potential
contribution of education to economic growth. However this immediately raises many questions.
How does education compare with other forms of national investment ? Which makes the greater
contribution to future economic growth : investment in human capital or investment in physical
capital ? Are all forms of education equally productive ? Is education a profitable form of investment
for the individual as well as for society ? And if so, do pupils and students, or their families, take
this into account when making educational and occupational choices ? All of these questions revolve

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