Policy Assessment Toolset
for equity and learning

Why perform cost analysis in school leadership policy interventions?
The omission of cost considerations risks the promotion of school leadership policy interventions that have only minimal positive effects, but high costs that exceed those of equally effective alternatives. Available resources for school leadership policy initiatives for equity and learning are often very limited, can always be used in other ways to reach the same policy goal, and saved resources can be devoted to other school system aims. Cost analysis has become an important decision-making tool in school policies, as policy makers and school leaders are under growing pressure to present evidence showing that initiatives funded from public resources deliver desired outcomes at reasonable costs.

Ensuring efficient and effective use of resources is an important aspect in the role of school policies.

The terms 'cost analysis', 'cost-effectiveness analysis', 'cost-benefit analysis', and 'cost-utility' analysis are often used interchangeably. However, different methods of cost analysis can answer different policy questions.

Relationships Between Evaluation Question and Form of Cost Analysis (White et al., 2005)

Scenario for a Cost Analysis exercise: A 2-weeks school leadership training programme on drop-out prevention

Choice of cost analysis by question type

Basic-cost Analysis

Basic-cost and cost-feasibility analyses are best suited to answer questions about the financial viability of a school leadership policy initiative.

Basic-cost analysis would focus on making reliable estimations on how much it would cost to implement a 2-weeks school leadership training programme on drop-out prevention methods for all servicing school principals in high-poverty urban neighbourhoods.

Cost-feasibility Analysis

Cost-feasibility analysis can be used to take decisions about the economic estimations provided by the basic-cost analysis. It goes a step forward to answer the question: Can we implement this or that policy intervention given the constraints of the budget available?

Cost-Benefit Analysis

Cost-benefit analysis is used to assess the costs and benefits of a policy option in monetary terms (M√ľnich and Psacharopoulos (2014). It can be used to support decision-making regarding the introduction, continuation or discontinuation of a specific school leadership policy programme, or the allocation of resources among competing ones (Miller and Robins, 2006). In our scenario, it could be used to compare the policy options:

a 2-weeks school leadership training programme on drop-out prevention methods for servicing school principals in poor neighbourhood schools, organised and delivered by higher education institutions in the region, and
an alternative option of, say, a 2-weeks school leadership in-service training programme on drop-out prevention methods for all servicing school principals in poor neighbourhood schools, organised by higher education institutions but delivered in schools during the school day by properly trained school leaders.

A cost-benefit analysis would be expected to provide evidence, expressed in rates of return or other measure of "profitability", on which of the two policy options is likely to be more effective in achieving different drop-out outcomes in schools. Such outcomes could be school completion rate, grade progression rate, unjustified absences from school, etc.

Cost-Effectiveness Analysis

Cost-effectiveness analysis is used to compare alternative policy options on a particular outcome (Levin et al, 2012). It is considered as a simpler counterpart cost-benefit analysis because it does not require expressing benefits in monetary terms (e.g. euro value of the benefits). Overall, is appropriate whenever it is unnecessary or impractical to consider the money value of the benefits provided by the alternative policy options under consideration. In our scenario, cost-effectiveness analysis could be used to compare the policy option of "a 2-weeks school leadership training programme" and an alternative option using a single criterion outcome, for example, the school completion rate. A cost-effectiveness analysis would be expected to provide evidence on which of the two policy options is estimated be more effective in achieving the desired policy outcome at the lowest cost.

Cost-Utility Analysis

Cost-utility analysis is similar to cost-effectiveness analysis but the single criterion outcome is the overall usefulness to, satisfaction or "utility" of, a targeted stakeholder group (e.g., students, teachers, parents etc.) (see, for example, Ross, 2008). This analysis is based on information on how valuable each outcome of one or more policy options is for which stakeholder group. A basic assumption is that different stakeholders in school education value differently the same outcomes of school policies, in our case school leadership policies. Each outcome is assigned with a weight, depending on different stakeholder group preferences, as these have been identified through research, negotiations, expert judgements, etc. Cost-utility analysis can facilitate decision making by identifying the policy option that is estimated to lead to greater stakeholder utility at the lowest cost.
Costs and benefits of policy interventions
Many people, among them policy makers and school leaders, understand the economic cost of a school policy intervention (e.g. a school leadership training programme) in terms of expenses on staff salaries, on infrastructure, or on consumables. However, cost information about a policy intervention based solely on accounting or budgetary cost data can be misleading. This is because such information fails to account for opportunity costs and benefits of an intervention. In the field of economics the "opportunity cost" of a resource, is the value of the next-highest-valued alternative use of that resource.

In our scenario, from the perspective of schools in high-poverty urban neighbourhoods, the benefits of a school leadership training programme about drop-out prevention refer to increased school completion and progression rates, reduced unjustified absences from school, etc. These benefits for the school are also benefits for the society as a whole and have important economic implications. In cost-benefit analysis, the economic dimension of social benefits of this policy intervention could be measured by (expected future) incremental before-tax earnings due to the completion of different school levels. However, it should be borne in mind that educational interventions frequently involve outcomes (benefits) that lack explicit monetary expression (M√ľnich & Psacharopoulos, 2014) and credible estimates of the social returns, which are necessary for public investment analysis, remain elusive (Jimenez & Patrinos, 2008).