Cost Effectiveness And Cost Benefit Analysis Pdf

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Metrics details. There is increasing interest in estimating the broader benefits of public health interventions beyond those captured in traditional cost-utility analyses. Cost-benefit analysis CBA in principle offers a way to capture such benefits, but a wide variety of methods have been used to monetise benefits in CBAs.

Years of life saved, hospital days prevented, number of deaths prevented, reduction in BP etc. Cost effectiveness analysis CEA compares the relative value of various clinical strategies that are designed to deliver the same or similar outcomes. The results are presented in terms of ratio of benefit-to-cost and return on investment The results are presented in terms of incremental cost per unit of effectiveness for interventions The outcome is usually expressed as the difference in cost, net benefits The outcome is usually expressed as the number of the life saved, decreased morbidity or mortality For cost-benefit analysis, it is necessary to assign a monetary value to each year of life.

What is Cost Benefit and Cost Effectiveness Analysis?

Being able to determine whether a plan makes financial sense is vital for every business leader and entrepreneur. A cost-benefit analysis helps you understand if a new project or campaign makes financial sense in the long run for the company. In contrast, cost-effectiveness analysis compares two outcomes based on relative costs to see which of the two provides the best opportunities for success.

The easy way to remember the difference is a benefit is a desired financial reward while effectiveness is the potential success of the program. A cost-benefit analysis considers all factors associated with any project to determine its potential profitability, including any costs that go into developing, implementing and executing the project strategy.

The analyst researches the potential financial benefits and subtracts the costs. It is possible to account for intangible costs such as opportunity costs that affect the potential profits as a way to project potential return on investment data.

For example, assume a deli wants to open a second location. It wouldn't be wise to sign a lease and open the doors, expecting both locations to have the same costs and profits. The business owner must look at the costs of obtaining the new location, the build-out and the costs associated with running the operation for the first year with marketing and promotions.

The owner also needs to consider the likely traffic and determine the potential profits. The cost-benefit analysis might show that it would take the entire year to net out from net loss to net profit, or it could take several years. The business owner then decides if opening the second location is worth the time and money.

A cost-effectiveness analysis is used when a cost-benefit analysis is not a viable analysis option because you can't place value on the outcome. This method is most commonly used in health care when evaluating various treatment plans. Providers can assess the cost of a given course of action such as physical therapy versus surgery. However, it is difficult to predict and value outcomes because patient success and obstacles are all unique and different.

For example, a patient goes to the doctor with a knee injury. The doctor evaluates the knee and determines that it is possible to almost completely rehabilitate the knee with physical therapy but knows that surgery would have a higher probability of percent success. If the patient is able to achieve 90 percent recovery with just the physical therapy, this is a more cost-effective solution. However, health care providers and insurance companies are basing information on potential and probable outcomes because neither option guarantees that the patient will respond to treatment or follow through with physical therapy in the prescribed fashion.

When you look at a new program, consider how you should analyze its potential. If you can place a value on all components of the result, you can do a cost-benefit analysis. When you are unable to monetize the result, a cost-effective analysis provides some insights into potential success.

For example, a day care can create a budget to add a building to its program. The costs, while estimated, are hard costs and become a valid resource to determine overall expenses. The day care can factor the new capacity for the building, so it knows how many more children it can serve and generate revenue from.

This is the basis of a cost-benefit analysis. If the example is not a day care but a government-run after-school program designed to keep at-risk youth off the streets, the costs might be easy to estimate, but the outcome for success isn't. This is the basis of a cost-effectiveness analysis. With more than 15 years of small business ownership including owning a State Farm agency in Southern California, Kimberlee understands the needs of business owners first hand.

When not writing, Kimberlee enjoys chasing waterfalls with her son in Hawaii. By Kimberlee Leonard Updated January 25, Related Articles.

Cost-Benefit Analysis

Being able to determine whether a plan makes financial sense is vital for every business leader and entrepreneur. A cost-benefit analysis helps you understand if a new project or campaign makes financial sense in the long run for the company. In contrast, cost-effectiveness analysis compares two outcomes based on relative costs to see which of the two provides the best opportunities for success. The easy way to remember the difference is a benefit is a desired financial reward while effectiveness is the potential success of the program. A cost-benefit analysis considers all factors associated with any project to determine its potential profitability, including any costs that go into developing, implementing and executing the project strategy.


Cost-benefit, cost-effectiveness, and cost-utility analyses are part of a group of methods (CBA)1. Cost-Effectiveness Analysis. (CEA)2. Cost-Utility Analysis (​CUA)3 uicheritagegarden.org​pdf.


How to Distinguish Between Cost Benefit Analysis and Cost Effective Analysis

Cost-benefit analysis is a way to compare the costs and benefits of an intervention, where both are expressed in monetary units. The example provides the results from a CBA of an intervention to reduce trans fats in the food supply. For additional information, please see the examples used in the CDC Introduction to Economic Evaluation in Public Health external icon online training. Decision makers can also use CBA to compare health and non-health interventions because both costs and benefits are expressed in monetary units.

New healthcare technologies must be funded from a constrained healthcare budget, which is generally set each year for a defined jurisdiction and population of current and future patients. Within this setting of scarcity, the introduction of a new technology will displace health-care technologies currently being used by patients in the health service. It is, therefore, important to identify and value both the benefits and costs of new technologies.

How to Distinguish Between Cost Benefit Analysis and Cost Effective Analysis

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How to Distinguish Between Cost Benefit Analysis and Cost Effective Analysis
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