converge · Decision Making, Strategy · 60–180 min · 1-10 people · low energy

Cost-Effectiveness Analysis (CEA)

Cost-Effectiveness Analysis (CEA) is a method for comparing the relative costs and outcomes of different options when the benefits are difficult to monetize. It helps decision-makers choose the most efficient option by calculating the cost per unit of effectiveness.

When to use Cost-Effectiveness Analysis (CEA)

Use CEA when you need to compare different courses of action but cannot easily assign a monetary value to the benefits. This is particularly useful in healthcare, social programs, and environmental projects where outcomes are measured in physical units (e.g., lives saved, reduced emissions).

What it solves

Difficulty comparing options with non-monetary benefits; limited resources requiring efficient allocation.

How to run Cost-Effectiveness Analysis (CEA), step by step

  1. Define the options to be compared. (15 min)
  2. Identify and quantify all relevant costs associated with each option in monetary terms. (30 min)
  3. Identify and quantify the effectiveness of each option in physical units (e.g., lives saved, units of output). (30 min)
  4. Calculate the cost-effectiveness ratio (cost/effectiveness or effectiveness/cost) for each option. (15 min)
  5. Rank the options based on their cost-effectiveness ratios, from most to least cost-effective. (15 min)
  6. Conduct sensitivity analysis to test the robustness of the results to changes in key assumptions. (30 min)
  7. Document all assumptions and limitations of the analysis. (15 min)

Materials needed

  • Spreadsheet software (e.g., Excel, Google Sheets)
  • Calculator
  • Data on costs and effectiveness of each option

Facilitator tips

  • Ensure that all relevant costs and benefits are included in the analysis, even if they are difficult to quantify.
  • Consider the perspective of all stakeholders when identifying costs and benefits.

Common pitfalls

  • Omitting important costs or benefits; using inappropriate units of effectiveness.
  • Ensure that the units of effectiveness are relevant to the decision being made and that all relevant costs are included.

Variations

  • Incorporate distributional weights to account for equity considerations.
  • Use probabilistic sensitivity analysis to account for uncertainty in the data.

Running it online or hybrid

Use shared spreadsheets and virtual whiteboards to collaboratively input and analyze cost and effectiveness data.

What it produces

A ranked list of options based on their cost-effectiveness ratios (cost per unit of effectiveness or effectiveness per unit of cost).

Origin

Adapted from BetterEvaluation — source

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