Cost Analysis

Assessing computing needs

What is Cost Analysis?

Cost analysis (also called economic

evaluation, cost allocation, efficiency

assessment, cost-benefit analysis, or cost-

effectiveness analysis) is currently a set of

methods used to evaluate a program.

At the most basic level, cost analysis is simply

part of good program budgeting and accounting

practices, which allow managers to determine

the true cost of providing a given unit of service.

THREE TYPES OF COST

ANALYSIS IN EVALUATION:

Cost allocation, cost-effectiveness analysis, and

cost-benefit analysis represent types of cost analysis

which can have a place in program evaluation. They

range from fairly simple program-level methods to

highly technical and specialized methods. However, all

have specialized and technical aspects. If you are not

already familiar with these methods and the language

used, you should plan to work with a consultant or read

some more in-depth texts before deciding to attempt

them.

COST ALLOCATION

It basically means setting up budgeting and

accounting systems in a way that allows program

managers to determine a unit cost or cost per

unit of service.

This information is primarily a management

tool.

COST-EFFECTIVENESS

ANALYSIS

Assumes that a certain benefit or outcome is

desired, and that there are several alternative

ways to achieve it.

The basic question asked is, “Which of these

alternatives is the cheapest or most efficient

way to get this benefit?”

Cost-effectiveness analysis is comparative.

COST-BENEFIT ANALYSIS

The basic questions asked in a cost-benefit analysis are,

"Do the economic benefits of providing this

service outweigh the economic costs" and "Is it

worth doing at all"?

One important tool of cost-benefit analysis is the

benefit-to-costs ratio, which is the total monetary cost

of the benefits or outcomes divided by the total

monetary costs of obtaining them.

Another tool for comparison in cost-benefit analysis is

the net rate of return, which is basically total costs

minus the total value of benefits.

WHAT COST ANALYSES CAN

TELL YOU

Cost analyses can provide estimates of what a

program's costs and benefits are likely to be,

before it is implemented.

Cost analyses may improve understanding of

program operation, and tell what levels of

intervention are most cost-effective.

Cost analyses may reveal unexpected costs.

Cost Analysis and PC Purchases

Often when working in an office setting, the

manager does not have time to thoroughly

investigate prices when it comes to computer

purchases.

The goal of this lesson is to get you more

familiar with some of the business aspects

related to computer use in the workforce.

More often then not, the users of the equipment make up a proposal (more precisely a cost effectiveness analysis) on what equipment they would like to see purchased for the office.

Computer retailers often place bids on jobs using a similar proposal, based on the business’ needs.

The proposal is then viewed by the manager, and then a decision is made on whether the proposal meets all the needs in a cost effective way.