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EXTENSION EDUCATION
FACT SHEET DEPARTMENT OF AGRICULTURAL AND EXTENSION EDUCATION |
Determining Extension Program Economic Benefit Value
John G. Richardson and Charles L. Moore*
Valuing impacts or results of Extension programs is often difficult. However, with appropriate information in hand, one can do a reasonably accurate job of estimating program values. In this fact sheet, one or more of the factors listed may be useful as a general guide for estimating the economic value of program impacts.
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Reduced costs
This popular means of valuing has been used for many years by Extension personnel to estimate the economic value that program participants gain by changing behaviors or practices resulting from the organization’s educational programs. Cost savings or reduced expenditures that participants realize can often be easily identified in determining the economic impact of programs. For example, the value of a program to educate people on how to “comparison shop” could be the amount of savings realized by purchasing “generic or store labeled” brands compared to “name” brands of merchandise.
Estimating the value of a soil fertility program, such as soil sampling education, can be the dollars saved when basing application rates on the recommendations from the sample analysis, rather than indiscriminately applying higher rates. Another example of the ‘reduced cost’ method of program valuing could be the amount of reduced interest realized by program participants resulting from refinancing their home mortgages in response to an Extension educational program on refinancing.
Increased income
Many times, Extension programs help participants gain new skills that enhance their job prospects, lead them to adopt innovative practices that increase yields or make other decisions that cause them to increase their income. The value of these programs is the increased income.
For example, through a family financial management program, a participant might learn about the benefits of investing in money market savings accounts rather than regular savings accounts. If, as a result of the program, participants shift their funds to money market savings accounts, the estimated value could be the extra income earned as a result of the higher interest rate they earn.
Similarly, one can estimate additional income gained by producers who, as a result of Extension programming, adopt new or alternative enterprises that enable them to use available resources more efficiently. To estimate the program's value, one can compare participants' income levels before and after the program.
Savings
The implementation of a logical and sustained savings plan is recommended to help families and individuals be prepared to meet and overcome financial emergencies. Such a savings plan may ultimately result in an accumulation of sufficient funds for other investments or to fulfill a lifelong dream. Consumer economists recommend various savings rates. The amount that is recommended to have accumulated in an accessible account to meet “emergency” or unanticipated financial needs is three to six months of salary. For future consumption purposes, it is generally suggested that a person try to save 5 to 10 % of one’s salary.
There are a number of Extension programs that focus on savings enhancement education, and the amounts of increased savings experienced by program participants can be considered the estimated value of the program.
Increased productivity
This means of valuing is almost a standard practice in much of business and industry as well as agriculture. Such increases in productivity as greater quantities of a product being produced by the same number of workers, due to installation of more efficient machinery or improved coordination of parts delivery, are often contributors to increased productivity per employee. Covering more acres in the same or less time with the same number or fewer employees indicates increased productivity per unit of time per employee. Larger or more efficient equipment often increases the level of productivity of a farm operation. Obviously increased yields or growth rates are indicators of increased productivity. The differences between the values gained from the increased efficiency, and the costs required for obtaining the new efficiencies, would be the value of educational programs focusing on such efficiency gains.
Computer systems are often touted as excellent contributors to greater efficiencies, as supplies or inventories are constantly matched with the number of employees needed at any given time, to complete appropriate tasks. Managers of businesses such as restaurants, food stores, and many retail businesses are able to staff and maintain inventory more efficiently as a result of having enhanced computer systems. Thus, comparing sales and profits from business prior to adopting computer technologies compared to sales and profits after adoption will provide an estimate of the value of the new technology. The differences between the cost of the new technology and the gains from the increased efficiencies would be the estimated values for the Extension programs that resulted in such changes being adopted.
Value added
The term value added is often used to reflect increased value gained from using a product in a new way. For example, a sawmill adds value when it decides to produce finished products, rather than selling all of its production as rough lumber. To estimate the value of an Extension education program that provides the knowledge and skills for mill operators to finish lumber, one could calculate the difference in the value of the rough lumber compared to the finished lumber, minus the costs associated with the finishing process.
An example of value added is when a farmer chooses to use grain produced on the farm as feed for livestock rather than selling the coarse grain. This alternate use can significantly improve the returns per bushel of grain produced, and one can use the difference in per-bushel returns to estimate the value of an Extension program that educated farmers on alternative grain uses.
Another example is specialty foods or foods wrapped for convenience or attractiveness. Individually packaged products often cost considerably more than bulk products, but many consumers are quite willing to pay for the convenience or perceived higher quality of the smaller quantity or specially packaged product. The increased value can be used to estimate the monetary impact of educational programs that focus on helping businesses capitalize on packaging and other market development opportunities.
Expected values
To use this method of estimating program value, one needs to have some knowledge of the end products or results that are expected to result from the educational program. For example, the value of a program to help people start home-based business may be the projected income generated by the new business. That income can be based on the known history of similar ventures. For example, participants who start a tourist enterprise or bed-and-breakfast can use data from similar enterprises to project levels of use as well as anticipated income flow.
