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.
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).
Solves: Difficulty comparing options with non-monetary benefits; limited resources requiring efficient allocation.
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Step 1: Define the options to be compared. (15 min)
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Step 2: Identify and quantify all relevant costs associated with each option in monetary terms. (30 min)
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Step 3: Identify and quantify the effectiveness of each option in physical units (e.g., lives saved, units of output). (30 min)
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Step 4: Calculate the cost-effectiveness ratio (cost/effectiveness or effectiveness/cost) for each option. (15 min)
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Step 5: Rank the options based on their cost-effectiveness ratios, from most to least cost-effective. (15 min)
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Step 6: Conduct sensitivity analysis to test the robustness of the results to changes in key assumptions. (30 min)
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Step 7: Document all assumptions and limitations of the analysis. (15 min)
- 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.
- Incorporate distributional weights to account for equity considerations.
- Use probabilistic sensitivity analysis to account for uncertainty in the data.