Strategy Survival Guide

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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
In this illustrative example the quantifiable employment benefits are not sufficient to cover the total cost for either integrated or non-integrated childcare. The gap between costs and benefits for integrated childcare is £2.5m compared to £1m for non-integrated childcare. Thus for the government to choose to promote integrated childcare the 'soft exercise’ would have to provide sufficiently strong evidence that the reduced poverty and other child outcomes (Y + larger effect) were greater than: • The £2.5 million gap between the full costs and benefits of the integrated places • The £11,500 difference per child from reduced poverty and other child outcomes given by nonintegrated childcare (X + small effect) > See a full explanation of the Childcare value for money analysis Strategy Survival Guide – Strategy Skills Page 177
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Strategy Strategy Survival Survival
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Building an Evidence Base 113 Data
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A Framework for Strategic Direction
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Collecting data - Surveys In Practi
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