In this article we will know about the methods of minimum cost analysis.We will also studied abut the merite of cost analysis and demerit of cost analysis and also their application.
Methods of Minimum Cost Analysis
Now we are going to discuss about the methods of minimum cost analysis.
Methods of Minimum Cost Analysis
Cost allocation is a simpler concept than either cost-benefits analysis or cost-effectiveness analysis. At the program or agency level, it 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. However, if the units measured are also outcomes of interest to evaluators, cost allocation provides some of the basic information needed to conduct more ambitious cost analyses such as cost-benefit analysis or cost-effectiveness analysis. It is main methods of minimum cost analysis.
Cost-effectiveness analysis that a certain benefit or outcome is desired, and that there are several alternative, ways to achieve it. Cost-benefit analysis always is comparative, while cost-benefit analysis usually considers only one program at a time. Another important difference is that while cost-benefits analysis always compares the monetary costs and benefits of a program, cost-effectiveness studies often compare program on the basis of some other common scale for measuring outcomes. They address whether the unit cost is greater for one program or approach than another is, which is often much easier to do and more informative, than assigning a dollar value to do outcome. These are a step of methods of minimum cost analysis.
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 are basically total costs minus the total value of benefits.
Merits of Cost Analysis
Promotes Fiscal Accountability in Program
Too often, program managers cannot easily determine the of providing particular services or achieving certain outcomes, because they are not systematically collecting the necessary data, either about clients or about costs. At the least, programs should be able to tell funders (or potential funders) that during a given time period, they provided a certain level of services to a specific number of clients, and at what cost.
Helps Set Priorities when Resources are Limited
Program managers can use cost information is designing programs, and in budgeting and allocating funds to get the most out of their resources.
High Quality is Maintained
High quality implies higher value.
Savings in Costs
The main aim of value analysis is to cut the unwanted costs by retaining all the features of performance or even bettering the performance. God deal of research and development has taken place.
Encourages Team-spirit and Morale
Value analysis is a tool, which is not handled by one, but groups or teams, and an organization itself is a team of personnel having specification. A product is the product of all team efforts. Therefore, it fosters team spirits and manures employee morale as they are pulling together for greater success. It is methods of minimum cost analysis.
Qualification of Intangibles
The whole process of value analysis is an exercise of converting the intangibles to tangible for decision making purpose. It is difficult to make decisions on the issues where the things are (variables) not quantifiable. However, value analysis does it. The decision makers are provided with qualified data and on the basis of decisions are made. Such decisions are bound to be sound. It is also provide help to know about the methods of minimum cost analysis.
Wide Spectrum of Application
The principles and techniques of value analysis can be applied to all areas-man be purchasing, hardware, products, systems, procedures and so on.
Demerits of Cost Analysis
- Requires a great deal of technical skill and knowledge. A true cost-benefit analysis requires a solid grounding in economic theory and techniques, which is beyond the training of many evaluators. It may be necessary to hire a consultant if this type of analysis is desired.
- Critics feel that many cost analyses are overly simplistic, and suffer from serious conceptual and methodological inadequacies. There is a danger that an overly simplistic cost-benefits analysis may set up an intervention to fail, by promoting expectations that are unrealistically high, and cannot really be achieved. This may result in political backlash, which actually hurts future funding prospects instead of helping. It is also provide help to understand methods of minimum cost analysis.
Application of cost analysis
In power system, you have many components like conductor, transformer, towers, insulators, we have to pay certain money in each of this equipment along with transportation charges, erection of generation unit, lines, substation etc. all in each part of power system i.e. generation. Transmission, distribution money is spent. There are various application of minimum cost analysis in electrical engineering.
Kelvin law is one of the best examples of cost analysis, which is used for calculating the proper size of conductor. The economic design of a transmission line is for which the total annual cost is minimum. Total annual cost can be divided into two parts annual fixed cost and running cost. Annual fixed cost include depreciation, interest on the capital cost, maintenance cost etc. the cost of energy lost during the operation is counted in running cost
- If the cross-sectional area of the conductor is decreased, the total capital cost of the conductor decreases but the line losses increase (resistance increases with the decrease in the conductor size, hence, I2R loss increases).
- Whereas, if the cross-sectional area of the conductor is increased, the line losses decrease but the total capital cost increase.
Henece these are methods of minimum cost analysis and their merite and demerite . We have also studied about the application of cost analysis. If you will find any incorrect in above article you must comment in comment box.