Cost analysis of an ECCD program has several purposes: to assess the financial feasibility of the program, to monitor the performance of centers, to assess the program's cost-effectiveness, and to raise funds.
Assessing feasibility
Financial feasibility is an essential criterion for funding a project. A good cost classification by subcomponents provides the basic framework for a detailed "costing of the project" (see table 5.2). This exercise may lead to a conclusion that the original goals were overambitious, forcing a reconsideration of the size of the project, the size or richness of its components, or perhaps the modes of service delivery. The purpose of the exercise is to align goals, means, and financing in a viable proposal.
Monitoring performance
In systems composed of many centers or units operating similar programs but under different conditions, it is important to know where unit costs vary substantially from the norm, and why. Are different components being used? Are components being used in different proportions? Is the scale of operations different? Are the prices paid for the components different? And regardless of the reason for the substantially different unit costs, are the differences in cost associated with differences in child development outcomes?
In addition to comparing unit costs across centers, it is also useful to track these costs over time for each center and group of establishments. A significant rise in unit costs should prompt an investigation of the causes and corrective action whenever possible, while a decline in costs might signify efficiency improvements that could be adopted in other centers. When unit costs change as a result of unavoidable changes in the prices of components, the analysis will still be valuable for improving budgetary forecasting and financial planning.
Relating costs to benefits
While the analysis of cost alone has many uses, a comparison of costs and benefits is required when considering a new ECCD project, deciding whether to expand an existing one or to introduce efficiency improvements, and choosing the modes of ECCD provision. Determining costs is relatively easy; the major stumbling block is often defining and measuring the benefits, or effects, of the program.
Every ECCD program is designed to affect the developmental status of children, as indicated by their health, nutrition, and psychosocial well-being (see the discussion on measuring the status of children in tab 3). But Barnett and Escobar (1990) argue that:
Measurement of program effects should be expanded beyond measures of child progress to include effects on others such as the family, children's peers, the school system that children enter after intervention, and the intervention staff. For example, it might be found that two programs have similar costs and child outcomes, but that one is more economically efficient because it produces less staff stress. (p. 561)
This kind of evaluation of benefits is rare in ECCD programs (and in most other social programs), however. For this reason the effects of programs are more often than not underestimated.
Table 5.5 lists potential effects of ECCD programs, along with some rough indicators to measure them. Although most of these effects cannot be evaluated in monetary terms, some can be. For example, if a program reduces repetition and dropout rates in schools, it will reduce the cost of producing primary school graduates. There are other monetary benefits: the children who graduate as a result of the program will later earn higher salaries than they would have otherwise, and mothers freed by the program to seek employment will earn higher incomes.
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Costs and nonmonetary benefits are compared through cost-effectiveness analysis, which measures how effectively a program meets its objectives. This analysis makes it possible to evaluate the relative effects associated with different costs and thus to concentrate more on the qualitative aspects of desired outputs. This type of analysis can sometimes produce a rational choice among different combinations of inputs for providing the same or similar outputs. But the wider the range of alternatives, the more likely it is that alternatives will differ in terms of both outputs and indirect effects. When there are many objectives, with multidimensional measures of effectiveness, there is no definitive basis of comparison. That does not make the analysis impossible, but it does make the results more dependent on value judgments. In most cases, therefore, cost-effectiveness analysis only links outputs to costs (box 5.2).
An evaluation of the PRONOEI program in Peru found that participation in the program had significant effects on children's cognitive development and on their readiness for school, as measured by a developmental test (Myers and others 1985). But these effects did not carry over into school in the form of lower repetition, reflecting serious problems in the availability, quality, organization, and management of primary schools. The program's effects on children's nutritional status were found to be moderate and indirect and to vary by project site. The program also was found to have increased community involvement and awareness.
The information on PRONOEI's costs and effects supports the conclusion that, on its own terms (that is, relative to its goals), the program is cost-effective: its costs seem to be relatively low (see box 5.1) and it achieved many if not all the results it was intended to.
