Key Concepts

• Cost-effectiveness
• Using cost trend data

Introduction

Senior level administrators or governing boards often want to know not only whether a program is effective but also whether it is efficient. In other words, do the benefits of a program justify its costs and is the program being offered as efficiently as possible. Most colleges and universities have limited funds and therefore must balance the need to offer effective programs with the costs of doing so. Cost-benefit and cost-effectiveness serve key functions but are complicated processes requiring advanced methods. I only touch on them here.

Efficiency Studies

Rossi et al. (2004) discuss two common types of studies that assess efficiency: Cost-benefit and cost-effectiveness. The former focuses on dollars expended and dollars saved and thus arrives at a monetary conclusion. In the case of a fundraising campaign, you could calculate the amount it costs to generate $10 in donations, for example. Cost-effectiveness is more concerned with how much it costs to offer a program such as the common book program per unit of outcome achieved (cost per student retained or per unit gain on NSSE scores, for example). Thus, cost-effectiveness is concerned with the relationship of program expenditures to a substantive outcome of the program.

Fundraising and admissions are examples of two units that use cost-benefit and cost-effectiveness studies to determine efficiency and effectiveness: how much it costs to raise a dollar of endowment funds or how much it costs to recruit a single new matriculated student. Cost-benefit is challenging to do in academic and many support programs because it is difficult to put a dollar amount on many higher education outcomes. For this reason, this chapter focuses more on using cost-effectiveness studies.

Schuh and Upcraft (2001) identify steps to take when conducting a cost-effectiveness study of a student affairs program. As with other forms of program evaluation one must first understand the institutional and program context and the purpose for conducting the study. Once the purpose of the evaluation is clearly defined, one must determine the costs associated with the program. This is more complicated than it seems. For example, a common book program has both fixed and variable costs. Fixed costs include things like the coordinator’s salary. These costs remain constant regardless of how many students there are. Books are a variable cost. Although the university may be able to strike a deal with publishers, it is likely that books vary in cost as does the number a college must buy each year. Costs that can be directly associated with the program, such as the cost of the books, are called direct costs. However, there also may be indirect costs such as the cost of lights and staff support time that are not directly linked to the program. Some of the staff members who work with the common book program may spend only a portion of their time working on that one program. Thus, to get a truly accurate and comprehensive estimate of cost, one would have to identify the time and staff dollars spent only on the common book. This does not even factor in things like electricity and heat for the office. Once the total cost to implement and deliver the common book program is determined, one needs to figure out the cost per student retained or per unit gain in the outcome of interest.

As you might imagine, the challenges of doing cost-effectiveness studies in higher education are many. First, it is hard to capture all of the costs of a program. Some costs are obvious, such as the cost of buying copies of the common book for each new student and staff. Others are much more indirect and difficult to identify, such as the cost of staff for working on the common book project when it is only one part of their jobs. It is also hard to unitize outcomes. Some of the benefits of higher education are elusive and not easily reduced to concrete, measurable units. Students retained and graduated are easy measures. Similarly, administrators can calculate the cost per student credit hour produced. Beyond that, it gets more complicated, especially when trying to calculate how much it costs to produce college outcomes such as learning and development. For this reason, conducting cost-benefit or cost-effectiveness analyses is an advanced skill requiring additional reading and expertise. For those interested, I recommend Schuh and Upcraft (2001), Assessment Practice in Student Affairs: An Applications Manual as a starting point. Rossi, Lipsey, and Freeman (2004) also provide more in-depth discussions of cost-benefit and cost-effectiveness analyses.

Alternative Uses of Cost Data

It is not necessary to do a formal cost benefit or cost efficiency analysis in order to use cost data for assessment and evaluation purposes. For example, program administrators might simply be interested in cost trends over time. How much do program costs change from year to year? Why do they change? When using cost data in these ways, one should remember to convert dollars to their current value in order to control for inflation, especially if a long period of time is being considered. For example, according to the CPI Inflation Calculator $10,000 in 2010 was equivalent to $11,054 in 2016 dollars. College administrators could buy less with $10,000 in 2016 than they could in 2010. Higher education has its own version of the CPI, the Higher Education Price Indicator (HEPI). The HEPI tracks the average cost of a “fixed market basket of goods and services purchased by colleges and universities each year….” (Common Fund). This indicator specifically includes higher education related costs and calculates cost by region and institution type.

Even when using cost data for simple trend analysis, it remains important to account for all program costs. Program administrators might also compare what it costs its university to offer a particular program compared to industry standards benchmarks, or to costs of similar programs at other universities. Cost per student credit hour is an example of a computed data point that is sometimes compared to peers. It is far more challenging to equate costs with more elusive outcomes such as cognitive and emotional growth or sense of belonging. Results of cost-effectiveness studies can also be used to argue for the need for additional resources or to reduce funding.