2011 NCJA presentation

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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

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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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Preview

Types of economic analysis

Application of economic analysis to decision making

Economic analysis & your practice

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Types of economic analysis

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Range of economic analyses

Cost analysis

Cost-effectiveness analysis

Cost-benefit analysis

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Cost analysis

How much will a program cost?

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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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Cost-effectiveness analysis

Can I get the same result for less?

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Cost-effectiveness analysis

Calculate costs

Select an outcome of interest (e.g., jobs, number of crimes avoided, etc.)

Divide costs by outcomes

Result: cost-effectiveness ratio

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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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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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Application of economic analysis to decision making

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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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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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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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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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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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Example of cost-effectiveness analysis: Jail and jail alternatives

Program Total cost (millions)

Average daily population

Cost per day 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.

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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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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 Policy.

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Program

Total benefits

Total costs

Net benefits

Benefit/ 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

Example of cost-benefit analysis: Evidence-based programs in Washington State

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 Policy.

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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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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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Example of cost-benefit analysis: Transitional jobs program for ex-prisoners

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.

Benefits and Costs per CEO participant

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Economic analysis & your practice

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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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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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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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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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Measuring victim costs

Jury awards

Willingness to pay surveys

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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 (2010): 98-109.

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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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Best and worst case scenarios

Break-even analysis

Types of sensitivity analysis

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The type of analysis you select depends on the question you need to answer.

Conducting a rigorous analysis requires the right tools.

Closing

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Forms of economic analysis

Taxpayer costs

Victim costs

Marginal costs

Perspectives

Monetizing benefits

Discount rates

Time periods

Sensitivity analysis

Communicating results

Cost-benefit toolkit

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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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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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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.