Working more efficiently and effectively through Cost Benefit Analysis

In 2010, USAID embarked on an ambitious reform agenda to make the Agency more effective -- strengthening the results of our work, saving money, and reducing the need for U.S. assistance over time. One essential tool in this effort is Cost Benefit Analysis (CBA). CBA can help USAID reach its reform goals in several ways, including: analyzing the design of a project so that it meets the needs of beneficiaries, figuring out the best way to work with other donors and the private sector, and identifying improvements to existing programs. CBA does this by estimating all of the expected costs of implementing a project and comparing them to the benefits of the project.

  • CBA helps USAID prioritize program approaches by determining the factors that will be critical for a project’s success, as well as elements that need to be monitored, and possibly adjusted, throughout the life of the project.
  • CBA can make sure that the project helps those who need it most by identifying and targeting potential beneficiaries early on.
  • CBA also can help assess financial sustainability of a project, to help demonstrate whether its expected results will continue after the project has ended. For example, for an agricultural project, CBA estimates how the project would change the incomes of farmers over the next 5, 10, or 20 years. It could also help identify whether farmers will need access to finance -- allowing USAID to plan for these types of challenges, and to figure out whether a farm or business helped by USAID will be able to continue to be profitable on its own.

Through CBA, USAID also takes into account the work that others are doing in the same areas. USAID can then more accurately assess Agency funding necessary to achieve the desired impact, as well as instances in which funds can be more productively used elsewhere.  As an important assessment tool, CBA is helping the Agency manage for results, improve performance, and promote accountability.

For example, Cost-Benefit Analyses have been completed for Feed the Future agriculture and nutrition projects in 15 priority countries.  Preliminary studies of the first six countries found that these investments will achieve a median economic rate of return of 22 percent -- in other words, for each dollar invested in the project the host country receives additional income of about 25 cents per year during 10 years (equivalent to 22 cents per year in perpetuity).  The median economic rate of return for the remaining countries is currently being tabulated.

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Last updated: April 05, 2013

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