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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.