What Is Technical Cost-Benefit Analysis (CBA)?

Cost-effectiveness analysis (The discussion of cost-effectiveness that follows is based upon standard microeconomic theory as applied by a number – far too many to credit here -- of researchers in business and health-related fields including Schoenbaum of the Rand Corporation. The infusion of microeconomic approaches to health policy has been encouraged by a number of federal and state agencies over the past two decades, including the National Institute of Mental Health (NIMH), for whom one of the TC-TAT staff served as a Post Doctoral Fellow in health economics. Such fellows have made a commitment to bring health microeconomic thinking into all their work. We thus also wish to credit the NIMH here.) (CEA) still more precisely compares the costs to the effectiveness of a program or intervention to assess whether it is worth doing from the economic perspective. Costs are measured as dollars spent, whereas effectiveness or outcome is measured in other terms such as changes in prevention program participants’ knowledge, beliefs, or behaviors.

There is no single standard for “cost-effective.” Generally, the term is used loosely as a way of saying that something probably costs less, or is more effective, than something else. (Yates, B.T. Measuring and Improving Costs, Cost-Effectiveness, and Cost-Benefit for Substance Abuse Treatment Programs: A Manual, National Institute on Drug Abuse, 1999.) Cost-effectiveness indicators vary show variation over time attributable to many factors, not all of which are affected by the program being analyzed. It is easy to find an apparent difference in the cost-effectiveness of different program components or different programs. It is harder to show that the difference is real – for example, that it occurs reliably over months and for most participants in a prevention program and therefore should be used in program management or funding decisions. (Ibid.) We explore some of these factors below.

One approach of the CEA is to compare the cost of a program to the cost of a problem it seeks to prevent. Let’s look at a hypothetical example, County A’s only prevention program, which is centralized, county-wide, and publicly funded:

COUNTY A’s

Estimated Costs of Domestic Violence (DV) to Community the Year Before This DV Prevention Program Was in Operation Include:

Police Department Services	$180,000/year
Hospital Emergency Room	$360,000/year
Court Time	$430,000/year
Jail Time	$650,000/year
Social Services	$490,000/year
TOTAL THIS LIST OF COSTS OF DV TO COMMUNITY	$2,110,000/year

Average Costs of This Domestic Violence Prevention Program Per Year For First Three Years of Its Operation:

Public Service Announcements	$120,000/year
Public Town-Hall Type Hearings	$180,000/year
Educational Video Production and Distribution	$20,000/year
Other General Program Operation Costs	$230,000/year
TOTAL THIS LIST OF EXPENSES	$550,000/year

Estimated Costs of DV to Community Two Years After This Program Went Into Operation Include:

Police Department Services	$100,000/year
Hospital Emergency Room	$300,000/year
Court Time	$350,000/year
Jail Time	$550,000/year
Social Services	$340,000/year
TOTAL THIS LIST OF COSTS OF DV TO COMMUNITY	$1,640,000/year

Estimated Decrease of $470,000 in cost to community after one year

Estimated Costs of DV to Community Three Years After This Program Went Into Operation Include:

Note: Estimated Costs of DV to Community One Year After This Program Went Into Operation are not included here, as there was no significant change from the year before the program went into operation.

At first glance, we see that the estimated costs of domestic violence to this community have decreased markedly over the three year period since this program went into operation. We also see that the decrease in this cost was greater after three years. There was little, if any, decrease in cost after only one year of the program’s operation. If this program had an effect on the cost of domestic violence to the community, it was a cumulative effect, beginning to register only after this program had been in operation for two years, and showing an increase in effect per year after it had been in operation for three years. Of course, questions can be asked, such as:

• Was the decline in domestic violence rates in this community actually, all or in part, the result of this prevention program?

• What other programs or incidents happened during this time that may have contributed positively or negatively to these statistics?