Strategy Survival Guide

Cost-benefit & cost-effectiveness analysis
In Practice: SU Childcare Project
The objective of the study was to provide a value for money analysis of Government investment in different
types of childcare. The choice was between higher cost "integrated" childcare centres, providing a range of
services to both children and parents, or lower cost "non-integrated" centres that provided basic childcare
facilities.
In order to undertake a full cost-benefit analysis data must be available which allows the full costs and
benefits of the policy to be converted into monetary units. This was not possible, owing to a lack of detailed
evidence in all areas of the policy, and so in the case of the childcare review the team undertook a dual track
approach:
• A partial cost-benefit analysis: to allow us to compare integrated and non-integrated childcare for
areas where detailed evidence was available.
• A variant of cost-effectiveness analysis: to allow us to compare childcare to other policy areas such
as employment, education and crime, where the evidence allowed us to quantify intermediate
outputs from policy (e.g. improved educational attainment aged 18) but not the final outcomes of the
policy (e.g. better overall life chances, higher skilled workforce and higher economy wide productivity
growth).
For both analyses there was a 'hard exercise’ and a 'soft exercise’. The hard exercise identified, quantified
and monetised direct costs and benefits. The soft exercise identified and described qualitatively nonmonetisable
impacts leading to option ranking.
There are always caveats involved in cost-benefit analysis and many assumptions were necessary:
For example an important assumption had to be made about the governments targeting of policies. A single
childcare place will provide a 'bundle’ of outcomes from increased parental employment levels to reduced
future crime rates and improved educational attainment owing to better child development. These outcomes
cannot be separated and so must be analysed together. However, in reality the provision of an additional
childcare place may not achieve additional outcomes in all of these areas. A child may already be at very low
risk from committing future crimes but their parents may use a childcare place so that they can return to
work. In this case an additional employment benefit would be realised but no additional benefit from reduced
future crime rates. An ex ante value for money analysis says nothing about whether the benefits of a future
policy will actually accrue to targeted populations. In this analysis we calculated the full costs and benefits of
the childcare place and then assumed that government would have to target programmes sufficiently to
minimise loss from benefits that would have occurred anyway.
An Example Partial Cost-Benefit Analysis template is shown below:
Gap non-integrated is
£1.0m
Cost of 100 non-integrated
childcare places:
Capital Cost = £2.0m
Revenue Cost = £0.5m
Total
=£2.5m
Cost of 100 integrated
childcare places:
Capital Cost = £3.0m
Revenue Cost = £1.0m
Total
=£4.0m
Benefit of 100 nonintegrated
childcare places:
Employment = £1.5m
Reduced poverty = £Xm
Other child = Small
outcomes Effect
Total = £1.5m + £Xm
+ small effect
Benefit of 100 integrated
childcare places:
Employment = £1.5m
Reduced poverty = £Ym
Other child = Larger
outcomes Effect
Total = £1.5m + £Ym
+ larger effect
Gap Integrated is £2.5m
Difference between the
gaps in the two types of
provision is £1.5m
If we assume 100 childcare
places help 130 children (as
a single child will not take up
a place all the time) we have
to believe that the present
value of increased child
outcomes and greater
poverty reduction from
integrated care is larger
than £11,500 per child
This must be compared to
what the evidence tells us
on:
• Educational attainment
• Future income of child
• Reduced crime
• Better health
• Reduced demand on
social services
Note: For sensitivity reasons the figures below are illustrative and do not represent numbers actually used in the Childcare Review
Strategy Survival Guide – Strategy Skills
Page 176