1. Cost-Benefit Analysis for Criminal Justice
Policy and Planning
2011 National Criminal Justice Association National Forum, August 2, 2011
Lora Krsulich, Christian Henrichson, and Sarah Fajardo
Vera Institute of Justice, Cost-Benefit Analysis Unit
Slide 1
2. Questions for decision making
How much will a program cost?
Can I get the same result for less?
Would another type of program get me more for my
money?
A program is effective, but do the benefits outweigh the
costs?
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3. Preview
Types of economic analysis
Application of economic analysis to decision making
Economic analysis & your practice
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7. Cost analysis
Direct costs, like equipment and fringe benefits, in
addition to staff salaries;
Indirect costs or overhead, such as central support
services;
For new programs or policies, start-up expenditures
and one-time costs, including hiring and training;
Future costs, including wage increases, contributions
for increasing pension and insurance expenses, and
other escalating costs; and
Capital costs, including debt service.
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10. Cost-benefit analysis
Will another type of
program get me more
for my money?
A program is
effective, but do the
benefits outweigh the
costs?
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11. Cost-benefit analysis
1. Determine the impact of the initiative
2. Determine whose perspectives matter
3. Measure costs
4. Measure benefits (in dollars)
5. Compare costs and benefits
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13. Application of economic analysis to
decision making
Cost analysis
How much will a program cost?
Cost-effectiveness analysis
Can I get the same results for less?
Cost-benefit analysis
Would another program get me more for my money?
A program is effective, but do the benefits outweigh the
costs?
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14. Example of cost analysis: True Cost of Prisons
This cost analysis can inform decision making by:
• Providing an accurate accounting of the costs to
improve public transparency and accountability.
• Providing a more accurate means of comparing
different prison systems.
• Improving fiscal forecasts related to changes in the
prison population (i.e., there are potential costs and
savings in areas outside the corrections department).
The True Cost of Prisons is a project of the Vera Institute of Justice and
Pew’s Public Safety Performance Project
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15. Example of cost analysis: True Cost of Prisons
The costs of operating prisons are paid by various
entities within state governments.
The expenses incurred by state corrections departments
underestimate the total cost of prisons.
A cost analysis provides a complete accounting of
expenses to better inform decision making.
The True Cost of Prisons is a project of the Vera Institute of Justice and
Pew’s Public Safety Performance Project
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16. Example of cost analysis: True Cost of Prisons
Include expenses at state corrections departments plus
expenses which are sometimes paid outside the
corrections department:
• Pension and retiree health care benefits
• Hospital care for inmates
• Capital costs
• Indirect costs (state centrally administered services)
The True Cost of Prisons is a project of the Vera Institute of Justice and
Pew’s Public Safety Performance Project
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17. Example of cost-effectiveness analysis:
Jail and jail alternatives
Cost-effectiveness analysis can inform decision making
by illustrating the comparative costs for each option.
Example: Which is the least costly option?
• Jail
• Drug court
• Pretrial services
• Probation
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18. Example of cost-effectiveness analysis:
Jail and jail alternatives
Total cost Average daily Cost per day
Program (millions) population per client
Jail $171 4,337 $107.71
Drug court $3.1 823 $10.33
Pretrial services $5.6 2,802 $1.48
Probation $.8 6,397 $0.33
Piquero, Alex. Cost-Benefit Analysis for Jail
Alternatives and Jail. October 2010. Slide 18
19. Example of cost-benefit analysis:
Evidence-based programs in Washington State
Cost-benefit analysis can inform decision making by:
• Considering the costs relative to the benefits.
• Standardizing outcomes in dollar terms, providing a
better means of comparing different types of programs
Example: Which evidence-based programs yield the
greatest net benefit to society?
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20. Example of cost-benefit analysis:
Evidence-based programs in Washington State
Legislature confronted with limited resources and a
variety of programming needs.
Washington State Institute for Public Policy, at the
legislature’s direction, produces:
a comprehensive list of programs and policies that
improve . . . outcomes for children and adults in
Washington and result in more cost-efficient use of
public resources.
Aos, S., et al. (2011). Return on investment: Evidence-
based options to improve statewide outcomes (Document
No. 11-07-1201). Washington State Institute for Public
Slide 20
Policy.
21. Example of cost-benefit analysis:
Evidence-based programs in Washington State
Total Total Net Benefit/
Program benefits costs benefits cost ratio
Drug treatment in the
community $15,419 $2,102 $13,317 7.35
Mental health court $14,230 $2,878 $11,352 4.95
Employment
training/job assistance $4,641 $132 $4,509 35
Aos, S., et al. (2011). Return on investment: Evidence-
based options to improve statewide outcomes (Document
No. 11-07-1201). Washington State Institute for Public
Slide 21
Policy.
