each of the following situations, determine which types of analysis (CE, BC, CU, cost, or CF) are most appropriate:A school district wishes to increase the employability of students who terminate their formal education at high school graduation. Accordingly, it seeks an answer to the question of whether it should expand vocational educational offerings for students who are presently in the general education program.The school board wishes to accommodate budget cuts by reducing some of the elective course offerings in the high school. A reduction in the budget of $60,000 has been targeted.A university must decide if it is desirable to establish a new online degree program.The state legislature wishes to consider the introduction of tablet computers into every high school in the state. However, it is not clear that the school budget is adequate.A school district is seeking approaches to improve students’ writing skills. Proposed solutions include (a) having smaller class sizes with more stress on writing and more writing assignments, (b) hiring college students with excellent writing skills to assist teachers in grading writing assignments, and (c) developing special writing courses for students in addition to their regular English classes.A community college must reduce its course offerings in the next academic year to accommodate a dismal budgetary situation. The college offers more than 1,400 courses in some 38 departments and programs. Enough courses must be cut to achieve savings of $500,000.Both computer-assisted instruction and smaller class sizes are being discussed as ways to improve the mathematics competencies of youngsters in a particular school district. The administration wishes to ascertain which alternative is preferable.3 Identify a potential problem associated with each of the following five situations. Describe at least two alternatives that might be considered for addressing each problem. Suggest the hypothetical primary and secondary audiences for the evaluations that would follow in each of the five cases. What types of analysis would seem appropriate for each?Student test scores at the high school level have been declining for the past 5 years.The physics department of a college is having little success in placing its graduates.A school district faces an anticipated budget deficit for the next year of $200,000.A university wishes to consider replacing its computer servers and data management system.Local residents are unhappy that there is no college in their town.
3 Cost Concepts
Objectives
1 Specify the concept of costs in terms of opportunity costs.
2 Define cost terms for educational interventions.
3 Relate costs to the theory of change.
4 Distinguish between cost information and budgetary data.
5 Provide motivation for performing cost analysis.
To most of us, the notion of cost is something that is both as obvious as the price of a good or service and as mysterious as the columns of data on an accounting statement or budget. In this chapter, we will introduce a concept of costs that will differ somewhat from both of these, and we will discuss in detail how an education analyst might think about costs. Any social intervention or program has both an outcome and a cost. The outcome refers to the result of the intervention. Outcomes of educational interventions include such common indicators as higher student achievement, fewer dropouts, improved attitudes, greater employability, and so on. But why are all interventions associated with costs, and what is meant by costs?
For an economist, understanding the costs of an educational program is a way of understanding how the program works in relation to its theory of change (Hummel-Rossi & Ashdown, 2002). For example, if we know that one of the costs of a new instructional program is the wages paid to a highly trained teacher, we would expect the effects of the program to be mediated through the teacher’s competence. As an even easier example, if a new curriculum intervention requires no extra teacher training and no new facilities but simply the substitution of the old textbook by a new textbook, the extra cost will be very low; consequently, we might not expect a very significant effect on academic outcomes (and little effect on teacher performance and probably zero effect on student behaviors). Put simply, the analyst needs to think about costs in conjunction with program implementation. Educational interventions can be implemented in various ways—both by design and inadvertently—and so the resources required for the intervention will vary accordingly.
In this chapter, we describe the key concept that economists use to think about costs—the idea of opportunity cost. We then define cost terms that apply to educational interventions and describe the components of a cost estimate. As a final contribution, we make an important distinction between cost information and budgetary data, emphasizing that budgets do not accurately represent costs.
A critical aspect of assessing costs is the correct use of the terminology of economic evaluation. When terms are used loosely, it is very difficult to explain and interpret costs. Thus, this chapter focuses on defining and clarifying terms. This discussion will provide a foundation upon which to design and apply the ingredients method as described throughout the remaining chapters of the book.
3.1. The Concept of Costs
Costs refer to the value of all the resources used to implement the program in question. Every intervention uses resources that could be utilized for other valued alternatives. For example, a program for raising student achievement will require personnel, facilities, and materials that can be applied to other educational and noneducational endeavors. If these resources are used in one way, they cannot be used in some other way that may also provide useful outcomes. The human time and energy as well as the buildings, materials, and other resources used in one endeavor have other valuable uses. By devoting them to a particular activity, we are sacrificing the gains that could be obtained from using them for some other purpose.
If we assume that a specific intervention will have an effect that is found in a good effectiveness study, we want to know what it costs to replicate that intervention to compare its effectiveness. The cost is represented by all of the resources or ingredients required to replicate the program, no matter how they were financed or provided. Virtually all resources have a cost, even if they were provided in kind.
Accordingly, the “cost” of pursuing the intervention is what we must give up by not using these resources in some other way. Technically, then, the cost of a specific intervention will be defined as the value of all the resources that it utilizes had they been assigned to their most valuable alternative use. In this sense, all costs represent the sacrifice of an opportunity that has been forgone. It is this notion of opportunity cost that lies at the base of cost analysis in evaluation. By using resources in one way, we are giving up the ability to use them in another way, so a cost has been incurred.
Although this may appear to be a peculiar way to view costs, it is probably more familiar to each of us than it appears at first glance. It is usually true that when we refer to costs, we refer to the expenditure that we must make to purchase a particular good or service, as reflected in the statement, “The cost of college was $5,000.” Here, the statement refers to expenditure on fees and tuition the college charges students who enroll. In cases in which the only cost is the expenditure of funds that could have been used for other goods and services, the sacrifice or cost can be stated in terms of expenditure. However, in daily usage, we also make statements such as these: “It would cost me a full year without working to attend college,” or “The time cost of being in class is too high.”
In each of these cases, a loss was incurred, which is viewed as the value of opportunities that were sacrificed. Thus, the cost of a particular activity is viewed as its “opportunity cost” and should include all lost options. Of course, this does not mean that we can always easily place a dollar value on that cost. In the case of losing a year of work, one can probably say that the sacrifice or opportunity cost was equal to what could have been
