Cost Analysis Step by Step - MDRC | Building knowledge to ...

1 cost Analysis step by StepA How-to guide for Planners and Providersof Welfare-to-Work and Other Employment and Tr a i n i n g P r o g r a m sDavid H. GreenbergUte AppenzellerCONNECTIONS TO WORKM anpower Demonstration Research CorporationBoard of DirectorsROBERT REISCHAUER,ChairmanSenior FellowBrookings InstitutionPAUL H. O NEILL,Tr e a s u r e rChairman and CEOA lcoaMARY JO BANEP rofessor of Public PolicyJohn F. Kennedy School of GovernmentHarvard UniversityANTONIA HERNANDEZP resident and General CounselMexican American Legal Defense and Educational FundJAMES H. JOHNSON, Maynard Adams Professor of Business,Geography, and SociologyDirector, Urban Investment Strategies CenterUniversity of North CarolinaANNA KONDRATASS enior AssociateUrban InstituteRICHARD J. MURNANEP rofessor of EducationGraduate School of EducationHarvard UniversityRUDOLPH G. PENNERS enior FellowUrban InstituteMARION O. SANDLERC hairman and CEOG olden West Financial Corporation and World Savings and Loan AssociationISABEL V.

2 SAWHILLS enior FellowBrookings InstitutionROBERT SOLOWI nstitute ProfessorMassachusetts Institute of TechnologyMITCHELL SVIRIDOFFP rofessor Emeritus and Senior FellowCommunity Development Research CenterNew School for Social ResearchWILLIAM JULIUS WILSONM alcolm Wiener Professor of Social Policy John F. Kennedy School of GovernmentHarvard UniversityJUDITH M. GUERONP residentManpower Demonstration Research CorporationCost Analysis step by StepA How-to guide for Planners and Providersof Welfare-to-Work and Other Employment and Tr a i n i n g P r o g r a m s David H. GreenbergUte AppenzellerOctober 1998 Manpower Demonstration Research CorporationCONNECTIONS TO WORKTHECONNECTIONS TOWORK PROJECT IS FUNDED ANDPUBLICATION OF THIS guide WERE of MDRC publications is also supportedby MDRC s Public Policy Outreach funders: the Ford Foundation,the Ambrose Monell Foundation, the Alcoa Foundation,and the James Irvine findings and conclusions presented in this guidedo not necessarily represent the official positions or policiesof the 1998 by the Manpower Demonstration Research Corporation.

3 All rights information about MDRC, see our Web site: is Registered in the United States Patent ..viiiPreface ..ixChapter 1 Who This guide Is For and How It Can Be Used .. Uses of cost Analyses .. Analyses of Programs Prior to Their Implementation .. Analyses of Ongoing Programs .. to Use This guide .. 4 Chapter 2 Basics of Conducting cost Analyses .. Issue of Perspective .. Perspectives .. Among Perspectives .. of Costs .. Costs Versus Net Costs .. Costs .. Costs Versus Marginal Costs .. Costs .. Versus Special Costs .. Time Dimension .. of Discounting in Conducting cost Analyses .. for Inflation .. for Large Equipment Purchases .. 16 Chapter 3 Costing Out Ongoing Programs .. per Case Versus Aggregate Costs .. Needed for cost Analyses of Ongoing E&T Programs .. Program Agencies Should Keep .. Needed from Outside the Program Agency .. in Estimating the Gross Costs of Ongoing Programs .. 21 step Program Components.

4 21 step Unit Costs .. Basic Computation .. Staff Time .. of Overhead .. 24 step the Analysis Sample ..26 step Participation Rates ..27 step the Average Length of Participation ..28 step Gross cost per Case for Each Program Component ..28 step Total Gross cost per Case .. Gross Costs into Net Costs .. Comparison Groups for cost -Benefit Analyses .. 31 Chapter 4A Real-World cost Analysis of an Ongoing Program:Implications of Program Design for Program Costs .. cost Analysis .. Effects of Program Models on Costs .. Costs .. Rates .. of Stay in a Program Component .. Services .. Factors .. Discretion .. Characteristics .. Grant Levels .. Market Conditions .. the Costs of an Ongoing Program: An Illustration .. 46 Chapter 5 Predicting Costs of Programs That Have Not Yet Been Implemented .. in Estimating the Gross Costs of Not-Yet-Implemented Programs ..50 step a Flow Diagram ..50 step Total Program Referrals.

5 50 step the Assignment Rates for Each Program Component ..50 step the Participation Rate for Each Program Component ..51 step the Average Length of Participation ..51 step Unit Costs ..51 step Costs per Referred Case for Each Program Activity and Support Service ..51 step Total Costs per Referred Case ..52 step Aggregate Program Costs .. the Costs of a Not-Yet-Implemented Program: An Illustration .. the Values Needed to cost Out an Employment and Training Program .. the Total Number of Cases Referred ( step 2) .. Assignment Rates ( step 3) .. of Time to Reach Assignment .. the Number of Cases .. Participation Rates ( step 4) .. the Average Length of Participation ( step 5) .. Unit Costs ( step 6) .. Existing Estimates of Unit Costs .. Unit Approach .. in Program Costs Over Time .. Assessment of the Issue .. Sensitive Are the Findings to the Percent Assumption? .. of Policy Decisions .. the Net Costs of a Not-Yet-Implemented Program.

