Economic Analysis

To undertake an Economic Analysis, we work with organisations using a Costing methodology, which captures three main types of cost;

  • Direct project expenditure
  • Estimates of the value of public resources used by the intervention
  • Estimates of the costs of services or facilities used by the intervention that are free or discounted

These cost data can them form the basis for a variety of economic analyses including Social Return on Investment (SROI) and long-term models of economic return. Two methodologies we use regularly are Cost Benefit Analysis (CBA) or a Break-even Analysis.

Cost Benefit Analysis – is an assessment of the benefit-cost ratio associated with any intervention requires a clear understanding of the intervention being examined, in particular how it achieves a particular outcome. To calculate the cost benefit ratio the following three pieces of data are then required;

  • The extra outcome achieved by the intervention compared with the alternative intervention (the incremental effect, which will come from the impact evaluation).
  • The economic value of these outcomes, which will be derived from existing, published studies; and
  • The extra cost of implementing the intervention compared with an alternative intervention (the incremental cost).

Break-even analysis – In the event that the impact evaluation is inconclusive and we are unable to identify an incremental effect for the intervention we could use a break even analysis. This demonstrates how the costs saved as a result of the intervention vary depending upon the impact the intervention has. This can be used to determine the minimum effect required for the costs saved as a result of the intervention to outweigh the cost of the intervention. We can then use existing published evidence (from a similar project) to assess whether the project has the potential to achieve the level of impact required for it to ‘break-even’.

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