1. Chapter 10: Cost-Effectiveness and Cost Analysis Designs

2. Why ‘Cost’ is an evaluative criterion
Programs must balance effectiveness with affordability
Social services are normally government funded
Funding is not always guaranteed
Legislature may opt not to fund program
Eliminate funding due to political climate
Agency directors must decide which program provide the most affordable, favorable outcome
Inexpensive program may not be as effective as one slightly higher in cost
Expensive program may provide a favorable outcome but only slightly better than one a fraction of the cost
Managed care doctrine requires care givers consider cost and be keenly aware of the economic side of intervention
Cost-Effectiveness/Cost-Benefit Analysis - Measuring efficiency of intervention

3. Example Cost Effectiveness Comparison of Two Job Training Programs
Work Now, Inc.
Job Prep, Inc.
Total Program Costs
$275,000
$345,000
Graduation Rate
64%
40%
Persons Employed Full Time – One Year 48 73
Cost per Employed Client
$5,729
$4,726
Background data on the Programs:
Both work programs are located in large metropolitan areas
Primary responsibility is to help adults who have never experienced full time employment
Clientele is composed of adults who are dropouts or individuals with criminal histories
Both program teach work preparedness skills and provide an internship
Work Now’s program is less intense than Job Prep's program and can be completed one month earlier

4. Cost Effectiveness Analysis
Job Now requires 20% more budget to operate
Work Now has significant higher graduation rate (24%)
Work now has higher employment statistics after one year than Work Now
Cost per full-time employee is $ less per graduate
Which program is more cost effective?
Data appears conflicting!!!!!
Evaluator must consider the purpose of the of the program in determining the cost effectiveness
Job Now is the most cost effective because the purpose of the program is to help hard-core unemployed to become employed
Must consider expenditures in relation to outcomes

5. Step-by-Step Guide Cost Effectiveness Study
Define the program and its Outcome Indicators
Must fully understand all components and features of a program
When comparing multiple programs, must use the same operational definitions for successful outcomes
Compute Costs
Personnel - Salaries and benefits of program employees including volunteer
Facilities – Rent for office space and building overhead (power, sewage, insurance, etc.)
Equipment – Office supplies, computers, etc.
Other Expenses – Travel, training, in-direct employee contribution (secretaries, director, janitor)
Collect Program Outcome Data
In relationship to operational definitions
Compute Program Outcomes
Documenting the programs successes or failures; May be computed using multiple outcome indicators
Compute the Cost-Effectiveness Ratio
Divide cost of program by outcome indicators to detrmine relationship between resources and outcome
Perform Sensitivity Analysis
Test recommendations that develop from analysis
Estimates of success may influence data and it is necessary to determine if outside influences could have lead the evaluator to an incorrect conclusion

6. Whose Point of View?
Worth of program are viewed differently by different groups or individuals
Society
Providers
Consumers
Bill Payers
Perspectives will clash
Cost associated with a needed intervention may be very important to one group but not very important to another
Insurance company (Bill Payer) may not wish to pay for expensive but successful treatment when lower cost alternative is available
Cost-Effectiveness Analysis may not be comparable across interventions
Recommendation – CEAs must be undertaken from a societal perspective to account for all costs and effects and ensure that the interests of one group is not considered more important than a different group

7. Cost-Benefit Analysis
Benefits can be either monetary or non-monetary
Cost Benefits can be either direct or indirect
Monetary
Non-monetary
Expenditures for health care and mental health services
Reduced personnel and family stress
Costs of child welfare services
Reduce family conflict
Costs of Justice System
Improved anger management
Cost for Foster Care
Improve mental health
Costs of Social Welfare programs
Improved physical health
Direct
Indirect
Court Costs
Loss of work related to crime-related losses or injuries
Incarceration costs
Victim fear and stress
Private protection costs
Loss of work due to incarceration
Parole/probation costs
Crime related property damage
Non-monetary and intangible benefits are more difficult to quantify; therefore cost benefit analysis may not be the best evaluation approach

8. Defining Benefits Many Benefits cannot be easily converted to cost
Benefit analysis may consider pre and post-standardized measurements
Satisfaction with life
Satisfaction with intervention
When Benefits are non-monetary, cost benefit analysis will be indistinguishable from cost-effectiveness studies
When examining costs and program outcomes, call your analysis “cost-effectiveness “ if the outcome variables are not measured monetarily

9. Recap
Policy makers, agency directors and managers want efficient programs
Cost of programs must be evaluated relative to clear outcome measurements
Cost-effectiveness studies are important tools used by decision makers to allocate resources
“It is imperative that we develop the skills necessary to demonstrate the benefit and cost savings when one treatment is chosen over another”
Cost-effectiveness studies establishes a foundation for an agency to adopt the most efficient programs

10. A Useful Resource!
The January 2006 issue of the journal Research on Social Work Practice contains a number of articles describing cost-benefits studies in social work practice. See to examine this issue.
You may be able to download these articles for free by accessing this journal through your university library!