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Factsheet: Cost-effectiveness tools

 

Definition

Cost effectiveness analysis is a technique in which the cost and effects of an intervention and an alternative are presented in a ratio of incremental cost to incremental effect.
The method permits the comparison of alternative interventions (or programmes) in which costs are measured in monetary units and effects (outputs) are measured in non-monetary units.
The output can be any indicator addressing quantity or quality aspect of water stress. The technique uses, in fact, a multiobjective mathematical programming approach and determines the optimal Pareto set of solutions (non-dominated solutions).

Application objectives

Comparison, interpretation of information on outputs and costs of different combination of management options;
Screening and ranking of alternative measures on the basis of their costs and effectiveness;
Formulation of a plan of measures;Economic evaluation of alternative interventions, programmes, plans.

Pertinent participation process phase(s)

1- Starting organization

2- Actors analysis, context

3- Diagnostic of the current situation

4- Search of solutions

5- Implementation, evaluation

Application method

Step 1: Definition of outputs and costs of measures;
Step 2: Identification of combinable management measures;
Step 3: Calculation of outputs and costs of combinations;
Step 4: Elimination of economically inefficient solutions;
Step 5: Elimination of economically ineffective solutions;
Step 6: Calculation of average costs;
Step 7: Recalculation of average costs for additional output;
Step 8: Calculation of incremental costs;
Step 9: Comparison of successive outputs and incremental costs.

Additional considerations: The method can be linked to: (a) Multi-criteria analysis so that the output indicator reflects multiple effects (b) Uncertainty (risk) analysis for output and cost of measures.

Application example(s)

Many applications in projects dealing with defence, transportation, irrigation, waterways etc.
Extensive application in the health sector, where effects (outputs) cannot be easily quantified in monetary terms.
Suggested by WFD Guidance on Economics for "a) Making judgements about the most cost effective programme of measures (b) Assessing the cost-effectiveness of alternative measures".

Example tools

An application has been developed at the NTUA (see reference 2). The US Army Corps of Engineers Institute for Water Resources (IWR) has developed IWR-PLAN Decision Support Software to assist with the formulation and comparison of alternative plans (http://www.pmcl.com/iwrplan/SoftwareInfoDownload.asp).

AquaStress contact(s)

Contact: Dionysis Assimacopoulos, NTUA, ( assim@chemeng.ntua.gr).

Reference

  • WATECO Group, 2002, Economics and the Environment: The Implementation Challenge of the Water Framework Directive’, CIS guidance document 01, ISBN 92-894-4144-5, 270 pages. For download: http://forum.europa.eu.int/Public/irc/env/wfd/library?l=/framework_directive/guidance_documents&vm=detailed&sb=Title
  • A. Gerasidi, P. Katsiardi, N. Papaefstathiou, E. Manoli and D. Assimacopoulos, 2003, Cost-effectiveness for water management in the island of Paros, Greece,  VIII International Conference on Environmental Science and Technology. Lemnos, Greece. September 2003, pp. 261-269.
  • Interwies E., Krammer A., Kranz N., Gorlach B., Dworak T., 2004, Basic principles for selecting the most cost-effective combinations of measures for inclusion in the programme of measures as described in Article 11 of the Water Framework Directive - Handbook, German Federal Environment Agency, Research Report 202 21 210, 245 pages http://www.umweltdaten.de/publikationen/fpdf-l/2743.pdf.