Social Return on Investment:

Practical Tools for Cost Benefit Analysis Reclaiming Futures Webinar

Kristina Smock Consulting

July 28, 2010

What is Cost-Benefit Analysis?

Costs Benefits Do the economic benefits of providing this service outweigh the economic costs?

Benefit-to-Cost Ratio monetary value of benefits monetary costs of obtaining them

Case Study

• Prevention • Engagement • Housing • Education and jobs

Calculating Costs

 Divide budget into individual program areas that each match with a specific outcome  Include all costs that are necessary in order to achieve the outcome  Time period for costs should match time period for outcomes  Make sure all relevant costs are captured in your final cost-benefit ratio

New Avenues’ Costs

Outputs and Outcomes

Intervention Outputs Outcomes

No Outcome Data?

 Apply your output data to studies showing the outcomes of similar interventions.

 Calculate how many people would have to benefit for the program to pay for itself.

 Compare the costs of two alternatives.

Sample Outcomes

104 homeless youth exited street life 32 homeless youth obtained GEDs 99 homeless youth obtained jobs 182 homeless youth committed to case management

Identifying Benefits

 Direct benefits to individual participants  Benefits to other individuals  Cost savings to society  Financial returns to society

Sample Benefits

Reduction in victimization rates and criminal activity for youth who exit street life Increase in lifetime earning potential for youth who earn GEDs Increase in personal income and tax contributions for youth who obtain jobs Reduction in long-term risks of substance abuse for youth who engage in case management

Calculating Monetary Value of Benefits

Financial benefits

• Aggregate actual short-term benefits for all participants • Estimate long-term benefits by applying formulas from research

Non financial benefits

• Convert to monetary value based on research studies • Some benefits cannot be converted to monetary value

Calculating Actual Cost Savings Based on Government Records

Challenges of Calculating Actual Cost Savings from Records

 Privacy issues  Data base incompatibility  Time lags  Getting cost data  Finding a comparison group

Examples from New Avenues

Example 1: Reception Center

1,392 youth diverted from juvenile detention system $144: Reception Center intake $365: Juvenile detention intake Total cost savings: $307,632

Example 2: Runaways

Outcome • 456 runaways accessed Reception Center National data • 40% of runaways become homeless • 50% of homeless youth access shelter • Average shelter stay: 4 months Cost of shelter: • $62 per day Cost savings: • $677,040

Example 3: Jobs

99 youth placed in jobs Average earnings: $20,294 for 65 full time workers and $7,382 for 34 part time workers Estimated annual tax contributions in first year of employment: $337,490

Example 4: Victimization

Outcome • 104 homeless youth exited street life National data • Half of street youth have been robbed • Half of street youth have been attacked Cost of victimization: • Robbery: $15,600 per incident • Assault: $40,700 per incident Cost savings: • $2.9 million

New Avenues’ Findings

$1.00

$4.12

New Avenues saved the community the equivalent of $4.12 for every $1.00 it spent in 2004-05 across all of its programs

Challenges of the Methodology

 Multi-layered research  Time consuming and labor intensive  Detailed documentation required  Not all benefits can be captured

Cost-Benefit Worksheet Example 1.

2.

3.

4.

5.

6.

Cost of program or program component:

$195,203

Unit of cost:

Per year

Number of youth served by program component during time period covered by unit of cost:

456 runaway youth were served

Outcome during same time period:

100% of runaway youth served were reunited with their families or connected to appropriate services when reunification wasn’t possible.

Primary or secondary data tied to outcome showing what would have likely happened to participants without the intervention:

Nationally, 40% of runaways end up homeless.

Data showing per unit monetary equivalent of outcome:

Nationally, about half of all homeless youth access shelter services, for an average of 4 months. The cost to provide shelter and basic services for each youth who accesses it is $62 per night, or an average of $7,440 for 4 months. Since only half of all homeless youth access shelter services, the average cost per youth is $3,720.

Calculate Ratio

100% x 1,392 x $221

Answer 5 x Answer 3 x Answer 6 Answer 1

195,203

= $1.58 in benefits for every dollar spent per year

Total Cost Benefit Total cost savings for the costs in Answer 1:

$678,528 + $307,632 $195,203

= $5.05 in benefits for every dollar spent per year

Note: Numerator and cost benefit ratio are slightly different than in the report because of differences in rounding.

Questions and Discussion