Institutional Learning and Change Initiative

The following text is drawn from World Bank (2004).

What are they?
Cost-benefit and cost-effectiveness analysis are tools for assessing whether or not the
costs of an activity can be justified by the outcomes and impacts. Cost-benefit analysis
measures both inputs and outputs in monetary terms. Cost-effectiveness analysis estimates
inputs in monetary terms and outcomes in non-monetary quantitative terms
(such as improvements in student reading scores).

What can we use them for?

• Informing decisions about the most efficient allocation of resources.
• Identifying projects that offer the highest rate of return on investment.

Advantages:

• Good quality approach for estimating the efficiency of programs and projects.
• Makes explicit the economic assumptions that might otherwise remain implicit or
  overlooked at the design stage.
• Useful for convincing policy-makers and funders that the benefits justify the activity.

Disavantages:

• Fairly technical, requiring adequate financial and human resources available.
• Requisite data for cost-benefit calculations may not be available, and projected
  results may be highly dependent on assumptions made.
• Results must be interpreted with care, particularly in projects where benefits are
  difficult to quantify.

Cost:
Varies greatly, depending on scope of analysis and availability of data.

Skills required:
The procedures used in both types of analyses are often highly technical. They require
skill in economic analysis and availability of relevant economic and cost data.

Time required:
Varies greatly depending on scope of analysis and availability of data.

Source: World Bank (2004). Monitoring and Evaluation: Some Tools, Methods & Approaches. Washington DC, The World Bank. http://lnweb90.worldbank.org/oed/oeddoclib.nsf/b57456d58aba40e585256ad400736404/a5efbb5d776b67d285256b1e0079c9a3/$FILE/MandE_tools_methods_approaches.pdf

For more information:

• Belli, P., et al. (2000). Economic Analysis of Investment Operations: Analytical Tools and Practical Applications. The World Bank, Washington, D.C.
• http://kms.worldbank.org/edunet/TEN_DIMENSIONS/DIM_4/cb_ce.htm