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4.4 Cost-Effectiveness

4.4.1It is important that public expenditure on projects or programmes is cost-effective. This is achieved when the ratio of the outputs from a project or programme to the costs to the taxpayer of producing them is satisfactory.
4.4.2Judgement of cost effectiveness is aided by benchmarking, that is, by comparing the ratios for a specific project with those for other similar projects. This helps to indicate whether the cost-effectiveness is acceptable. If the unit costs are considered too high, this should lead to redesign of the project, or to it being rejected.
4.4.3Relevant indicators of cost-effectiveness should be presented. These should normally include the ratio of total public assistance to total project cost, but other measures will also be appropriate depending upon the particulars of the case, for example, cost per job, cost per m2 of floor space, cost per room, cost per trainee place provided, cost per dwelling and so on.

When calculating these indicators:

  • the cost element (i.e. the denominator) should generally include all sources of NI public funding (including e.g. EU and IFI funding), not just the costs to an individual budget or programme. This is particularly important where there is more that one source of funding. (It is recognised that funding bodies may also wish to monitor the unit costs to their own budgets or programmes, for their own management purposes).
  • the effectiveness element (i.e. the numerator) should include the number of outputs net of displacement, so that the indicators reflect the net additional outputs arising from the activity.
4.4.5It is important that all forms of assistance from public sector sources are counted. Where assistance takes the form of cash grants, this cost is obvious, but there are many other possible forms of assistance, for some of which the true cost is less transparent. Common examples include participating grants, equity finance, cheap loans, premises at low rents, and land, infrastructure, training support or advice provided free of charge.
4.4.6A basic condition for cost-effectiveness is that the activity assisted should actually occur, that is, that the project should proceed and achieve the additionality claimed for it. Where a grant is paid, arrangements to secure repayment of that grant in the event of premature closure, or failure to deliver the promised outputs, should help to ensure this.

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