Cost-Benefit Impact Statements: A Tool For Extension Accountability

As recipients of public funding, Extension faculty are accountable to government leaders and stakeholders for reporting program impact. Government-supported programs must demonstrate sufficient public benefits to make them worthy of continuing financial support (Richardson, 1996). Historical contributions or testimony about the past are of little value (Boyle, 1997). Neither are reports of "how hard I worked" or the number of participants in programs. Instead, the focus must be on documenting specific outcomes and the impact of programs on constituents' lives (O'Neill, 1997, 1998).

The Government Performance and Results Act of 1993 began a systematic process of linking budget allocations to program accomplishments (Boyle, 1997). As a result, Extension faculty will be increasingly asked to document specific outcomes (such as, "what have you done lately?") and compare them to financial investments in a program (Richardson & Phillips, 1995). This article will describe cost-benefit analysis as a technique for comparing program outcomes (benefits) to inputs (costs) to demonstrate accountability. It will also illustrate the cost-benefit concept with specific examples.

There are two parts to a cost-benefit analysis: costs and benefits. Costs can be determined by placing a dollar value on resources required to plan, implement, and complete a program. Examples of costs are the prorated portion of salaries for personnel who plan and implement a program and direct costs such as travel, publications, supplies, printing, postage, phone calls, equipment, and facilities charges (Richardson & Phillips, 1995). Costs that are not directly borne by Cooperative Extension, such a volunteer time and participant fees, should not be included in an analysis.

Benefits are positive outcomes that can be reasonably identified as change resulting from an Extension program (Richardson & Phillips, 1995). Some outcomes (such as, dollars saved, debt reduced) are easy to assign a dollar value to while others (such as, future impact of 4-H leadership development programs in reducing crime rates or encouraging youth to continue their education) may only be ascribed a monetary value indirectly. Techniques for doing this include shadow pricing (for example, valuing the cost of incarceration or the increased earnings with a college degree and making reasonable estimates) and opportunity costs (for example, estimating the costs of poor decisions or resources that were wasted by not receiving Extension information or services) (Richardson & Phillips, 1995). A complete description of alternative ways to value program benefits can be found in the publication Developing Cost and Benefit Estimates on the North Carolina Cooperative Extension Web site http://www.ces.ncsu.edu/resources/education.

Once program costs and benefits are tallied, a cost-benefit analysis is simply a matter of math. As a result, Extension faculty are able to state that they returned $x in benefits to farmers or consumers for every $1 that was invested in a program. Obviously, it is to Extension's benefit if it can be shown that benefits to clientele greatly exceed the cost of implementing a program. The larger the dollar value of benefits relative to program costs (for example, a 20:1 multiple versus a 5:1 multiple), the better.

Two examples of cost-benefit analysis follow:

In North Carolina, county agricultural agents wanted to reduce production costs for corn by teaching farmers to use soil tests as a means of developing correct fertilizer application rates. An educational program was developed that included meetings, a publication, soil samples, farm visits, collection of data from participating farms, and a report of results. The costs to implement the program were as follows:

The total cost to implement the program was $10,500. On the benefit side, 25 farmers reported reducing fertilizer use by 100 pounds per acre on 3,500 acres of corn. The applied cost per pound averages $.15. Thus, the direct benefit of the program can be estimated at 3,500 x 100 x $.15 or $52,500. A case could also be made for valuing secondary benefits resulting from reduced environmental damage caused by unnecessary fertilizer use. Using just the direct benefits, however, the program cost-benefit impact is a savings by farmers of $5 for every $1 spent to implement the program ($52,500 divided by $10,500). With secondary benefits included, cost-benefit multiples would be even larger (Richardson & Phillips, 1995).

In New Jersey, a cost-benefit analysis was conducted of the MONEY 2000[TM] program. MONEY 2000[TM] is a five-year campaign (1996-2000) developed to improve the financial well-being of New Jersey residents (O'Neill, 1998). Upon enrollment, participants set a personal savings and/or debt reduction goal. They are then surveyed every six months to report their progress.

Participants are provided a free quarterly newsletter, debt reduction computer analyses, classes, semi-annual state conferences, a Web site, and a home study course by Extension family and consumer sciences educators (FCSEs). During the first four years of development and implementation (1995-98), the costs associated with MONEY 2000[TM] were as follows:

The total cost to implement MONEY 2000[TM] was $120,000. The largest item, time spent by 20 Extension faculty and staff, used a blended salary rate and an average amount of time per year devoted to the program. Some FCSEs or their staff spent more and others spent less.

As of December 1998, 1,664 New Jerseyans were enrolled in MONEY 2000[TM]. Those who provided data about changes in their financial status reported $1,772,301 of increased savings and $1,274,674 of reduced debt or a total improvement in net worth of $3,046,975. Comparing costs with benefits, over $25 of benefit to participants was reported for every $1 of program costs. Better still, the cost-benefit multiple is expected to increase because most of the costs were incurred "up front" and benefits to participants will continue to accrue.

This article described the process of developing cost-benefit estimates to document the impact and value of Extension programs. This technique involves valuing program costs and outcomes and dividing benefits by costs. The process of valuing program impacts can be relatively easy or difficult, depending upon the impact being assessed. Also, it must be understood that, while primary benefits may be ascribed, there are many mitigating secondary variables that may have influenced outcomes as well. Therefore, it is important to recognize that limitations do exist in the development of cost-benefit estimates.

Even with limitations, however, such estimates can be exceedingly valuable for program accountability purposes because they describe, in an understandable manner, benefits that result from Extension programming. Use of cost-benefit analysis as an accountability tool is recommended for use by all Extension professionals.

References

Boyle, P. (1997, May/June). Where's the impact? Epsilon Sigma Phi Newsletter, Number 68, 1-4.

O'Neill, B. (1997). Documenting the economic impact of financial counseling and planning education programs: Some exploratory strategies. In J. Xiao (Ed.), Proceedings of the Association for Financial Counseling and Planning Education, (pp.100-109).

O'Neill, B. (1998). Money talks: Documenting the economic impact of Extension personal finance programs. Journal of Extension, 36(5).

Richardson, J. (1996). Extension accountability. Raleigh: North Carolina Cooperative Extension Service fact sheet AEE 96-02.

Richardson, J. & Phillips, R. (1995). Developing cost and benefit estimates. Raleigh: North Carolina Cooperative Extension Service fact sheet SD-8.