How to Grade Economic Evaluations

Economic evaluations are used to determine amount of real value gained for the money spent. All careful stewards of personal and business finance want to make sure the money they spend for any good or service is money well spent. The process for doing this is referred to as economic evaluation; how well it is done determines its grade. Drug development companies are a prime example of economic evaluation in the business sector. The costs of development, marketing and distribution are weighed against the health good delivered to the patient, how it may impact related drugs for the same health issue and whether or not it can be economically profitable.

• 1

  Grade the economic evaluation step-by-step. Look for the well-defined questions of the economic evaluation. Find evidence that the evaluation identified the reason or cause for the expenditure. Locate the section within the evaluation used to define the need this spending meets, or how one is bettered by it.

• 2
  Economic evaluations are only reliable if the alternatives have been considered. dollar signs in test tube image by Steve Johnson from Fotolia.com

  Review the economic evaluation to see that it has a thorough description of the alternatives. Did it list and look at all other alternatives? Make sure the alternatives are similar, realistic and already in use. For example, if the study is for a medical drug, ask what other drugs/treatments are available without developing a new drug.

• 3

  Look for the evidence that effectiveness of the spending was clearly established. Identify the problem that the spending solves, the resultant circumstances of the solved problem, as well as the continuing need, in the absence of such spending.

• 4
  All costs are not to be equally weighted. magnet attracting dollar signs image by Steve Johnson from Fotolia.com

  Identify the use of sufficient units of costs used for cost calculations. Look for evidence that the costs were prioritized. Examine the units of cost for proper weighting and consideration of them.

• 5

  Examine the costs and consequences for evidence that costs were accurately credited. Find examples of X number of hours for X expense of the total cost. For example, if this is a medical drug study, find number of physician visits, total hours of physician and physician hourly rate paid.

• 6
  Not all economic evaluations can be finished without running over into different years. question marks image by Brent Walker from Fotolia.com

  Review the costs and consequences section to see that cost differential was included. Any reliable economic evaluation must include allowance for cost differences between years begun in instances that the process involves year-to-year costs. Confirm that an incremental analysis of cost and consequences was done and allowances for these costs to change/cost uncertainty included.