Cost-effectiveness analysis

The cost -effectiveness analysis ( CEA ) (English cost -effectiveness -analysis = cost effectiveness analysis ) is an instrument for the assessment of cost-effectiveness of projects whose cost can be indeed determined by market prices, their benefits, however, can not be measured in monetary terms (z. B. lives ) or their monetary measurement in society is controversial.

Use and delimitation

The cost -effectiveness analysis should be distinguished from the cost - benefit analysis ( engl. cost-benefit -analysis ), which is mainly used for the evaluation of public sector projects. While in the KWA only the cost criteria will be assessed in monetary terms, and the remaining criteria in monetary values ​​are expressed in terms of cost - benefit analysis. On the input side / cost side, the method of cost-benefit analysis with the approach of opportunity cost equivalent. The benefit ( effect ) is, however, different to that in the CBA in non-monetary units in the analysis. Rather, the benefits are shown in the physical sizes, indicating the achievement of sub-goals operationalisierbarer. The effects are evaluated as in a cost-benefit analysis by a weighted point system. The KWA is particularly suitable for those evaluation and decision situations in which the costs play an important role and therefore should be reported separately.

Method

The KWA first considers the cost criteria separately from the other criteria, the weighting is omitted here. The target returns the remaining criteria are, however, summarized as in the cost-benefit analysis, evaluated and effectiveness. The effectiveness and cost figures are not added, but a ratio is. The result is a cost -effectiveness ratio that expresses what costs one point is connected on the effectiveness scale. The codes allow a clear ranking of the solutions. As decision rule is that those alternative solution is to be preferred, which has the lowest cost -effectiveness ratio. The results can then be displayed graphically. A high efficiency at low cost thereby falls into the positive range, and vice versa.

  • Avoidance of controversial utilitarian concept of utility (especially in evaluation of inalienable rights )
  • Forced to define objectives clearly
  • High transparency and traceability
  • Decision support for monetarily assessable difficult problems
  • Rarely complete list of criteria
  • Result sometimes depends on the group of persons
  • Manipulable result by varying the objective criteria and evaluation
  • Makers must make intuitive assumptions or value judgments.

The KWA also projects that have the protection and preservation of human life or other items inalienable rights to content, for example, can also be assessed on a rational level and to be decided. This method is thus advantageous if monetary valuations of the environment will be rejected by the Company or cause great methodological difficulties. The KWA serves as a decision support for policy makers, by providing the basis for alternative assessment.

Procedure

The task of the KWA is to select a measure to help. For this purpose, initially targets and their units have to be formulated. Alternatives are the means by which objects can be achieved. The costs are calculated in the form of opportunity costs, since no longer available for other purposes by the choice of a particular alternative specific resources. The focus of the KWA is the model. The means of presentation can range from mathematical equations to a verbal description of the location. The task of the model is that both the costs caused by each alternative, and the extent to which each alternative to achieve the objectives contributes to predict. With the help of a criterion alternatives are classified in order to meet the most desirable choice can. It supplies the scale with the aid of which costs can be weighed against its effectiveness. The implementation of the KWA is done in eight steps:

First objective analysis: The goals to be achieved must be complete, consistent and operationalized. If the objective analysis is not done carefully, this will result in erroneous results.

Second collection of constraints: The constraints are provisos without which the objectives can not be met.

Third alternative determination: Here the action alternatives are designed. You must be able to fulfill the objectives and be consistent with the constraints.

4 Cost Analysis: Pagatorische costs ( valued at market prices of goods and services consumption to achieve a measure), and opportunity costs attributable to each measure.

5 -effectiveness analysis: the output side must be relevant and measurable. There follow two steps:

  • Development of appropriate output measures for each goal
  • Measurement of the different partial effectiveness on a scale efficacy: cardinal scale ( degree of efficacy differences ), ordinal scale ( presentation of comparative differences: higher - equal - less ) or nominal scale (only classifications: yes - no)

6 Temporal homogenization: The timing differences in investment costs and efficiencies are obtained by discounting at a common point in time in order to make them comparable.

7 Consideration of risk and uncertainty: Due to imperfect information may have costs and efficiencies depending on the situation different results. It is therefore to be distinguished:

  • Decision on objective risk: statistical probabilities can be assigned (eg, a three in a dice game )
  • Decision on subjective risk: only an assignment of subjective probabilities is possible (eg floods )
  • Neither objective nor be associated with subjective probabilities: under uncertainty decision. Often in this case, a sensitivity analysis is performed.

8 delivery of project recommendations: At the end of the KWA a cost -effectiveness matrix is created which takes into account the discounted and matched to risk and uncertainty values ​​.

Cost–benefit analysis Cost–utility analysis
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