Cost Analysis Step by Step - MDRC

CONNECTIONS TO WORK

Cost Analysis Step by Step

A How-to Guide for Planners and Providers of Welfare-to-Work and Other Employment and

Training Programs David H. Greenberg

Ute Appenzeller

Manpower Demonstration Research Corporation

Board of Directors

ROBERT REISCHAUER, Chairman Senior Fellow Brookings Institution

PAUL H. O'NEILL, Treasurer Chairman and CEO Alcoa

MARY JO BANE Professor of Public Policy John F. Kennedy School of Government Harvard University

ANTONIA HERNANDEZ President and General Counsel Mexican American Legal Defense and

Educational Fund

JAMES H. JOHNSON, JR. E. Maynard Adams Professor of Business,

Geography, and Sociology Director, Urban Investment Strategies Center University of North Carolina

ANNA KONDRATAS Senior Associate Urban Institute

RICHARD J. MURNANE Professor of Education Graduate School of Education Harvard University

RUDOLPH G. PENNER Senior Fellow Urban Institute

MARION O. SANDLER Chairman and CEO Golden West Financial Corporation and

World Savings and Loan Association

ISABEL V. SAWHILL Senior Fellow Brookings Institution

ROBERT SOLOW Institute Professor Massachusetts Institute of Technology

MITCHELL SVIRIDOFF Professor Emeritus and Senior Fellow Community Development Research Center New School for Social Research

WILLIAM JULIUS WILSON Malcolm Wiener Professor of Social Policy John F. Kennedy School of Government Harvard University

JUDITH M. GUERON President Manpower Demonstration Research Corporation

CONNECTIONS TO WORK

Cost Analysis Step by Step

A How-to Guide for Planners and Providers of Welfare-to-Work and Other Employment and

Training Programs David H. Greenberg

Ute Appenzeller

October 1998

Manpower Demonstration Research Corporation

THE CONNECTIONS TO WORK PROJECT IS FUNDED BY THE CHARLES STEWART MOTT FOUNDATION AND THE ROCKEFELLER FOUNDATION. DEVELOPMENT AND

PUBLICATION OF THIS GUIDE WERE SUPPORTED

BY THE ROCKEFELLER FOUNDATION.

Dissemination of MDRC publications is also supported by MDRC's Public Policy Outreach funders: the Ford Foundation, the Ambrose Monell Foundation, the Alcoa Foundation, and the James Irvine Foundation.

The findings and conclusions presented in this guide do not necessarily represent the official positions or policies of the funders.

For information about MDRC, see our Web site: . MDRC is Registered in the United States Patent Office. Copyright ? 1998 by the Manpower Demonstration Research Corporation. All rights reserved.

Contents

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .viii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix

Chapter 1 Who This Guide Is For and How It Can Be Used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Potential Uses of Cost Analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.2.1 Cost Analyses of Programs Prior to Their Implementation . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.2.2 Cost Analyses of Ongoing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 How to Use This Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapter 2 Basics of Conducting Cost Analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.1 The Issue of Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.1.1 Alternative Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.1.2 Choosing Among Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.1 Definition of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.2.2 Gross Costs Versus Net Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.3 Start-Up Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2.4 Average Costs Versus Marginal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2.5 Joint Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.2.6 Regular Versus Special Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3 The Time Dimension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3.1 Role of Discounting in Conducting Cost Analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3.2 Adjusting for Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3.3 Adjusting for Large Equipment Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Chapter 3 Costing Out Ongoing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.1 Costs per Case Versus Aggregate Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.2 Data Needed for Cost Analyses of Ongoing E&T Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.2.1 Records Program Agencies Should Keep . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.2.2 Data Needed from Outside the Program Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.3 Steps in Estimating the Gross Costs of Ongoing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Step 1. Enumerate Program Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Step 2. Compute Unit Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 a. The Basic Computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 b. Determining Staff Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 c. Treatment of Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Step 3. Select the Analysis Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Step 4. Determine Participation Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Step 5. Determine the Average Length of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Step 6. Compute Gross Cost per Case for Each Program Component . . . . . . . . . . . . . . . . . . . .28 Step 7. Compute Total Gross Cost per Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 3.4 Converting Gross Costs into Net Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.4.1 Obtaining Comparison Groups for Cost-Benefit Analyses . . . . . . . . . . . . . . . . . . . . . . . . 31

iii

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download