Cost-Effective vs. Cost-Efficient

By Maeve Maddox

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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.

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5 Responses to “Cost-Effective vs. Cost-Efficient”

  • Philipp

    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 = 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.

  • Maeve

    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.

  • Anke

    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.

  • Mike

    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.

  • Sadiq

    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 .

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