COST BENEFIT ANALYSIS

PRESENTED BY: JYOTI KUMARI

,KADAMBINI SHARMA, KAJAL
DEVI,KANIKA, KRITIKA VERMA,
KUNJAM, MAMTA KUMARI, MANSI
• COST BENEFIT ANALYSIS

 MEANING
 Cost-benefit analysis is a practical way of assessing the desirability of projects, where
it is important to take a long view ( looking at the repercussion in the future as well as
in the near future and a wide view in the sense of allowing side effects of many
decisions) i.e it implies the enumeration and evaluation of the relevant cost and
benefits. _Prest and Terkey
COST BENEFIT ANALYSIS

 Continue......
 Cost benefit analysis (CBA) is an economic evaluation technique that measures all
the positive (beneficial) and negative (costly) consequences of an intervention or
program in monetary terms.
 CBA is a practical approach of appraising the desirability of an intervention
involving public expenditure in terms of net social gain to society.
 CBA is the use of analytical techniques involving a monetary assessment to identify
the total costs and benefits of a specific intervention.
COST BENEFIT ANALYSIS

 Cont.....
 The CBA is the implicit or explicit assessment of the benefits and costs associated with a
particular choice. Benefits are the monetary value of desirable consequences of
economic policies and decisions.
 These are generally classified as Direct , Indirect, Intangible
1. Direct benefits – direct benefits are the values of desirable health and non-health
outcomes directly related to the implementation of proposed interventions that can be
estimated by using market based data .
2. Indirect benefits – Indirect benefits are the averted costs and savings resulting from the
interventions but not related directly to them.
3. Intangible benefits - It include the values of positive positive outcome (e.g – reduction in
health risk pain and suffering ) , which cannot be estimated from market data .
COST BENEFIT ANALYSIS

 Cont...
 Benefits should not be more than the cost incurred or net benefit i.e if the cost is
subtracted from the benefits should be more than zero .
 Benefits (B) > Costs (C) or Net Benefits(NB) = B – C > 0
 CBA try to value the outcomes in monetary terms , so as to make them
commensurate with the costs and results in net benefit or cost – benefits ratio.
Cost benefit analysis

 Historical background
 The idea of cost benefit analysis originated with
Jules Dupuit, a French engineer has been published
in 1848 in a paper on ‘the measurement of utiliyof
public works’.
 Alfred Marshall,a British economist formulated some
of the formal concepts that are at the foundation
of CBA
Cost benefit analysis

 Practical development of economic analysis of social

benefits and cost s came as a result of the impetus was
provided by the Federal Navigation Act of 1936, which
required the US. Army corps of engineers to evaluate all
Benet and cost of water resources project ‘ to
wholesome they accuse.’
 The fist federally mandated guidelines for CBA of public
project were issued in 1952 by Bureau of the Budget
Cost benefit analysis

 IMPORTANTANCE OF CBA
 Cost benefit analysis used for determining priorities
among various alternative programs or interventions.
 It provides an estimate of the potential value of
undertaking a course of a.ction, I e. Instituting a new
program or intervention or revising the old one
 It can also be used to compare health related
 interventions to those in other economic sectors.
Cost benefit analysis

 It enables policy maker to detect whether the value of

its positive consequences exceeds the value of societal
resources required to implement the program.
 It estimay and totals up the equivalent money value of
the benefits and cost of projects to establish whether
they are worthwhile.
 It is a powerful and relatively easy tool for deciding
whether to make change or not.
FEATURES OF COST BENEFIT ANALYSIS
PURPOSES OF COST BENEFIT ANALYSIS

 To asses the economic efficiency : cost benefit analysis assesses economic

efficiency of health care interventions in terms of maximum output from
the given levels of inputs. The outcome is measured as persons screened,
cases prevented,or cases treated.
 To decide whether to implement a specific program: in order to improve
the health of the population, it is through CBA,decision is taken whether to
implement a particular program from the alternative choices.
 To select among competing /alternative options: CBA can help policy
makers to choose the best alternative among programs that are equally
successful in achieving a desired health outcomes or with different health
outcomes.
Principles of Cost Benefit Analysis