For essentially all commercial or agricultural loans, lending institutions require an estimate of anticipated cash flow in order to evaluate loan applications. Such estimates of expected additional income as a result of a new venture can be used as an estimate of the value of educational programs focusing on alternative enterprises, for example.
Alternative opportunity cost of capital
Extension educators provide clients with information on ways to reallocate available funds within their businesses to produce a greater level of return, and that higher rate of return can be used to estimate program value. For example, if a farmer had a choice of investing in machinery to produce major cost savings or investing the same funds into a regular savings account, the difference in the value of increased efficiencies gained from the machinery compared to the interest earned from the savings account would reflect the value or benefit in making that decision. And the increased value could be a good estimate of the economic worth of the educational program that led to the decision.
Willingness to pay
The willingness of clients or consumers to pay for some item or service may be considered an economic benefit when this willingness exceeds what would be considered a standard norm for a product or service. Some consumers are, for example, willing to pay more for bottled water than tap water because they think bottled water is more convenient or pure. So, while a pint of water costs only pennies, consumers are willing to pay considerably more for the same amount of bottled water. This perception of improved quality of products can be parlayed into additional income gained through improved product packaging or presentation of vegetables or fruits in attractive farmer’s markets displays. Such increased value associated with consumers’ willingness to pay can be used to estimate the monetary impact of educational programs that focus on helping individuals and businesses capitalize on packaging and other market development opportunities.
Similarly, people are often willing to state how much they are willing to pay for certain recreational opportunities. Such stated willingness-to-pay could serve as the basis for estimating the value of an educational program on trail development or agritourism.
Multiplier effect
This term is often used in economic development circles. Oftentimes, when new money is introduced into a community as a result of economic activity, whether from the start up of new businesses or expansion of existing businesses, there is a greater demand for other goods and services in the community. This can, in turn, result in more new businesses. The "multiplier" is, then, the number of times that the initial dollar of economic activity causes additional dollars to be generated in the community. The estimated value of the Extension program that stimulated the initial increase in economic activity could be the total value of additional goods and services being generated. Often, such multiplier effects are projected at two to three dollars gained in further benefits to the economy for each dollar earned in a newly created job.
How we are better off
Often, changes in habits, lifestyles, practices, infrastructure, and physical and social environment, may have significant impacts on our well-being. Removal of obvious hazards, improvements in physical surroundings, and changed behaviors resulting in reduced illnesses or increased life expectancy, are all factors that can reflect program values.
Safe driving records translate to lower insurance premiums for safe, accident free drivers, than the higher rates paid by persons who have a less than stellar record for driving convictions. Even a single driving violation can dramatically impact the amount of insurance premium paid. In this regard, driving safety programs may be valued based on these reduced costs for insurance, as well as reductions in accidents, which cause property loss, injury or death. Worker safety programs can impact the safety and well being of employees. Values associated with reductions in injuries or deaths can be quantified, with reduced medical expense reductions, costs avoided from the lost productivity of injured workers, and costs avoided due to reduced death rates all being means for estimating values of safety program impacts.
When valuing Extension safety programs, it is important to recognize that the insurance industry continuously places values on lives and serious injuries. Jurors in courts of law consistently determine economic values to be placed on persons’ lives that have been killed in accidents. These decisions may be quite variable, and are often based on a prediction of one’s future earning capacity, stage in life, education level, career achievements and professional achievements; and on the whims of jurors themselves. Such decisions form the framework for establishing public policy, as to what levels of expenditures governments will go to in the protection of lives.
With statistical valuing of human life as a given, placing economic values on the impacts of educational programs that result in safer driving habits, improved eating habits, water safety, seat belt use, safe pesticidehandling, and many other similar factors of safety are examples of safety behaviors that impact the protection of human life. Such projections can be reasonably quantified economically by using statistical values ascribed to human life, injury, and health.
Non-market benefits (cost effectiveness)
Many times, Extension programs produce very tangible results of changes in human behavior that can be evaluated but not easily valued due to their non-marketability nature. These non-market benefits are mostly in human terms that may range from increases in education levels, changed aspirations or attitude changes of program participants, to improved quality of life, self-esteem, or major leadership achievements being demonstrated. While none of these changes fit nicely in placing monetary values on such benefits, statistics have shown historically that on average, persons with higher levels of education have higher earnings than less educated persons. Further, persons with high levels of self esteem and demonstrated leadership skills often succeed more readily in society. As with the increasingly higher levels of education, economic values that use statistical projections of estimated future value may be placed on many of these examples of positive behavioral change that can result from Extension human development programs.
It is often difficult to estimate the economic value of the impacts of educational programs that focus on producing social change or human development results that do not have direct market value (cannot be bought or sold). However, many such changes have been studied and accompanying values projected of these changes. These values can be used in estimating the value of Extension programs that produce such identifiable change. For example, the United States Census Bureau produces estimated values of different education levels in average lifetime earnings for the respective levels.
