Scribd
Upload
392 views12 pages

Lesson 12 Minimizing and Maximizing Business Impact Cost Effective Analysis

CEA compares the costs and outcomes of different options when benefits cannot be monetized. It measures costs in dollars and effectiveness in physical units. Options are ranked by their cost-effectiveness (CE) ratio, with the lowest ratio being most cost-effective, or by their effectiveness-cost (EC) ratio, with the highest ratio being most cost-effective. CEA is useful for ranking social or environmental projects and health treatments by their costs relative to their effects.

Uploaded by

Kim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
392 views12 pages

Lesson 12 Minimizing and Maximizing Business Impact Cost Effective Analysis

CEA compares the costs and outcomes of different options when benefits cannot be monetized. It measures costs in dollars and effectiveness in physical units. Options are ranked by their cost-effectiveness (CE) ratio, with the lowest ratio being most cost-effective, or by their effectiveness-cost (EC) ratio, with the highest ratio being most cost-effective. CEA is useful for ranking social or environmental projects and health treatments by their costs relative to their effects.

Uploaded by

Kim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 12

Minimizing and Maximizing

Business’s Impact:
Cost-effective Analysis
After going through this module, you
are expected to:
1. Define cost-effective analysis; and
2. Identify the importance of cost-
effective analysis.
Word Hunt
Cost-effective Analysis

Cost-effectiveness analysis (CEA) is an alternative to cost-benefit


analysis. The technique compares the relative costs to the outcomes
(effects) of two or more courses of action.
Most useful when analysts face constraints that prevent them from
conducting a cost-benefit analysis. The most common constraint is
the inability of analysts to monetize benefits.

CEA measures costs in a common monetary value and the


effectiveness of an option in terms of physical units.
CE ratio = C1/E1 • Represents the cost per unit of
effectiveness
where: C1 = the cost of • Projects can be rank ordered by the CE ratio
option 1 (in monetary from lowest to highest. The most cost-
value) effective project has the lowest CE ratio.
E1 = the effectiveness
of option 1 (in physical
units).
 Represents the effectiveness per unit of
cost
EC ratio = E1/C1  Projects should be ranked from highest to
lowest EC ratios.
The outputs to be ranked by cost-effectiveness
analysis will often be social or environmental.
For example, work in health economics
looking at the cost effectiveness of different
treatments.
Application of CEA

You might also like