6 79 ContentsivvContentsTa b l Sections of the guide Are for You? .. of How E&T Effects Are Viewed from Alternative Perspectives .. Family Investment Program/STRIDE Time Sheet:Staff Members Time Allocation to Program Costs of the Labor Force Attachment and Human CapitalDevelopment Approaches Within Two Years After Orientation .. Costs of Riverside s Labor Force Attachment and HumanCapital Development Approaches Within Two Years After Costs of Riverside s Labor Force Attachment and HumanCapital Development Approaches .. Rates for Employment and Training Activities inRiverside Within Two Years After Orientation .. Length of Stay in Employment and Training Activitiesin Riverside Within Two Years After Orientation .. Service Costs of Welfare-to-Work Related Activities WithinTwo Years After 6 Using cost Information in Designing, Bidding, and Budgeting .. Test .. for Program Components by Community-Based Organizations .. 86 step a Flow Diagram.

7 88 step Total Program Referrals ..88 step the Assignment Rate for the Program Component ..88 step the Participation Rate for the Program Component ..88 step the Average Length of Participation ..88 step Unit Costs .. a Program Budget ..89 Appendix A: Selected Employment and Training Programs: Summary Descriptions and Main Evaluation Findings .. 93 Appendix B: Assignment Rates for Employment and Training Activities .. 103 Appendix C: Average Length of Stay in Employment and Training Activities .. 107 Appendix D: Participation Rates for Employment and Training Activities .. 111 Appendix E: Unit Costs for Employment and Training Activities .. 117 Appendix F: Program Effects on AFDC Receipt .. 129 Glossary ..131 References and Further Reading ..135 Recent Publications on MDRC Projects .. 137Ta b l e s a n d F i g u r e Status of AFDC Recipients at the Beginning of the the Costs of an Ongoing Program: Two-Year Costs of Riverside sLabor Force Attachment Approach.

8 The Costs of a Not-Yet-Implemented Program: HypotheticalExample 1, Steps 1-5 .. the Costs of a Not-Yet-Implemented Program: HypotheticalExample 1, step 6: Unit the Costs of a Not-Yet-Implemented Program: HypotheticalExample 1, Steps 7 and 8: cost per Referred Case for Each Program Activityand Support Service .. the Costs of a Not-Yet-Implemented Program: HypotheticalExample 1, step 9: Aggregate Costs .. the Costs of a Not-Yet-Implemented Program: HypotheticalExample 2, Steps 1-5 .. the Costs of a Not-Yet-Implemented Program: HypotheticalExample 2, step 6: Unit the Costs of a Not-Yet-Implemented Program: HypotheticalExample 2, Steps 7 and 8: cost per Referred Case for Each Program Activityand Support Service .. the Costs of a Not-Yet-Implemented Program: HypotheticalExample 2, step 9: Aggregate Costs .. of a Change in Assignment Rates on the Predicted Costs per CaseReferred to the Program .. the Costs of an Ongoing Program: Two-Year Costs ofRiverside s Labor Force Attachment Approach.

9 Of Changes in Costs Resulting from Alternative Modificationsto the Riverside LFA Program .. the Costs of an Ongoing Program: Serving a Harder-to-ServeCaseload: A Hypothetical Example .. the Costs of an Ongoing Program: Riverside s Human CapitalDevelopment Approach .. Budget Prototype .. Services .. Evaluation of Welfare-to-Work Strategies: Average Length ofStay in Employment and Training Activities Within Two Years AfterOrientation .. s Greater Avenues for Independence (GAIN) Program: Average Lengthof Stay in Employment and Training Activities Two to Three Years AfterOrientation .. s Project Independence: Average Length of Stay in Employmentand Training Activities Within Two Years After Random Assignment .. Evaluation of Welfare-to-Work Strategies: Participation Rates forEmployment and Training Activities Within Two Years After Orientation .. s Greater Avenues for Independence (GAIN) Program: ParticipationRates for Employment and Training Activities Within Two to Three YearsAfter Family Investment Program (MFIP): Participation Rates forEmployment and Training Activities, in Urban Counties, Within One YearAfter Random Assignment.

10 S Project Independence: Participation Rates for Employment andTraining Activities Within Two Years After Random Assignment .. Evaluation of Welfare-to-Work Strategies: Unit Costs forEmployment and Training Activities (in 1993 Dollars) .. s Greater Avenues for Independence (GAIN) Program:Unit Costs for Employment and Training Activities (in 1993 Dollars) .. s Project Independence: Unit Costs for Employment andTraining Activities (in 1993 Dollars) .. Job Training Partnership Act (JTPA) Study: Unit Costs forEmployment and Training Activities (in 1988 Dollars) .. Demonstration: Unit Costs for Employment and TrainingActivities (in 1986 Dollars) .. Evaluation of Welfare-to-Work Strategies: Program Effects on AFDCR eceipt Within a Two-Year Follow-Up Period .. Sequence of Activities in a Labor Force Attachment Welfare-to-Work Program .. Sequence of Activities in a Human Capital DevelopmentWelfare-to-Work Program .. Diagram for a Hypothetical Welfare-to-Work Program.