Cost-Benefit Analyses

Cost-benefit analyses (CBA) are processes where the costs and benefits of an action are identified and measured in monetary terms to predict the financial impact and other consequences of decisions. Approaches to CBA provide a practical understanding of program costs and quantifiable values of program outcomes.

CBA originated in an economic context. The tools for CBA first were developed within the disciplines of systems analyses, operations research, and mathematics and offered ways to understand and analyze complex issues in a seemingly rational and straightforward manner. CBA tools are used frequently in business to plan and support decision making, while educators employ these methods less often.

The use of CBA in education enables school officials, policymakers, and the general public to know when the cost of educational services, programs, projects, and policy outcomes are equal to, less than, or exceed their benefits. The results of CBA help inform [Page 221]decisions about major expenditure and ongoing resource allocations. CBA tools can be useful to educators because making the best possible monetary decisions is critical to the efficient operation and accountability of educational institutions. Although techniques associated with CBA have their limitations, these tools help school officials and policymakers in K–12, higher education, and government agencies understand the full (net) impact of their decisions.

Meaningful CBA require a comprehensive identification of program costs and benefits. Costs are usually straightforward and easy to determine. They can be defined as the total monetary value of the resources that must be used to develop, implement, and operate the services being analyzed. Direct costs include the resources budgeted for or assigned to a program. Examples are personnel, facilities, equipment and materials, travel expenses, and costs of training. Indirect costs are resources not actually budgeted or assigned but representing a withdrawal of resources, such as time lost from work. Benefits are complex and can be difficult to precisely convert into monetary terms. Benefits include all outcomes or consequences that result from decisions about a program or policy, either positive or negative. Direct benefits are the primary consequences or outcomes that accrue to participants and others who are directly involved in the program. These outcomes are typically derived from program objectives. Indirect benefits are the secondary outcomes or consequences of the program, such as attitude and behavior changes, that may benefit program participants, nonparticipants, or society in general.

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