What is the Difference Between Cost Benefit and Cost Effectiveness?

Cost-benefit analysis (CBA) and cost-effectiveness analysis (CEA) are both economic evaluation methods used to assess the efficiency of programs, policies, or projects. However, they differ in their approach and the questions they aim to answer.

Cost-Benefit Analysis (CBA):

• Assigns monetary values to both the benefits and the costs of a program or policy.
• Asks whether the economic benefits outweigh the economic costs.
• Seeks to quantify all costs and benefits in monetary terms.
• Compares the total expected benefits with the total expected costs.

Cost-Effectiveness Analysis (CEA):

• Assigns monetary values only to the costs, which is usually easier than assigning monetary values to the benefits.
• Focuses on the question of how much it costs to achieve a certain amount of benefit.
• Compares the relative costs of two or more programs or program alternatives in terms of reaching a common outcome.
• Assesses the incremental effects in non-monetary terms.

In summary, CBA asks whether the economic benefits of a program or policy outweigh its economic costs, while CEA focuses on how much it costs to achieve a certain amount of benefit. CBA assigns monetary values to both benefits and costs, whereas CEA assigns monetary values only to costs and expresses the benefits in non-monetary terms.

Comparative Table: Cost Benefit vs Cost Effectiveness

The main differences between cost-benefit analysis and cost-effectiveness analysis are summarized in the following table:

CBA focuses on comparing the total costs and benefits of a project or decision, with benefits being measured in monetary terms. The primary goal is to determine whether the benefits outweigh the costs. On the other hand, CEA aims to identify the most cost-effective means of achieving a specific outcome, focusing on non-monetary outcomes such as lives saved, decreased morbidity, or mortality.