What Is Cost-Effectiveness Analysis ?

Cost-effectiveness analysis

is an economic evaluation

tool that can be used to

compare two or more

programs or interventions.

“It seems like a good program, but is

it cost-effective?” is a question that is

often asked about education pro-

grams. This article is designed to pro-

vide you with background informa-

tion on cost-effectiveness analysis that

may be helpful when responding to

this question in relation to Reading

Recovery or other program choices.

Policy makers and administrators are

concerned about being fiscally respon-

sible for how dollars are spent on edu-

cation programs and so they question

costs; teachers are concerned about

teaching programs that really have an

impact on children’s academic per-

formance, and so they question effec-

tiveness. Bringing these two view-

points together in resource allocation

decision making can be difficult.

Some programs are highly effective,

but their costs appear to make them

too expensive. At the same time, eval-

uations of a program’s effectiveness

often focus on a narrow range of out-

comes. Access to a full picture of a

program’s costs relative to the total

scope of its outcomes would provide

a stronger basis for decision making.

In this environment an evaluation

tool like cost-effectiveness analysis

would appear to have much to recom-

mend it as an aid to decision making.

Surprisingly however, the story of

cost-effectiveness analysis of education

programs in the United States is less

than gripping. The following discus-

sion clarifies what cost-effectiveness

analysis involves, describes how cost-

effectiveness analysis has been applied

in other public service sectors, exam-

ines some of the constraints to using

this evaluation tool in education, and

considers how we can move forward

in the application of cost-effectiveness

analysis in resource allocation decision

making.

What is cost-effectiveness

analysis?

Cost-effectiveness analysis is an eco-

nomic evaluation tool that can be

used to compare two or more pro-

grams or interventions. The product

of this kind of analysis is cost-

effectiveness ratios that represent the

trade-off between each program’s costs

(measured in dollars) and each pro-

gram’s outcomes (measured in appro-

priate units). The ratio will show for

every dollar spent how much student

achievement will be gained or reten-

tions prevented, depending on the

goals of the program. Levin (1983)

and Levin and McEwan (2001) pro-

vide excellent examples of cost-effec-

tiveness ratios and how to interpret

them. It should be noted that pro-

grams can only be compared if they

have similar goals and use outcome

measures that can be compared.

How widespread is the use of

cost-effectiveness analysis in

education?

Although there is considerable talk

among policy makers about the need

for cost-effectiveness analyses in edu-

cation, there is only limited evidence

that it is applied. In conducting an

extensive review of the education

research literature in the United

States, we found a small number of

cost-effectiveness studies that met

appropriate evaluation standards

(Hummel-Rossi & Ashdown, 2002).

None of these studies addressed the

cost-effectiveness of early literacy

interventions.

What about other public

service sectors?

The health and medical fields have

made greater strides in the application

of cost-effectiveness analysis as a tool

to aid decision making than has edu-

cation. For example, in 1993 the U.S.

Public Health Service appointed a

panel of 13 medical experts in cost-

effectiveness to examine cost-effective-

ness methodology as one tool that

could contribute to decision making

concerning improvements in national

health. The panel made a series of

important recommendations in 1996

that were directed at establishing

standards for the conduct of cost-

effectiveness analysis. Furthermore

there is evidence that in the health

and medical fields, cost-effectiveness