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Unit 14: Cost–Benefit and Cost–Efficiency Analysis in Education

equipment, materials, utilities, and so on. Clearly the cost of leased facilities can also be ascertained Notes
in this way.
Although the market prices of some ingredients such as personnel can often be obtained from
accounting data for educational enterprises, such data are not reliable sources for ascertaining overall
program costs. The accounting systems that are used by schools were designed for ensuring consistent
reporting to state agencies rather than for providing accurate and consistent cost data on educational
interventions. For example, they omit completely or understate the cost of volunteers and other
donated resources. Capital improvements are charged to such budgets and accounts during the
year of their purchase, even when the improvements have a life of 20-30 years. Normal cost accounting
practices would ascertain the annual costs of such improvements by spreading them over their
useful lives through an appropriate method (Levin 1983 pp. 67-71). Thus, data from accounting and
budgetary reports must be used selectively and appropriately and cannot be relied upon for all
ingredients.
Simple approach that takes account of depreciation and interest foregone by the remaining capital
investment. Details for these techniques are found in Levin (1983 Chap. 4).
14.4.3 Combining into Cost-effectiveness
Once each of the ingredients is costed, these can be added to obtain a total cost for the intervention.
The next stage entails the use of these costs in an analytic framework. The two most important
concerns for cost summary and analysis are
(a) the appropriate unit for expressing costs and (b) who pays the costs.
Clearly, the question of the appropriate unit for expressing costs depends upon how effectiveness
is measured and the nature of the decision. Usually, educational effectiveness is measured in terms
of achievement gains per student or some other per student measure. In that case, it is necessary to
convert total costs to a per-student cost figure for comparing cost-effectiveness of alternative
interventions. Cost-effectiveness ratios are usually based upon the average effects and costs per
student. However, it is possible to do an analysis on total project or program costs and effects. In
other cases it may be the additional or marginal costs versus additional or marginal effectiveness
that is the subject of scrutiny. For example, one may want to ascertain the number of additional
students who will graduate from high school relative to the additional costs of alternative approaches
for reducing dropouts.
A very different issue is who pays the costs. The overall cost-effectiveness ratio may be irrelevant to
a decision-maker who pays only part of the costs for one intervention, but all of the costs for an
alternative. For this reason, it is important to ascertain total costs of an intervention and to separate
out those that are home by the decision-maker in considering different alternatives. However, it
should be remembered that since different decision-making units have different opportunities to
obtain volunteers and contributed resources, it is inappropriate to assume any particular cost subsidy
to the decision-maker. The basic estimate of costs that is used for all subsequent cost-analyses is the
overall cost of the intervention. Subsequent analyses can distribute the costs among those who will
bear them to ascertain the implication of that distribution for decisions.

The most common measure of cost-effectiveness is the cost-effectiveness ratio, namely, the
effectiveness of an alternative divided by its cost. When this is done for each alternative, it is possible
to see which of the alternatives yields the best outcomes per unit of cost. For example, one might
wish to examine different alternatives for raising student achievement comparing the cost per
additional achievement gains. In principle, the alternative with the lowest cost per achievement
gain would be the most desirable. However, it is important to know if differences in cost-effectiveness
ratios are large or small. If the differences are small, it is probably wise to weigh more fully other
criteria in making the decision such as the ease of implementation or previous experience of staff. If
the differences in cost-effectiveness are large, it is important to place greater weight on the cost-
effectiveness criteria while still considering other factors that were not considered in the analysis.

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