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Using Cost Analysis to Guide Resource Decisions

SRI International
   Jaunelle Pratt-Williams, Project Lead
   Jessica Mislevy, Improving Postsecondary Transitions Partnership Lead

The list of decisions that state and local education leaders make is endless. When deciding about adopting new education programs, implementing instructional strategies, or even continuing with a curricular approach, information on resources (e.g., staff, time, materials)—including their costs—can be helpful. Cost analysis provides a variety of data and information to help ensure adequate resources are available to initiate and sustain initiatives.

There are four main types of cost analysis: cost-feasibility, cost-effectiveness, cost-benefit (also referred to as benefit-cost), and cost-utility.1 Each type of analysis uses the same initial approach to assess resource costs but answers different questions.

Cost Analysis Type Cost Questions This Type of Analysis Answers
Cost-feasibility Are resources adequate to implement a new policy or program or scale up an existing one?
Cost-effectiveness Which of several policies or programs produce the desired outcome for the lowest cost? or Which maximizes the desired outcome for a given cost?
Cost-benefit Are the economic benefits of a program greater than the costs, particularly over time?
Cost-utility Do stakeholders like parents or students value the usefulness of a policy or program compared with the costs?

The foundation of all the analyses is calculating the cost of resources, personnel, facilities, materials, and any other items necessary for implementation. For most of REL Appalachia's cost analyses, we use Levin's ingredients method to calculate costs, which requires a detailed list of all the resources needed to initiate and carry out a program or intervention.

Vector art for cooking ingredients
A good analogy for the ingredients method is baking brownies.

Think about everything you would need to make brownies. Initially, you might list only the flour, cocoa, sugar, eggs, or other ingredients that go into the actual brownies, but you could not complete the recipe without the physical space of a kitchen, an oven, or baking tools like a bowl or a mixing device like whisk. You would also need to consider the time of the person baking the brownies as a key ingredient. This method ensures that, if another person wanted to recreate the brownies, they would have a full and accurate understanding of the time and materials needed since you do not know if the person has an item or the time for the recipe.

Let's use an afterschool computer programing initiative at an elementary school as an example of applying the ingredients method to understanding program costs in a school or district. Using the ingredients method, you would account for the personnel, facilities, materials, and any other resources needed to get the initiative up and running, including volunteers or items that are not a new purchase. If students from a nearby high school are volunteering as tutors, you would still account for the cost of their time to get a true understanding of the value of that resource. You also would account for the cost of any physical space like the classroom or cafeteria, even if the building is already paid for; the same goes for computers that already exist in the school. It can help to think about the ingredients method as the resource recipe you would give someone who wanted to implement the program or initiative. That person needs to know all the resources required and the potential cost of each one to ensure implementation is feasible.

The initial assessment of resources using the ingredients method is a critical first step. What comes next varies by the type of analysis that is most appropriate for your needs and questions. For example, if you are conducting a cost-feasibility analysis your next step is to collect information on available funding and resources to explore if the program is feasible based on required ingredients. Cost-effectiveness, cost-benefit, and cost-utility analyses also have their own set of specific next steps. Once completed, results of cost analyses can provide administrators and other education leaders with a wide range of information and tools. For example, cost analyses can:

  • Provide a better understanding of current resources and how they are used (cost analysis ingredients method).
  • Identify resource needs for intended policy or program implementation (cost-feasibility analysis).
  • Support decisionmakers in efficiently targeting resources to achieve a desired outcome (cost-effectiveness analysis).
  • Enable parents, teachers, students, or other stakeholders to share what they value in investments (cost-utility analysis).
  • Identify resources that have long-term benefits (cost-benefit analysis).

Because each type of analysis has a different end goal and approach after the ingredients method, it is important to identify the questions and outcomes that are important to you before you start.

Cost Analysis Resources

Interested in learning more about cost analysis? Below are additional resources on the important role of cost analysis in education decisionmaking and resources to support cost analysis. Stayed tuned for future blog posts about how REL AP is partnering with state education agencies to use cost analyses to support decisionmaking.

  • The critical importance of costs for education. A resource to learn more about cost analyses and their important role in education decisions. With support from the REL, Hollands and Levin provide a short but detailed overview of cost analyses.
  • Center for Benefit-Cost Studies of Education. CBCSE is a research center at Teachers College, Columbia University that conducts research on the productivity of education programs. Its researchers conduct cost analyses and provide many resources for those interested in conducting their own analyses.
  • CBCSE Cost Tool Kit. CBCSE's Costout tool can facilitate the collection of cost data and the execution of cost and cost-effectiveness analyses. It is free! It was developed under a grant from the U.S. Department of Education, Institute of Education Sciences (Award #R305U130001) with the goal of helping education practitioners, researchers, and policymakers conduct cost analyses and cost-effectiveness analyses of education interventions to facilitate resource allocation decisions.

Footnotes:

1 Levin, H. M., McEwan, P. J., Belfield, C. R., Bowden, A. B., & Shand, R. D. (2017). Economic evaluation in education: Cost-effectiveness and benefit-cost analysis (3rd ed.). Thousand Oaks, CA: Sage.