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

Notes

What is cost estimation ?

Self Assessment
2. State whether the following statements are ‘true’ or ‘false’.
(i) The ingredient approach was developed to provide a systematic way for evaluators to estimate
the costs of social interventions.
(ii) Most educational interventions are labour intensive.
(iii) Cost approach is the most common measure of cost effectiveness.

14.6 Summary

• 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 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.
• 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.
• 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.
• The words ‘cost of education’ are often loosely equated with ‘expenditure on education’. For
the purposes of cost-benefit analysis of an investment, however, it is necessary to define costs
in terms of the total opportunity cost of a project; that is, all real resources that are used by the
project. These are called the ‘opportunity cost’ as each investment represents the sacrifice of
alternative opportunities to use the resources.
• The measurement of the costs of education, for the purposes of cost-benefit analysis, involves
more than a simple calculation of money expenditures. It also involves an attempt to estimate
the total cost of investment in education in terms of alternative opportunities foregone either by
society as a whole or by the private individual.
• If the purpose of the cost-benefit analysis is to evaluate education as a form of social investment,
the relevant cost concept is the total resource cost of education to the economy (social costs).
This includes the value of teachers’ time, books, materials and other goods or services, the
value of the use of buildings and capital equipment, and finally the value of students’ time,
measured in terms of alternative uses.
• The simplest measure of the value of teachers’ time is expenditure on salaries. If, however, for
some reason teachers are paid less than the current market rate for their services, some attempt
must be made to estimate the true opportunity cost of their time.
• The value of books, stationery and writing materials can also be measured in terms of money
expenditure. In some countries books are financed with public funds and provided to pupils
free or at a subsidized price.
• Cost-effectiveness analysis refers to the consideration of decision alternatives in which both
their costs and consequences are taken into account in a systematic way. It is a decision oriented

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