Two organizations may come up with very different strategies to tackle the same problem. If a community’s water supply, for example, was contaminated leading to a large incidence of diarrhea, one NGO may advocate for investments in modern water and sanitation infrastructure, including a sewage system, piped water, etc. Another NGO may propose a distribution system where households are given free chlorine tablets to treat their own water at home. If these two methods were shown to be equally effective—each reducing diarrhea incidence by 80%, would local policymakers be just as happy implementing one versus the other? Probably not. They would also need to consider the cost of each strategy.
It is highly likely that modern infrastructure investments in an otherwise remote village would be prohibitively expensive. In this case, the choice may be clear. However, the options are not always so black and white. A more realistic (but still hypothetical) choice would be between an infrastructure investment that reduces diarrhea by 80% versus a chlorine distribution program that costs 1/100th the price, and reduces diarrhea by 50%.
A cost-benefit analysis quantifies the benefits and costs of an activity and puts them into the same metric (often by placing a monetary value on benefits). It attempts to answer the question: Is the program producing sufficient benefits to outweigh the costs? Or in other words, is society richer or poorer after making this investment? Trying to quantify the benefit of children’s health in monetary terms, however, can be extremely difficult and subjective. Hence, when the exact value of the benefit lacks widespread consensus, this type of analysis may produce results that are more controversial than illuminating. This approach is most useful when there are multiple types of benefits and agreed ways of monetizing them.
A cost-effectiveness analysis takes the impact of a program (e.g. percent reduction in the incidence of diarrhea), and divides that by the cost of the program, generating a statistic such as: the number of cases of diarrhea prevented per dollar spent. This makes no judgment of the value of reducing diarrhea.
Lastly, a cost comparison analysis will take multiple programs and compare them using the same unit—allowing policy makers to ask: per dollar, how much does each of these strategies reduce diarrhea?