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A Cost-Effective Analysis (CEA)

A Cost-Effective Analysis (CEA)

Step One

Opportunity Cost

An opportunity cost is the missed opportunity to gain benefits from an alternative that is not selected when multiple alternatives exist. It is simply the gains that are lost by choosing one alternative over another. Dimensions of opportunity cost include money, time, assets, and energy (Bharat, 2020). Opportunity cost as a concept is applicable when making economic decisions to consider all existing options reasonably before selecting the best-fit option. However, decision-makers cannot quantify the opportunity cost at the time of selecting an alternative over another. The opportunity cost can only be realized through the retrospection of outcomes.

Initial Costs

Initial costs are the money or costs that an organization incurs or requires to obtain new systems such as security systems, renovate facilities, grow the organization’s capital, or construct a new facility. Initial costs also include the costs incurred by the organization during the recruitment and hiring of new staff or the use of consultants. Initial costs help track costs related to business operations, profit margins, and the total value of the current stock. Therefore, initial costs help highlight the current state of the business and project its future.

Continuing Costs

Continuing costs are the costs used to maintain the operations of an organization. Continuing costs include costs related to the organization’s daily administrative operations and maintenance of the usual functions of a business. The continuing costs are considered overhead costs as the business must meet them even if it is not carrying out active operations or in active production (Shaikh, n.d.). Continuing costs include insurance payments, maintenance costs, property fees, taxes, licensing fees, and other related administrative expenses.

Induced Costs

Induced costs are related to an increase in expenditure due to an increase in income level. Induced costs occur at the consumer, business, government, and external levels. For instance, at the consumer level, people will be willing to spend more money, like buying expensive clothes, a new car, or a home, as income rises. At the business level, organizations within a favorable and profitable business environment will confidently invest in improving their capital, such as increasing production, creating newer production systems, or expanding to a new location. At the government level, costs are automatically induced to cover development, while at the external level, increased foreign income improves national income and expenditure.

Averted Costs

Averted costs are the additional costs that a business avoids incurring through production by utilizing an option for efficient production. For instance, averted costs can be identified when an organization avoids having extra transport charges due to smaller deliveries using multiple delivery vehicles and delivery personnel by combining orders and delivering them based on delivery routes using fewer vehicles and a few delivery personnel. Another case of averted costs can be identified when a business reduces its electric consumption bills by installing a solar-powered system to substitute for the business’s energy needs.

Fixed Costs

Fixed costs are business expenditures that a business spends on fixed inputs regardless of whether activities remain nil or low. Fixed costs are constant unless the business changes its size. These costs are also regarded as overhead costs: they may include rent, salaries, loan payments, and insurance premiums.

Variable Costs

Variable costs are operating costs that change with changes in the level of production. An increase in the level of production increases the variable costs, and a fall in production decreases the variable costs. For instance, when a company increases its production, the costs of raw materials increase. Another example can be an increase in the number of deliveries done and fuel costs.

Step Two

CEA to Decrease Resident Falls in a 100-Bed Nursing Home

One of the concerns in nursing homes is the rise in the number of safety incidents, including falls. Falls have become a frequent incident among aged people living in nursing homes. These falls result in serious injuries and may result in death. Falls in nursing homes result in injuries and fractures related to permanent disability and reduced quality of life.

Most cases of falls in nursing homes have been linked to muscle weakness, poor lighting, wet floors, unmaintained beds and wheelchairs, and the effects of medications (Vlaeyen et al., 2021). Other falls result from the inaccessibility of walking aids, difficulties in moving around, and obstructions in the walkways. Falls increase care demands and expenditures in nursing homes (Sterke et al., 2018). They also cause reputational damage to nursing homes. Two processes have been proposed to reduce falls and the costs of operations and achieve cost-effectiveness in a 100-bed nursing home: one, the employment of five extra nurses to watch over the nurses and, two, the employment of a long-term contract with a maintenance team to control fall risks and hazards. A cost-effectiveness analysis (CEA) will be used to compare the two processes to help the facility achieve better outcomes.