22. Example of cost-benefit analysis:
Transitional jobs program for ex-prisoners
Cost-benefit analysis informs the decision making
process by:
• Illustrating whether the monetary and non-monetary
costs are outweighed by the benefits.
• Providing the costs and benefits over the long term.
• Illustrating what benefits and costs are incurred by
taxpayers, victims, and offenders.
Example: A re-entry program works, but is it worth the
cost?
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23. Example of cost-benefit analysis:
Transitional jobs program for ex-prisoners
The Center for Employment Opportunities (CEO) uses a
transitional jobs model to prepare ex-offenders for
employment.
Random assignment evaluation finds that CEO reduces 3-
year recidivism rates (arrest, conviction, incarceration) by 8
percent.
• Program group: 64.9 percent
• Control group: 70.6 percent
Cost-benefit analysis can inform whether the outcome is
worth the cost.
C. Redcross, M. Millenky, and V. Levshin. Final Report
on the Center for Employment Opportunities (CEO).
MDRC. Forthcoming 2011.
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24. Example of cost-benefit analysis:
Transitional jobs program for ex-prisoners
Benefits and Costs per CEO participant
Taxpayer Victim Participant Total
Criminal justice benefits 4,971 882 0 5,852
Employment benefits 4,708 0 1,043 5,751
CEO program cost -3,603 0 0 -3,603
Net benefits 6,076 882 1,043 8,001
Benefit/cost ratio 2.69 n/a n/a 3.22
Benefits and costs in 2009 dollars for the recently released subgroup.
C. Redcross, M. Millenky, and V. Levshin. Final Report
on the Center for Employment Opportunities (CEO).
MDRC. Forthcoming 2011.
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26. Three key economic analysis concepts
Marginal costs: accurately measure the costs
of a change in workload in a system or program;
Victim costs: monetize the benefits of public
safety and the costs of crime to victims and
communities;
Sensitivity analysis: incorporates uncertainty
in an analysis to inform decisions.
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27. Marginal versus average costs
Average costs include both marginal and fixed costs.
Fixed costs do not change as workload changes.
Marginal costs describe how the cost of an operation
changes when workload changes by a small amount.
When policies have a small effect on agency
operations, using average costs, instead of
marginal costs, will overstate
your costs and savings.
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28. Marginal costs and policy decisions
At present, it costs an average of $46,000 per year to
house an inmate in the MA DOC [Massachusetts
Department of Corrections]. But there is more to this
figure than one might realize. This cost changes with the
inmate’s security level, medical needs and other factors.
What is less known is that, on average, the cost
associated with one inmate’s specific needs is about
$9K per year – this covers stuff like food, clothing, and
other incidentals that we pay for on an inmate-by-inmate
basis.
Taunton Daily Gazette, Addressing the prison’s budget
and population. Paul Heroux, Feb. 17, 2011
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29. Victim costs
Measure the benefits of public safety to individuals and
communities
Measure the costs of crime incurred by victims
Monetize tangible and intangible costs
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31. Tangible and intangible victim costs
Tangible and Intangible Victim Costs by Type of Offense
Type of Offense Tangible Intangible Total
Murder $1,285,146 $8,442,000 $8,982,907
Rape/sexual assault $41,252 $199,642 $240,776
Robbery $21,373 $22,575 $42,310
Motor vehicle theft $10,534 $262 $10,772
Kathryn E. McCollister, et al., “The Cost of Crime to
Society: New crime-specific estimates for policy and
program evaluation.” Drug and Alcohol Dependence Slide 31
(2010): 98-109.
32. Sensitivity analysis
Sensitivity analysis provides information about
the degree to which cost-benefit analysis results
are sensitive to changes in the estimates of
costs or policy effects, as well as the underlying
assumptions.
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33. Types of sensitivity analysis
Best and worst case scenarios
Break-even analysis
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34. Closing
The type of analysis you select depends on the
question you need to answer.
Conducting a rigorous analysis requires the
right tools.
