American Institute of Certified Planners (AICP) Practice Exam

What is the purpose of a Cost Effectiveness Analysis?

1. To calculate project profitability

2. To compare projects based on their cost per unit of outcome

3. To assess community impact of a project

4. To evaluate future cash flows of investments

The correct answer is: To compare projects based on their cost per unit of outcome

The purpose of a Cost Effectiveness Analysis (CEA) is to compare projects based on their cost per unit of outcome. This type of analysis helps planners and decision-makers evaluate the relative efficiency of different options by examining the costs associated with achieving specific outcomes or benefits. By providing a framework to assess projects in terms of their cost relative to the effectiveness of outcomes they produce, CEA enables planners to determine which project offers the best value for money. In contexts like public health, transportation, or urban planning, for instance, CEA can highlight which intervention, program, or project leads to the greatest benefit at the lowest cost. This is particularly valuable when resources are limited and strategic decisions must be made to maximize positive impacts. The other options refer to different types of financial assessments. Calculating project profitability encompasses broader financial metrics and does not specifically address the comparative aspect of costs relative to outcomes. Assessing community impact focuses on the social or environmental implications of a project rather than a strict cost versus outcome metric. Evaluating future cash flows of investments pertains to financial forecasting rather than assessing cost effectiveness in relation to project outcomes.