Cost-Benefit Analysis

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Public Finance Proposal Part I: Cost-Benefit Analysis KB Washington Public Finance August 5, 2013

Cost-Benefit Analysis Cost benefit analysis

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The foundation of cost-benefit analysis is to determine the cost effectiveness of social programing by comparing economic and social costs. The analytical comparison should lead to the short and potentially long-term benefits of a program. This process should help policymakers determine whether a prospective program is worth funding. “Cost-benefit analysis is an analytical technique that compares the economic and social costs and benefits of proposed programs or policy actions. All losses and gains experienced by society are included and measured in dollar terms. The net benefits created by an action are calculated by subtracting the losses incurred by some sectors of society from the gains that accrue to others. Alternative actions are compared to determine which ones yield the greatest net benefits, or ratio of benefits to costs” (Investopedia, 2013, paraphrased). After school matters “After School Matters® is a non-profit organization, started by Maggie Daley, the wife of Mayor Daley in 1991, that offers Chicago high school teens innovative out-ofschool activities through Science, Sports, Tech, Words and the nationally recognized Gallery programs” (After school matters, 2011). The program has become a nationally recognized model for after school programming for high school students. The program also understands the importance of collaboration and has numerous partners such as Chicago Public Schools, Chicago Park District, Chicago Public Library, and many community organizations throughout the city of Chicago (After school matters, 2011).

Cost-Benefit Analysis The program’s revenue and expenses for 2012 were:
Unrestricted Support and revenue
Government grants and support In-kind contributions Special events: Annual Gala City-wide event Contributions and foundation grants Interest income Gallery37 retail sales Other income Net assets released from restrictions

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2012
13,083,636 4,982,408

2,781,776 73,341 833,513 30 101,292 170,694 1,746,524 23,773,214

Expenses
Program services General and administrative Special events 18,478,329 2,797,368 918,594 22,194,291 1,578,923

Increase in unrestricted net assets

Temporarily restricted
Contributions and foundation grants Net assets released from restrictions Decrease in temporarily restricted net assets Increase in net assets Net assets: Beginning of year End of year 522,314 (1,746,524) (1,224,210) 354,713

5,421,213 5,775,926

(After school matters Annual Report, 2011)

Expenditures and budgeting procedures Expenditure or budget controls are set in place to ensure the agency uses funds as appropriated. After-school programming focuses on cost-benefits that can help build political support for their cause. In addition, the program must focus on accurate measurement and additional costs that are related to the program including budgeting resources. According to Lynn Karoly (2004), Senior Economist at RAND Corporation, a nonprofit policy research institution, “Measuring benefits is challenging because of the wide range of outcomes that might be considered” (p. 3).

Cost-Benefit Analysis Economic theory

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Ultimately, measuring costs and benefits for after school programming may not be possible. According to the Kaufmann research, several major reasons include:  Converting the outcomes to dollar benefits is challenging, especially emotional and cognitive development.  Long observation periods can cause data to be lacking in substantial content.  As programs change including staffing differences and economic fluctuations, the costs and benefits of the program can change based on these variables. After-school programs, in particular, may or may not see results for ten plus years. However, the need for immediate funding is always pending and there is the issue that sometimes those who bear the costs are not always the ones that gain most of the benefits. Karoly of Kaufmann Foundation (2004) provides an excellent analogy, “Sometimes a program that benefits a certain group of children, may or may not be paid for by taxpayers who directly benefit from being taxed for the program” (p. 5). Conclusion When considering cost analysis, an analyst may look at cost-savings analysis which determines the cost of the program comparative to the actual dollar value of the outcome. Cost-effectiveness looks at the outcome of the dollar invested. By determining the actual result of the money invested one can see the program’s effectiveness. However effectiveness is not always tied to cost-benefit. For after school programming cost-benefit analysis is a tool that can provide guidance for funding programs.

Cost-Benefit Analysis References After school matters (2011). About Us and Reference Material. Retrieved from http://www.afterschoolmatters.org/about and http://www.afterschoolmatters.org/about/reference-materials Investopedia. (2013). Cost-Benefit Analysis. Retreived from http://www.investopedia.com/terms/c/cost-benefitanalysis.asp

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Karoly, Lynn. (2004). Costs and Benefits of After-School Programs report. Ewing Marion Kaufmann Foundation: Kansas City