American Institute of Certified Planners (AICP) Practice Exam

Cost-effectiveness analysis would be most appropriately used in which of the following scenarios?

1. Determining if annexation would have a negative fiscal impact

2. Comparing the actual cost of implementing a program against the benefits to the community

3. Making a decision on whether to build a new senior center or hire more police officers

4. Establishing monetary costs and benefits of a large expenditure

The correct answer is: Making a decision on whether to build a new senior center or hire more police officers

Cost-effectiveness analysis is particularly valuable when comparing different options for achieving the same goal, allowing decision-makers to evaluate the relative merits of those options in terms of cost relative to their effectiveness. In the scenario of deciding whether to build a new senior center or hire more police officers, this type of analysis helps assess which option delivers the greatest benefit in relation to its cost. In this context, the effectiveness of each alternative can be measured against a common set of objectives—such as community health, safety, and well-being—enabling a direct comparison that factors in the monetary implications of each choice. This method is essential when resources are limited but the outcomes required from those resources are significant to community stakeholders. The other scenarios, while they may involve cost analysis, do not lend themselves as effectively to a cost-effectiveness framework. For instance, assessing the fiscal impact of annexation is more about determining financial metrics rather than comparing two projects. Analyzing the actual cost of a program versus benefits leans towards a cost-benefit analysis rather than cost-effectiveness. Establishing monetary costs and benefits focuses on financial assessments but does not inherently involve comparing effectiveness between alternatives like the decision regarding the senior center versus police officers.