An economic evaluation is a type of study that can help a decision-maker choose how to allocate resources, such as money, people, time or equipment. It identifies all the options a person might reasonably select. It then compares each one in terms of all the relevant costs and consequences.
There are several types of economic evaluations, which try to answer the questions described below. The examples given are from the health-care field, which is further developed in economic evaluation.
Cost Minimization Analysis – What is the least costly way to get a given result? This approach focuses on costs. It assumes that the consequences are similar for the different options being evaluated. One example from the health-care field is comparing the costs of performing a surgery on an inpatient or outpatient basis.
Cost-Benefit Analysis – What are the costs and benefits associated with different options? This approach measures consequences in monetary terms. For example, this type of analysis might be used to look at the cost of having a universal chicken pox immunization program versus not having one.
Cost-Effectiveness Analysis – What are the costs and health outcomes associated with different options? This approach measures consequences in units that measure natural benefits, such as life-years saved and reduction in disability days. For example, a cost-effectiveness study might compare the costs and reduction in disability days associated with two drugs to treat asthma.
Cost-Utility Analysis – What are the costs and gains associated with different options? This approach measures consequences in terms of improved health or satisfaction gained (utility) /value relative to other options (value weighted units). The most common type is the Quality Adjusted Life Years (QALYs), which combines the number of years and quality of life gained for each option. For instance, suppose a depression treatment study was comparing drug therapy alone versus a combination of drug therapy and counselling. The researcher might consider measuring consequences – such as improvements in patients’ quality of life – from each option in QALYs.
Deciding which type of analysis to do depends on the question that needs to be answered. It also depends on the perspective taken, such as the worker, company or society. The data and resources that are available to conduct the evaluation are also a factor. If there are good ways to measure outcomes in terms of natural units, but they are difficult to convert to dollars, then the researcher might consider a cost-effectiveness analysis.
Source: At Work, Issue 45, Summer 2006: Institute for Work & Health, Toronto