Cost-benefit analysis (CBA)

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NLM's MeSH defines Cost-Benefit Analysis (CBA) as, “A method of comparing the cost of a program with its expected benefits in dollars (or other currency). The benefit-to-cost ratio is a measure of total return expected per unit of money spent. This analysis generally excludes consideration of factors that are not measured ultimately in economic terms. Cost effectiveness compares alternative ways to achieve a specific set of results.” [1] Cost-Benefit Analysis is not to be confused with Cost-Effectiveness Analysis.


The development of cost-benefit analysis (CBA) can be traced back to the 19th century engineer and economist, Jules Dupuit. [2] That he was both an engineer and economist is fitting, for cost-benefit analyses seemed to be favored by those seeking to justify civil engineering projects. During the 1930s, the U.S. Corps of Engineers relied upon CBA as a way to prioritize projects to the nation’s waterways. The study of CBA in economics was not embraced until the 1950s. [2] The Pareto Principle and the Kaldor-Hicks efficiency models are theories related to CBA. These theories attempt to explain efficiency or progress in terms of gains and losses, benefits and costs, respectively, among competing constituencies. [3]

Principal Use

CBA is often used as a way to measure “initial and ongoing expenses vs. expected return.” Measuring expenses vs. return can inform planners as to whether the expected result does more good than the costs associated with attaining that result. The focus of CBA is heavily geared towards calculating benefits and costs in monetary terms. Monetary values are associated for “less tangible” effects such as people’s emotional welfare or environmental quality. [4] Chang and Henry lay out “six principles for the conduct of cost analysis within health care”: [5]

  • Analytical perspective: Conduct inquiry with a clear understanding of who pays the costs and who benefits from the initiative under review
  • Beneficial costs: Itemize the expected benefits that will accrue
  • Cost components: Detail the component costs – these may include start-up and ongoing costs associated with interventions
  • Discounting: Remember that costs and benefits may arise at different points -- typically, benefits arrive after costs and possibly some time later. There may be a need to discount for this, acknowledging, for example, that with the passage of time costs may rise, and an intervention delayed may represent an intervention made more expensive to conduct
  • Sensitivity analysis: Ensure that you explore the impact of different options and the benefits at different points in time if the consultee has not specified at what point the benefits are to be judged
  • Efficiency measurement: Summarize what you understand to be the best option(s) in ways that demonstrat the benefits/cost savings over alternatives


The advantage of CBA is that it gives planners a method to try and “put all relevant costs and benefits on a common temporal footing” [4] in order to help people make informed decisions. It provides people with an understanding as to the economic costs of decisions, and allows arguments to be made for or against a change based upon economic considerations. Shortcomings

The downside of CBA is that it is used to measure effects that may be difficult, or improper, to measure in financial terms. Adrienne Price notes that in health care, “cost is not always understood in financial terms, and good value is not always represented as a comparison of purchases within a budget limit.” [6] Price argues that before embarking upon a cost-benefit analysis, it is important to “clearly defin[e] what is meant by ‘cost’ and ‘benefit’…costs and benefits may not simply be financial.” [6]

Examples in Informatics

  • Wang, S.J., et al., A cost-benefit analysis of electronic medical records in primary care. The American Journal of Medicine, 2003. 114(5): p. 397-403.

    Wang et al. concluded from its CBA that EMRs a “net financial benefit” over a 5-year period. Based upon the researchers’ criteria, providers experienced a “net benefit” of $86,400 per provider. The researchers attributed costs and savings to purchasing the systems and software as well as “induced costs” that accounted for any “temporary productivity loss[es].”

  • Johnston, B.A., Utilization of the BackMed email discussion list in a specialized health sciences learning center: a cost-benefit analysis. Journal of the Medical Library Association, 2003. 91(3): p. 366-8.
  • Loane, M.A., et al., Patient cost-benefit analysis of teledermatology measured in a randomized control trial. Journal of Telemedicine & Telecare, 1999. 5 Suppl 1: p. S1-3.
  • Wootton, R., et al., Multicentre randomised control trial comparing real time teledermatology with conventional outpatient dermatological care: societal cost-benefit analysis.[see comment]. BMJ, 2000. 320(7244): p. 1252-6.
  • Making a case for an OR info system. OR Manager 2001 Sep; 17(9): 14-5.


    1. Medicine, N.L.o., MeSH Subject Heading. 2007, Ovid.
    2. Watkins, T. AN INTRODUCTION TO COST BENEFIT ANALYSIS. 2007 [cited 2007 March 2, 2007].
    3. Wikipedia. Kaldor-Hicks efficiency. 2007 [cited 2007 March 2, 2007].
    4. Wikipedia. Cost-benefit analysis. 2007 [cited 2007 March 2, 2007].
    5. Chang, W.-Y. and B.M. Henry, Methodologic Principles of Cost Analyses in the Nursing, Medical, and Health Services Literature, 1990-1996. Nursing Research, 1999. 48(2): p. 94-104.
    6. Price, A.R., RM, ADM, BSc(Hons), COST BENEFIT ANALYSIS. Nursing Management (Harrow), 2001. 7(9): p. 25-31.