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35. Cost-benefit toolkit
Forms of economic analysis
Taxpayer costs
Victim costs
Marginal costs
Perspectives
Monetizing benefits
Discount rates
Time periods
Sensitivity analysis
Communicating results
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36. Cost-Benefit Knowledge Bank for Criminal Justice
(CBKB)
Visit CBKB at http://www.cbkb.org
Follow us on Twitter at
http://www.twitter.com/CBKBank
Friend us on Facebook at
http://www.facebook.com/costbenefit
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37. Contact information
Christian Henrichson
(212) 376-3161
chenrichson@vera.org
Lora Krsulich
(212) 376-5201
lkrsulich@vera.org
Sarah Fajardo
(212) 376-3042
sfajardo@vera.org
cbkb@cbkb.org
http://www.cbkb.org
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38. This project is supported by Grant No. 2009-MU-BX K029 awarded by the Bureau of
Justice Assistance. The Bureau of Justice Assistance is a component of the Office of
Justice Programs, which also includes the Bureau of Justice Statistics, the National
Institute of Justice, the Office of Juvenile Justice and Delinquency Prevention, and
the Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering, and
Tracking. Points of view or opinions in this document are those of the author and do
not represent the official position or policies of the United States Department of
Justice.
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Editor's Notes
Reasons that you should listen— -One of the few cost-benefit studies performed by the federal government on PREA -Asks tricky questions– how do you put a dollar value on the benefits of avoiding something like prison rape and other forms of sexual assault? Should you do it, ethically? Total cost of operating prisons:
Use if you are evaluating, making grants, deciding which program to fund
How many work for SAAs? How many use economic analysis in your jobs?
Cost analysis , fiscal impact analysis , cost-effectiveness analysis , and cost-benefit analysis are among the most commonly used forms of economic analysis. I’ll describe these four types of economic analysis, comparing, contrasting, and explaining which circumstances warrant their use.
A cost analysis sounds simple, but it requires effort to carry out a thorough cost analysis. It’s not enough to identify obvious costs, like the salaries of program staff. A complete cost analysis should consider direct costs--like salaries, benefits, and equipment--that are directly attributable to program operations. It also considers start-up costs, such as hiring and training; indirect costs, like the cost of human services, IT, or fiscal departments; and capital costs, including debt service. A cost analysis should also consider future costs, such as wage increases, anticipated contributions to pension and insurance plans, and other escalating costs.
A cost analysis sounds simple, but it requires effort to carry out a thorough cost analysis. It’s not enough to identify obvious costs, like the salaries of program staff. A complete cost analysis should consider direct costs--like salaries, benefits, and equipment--that are directly attributable to program operations. It also considers start-up costs, such as hiring and training; indirect costs, like the cost of human services, IT, or fiscal departments; and capital costs, including debt service. A cost analysis should also consider future costs, such as wage increases, anticipated contributions to pension and insurance plans, and other escalating costs.
A cost analysis sounds simple, but it requires effort to carry out a thorough cost analysis. It’s not enough to identify obvious costs, like the salaries of program staff. A complete cost analysis should consider direct costs--like salaries, benefits, and equipment--that are directly attributable to program operations. It also considers start-up costs, such as hiring and training; indirect costs, like the cost of human services, IT, or fiscal departments; and capital costs, including debt service. A cost analysis should also consider future costs, such as wage increases, anticipated contributions to pension and insurance plans, and other escalating costs.
Make sure to touch on advantages: Uses evidence, provides common denominator - $, incorporates intangibles, considers multiple perspectives, and adjusts for future costs
Let’s take an example of cost-effectiveness analysis from the justice field. Suppose that you’re comparing two job-training programs, both of which serve 1,000 ex-offenders per year. After doing a comprehensive cost analysis, you find that Program A costs $10 million and Program B $7.5 million. Program A, which costs $10,000 per client, is more expensive than Program B, which costs $7,500 per client. Program A, however, places more of its clients in permanent employment than Program B. The appropriate measure of the programs’ cost-effectiveness is the total program cost divided by the desired outcome, in this case, the total number of job placements. The results show that Program A is more cost-effective, i.e., a better use of resources, because its cost per placement is lower than Program B’s.
also it is a term borrowed from economists
also it is a term borrowed from economists
Best and worst: just what it sounds like: apply the best and worst assumptions that you can to your CBA and examine the results Break even: can be used to determine what needs to happen for the initiative to be economically neutral. If the requirements are feasible, then the initiative will have a chance at least to pay for itself. If not, then the program is unlikely to be cost-effective. Example in Washington state
Best and worst: just what it sounds like: apply the best and worst assumptions that you can to your CBA and examine the results Break even: can be used to determine what needs to happen for the initiative to be economically neutral. If the requirements are feasible, then the initiative will have a chance at least to pay for itself. If not, then the program is unlikely to be cost-effective. Example in Washington state
Best and worst: just what it sounds like: apply the best and worst assumptions that you can to your CBA and examine the results Break even: can be used to determine what needs to happen for the initiative to be economically neutral. If the requirements are feasible, then the initiative will have a chance at least to pay for itself. If not, then the program is unlikely to be cost-effective. Example in Washington state
