All programs aim to produce benefits that outweigh their costs.
Costs and benefits can be compared to determine the worthiness of a
Cost-benefit and cost-effectiveness analysis are the most common
methods used to accomplish the comparison between costs and
Both analyses provide information about the net present value (NPV)
of a program. NPV is an indicator of how much value an investment or
project adds to the firm. The difference between the present value of
cash inflows and the present value of cash outflows. NPV is used in
capital budgeting to analyze the profitability of an investment or
In CBA the benefits are transformed into monetary terms and
compared to program costs.
In CEA benefits are transformed into non-monetary unit, such as lives
saved, people attended, and are compared with program costs in
At the planning stage, CBA or CEA may be undertaken
before the fact, based on estimates of anticipated cost
They are tools analysis, particularly as ways to
examine the net benefits of a proposed project or
program involving large capital investments.
After a program has been in operation for some time,
CBA and CEA may be used after the fact, to assess
whether the actual costs of the program were justified
by the actual benefits
The CBA could be done from three perspectives
or points of view
The individual’s perspective
It examines the program costs and benefits to the program
participant: person, a family, a company or a non-profit
CBA done from such a perspective often produce high
benefit-cost ratios because the government or society
subsidizes the program from which the participant
The analysis from a government
perspective values costs and benefits
from the point of view of the funding
It is basically a financial analysis,
examining the financial costs and the
direct financial benefits to the
Social perspective analysis
This analysis takes the perspective of society
as a whole, the broader results of a program
must be considered.
A good measure of costs and benefits for an
individual or organization are market prices,
however they might not accurately reflect the
true value to society. For example, society’s
opportunity costs are different from the
opportunity costs incurred by a participant in
Strengths and Weaknesses
CBA looks at a program’s net worth.
An evaluator must address the issue of attribution
or incremental effect before doing a cost-benefit
The benefits and costs of a program often cannot
be easily expressed in dollars.
CEA is sometimes used when it is too difficult to
convert to monetary values associated with CBA.