Cost-effectiveness analyses assess how efficiently interventions convert costs into outcomes by calculating cost-effectiveness ratios—the cost of an intervention (calculated using a cost analysis) divided by its effect on student outcomes.

For example, if an intervention costs an additional $3,000 per student and increases credits earned by two, then it has a cost-effectiveness ratio of $1,500 per additional credit earned.

Cost-effectiveness ratios allow researchers and decision-makers to compare the relative efficiency of interventions:

• An advising program that costs $1,000 per student and increases graduation rates by 2 percentage points yields one graduate per $50,000.
• A scholarship program that costs $5,000 per student and increases graduation rates by 5 percentage points yields one graduate per $100,000.

In this hypothetical example, while the scholarship program has a larger average impact, the advising intervention is more cost-effective. With a $200,000 budget, a college could serve 200 students with the advising program or 40 students with the scholarship program. The advising program is expected to yield four additional graduates (200 × 0.02), while the scholarship program would yield two additional graduates (40 × 0.05). Despite the scholarship program’s higher average impact, the advising program produces more graduates per dollar spent—making it the more efficient option.

For more information on cost-effectiveness analysis, the Abdul Latif Jameel Poverty Action Lab (J-PAL) offers an overview of the topic, including comparisons of interventions’ cost-effectiveness from international development research.^[1] To calculate confidence intervals for cost-effectiveness ratios, refer to this user-friendly Excel spreadsheet.^[2]