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Cost-Benefit Analysis

Cost-Benefit Analysis. First part of the CBA course: 30.5 – 3.6.2011 Trainer: Mr Neill BOOTH Experience in applications of Cost-Benefit thinking in health care sector (health economics and economic evaluation)

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Cost-Benefit Analysis

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  1. Cost-Benefit Analysis First part of the CBA course: 30.5 – 3.6.2011 Trainer: Mr Neill BOOTH • Experience in applications of Cost-Benefit thinking in health care sector (health economics and economic evaluation) • Applications concerning antihypertensive guidelines, screening for prostate cancer, nutrient supplements, …

  2. Economic evaluation • The terms CBA and economic evaluation cover a range of economic approaches trying to weigh up advantages and disadvantages of alternative interventions • Both methods define and then calculate or estimate the alternative courses of action, costs and consequences to be considered! Economic evaluation is a comparative analysis of alternative courses of action in terms of both their costs and consequences Drummond et al. (1997)

  3. Summary of the first week of the CBA course • Cost-Benefit Analysis (CBA) is a term used to describe numerous methods of analysis • These methods provide estimates of the costs and benefits of programmes according to economic criteria • Often the analysis varies according to the perspective from which the CBA is conducted • There is a need to check that the interpretation(s) of CBA analyses is in line with those analyses

  4. Cost-Benefit Analysis (1) Cost-benefit analysis, to some extent, proposes that we should provide services only if their benefits outweigh their costs: E(B) > E(C) That is, we should cease to provide those services for which the costs outweigh the benefits: E(B) < E(C)

  5. Cost-Benefit Analysis (2) In principle CBA requires that: (i) it is possible to separate one service from another service in a sensible way (ii) there is the possibility of choice between them (iii) it is possible to estimate the outcomes associated with each alternative service (iv) it is possible to value these outcomes (v) it is possible to estimate the cost of providing each service (vi) these costs and benefits can be weighed against each other

  6. Perspectives in Cost Benefit Analysis Analytic viewpoints common in CBAs include: • the perspective of an individual • the perspective of a commercial company • the perspective of a government (or civil servants) • the perspective of academics Different perspectives in CBAs can lead to different answers to: • Is the project worthwhile financially? • Is the project the best option? • Should the project be undertaken at all?

  7. Properties of CBA: • Can be both positive and/or normative analysis • helps in the identification of the decision problem • requires informational inputs and 'measurement' methods • may or may not include elements of the decision-making process • can be used to increase public accountability and decision implementation • examples can be found throughout history…

  8. One of the first advanced civilizations started in this area around 3000 B.C.

  9. Mishan EJ: Cost-Benefit Analysis. London: George Allen & Unwin; 1972. Little IMD, Mirlees JA: Project appraisal and planning for developing countries. New York: Basic books/Heineman; 1974. Sugden R, Williams A: The Principles of Practical Cost-Benefit Analysis. New York: Oxford University Press; 1978. Brent RJ: Cost-benefit analysis and health care evaluations. Cheltenham: Edward Elgar; 2003. Adler M, Posner E: New Foundations of Cost-Benefit Analysis. Cambridge, MA.: Harvard Univeristy Press; 2006. McIntosh E, Clarke PM, Frew E, Louviere JJ (eds.): Applied Methods of Cost-Benefit Analysis in Health Care. Oxford: Oxford University Press; 2010. Forms of ‘CBA’ in alternative textbooks

  10. A park in Kaifeng, China

  11. EmperorZhao Zhen (one of the first recorded users of a CBA, which was undertaken by Chinese civil servants)

  12. RIA … technical efficiency cost-effectiveness ratio 'equitable' efficiency allocative efficiency BSC cost-effective cost-minimisation analysis Cost-Benefit Analysis CAF benefit–cost analysis social efficiency cost-consequences analysis efficiency EFQM Public Value cost-minimisation cost-efficiency

  13. The economic use of terms? • the terminology of economics and CBA is also used in policy and decision-making settings: • 'efficient' • 'cost-effective' • 'saving’ • ’costs exceed benefits’ • ’worthwhile’ • ’value for money’

  14. There are differing views on CBA, but I will propose: • the applicability of CBA should be decided on a case by case basis …therefore, checking CBAs for relevance is essential • money is not always the best ’measuring rod’ …therefore, comparing CBAs can be both useful and 'dangerous’! • "There are really only two practical problems in conducting a CBA - measuring the costs and the measuring the benefits“* …therefore, checking that measures correspond to objectives is advisable * McPake and Normand (2008)

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