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Donors Can Spend More Money Better with Cost Evidence

Charitable organizations are looking for ways to spend record levels of philanthropic donations. Cost evidence can make their money go farther.

Christian Dubovan via Unsplash

Filling this gap isn’t just an academic research objective–it can change how philanthropies identify, and choose, investment opportunities.

Support Cost Evidence in New Sectors

Many of the most cost-effective interventions we know about are in the health sector. For example, five of GiveWell’s top six recommended charities are health interventions (bed nets, malaria treatments, deworming, immunization incentives, and vitamin A supplements) where as little as $3,000-$4,500 can save a life. Besides the fact that saving a life has a particularly high value, the bias towards global health can be attributed partly to the fact that health interventions are more likely to have produced cost-effectiveness data in the first place. The health sector has a few decades’ head-start over other sectors in rigorously measuring the cost-effectiveness of interventions, in part because major health institutions have effectively integrated cost-evidence production into their decision making processes. With the notable exception of education (where improvements in evaluation methods and metrics have also emerged), cost evidence still lags significantly behind in other sectors.

Build Bigger Cost Datasets

One of the challenges donors and other decision-makers face is a lack of large, comparable datasets. Most of the cost data that exists in LMIC settings — which is typically pulled from program expenditures, monitoring and evaluation data, and institutional knowledge — is collected by implementing organizations using idiosyncratic finance reporting systems, making it more difficult to make comparison of similar programs implemented by different organizations (additionally, many organizations have an incentive to distort costs to highlight efficiencies). But fixing these issues and building comparable datasets is critical. Cost-effectiveness analysis (costs and outcomes) and cost-efficiency analysis (costs and outputs) are both inherently comparative exercises, so the more data points we have and the more standardized the collection process, the more relevant insights we can derive.

Diversify Methodologies For Comparison

There is no one-size-fits-all approach to comparing the costs and impacts of alternative interventions. Donors can expand their investment options, and invest more effectively, by leveraging the most appropriate types of methods for comparison to support the specific decisions they are making. CEGA is working to expand this toolbox, and ensure that costing methods are better tailored to organizations with different interests, philosophies, revenues, and investment timelines. Two of the approaches we’re exploring, which were highlighted at our Cost-ober event in 2021, are described below.

Cash Benchmarking

A lot of development programs claim to be cost-effective, but cost-effective compared to what? Cash benchmarking asks “If an intervention isn’t at least as cost-effective as cash — which is easily distributed and impacts a wide range of outcomes — then why even bother investing in it?”

Portfolio-level Cost Analysis

USAID has experimented using Social Rate of Return (SROR) for evaluating the Development Innovation Ventures (DIV) Portfolio. They found that four innovations drove the whole portfolio’s success, producing $5 for every dollar invested, for a 77% social rate of return (SROR) for the portfolio. CEGA is now exploring a similar portfolio level SROR approach with another donor exploring scalable innovations.

Expanding value-for-money horizons for philanthropy

We want to help organizations spend their excess resources as cost-effectively as possible. More quality cost evidence would expand the potential array of attractive investments for donors. It would also help provide the groundwork for exploring programs with diverse time-horizons (short- and long-term) and different outcomes (not just health). However, if donors and researchers keep measuring impact without attention to costs, they won’t have the evidence they need to confidently increase their yearly budgets and get money out the door cost-effectively.



The CEGA blog is a platform for discussing key issues related to poverty alleviation and global development.

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