Cost-Efficiency Analysis
June 2022
This case study summarizes an analysis conducted by the Christian Rural and Urban Development Association of Nigeria (CRUDAN) to assess the cost-efficiency of a multi-purpose cash assistance (MPCA) program implemented in Nigeria in 2022.
● The program’s Cost Transfer Ratio was found to be $0.98, meaning it cost about $0.98 in non-transfer delivery costs (e.g., targeting, transfer fees, monitoring, etc.) for every one dollar delivered to clients. This is in line with other cash programs in West Africa implemented by international NGOs.
● The relatively large program scale (i.e., 1,080 households) enabled high program efficiency, showing that national NGOs can achieve high Value for Money, when funded at the same scale as international NGOs typically are.
● Efficiency could be further increased if the humanitarian community is able to harmonize each implementing organization’s cash transfer size to cover all basic needs in each distribution and coordinate for existing client lists to be shared and reused among implementing organizations.
● At the same program scale and context, cash distribution can be more efficient (i.e., 18 percent lower cost per dollar of value distributed) than non-food item (NFI) distribution, and offer better value and choice for recipient households where goods are available in local markets and when paired with community sensitization.
Introduction
In Northeast Nigeria, the compounding effects of the Boko Haram insurgency, COVID-19 pandemic, and erratic rainfall patterns have disrupted food supplies, constrained agricultural and livelihoods activities, and exacerbated food insecurity for more than 5.1 million people in Borno, Adamawa, and Yobe states.
To complement existing emergency food assistance efforts for conflict-affected people, the Christian Rural and Urban Development Association of Nigeria (CRUDAN) is providing multi-purpose cash assistance (MPCA) to 1,080 households in Konduga, Mafa, and Bama Local Government Areas (LGAs) in Borno state. Distributions will take place between January 2022 and January 2023, funded by the Nigeria Humanitarian Fund (NHF). Each household will receive 3 rounds of cash through debit cards, with the amount for each round determined according to the Minimum Expenditure Basket (MEB) for
condiments and cooking fuel: 15,100 NGN in the first round; 15,100 NGN in the second round; and 9,100 NGN in the third round. The total amount of cash distributed will be $106,110, or an average of $33 total per household across the three distributions.
Under a competitive funding environment with shrinking funds available for Northeast Nigeria, CRUDAN was interested in learning about the Value for Money (VfM) of the project to assess program performance, understand cost drivers in contexts with volatile prices, and identify lessons to maximize reach and impact per dollar spent. In assessing VfM, CRUDAN focused on analyzing the cost-efficiency (i.e., cost per output) of MPCA. This analysis will capture the operational efficiency of the program, but must be combined with other types of data to fully understand cost-effectiveness.
Analysis Approach and Methodology
Data
The cost-efficiency analysis was conducted using the budgeted costs and targeted outputs of the ongoing MPCA program being implemented in Konduga, Mafa, and Bama Local Government Areas (LGAs) in Borno State between January 2022—January 2023. The costs analyzed included Direct Project Costs, Direct Shared Costs, and Indirect Costs. While analyses based on budgets and targets are useful to establish program delivery ambitions, they are only as accurate as the projections they build on. For MPCA, the cost-efficiency metric is Cost Transfer Ratio (CTR), or the delivery cost to transfer each $1 of cash to people in need, calculated by dividing the total non-cash delivery costs (excluding transfer value) by the total amount of cash transferred.
The Dioptra Tool
Dioptra is a web-based cost analysis software that allows program staff in country offices, who are most familiar with day-to-day program implementation, to rapidly estimate the cost efficiency of their program activities. It guides users through a standardized costing methodology, ensuring that all analysis results are methodologically consistent and can be meaningfully compared across different contexts and organizations. By using the Dioptra tool, rather than having to learn a complex costing methodology and assemble data manually in spreadsheets, staff can focus on providing crucial estimates of how different resources were used across activities within a program, which are not captured in any current data system. For more information, see www.dioptratool.org/how-does-dioptra-work.
Results
The program’s Cost Transfer Ratio of $0.98 is in line with other cash programs in West Africa. The large program scale enabled high program efficiency, showing that national NGOs can achieve high Value for Money, when funded at the same scale as international NGOs typically are.
The CTR for other cash programs in countries in West Africa implemented by international NGOs ranged from $0.81 to $2.01 (Figure 1), and CTR is generally correlated with greater program scale. This program was able to achieve high efficiency because it had the budget to serve a large number of households (1,080). This fits with existing evidence that a key driver of efficiency of cash programs is the scale of projects, suggesting that this pattern holds true for national as well as international NGOs.
The comparison with other international NGOs in Figure 1 demonstrates that national NGOs such as CRUDAN are able to achieve high Value for Money when funded at the same scale (>1,000 households) as international NGOs. If the humanitarian community is able to harmonize each implementing organization’s cash transfer size to cover all basic needs in each distribution and coordinate for existing client lists to be shared and reused among implementing organizations, the time and effort from staff and community volunteers for client mobilization, targeting, and registration could have been reduced, further increasing efficiency.
Apart from the cash transferred (51 percent), the second largest spending area was on Food Security and Livelihoods staff (18 percent) to implement the program. Taking into account the volatile context in Northeast Nigeria, analyzing the actual cost-efficiency at project close can ensure that actual project experiences and spending are fully captured.
Figure 1: Cost Transfer Ratios of multi-purpose cash programs in West Africa implemented by international NGOs, compared with this program implemented by CRUDAN. The x-axis is in log scale.
At the same program scale and context, cash distribution can be more efficient than non-food item (NFI) distribution, and offer better value and choice for recipient households where goods are available in local markets and when paired with community sensitization.
Conducting cost analysis using the same methodology can enable useful comparison of different programs. Drawing from a past analysis of hygiene kit distribution, it is possible to compare the efficiency of cash distribution with non-food item (NFI) distribution (Figure 2) to understand if cash programs can be a viable alternative to NFI programs in an emergency setting such as Northeast Nigeria.
In similar contexts (Borno state), at a similar program scale (1,000–1,080 households) and similar value distributed ($33–36 per household), multi-purpose cash assistance was found to be slightly more efficient (i.e., 18 percent lower cost per dollar of value distributed) than in-kind hygiene kit istribution, suggesting that more households could be served through cash than kits, with the same budget. This also corroborates existing evidence on the efficiency of in-kind vs. cash programs for INGOs, suggesting that the same holds true for national NGOs. Compared to cash distribution, hygiene kit distribution may cost more due to additional hygiene promotion, kit procurement, and transport costs, while keeping other things constant. Where goods are available in local markets, providing cash in conjunction with community sensitization such as hygiene promotion may offer better value and choice for households in need, compared to NFIs.
Figure 2: Cost Transfer Ratios of multi-purpose cash distribution compared with hygiene kit distribution, implemented by CRUDAN.