 There must be a common unit of measurement . All the benefits and costs of the
program / project must be measured in terms of their equivalent money value.
 The CBA valuations should represent consumers or producers valuation.
 The valuation of benefits and cost should reflect preferences reveled by choices.
 The benefits are usually measured by market choices .
 The marginal benefit should be equal to the market price.
 The gross benefits of an increase in consumption are an areas under the demand
curve.
 Some measurements of benefit require the valuation of human life . These values
can be used to estimate personal costs in terms of increased risk or of reduced risk.
 The alternatives must be explicitly specified and considered in the
evaluation.
 The impacts of the programmes must be defined for particular area/s.
 The double counting of benefits or costs should be avoided .
 The discounted present value of benefits should exceed the discounted
present value of costs.
 Compare alternative programmes in terms of the expected benefits and
cost ratio of each programme to determine which should receive priority
for funding .
ADVANTAGES OF COST
BENEFIT ANALYSIS
COST BENEFIT ANALYSIS

 It helps to allocate scarce resources to programs that

maximize societal economic benefits.
 It studies the full economic impact of all potential outcomes
of an intervention.
 It makes possible to compare different programs having
different health outcomes, or health programs two non
health programs.
 It allows analysts to examine its distributional aspects ; who
will receive these benefits and who will bear the costs.
DRAWBACKS OF COST
BENEFIT ANALYSIS
COST BENEFIT ANALYSIS

 It measures costs and outcomes in monetary terms and not

disease specific.

 There is difficulty in assigning monetary values to all pertinent

outcome including changes in the length or quality of human life.

 The result of CBA are only as good as the assumptions and

valuations on which they are based.
Approaches
Approaches of cost benefit analysis

 There are two types of approaches : Ratio approach and Net benefit approach

 Ratio analysis: It indicates the amount of benefit/outcomes that can be realized

per Unit expenditure on a technology verses a comparator. A technology is cost
beneficial to comparator if the ratio of the change in cost to the change in benefit
is less than one.

CB ratio= Rs cost intervention - cost comparator / Rs benefit intervention - benefit comparator

 Cont.

 Net benefit approach : It indicates the absolutely amount of money saved

or lost due to a use of technology verses Enabling comparator. A
technology is a cost benefit verses a comparator if the ratio of change in
benefits exceeds the net change in cost.

Cost benefit Net= ( Rs cost intervention – cost comparator ) – ( Rs benefit intervention –

benefit comparator )
PROCEDURAL STEPS IN
CBA
Procedural steps in Cost-Benefit
Analysis

 Farming a CBA Involves six steps

 1Defining the problem
1. The study problem must be identified at the outset of any analysis. A clearly
stated problem defines the objective of the study. At this initial stage of the
study one must consider: what questions need to be answered , and which
aspect of the problem need to be explained.
Procedural steps in cost- Benefit
Analysis

 2. Identifying Interventions
 The study problem itself or the decision made by policy makers specify the
intervention to be analyzed.
 These questions highlight the various aspects that will help in identifying the
intervention : what is the nature of each intervention? What is the
technology used for the intervention? What are the target population,and
the personnel for delivering the intervention.
Procedural Steps in Cost- Benefit
Analysis

3.Defining the Audience

Understanding what information the audience need and how the study results will
be used the major factors that must be considered at this stage
 These questions will help to identify the audience: who will be using the results of
the analysis? What information does the audience need?
Procedural steps in cost-Benefit
Analysis

 4. Defining the perspective

 Usually cost benefit analysis are conducted from a societal perspective
 We should include only the benefits and cost relevy to that speo perspective.
 The CBA benefits be conducted from any of these perspective_
. Depending on the auy: patients perspective, provider perspective , prayer
perspective and societal perspective.
Procedural steps in cost –Benefit
Analysis

 5. Defining the Time Freame and Analytic Horizon

 The time frame and the analytic horizon are largely determined by the
treatment or intervention under consideration. The analytic horizon is usually
longer than the time frame.
Procedural steps in cost-Benefit
Analysis

 6. Defining the Discount Rate

 The discount rate is one parameter that can be varied in a sensitivity analysis to
test it’s impact on the results of analysis and to make the results of studies based
on different discount rate comparable..
IDENTIFYING INTERVENTION OUTCOME

 The broadly classified as: Health outcome ,non-health outcome s,or intangible
outcomes ,based on the nature of the impact they represent .
 1.HEALTH OUTCOME-The majority of health related outcome included in cost
benefit analyses fall into one of the categories:Decrease mortality,decrease
mobidity,increase life expectancy,reduced disability,improved quality of
life,and averted medical costs.
 2.NON HEALTH OUTCOME-The non health outcomes that can be attributed to
the impact of a public health program usually include:reduction in timr lost
from work ,and changes in property values attributable to:provision of health
services in the area,improved access to health services in thr area and other
causes.
 3. INTENGIABLE OUTCOME-Intengiable health outcomes usually include the
rediction in health risks ,pain and suffering in implementing an intervention or
health program.