Cost Analysis in Program Evaluation: Part 1


– AS CHILD WELFARE EVALUATORS
AND DECISION-MAKERS, YOU’RE TRYING TO UNDERSTAND
OR MAKE DECISIONS ABOUT HOW BEST TO DISTRIBUTE
SCARCE RESOURCES TO IMPROVE THE OUTCOMES
FOR CHILDREN AND FAMILIES. WE’LL TALK ABOUT ONE APPROACH,
COST ANALYSIS, WHICH CAN BE USED TO DETERMINE THE MONETARY VALUE
OF THE RESOURCES USED TO RUN A PROGRAM. I HOPE YOU’LL UNDERSTAND WHY ANALYZING THE COST OF SERVICES
IS IMPORTANT AND HOW IT’S DIFFERENT
FROM BUDGETING OR ACCOUNTING. YOU MIGHT BE WONDERING WHY
YOU SHOULD DO COST ANALYSIS. WELL, LET’S MEET MIKE
AND FIND OUT. HI, MIKE!
– HI, PHAEDRA! I’M AN AGENCY EXECUTIVE
WHO NEEDS TO MAKE DECISIONS ABOUT SERVICES TO OFFER. IN AN ENVIRONMENT OF INCREASED
DEMANDS FOR ACCOUNTABILITY, PERFORMANCE, AND LIMITED FUNDS, I NEED TO HAVE A BETTER
UNDERSTANDING OF PROGRAM COSTS. WE’RE HEADING INTO
A NEW FISCAL YEAR AND WE NEED TO MAKE DECISIONS
ABOUT WHAT SERVICES TO CONTINUE. I’M WONDERING ABOUT THE VALUE
OF IN-HOME SERVICES WE PROVIDE, AND WHETHER WE CAN
AFFORD TO CONTINUE OFFERING THESE SERVICES. CAN YOU GIVE ME SOME ADVICE? – I AM HAPPY TO HELP, MIKE. IN TRYING TO HELP YOU
MAKE THESE DECISIONS, IT MIGHT BE HELPFUL
TO CONDUCT A COST ANALYSIS. COST ANALYSIS RELIES ON
INFORMATION ABOUT A PROGRAM’S ACTIVITIES
AND CONSIDERS THE VALUE OF ALL RESOURCES USED
WHEN IMPLEMENTING A SERVICE, WHETHER OR NOT
THE RESOURCES ARE PURCHASED DIRECTLY BY THE PROGRAM. THINK OF THESE RESOURCES
AS INGREDIENTS THAT MAKE UP YOUR PROGRAM, LIKE
INGREDIENTS FOR MAKING A CAKE. – I LIKE CAKE.
TELL ME MORE. – THE RESOURCES, OR INGREDIENTS,
REQUIRED TO RUN THE PROGRAM CAN INCLUDE STAFF SALARIES,
TIME, FACILITIES, MATERIALS, SUPPLIES, AND VEHICLES. THERE IS A COST OR VALUE
THAT NEEDS TO BE ASSIGNED TO ALL THESE RESOURCES. THESE RESOURCES CAN BE DIRECT OR
INDIRECT COSTS TO THE PROGRAM. ONCE YOU HAVE THE COSTS
OF THE INGREDIENTS, YOU CAN DETERMINE
THE OVERALL COST OF IMPLEMENTING THE PROGRAM, THE COST FOR SPECIFIC
PROGRAM ACTIVITIES, AND COSTS PER
PROGRAM PARTICIPANT. THIS INFORMATION SHOULD HELP YOU
MAKE PROGRAM DECISIONS AND CAN ESTABLISH A FOUNDATION
FOR OTHER TYPES OF ANALYSES. BEFORE WE GET INTO THE DETAILS
OF COST ANALYSIS, LET’S GIVE YOU AN OVERVIEW OF
HOW COST ANALYSIS FITS INTO THESE OTHER TYPES OF ANALYSES. EVALUATIONS THAT INCLUDE
COST ANALYSIS AND ASSESSMENTS OF PROGRAM COSTS OR IMPACTS MAY OFFER OPPORTUNITIES
FOR COST-EFFECTIVENESS ANALYSIS OR BENEFIT-COST ANALYSIS. ON A BASIC LEVEL, A COST
EFFECTIVENESS ANALYSIS COMPARES A PROGRAM’S COSTS TO
A PROGRAM’S OUTCOMES. AND OUTCOMES ARE
ALL THOSE RESULTS ASSESSED IN PROGRAM EVALUATION, SUCH AS IMPROVEMENTS IN
PARENT-CHILD INTERACTIONS AND CASES OF CHILD
MALTREATMENT PREVENTED. SO, THE FINAL RESULT OF
A COST EFFECTIVENESS ANALYSIS IS A COST PER CASE
OF CHILD MALTREATMENT PREVENTED. THERE’S ALSO A TYPE
OF ANALYSIS CALLED COST UTILITY ANALYSIS. THIS IS A SUB-VARIANT OF
COST EFFECTIVENESS ANALYSIS WHICH COMPARES PROGRAMS