Indirect values
Indirect values are often difficult to assess without considerable study by economics experts. Also, such indirect benefits may be impacted by numerous factors well beyond the scope or influence of the educational program. When attempting to value the results of a program beyond its most immediate results, such values may be questionable at best, especially if the valuing is made by persons who are not recognized as valuing experts.
An example of indirect values could be the value of refrigeration equipment sold to better protect foods in a restaurant. Part of the motivation to purchase the equipment may be assumed to be a result of Extension certification programs for food handlers. While the primary program goal was to assure food safety through proper food preparation and handling practices by restaurant or other food service workers, in reality, the equipment may have simply been a replacement of old equipment. Other motivations may be that the restaurant needed new equipment for expanding, or simply, that a very good refrigeration equipment salesperson happened to have made a visit.
In valuing Extension programs, unless indirect values can be clearly identified as resulting from the program impact, such indirect valuing should generally be avoided or at least approached very cautiously.
Summary
This fact sheet is intended to give some insights into the process of estimating economic values for Extension program impacts. While savings, increasedincome, and reduced costs may be more familiar to Extension workers, the other means of valuingthatare discussed may be more useful for assessing the value of many educational programs and their resulting impacts. Also, while a few examples are provided, the user of this document will have many more examples that may apply more appropriately to the respective valuing functions.
While some of the valuing functions may be relatively easy to assess, other functions may be found to be more complex or difficult to define or locate value sources. Fortunately, during recent years, the Internet has provided a new and vast opportunity for locating specific values associated with a broad array of entities. For example, the values associated with the benefits of breastfeeding are quite numerous on various Web sites. A brief Web search is often all that is needed to obtain valuing information that may be needed. The example used in this document of U. S. Census Bureau projections for average income values of different levels of education, is a reliable source of valuing information. While brief Web searches may be the most ready avenue for locating respective values, it should be kept in mind that not everything on the Web is valid. Extension specialists or other experts can be reliable sources for information on appropriate values for many program outcomes, and should be consulted to assure that estimated program values are realistic and valid.
The process of valuing Extension educational programs has been a standard practice for many years. However, as the ever-increasing need for program impact information is required for organizational and programmatic accountability, much greater attention is being given to the quantification of values of impacts resulting from Extension educational programs. It is hoped that this fact sheet will provide the needed information for gaining a grasp of the program valuing process.
References
Boardman, A. F., Greenberg, D. H., Vining, A. R., & Weimer, D. L. (1996). Cost-benefit analysis: concepts and practice. Upper Saddle River, NJ: Prentice Hall.
Campen, J. T. (1986). Benefit, cost, and beyond. Cambridge, MA: Ballinger Publishing.
Fallon, C. (1980). Value analysis. Carrboro, NC: Triangle Press.
Layard, R. & Glaister, S. (Eds.). (1994). Cost-benefit analysis. 2nd ed. Cambridge, England: Cambridge University Press.
Levin, H. M. (1983). Cost-effectiveness: A Primer. Newberry Park, CA: Sage Publications.
Nas, T. F. (1996). Cost-benefit analysis. Thousand Oaks, CA: Sage Publications.
O'Neill, B., & Richardson, J.G. (1999). Cost‑benefit impact statements: A tool for extension accountability. Journal of Extension, 37(3), 1-2. Retrieved November, 2002, from http://www.joe.org/joe/1999august/tt3.html
Richardson, J.G., & Phillips, R E. (1996). Developing cost and benefit estimates (SD-8, Extension Education Process and Practice). Raleigh, NC: North Carolina State University, NC Cooperative Extension Service.
Schmid, A. A. (1989). Benefit-cost analysis. Boulder, CO: Westview Press.
Swiss, J. (1986). Readings for PA 516 (Course Packet, Summer Semester). Raleigh, NC: North Carolina State University.
Walden, M.L. (1990). Measuring how much economic change will mean to your community. (Agricultural and Resource Economics Publication). Raleigh, NC: North Carolina State University, NC Cooperative Extension Service.
Publication Number
AEE-01-2002
Grateful appreciation is expressed to peer reviewers: Michael L. Walden, Department of Agricultural and Resource Economics; David M. Jenkins, Personal and Organizational Development; Carol Schwab and Judy Mock, Department of Family and Consumer Sciences; Dee Shore, Department of Communications Services; Edwin Jones, Agricultural and Natural Resources Programs; Donald Cobb, District Extension Director; Joy Staton, County Extension Director, North Carolina Cooperative Extension Service; and Joyce Dolbier, Communications Specialist, University of Florida.
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*Authors:
Dr. John G. Richardson is Extension Program Delivery and Accountability Leader, North Carolina Cooperative Extension Service, Department of Agricultural and Extension Education, NC State University, Raleigh, NC.
Dr. Charles L. Moore is Department Extension Leader and Associate Department Head, Department of Agricultural and Resource Economics, North Carolina Cooperative Extension Service, NC State University, Raleigh, NC.
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