A reader has asked about the use of these two terms:
I was wondering if you would care to comment on the difference between cost-efficient and cost-effective. In both, Oxford and Webster (the free online versions), cost-effective is properly defined while the cost-efficient page points to that of cost-effective. It looks like cost-efficient is a tolerated synonym of a lesser status.
As always, my starting place is The Oxford English Dictionary. There I find a reference to cost-effective in the entry for cost:
cost-effective adj. designating or pertaining to a project, etc., that is effective in terms of its cost.
The first OED citation given for cost-effective is dated 1967. I find no entry for cost-efficient.
Merriam-Webster Unabridged provides entries for both terms:
cost-effective adjective: economical in terms of tangible benefits produced by money spent.
cost-efficient adjective: cost-effective.
M-W gives 1970 as the “first known use of cost-efficient.”
I conclude that there is no difference of meaning between cost-effective and cost-efficient.
Is one term of “lower status” than the other?
The most that can be said is that one is more common than the other.
The OED and M-W date the terms from 1967 and 1970, but the Ngram Viewer shows that cost-effective was present in printed sources as early as 1836. Both terms are documented in works printed in 1887. Cost-effective shows a bump on the graph in the 1940s, but then both terms remain more or less even until the 1960s, when cost-effective soars ahead.
A Google search also shows a preference for cost-effective:
“cost-effective”: about 83,600,000 results
“cost-efficient”: about 7,840,000 results
My advice is to use the more common term: cost-effective.
I tell my economics students to distinguish between effective and efficient – the former implies “having the desired effect” and the latter “having the desired effect in the most economical way.” I believe I also looked that up once.
Applying this definition to cost-effective vs. cost-efficient (and combining it with the business literature, especially accounting), my interpretation would be: cost-effective = s.th. generates or triggers costs, while something done in a cost-efficient way is something done the most economical way.
However, while I would point out this difference to the author whose article I am refereeing for a business/economics journal, I am indifferent to it outside the academic world.
Let me also use this opportunity to thank you for all your hard work providing us with these posts. I am certain they make a difference in what is out there to read, and I sure hope it continues to do so.
Tony Cook (B.Econ) points out a use in which both terms may differ in meaning:
In my days as an economist, “cost effective” meant a measure saved or earned more than it cost.
If there were a number of cost effective measures to choose from, identifying one as cost efficient would mean that it was the best economic choice. In other words a (cost effective) measure would not be cost efficient if you could have invested in another measure which would have given an even better economic outcome.
In my opinion, cost-effective means that an investment is worth the cost (in terms of its value measured by defined outcomes criteria). A cost-efficiency analysis would in contrast strive to identify the least costly way to achieve a desired outcome.
Speaking as a reasonably seasoned and otherwise anonymous denizen of the world of accounting, I think the semantics are a little more complex in technical terms.
To me, a cost-effective measure only seems synonymous to a cost-efficient one insofar as “cost effectiveness” (the quality of something being successfully costed, as in having its price being successfully estimated/determined), and “cost efficiency” (the quality of achieving maximum utility with minimum wasted effort) run parallel to each other. For contrary example, where successful costing is defined as outbidding a slew of competitors, one is cost-effective by seeking to know the competition’s price so as to outbid it with the highest possible price, but, in so doing, one is not necessarily being cost-efficient.
From a lexicographical perspective, however, I yield to your experienced and well-researched points.
Cost efficiency is the ability to use less resources (cost) to achieve greater output while cost effectiveness is the ability to use resources (cost) to achieve the objectives (outcomes). A program may therefore be cost effective but may not be cost efficient .
To me, cost-effective suggests that every penny works, or every penny leads to an effect, thus something cost-effective means something worth the money. Cost leads to effect — that’s efficient.
However, the compound cost-efficient doesn’t work like the previous, and it even sounds a bit weird, as the word efficient itself is about cost, time spent, or energy used. So I think cost-efficient means efficient, while indicating it’s about cost (not time, not energy).
Conclusion: cost-effective equals cost-efficient.
To some extent, there may be a time dimension to the ‘efficient’ and ‘effective’. In the context of the immediacy of the money required to do or acquire something, it might be more efficient to adopt a least-cost approach to that acquisition rather than take a long position.
However, it may be more cost-effective to incorporate other variables to infer whether something is cost-effective or not. Take the issue of a comprehensive warranty for two goods. If the difference between the price of the items is say 10%, but the warranty for the more expensive item is two or three additional years, then that can change the decision matrix completely. The additional costs which are incurred at the end of the shorter warranty may make the purchase ‘less cost-effective’ overtime, even though it was the best per dollar option initially.
In this example, time and warranty have added further dimensions to whether the purchase was cost-efficient as opposed to cost-effective.