Control Five Extra Nurses Contract Maintenance Team
100 elderly people 100 elderly people 100 elderly people
Reported falls = 8 Reported falls = 1 Reported falls = 3
Reported near-miss falls = 26 Reported near-miss falls= 3 Reported near-miss falls = 7
Total falls =34 Total falls = 4 Total falls =10

Table 1: Process outcomes

Costs Five Extra Nurses Contract Maintenance Team
Staff (Per annum) 5 nurses @ $61,680 = $308,400 4 times routine maintenance @ $25,000 = $100,000
Cost per fall 1 reported fall @ $12,000 = $12,000 3 reported falls @ 12,000 = $36,000
Cost per near missed fall 3 reported near miss falls @ $800 = $2,400 7 reported near miss falls @ $800= 5,600
Total falls prevented 30 24
Total $322,800 $141,600

Table 2: Costs of process

CEA = Total costs/outcome

Extra 5 nurses = $322,800/30 = $10,760 per fall prevented

Contract maintenance team = $141,600/24 = $5,900 per fall prevented

Although hiring five extra nurses effectively reduces total reported falls, contracting a maintenance team to maintain the nursing home facility four times a year is more cost-effective than hiring five extra nurses.

Step Three

Measuring Quality Outcomes for Contracting Maintenance Team

Every program adopted to reduce falls within a nursing home has its major advantages and accompanying shortcomings. Therefore, it is essential to measure the outcomes of the program to identify its shortcomings and room for improvement. The Agency of Healthcare Research and Quality (AHRQ) (2013) suggests focusing on the total falls and the rates of falls. Another suggestion includes identifying the total of falls and the resulting level of injury. Therefore, the quality of outcomes of contracting a maintenance team will be measured based on fall rates and injurious fall rates. Other measures will focus on the satisfaction of the older adults with the use of the maintained nursing home facilities and the efficiency of use of the facilities in daily use and daily living activities.


Agency of Healthcare Research and Quality (AHRQ). (2013, January). 5. How do you measure fall rates and fall prevention practices? | Agency for Healthcare Research and Quality.

Bharat, S. (2020). Opportunity cost: beginning, evolution, and a much-needed clarification. BASE Working Paper Series, 02/2020.

Shaikh, S. (n.d.). 8 Main Types of Costs involved in Cost of Production and Revenue (With Diagram). Retrieved May 16, 2022, from

Sterke, C. S., Panneman, M. J., Erasmus, V., Polinder, S., & van Beeck, E. F. (2018). Increased care demand and medical costs after falls in nursing homes: A Delphi study. Journal of Clinical Nursing, 27(13–14), 2896–2903.

Vlaeyen, E., Poels, J., Colemonts, U., Peeters, L., Leysens, G., Delbaere, K., Dejaeger, E., Dobbels, F., & Milisen, K. (2021). Predicting Falls in Nursing Homes: A Prospective Multicenter Cohort Study Comparing Fall History, Staff Clinical Judgment, the Care Home Falls Screen, and the Fall Risk Classification Algorithm. Journal of the American Medical Directors Association, 22(2), 380–387.


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A Cost-Effective Analysis (CEA) is an example of one of the established processes used by finance managers in healthcare. By using a set of tools related to different types of program costs, managers can evaluate and/or compare programs so that informed choices can be made. CEAs assist managers in determining which program will provide quality outcomes when compared to the costs the organization would incur. Although this sounds like a simple process, there are many variables to consider.

A Cost-Effective Analysis (CEA)

A Cost-Effective Analysis (CEA)

Step 1: Research and discuss the following terms in a 1- to 2-page document:

Opportunity cost
Initial costs
Continuing costs
Induced costs
Averted costs
Fixed costs
Variable costs
Step 2: Using one of the studies listed below, research the topics and then formulate two processes to achieve positive outcomes. Then, compare the costs of the two processes by conducting a CEA. You may have to create control and outcome numbers, as well as estimate the costs of each component of the CEA. The use of a comparison table is encouraged. See an example below:

How to do a basic cost-effectiveness analysis. (n.d.). Retrieved from

Increase the number of children receiving an annual flu vaccine in a pediatric clinic.
Decrease the number of “no-show” patients with appointments in a physician’s office practice.
Decrease resident falls in a 100-bed nursing home.
Decrease medication errors in a 500-bed acute care hospital.
Decrease wait time in a hospital emergency department (ED).
Step 3: Finally, from research, how can the program’s quality outcomes be measured? No calculations are necessary.

To support your work, use your course and textbook readings, credible Internet sources, and also use the South University Online Library. As in all assignments, cite your sources in your work and provide references for the citations in APA format.

Submission Details:
Your assignment should be addressed in a 4–5-page document, not including your title and reference page. Much depth and discussion from thorough research is needed to complete this heavily weighted assignment.

Submit your documents to the Submissions Area by the due date assigned.

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