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A Benefit-Cost Analysis Model for Social Service Agencies

Monograph 26

Originally published: 11/2000

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Current public policy is based on two fundamental principles: equity and efficiency. Equitable programs contribute to balancing the needs and desires of the various groups in society; whereas efficient programs are those that serve to increase the net value of goods and services available to society. Benefit-cost analysis is a tool developed to determine whether a program produces effects that justify the costs incurred to operate the program. The benefit-cost model presented in this monograph requires the reader to:

  1. Understand the concept of an analytical perspective;
  2. Move beyond viewing benefit-cost analysis as a simple ratio of benefits to costs;
  3. Include both monetized and non-monetized benefits in the analysis; and
  4. Consider what is a benefit and what is a cost, and to whom.

Thus, potential users of the proposed model are encouraged to take a broader perspective on the benefits and costs of a program, intervention, or service, rather than reducing the analysis to a simple ratio of benefits to costs. The purpose of benefit-cost analysis is to determine whether a program's benefits outweigh its costs. The primary issue addressed by a benefit-cost analysis is whether the impacts of a program, intervention, or service are big enough to justify the costs needed to produce them. Benefit-cost analysis depends upon the availability of cost estimates, benefits to program participants, and impact statements, which are the statistically significant mean differences of costs and benefits between the programs, interventions, or services being compared.

Benefit-cost analysis requires both an understanding and use of a number of terms. The more important of these include:

The benefit-cost analysis model presented on subsequent pages is based on the work of Conley & Noble (1990), Cimera (1998), Cimera and Rusch (1999), Kerachsky et al (1985), Noble & Conley (1987), Rossi, Freeman & Lipsey (1999), Rusch (1990), Rusch, Conley & McCaughlin (1993), Schalock (1995), Schalock and Thornton (1988), Thornton (1984), and Thornton and Maynard (1989).

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