The information on costs and effects does not provide a basis for determining whether the PRONOEI model would produce better results than another. But it was possible to inform such a decision by comparing the information on PRONOEI with the results of evaluations of two other nonformal ECCD models in Peru: a home-based alternative applied in both rural and urban areas and a peri-urban satellite model built around a resource center. This exercise allowed the following conclusions to be drawn:
Costs and economic benefits are compared through cost-benefit analysis, which compares only the monetary benefits with the costs of carrying out the program. Many of the monetary benefits will accrue far in the future and so must be discounted to the present for comparison with the present costs.
Perhaps the most complete cost-benefit evaluation of an ECCD program is that of the High/Scope Perry Preschool Study in the United States (Schweinhart and others 1993) (see box 1.1 in tab 1). Another example of a cost-benefit evaluation is that for the PROPAE program in Brazil (Brazil, Ministerio da Saude y Instituto de Alimentaçao e Nutricao 1983). In this case the only program effect translated into monetary terms was the reduction of grade repetition in primary school. The cost-benefit comparison showed that the PROPAE program not only paid for itself, but produced cost savings during the first year of primary school.
Cost-benefit analysis can be combined with cost-effectiveness analysis. Since total benefits are the sum of monetary and nonmonetary benefits, the costs of the nonmonetary benefits can be said to be equal to the difference between total costs and monetary benefits. Say, for example, that the monetary benefits of an ECCD program, as measured by the employment opportunity of a previously unemployed mother, are $500 and the total costs of the program are $600. The nonmonetary benefits—such as the well-being of the child and the happiness of the mother—can be said to cost only $100. In many cases the economic benefits of a program are equal to or greater than the total costs, so the many nonmarketable, yet highly positive, effects are being provided free to the society.
Fund-raising for investment costs
Targeting fund-raising efforts
This approach to classifying costs can also be applied to an ongoing program to see where the burden of costs falls and in relation to what items. This exercise provides a useful reality check on assumptions about how much communities contribute to the program, for example, and produces valuable information for the design of subsequent projects.
Finding counterpart funds among imputed costs
Funding agencies often require counterpart funds from the project sponsors. The notion of imputed cost can be wielded here to take into account goods and services donated to the program by individuals or entities. Volunteer labor by families and others in the local community, for example, can be imputed according to the type of labor donated at the current wage for that type of labor. The imputed costs are then added to the relevant outlay costs. Data from the Peruvian program PRONOEI show how costs were budgeted, and how they were covered by different organizations and groups over a five-year period (table 5.7).
Box 5.2 Cost-effectiveness—a Peruvian example
A potentially rewarding use of cost data is in requesting money from a funding agency that will fund only certain types of costs. The multilateral development banks, for example, will normally fund investment but not operating costs, so these types of costs would need to be carefully segregated for funding requests. For salaries, for example, it would be necessary to distinguish between the staff concerned with operating the programs (such as caregivers, cooks, supervisors, and their administrative support staff) and those concerned with developing additional facilities or services (architects, planners, and their administrative support staff). The salaries of the second group should be considered investment costs eligible for financing by the multilateral banks. To the extent that experimental or pilot centers are established and operated for the purpose of developing prototypes for program expansion, all costs related to these activities can also be classified as investment costs in funding requests.
The logic of distinguishing between investment and operating costs can be extended to the common situation in which there are multiple potential funding sources, each of which will finance a particular type of expenditure. Costs can be grouped in a matrix by likely source of funding-using a detailed classification of costs as in table 5.1-to provide a strategy for approaching the different funding sources (table 5.6). When the exercise relates to an entire system, a summary presentation of costs (as in table 5.4) should be used.
Table 5.6 Costs grouped by potential funding source
Type of cost
Government
International agencies
Community
NGOs and nonprofits
Private Sector
a
b
n
Table 5.7 Budgets and expenditures of PRONOEI, by funding source, 1980-84
(percent)
Budgets
Expenditures
1981-84
Total
1980
1981
1982
1983
1984
USAID
47
14
0
18
14
13
18
Ministry of Education
40
34
25
30
31
34
49
Community
7
44
61
44
51
49
23
UNICEF
6
6
14
4
4
4
2
Programa de Alimentacion
0
0
0
0
0
0
9
Source: Cereceda 1994, as cited in Myers and others 1995.
