Costeffective

Cost-effective is an adjective used to describe a product, service, process, or decision that achieves a desired outcome with a favorable balance of cost and benefits. In common usage, something is cost-effective not because it is the cheapest option, but because the value it delivers per unit of cost is high relative to alternatives. The term is widely used in business, engineering, healthcare, and public policy.

In formal analysis, cost-effectiveness refers to evaluating alternatives by their costs relative to a defined outcome, such as units of output, lives saved, or QALYs. This approach is common in health economics and policy, where a program is considered cost-effective if the cost per unit of outcome falls below a chosen threshold. Other forms of economic evaluation include cost-benefit and cost-utility analyses.

Key considerations when judging cost-effectiveness include total life-cycle or total cost of ownership, not just upfront price; affordability, deployment risk, maintenance requirements, and potential indirect effects. A solution can be cost-effective even if it has higher initial costs if it yields greater or longer-lasting benefits over time.

Etymology: the term combines cost with effective and is often hyphenated as cost-effective when used attributively. Related ideas include cost efficiency, which focuses on input minimization, and value for money, which emphasizes overall outcomes relative to cost.

See also: cost-benefit analysis; cost efficiency; value for money.