Chapter 11 – 2 nd Half Choosing Among Competing Programs Through Benefit/Cost Analysis John M. Godwin PADM 7040 Dr. Gerald Merwin October 26, 2005

What is at stake? There will always be more programs than funding, so the question remains as to which programs an organization should pursue. Cost/Benefit Analysis provides a method of determining ‘the most bang for the buck,’ so to speak, in deciding which programs to pursue at any given time. There will always be more programs than funding, so the question remains as to which programs an organization should pursue. Cost/Benefit Analysis provides a method of determining ‘the most bang for the buck,’ so to speak, in deciding which programs to pursue at any given time.

Types of Benefits There are three main categories of benefits: ► Monetarily quantifiable – can be expressed with a definitive dollar value. ► Nonmonetary quantifiable – expressed not with a dollar value, but with a definitive numerical value. ► Nonquantifiable – cannot be expressed monetarily or numerically, but still retains a definitive intrinsic value.

Cost/Benefit Determination ► Net benefit = Benefits minus the Costs ► Benefit/cost ratio = Benefits divided by the Costs A positive net benefit or a benefit/cost ratio greater than one indicates a program worth pursuing. Those in this category should then be compared with each other to determine the greatest yield per dollar.

Problems in Benefit/Cost Analysis ► Program outputs might change the market prices used to determine initial benefits, thus altering final costs. ► Some programs benefit one group of people over another, creating disparities among them. ► Not everything worth having has a bottom line.

Determining Marketing Expenditures Several methods exist in determining this level: ► Affordable – simply asking what can be spared from the operating budget. This shows little relevance between marketing and outcomes. ► Percentage-of-Revenues – allocating a certain percentage to marketing, only this should be more of an inverse relationship.

Determining Marketing Expenditures (cont.) ► Competitive-Based – equaling the marketing allocations of similar organizations as not to loose market share. ► Objective-and-Task – involves defining marketing objectives, determining methods of achievement, and estimating the costs for completion.

Determining Marketing Expenditures (cont.) ► Response Optimization – considered the best, it involves “the likely response of a market during a specified time period associated with different possible levels of a marketing element” (Andreasen & Kotler, p. 301). There is a point in marketing where more is less (returns diminish as price increases).

Estimating Response Function ► Statistical – gathering past data and performing statistical analysis. This can be difficult with the amount of data gathering required and ensuring a varied marketing mix. ► Experimental – varying expenditure levels in different geographical areas and noting the outcomes. ► Judgmental – ask the experts.

Additional Factors ► Type of consumer – different groups require different approaches. ► Marketing Task – at what stage in development is the target audience? ► Stages of Offer Life Cycle – at what stage is the offering itself? ► Economic Outlook – how much expendable income is out there?

Work Cited ► Andreasen, Alan R., & Kotler, Philip (2003). Strategic Marketing for Nonprofit Strategic Marketing for Nonprofit Organizations (6 th ed.). New Jersey: Organizations (6 th ed.). New Jersey: Pearson Education. Pearson Education.