ON THEIR COST BUT THEN MEASURES EFFECTIVENESS
IN TERMS OF IMPROVEMENTS IN HEALTH-RELATED QUALITY OF LIFE
AND IN SURVIVAL. BENEFIT-COST ANALYSIS QUANTIFIES PROGRAM BENEFITS
IN MONETARY TERMS AND ASSESSES WHETHER
THOSE BENEFITS EXCEED THE PROGRAM COSTS. THIS ENABLES ONE TO MAKE
A COMPARISON BETWEEN PROGRAMS WITH DIFFERENT
TYPES OF EFFECTS AND TO COMPARE WHETHER
THE COST OF THE PROGRAM EXCEEDS THE BENEFITS
ON A MONETARY LEVEL. WHEN USING MIKE’S IN-HOME
EXAMPLE, IT WOULD BE COMPARING THE COSTS OF THE PROGRAM TO
THE ACTUAL MONETIZED BENEFITS OF KEEPING A CHILD
IN THEIR HOME. THESE COULD BE COMPARED TO
THE COSTS AND MONETIZED BENEFITS OF PLACING A CHILD
IN FOSTER CARE. THE IMPORTANT THING
TO NOTE IS THAT THE USEFULNESS AND PRECISION
OF THE ANALYSES JUST DESCRIBED DEPENDS ON THE ABILITY
TO ACCURATELY ANALYZE THE COSTS OF
THE IDENTIFIED PROGRAM. SO, WITH THAT IN MIND,
LET’S HEAD BACK TO OUR CONVERSATION WITH MIKE
AND FINISH TALKING ABOUT DOING A COST ANALYSIS
FOR HIS IN-HOME PROGRAM. IN ADDITION TO UNDERSTANDING
THE RESOURCES THAT MAKE UP YOUR PROGRAM, CONDUCTING COST ANALYSIS
IS IMPORTANT FOR ACCOUNTABILITY TO THE PUBLIC,
YOUR FUNDERS, AND TO MEET REQUIREMENTS FOR COST EVALUATION
IN FEDERAL GRANTS. THERE ARE MANY WAYS TO ANALYZE
COSTS, HOWEVER, WE BELIEVE USING
THIS INGREDIENTS APPROACH PROVIDES A STANDARDIZED METHOD
TO ANALYZE COSTS AND ENHANCES YOUR UNDERSTANDING
OF A PROGRAM’S ACTIVITIES. – BUT WHAT’S THE DIFFERENCE
BETWEEN COST ANALYSIS AND BUDGETING OR ACCOUNTING? – COST ANALYSIS, UNLIKE
THE BUDGETING PROCESS, CONSIDERS THE VALUE
OF ALL RESOURCES USED TO IMPLEMENT A PROGRAM,
SUCH AS COSTS TO PARTICIPANTS, AND NOT ONLY WHAT
THE IMPLEMENTING AGENCY CAN SPEND ON A PROGRAM. BUDGETING USUALLY ONLY
ACCOUNTS FOR THE SALARY AND BENEFITS
TO RUN A PROGRAM. SO, COST ANALYSIS TAKES INTO
ACCOUNT THE COST OF ALL OF A PROGRAM’S RESOURCES
THAT MAY NOT BE INCLUDED IN THE BUDGET. THESE RESOURCES COULD INCLUDE
COMPONENTS SUCH AS VOLUNTEER LABOR, DONATED OFFICE
SPACE, AND PARTICIPANTS’ TIME. – BUT WOULDN’T ACCOUNTING
FOR THOSE COMPONENTS MAKE OUR PROGRAM
SEEM MORE EXPENSIVE? – IT DEFINITELY MIGHT,
BUT IT GIVES YOU A MORE ACCURATE PICTURE OF WHAT IT COSTS
TO RUN A PROGRAM. THIS WAY, YOU CAN MAKE MORE
INFORMED DECISIONS ABOUT HOW TO ALLOCATE YOUR FUNDING. AND, MORE IMPORTANTLY,
IF SOMEONE WANTS TO REPLICATE YOUR PROGRAM, THEY HAVE A COMPLETE PICTURE OF
ALL THE RESOURCES THAT IT TAKES TO RUN THE PROGRAM. – WHAT ABOUT OTHER COSTS THAT
YOU HAVEN’T MENTIONED, LIKE COSTS ASSOCIATED WITH PROGRAM
EVALUATION OR RESEARCH? – GOOD QUESTION, MIKE. RESEARCH COSTS
ARE NEVER ALLOWED. – OK, NOW THAT I UNDERSTAND
WHY COST ANALYSIS IS IMPORTANT AND HOW IT CAN HELP ME,
WHERE DO I BEGIN? – IN THE NEXT VIDEO,
I’LL HELP YOU THINK ABOUT WHAT THE INGREDIENTS ARE FOR
ASSESSING YOUR PROGRAM COSTS AND HOW TO VALUE
THOSE INGREDIENTS. – SO, I’LL KNOW HOW TO
MAKE MY CAKE AND EAT IT, TOO.

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