A PROJECT REPORT

ON

COST ANALYSIS

ATBEVCON WAYORS PVT.LTD, UPPAL

SUBMITTED BY

M.SHIVA KUMAR(07M11E0014)

CHAPTER - 1

INTRODUCTION : FINANCE 3 COST ANALYSIS 7 OBJECTIVES 12 SCOPE 13 METHODOLOGY 14 LIMITATIONS 15

CHAPTER - 2

COMPANY PROFILE : 17

CHAPTER – 3

THEORITICAL FRAME WORK : 28

CHAPTER – 4

DATA ANALYSIS & INTER PRETATION : 50

CHAPTER – 5 FINDINGS & SUGGESITIONS : 60 CONCLUSION : 61

CHAPTER – 6 BIBLIOGRAPHY : 63

1

INTRODUCTION TO FINANCE

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The economic development of any country depends upon the Existence of a well

organized financial system. It is the financial system which supplies the necessary

financial inputs for the Production of goods and services which in turn promote the

well being and standard of living of the people of a country.

Finance is the life blood of business without finance, the heart and brain of

business organization cannot function implying there by its natural death. Right from

conceiving the idea of birth of a business to its liquidation, finance is required

Inputs are made available only with finance. Even managerial ability can be had

with only finance. So, finance is the pivot around which the whole business

operations cluster.

Therefore, there is an imperative need to efficiently manage the finances of a

company.

Actually, sometimes, it is not the inadequate finance that is the cause of failure of a

business but the mismanagement of sources which is ultimately responsible for it.

Proper finance is the real key to the success of any business enterprise. Without

proper finance no business can survive nor can it be expanded and modernized.

In older times financial management was used periodically and its importance was

limited to the procurement of funds but in modern times finance is a continues

administrative function. Its Relation is with the procurement of capital, sources of

funds, capital budgeting decisions etc

1 Finance enhances for business promotion

2 Useful in decision making.

3 It is a key determinant of business success.

4 Financial information or results is useful in measurement of

performance.

5 It enables for basis of planning, coordination and control.

6 Useful to shareholders and investors.

Financial Management is an integral part of Business Management. Finance is one of

the key functions in an organisation. The other key functions in an organisation are:

Production

Human Resources

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Marketing

Each of the above function has got sub-divisions – for example Production has

maintenance, Administration has purchases etc.

Finance deals with financial resources. Financial management as a corollary would

deal with management of financial resources and related areas.

Some of the key finance functions are:

Financial planning and estimation of finance required for the organisation

Mobilisation of financial resources required as above

Ensuring that the funds are available in adequate quantity at appropriate time and at

an affordable cost

Management of cash in the organisation through cash flow statement

Management of investment outside the business enterprise in other organisations

above functions with some examples.

Financial planning and estimation of finance required for the organisation

Any activity in a business enterprise requires planning for proper execution in time.

Finance is required for any activity at least in the beginning and hence financial

planning is the prime function of “Finance”. This involves detailed study of any

activity from understanding the total funds requirement for that activity, when the

funds will be required and how much funds will be required at different stages. For a

new enterprise the entire resources have to come from outside (externally); for an

existing enterprise, a part of the resources at least will be available from the profits

made in the past and retained in business after declaring dividend.

Example No. 1:

We require Rs. 200 lacs for an activity. Let us see how it affects an existing

enterprise. Let us assume the profits available to be Rs. 60 lacs. Then we require

further resources of Rs. 140 lacs only. This is the difference between an existing

enterprise and a new one. Financial planning will take this into account.

Mobilisation of financial resources:

Adequacy (availability in adequate quantity)

Timely (availability in time) and

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At an affordable cost

Adequate supply in time etc.

This has been explained this in the above point. For reinforcement the student’s

attention is drawn to one of the objectives of financial management at least in the

short run, the objective of maximising profits of the organisation. The profits so

maximised in turn enhance the Earning Per Share (EPS – for formula please refer to

Chapter no. 9).

Management of cash in the organisation

This involves the following steps:

Ascertaining the average cash requirement by looking at the past figures and for a

new enterprise, estimating this figure.

Preparing the cash flow statement for a given period, taking all the cash

inflows and cash outflows during the period to determine whether there is a

surplus or deficit at the end of the period

Arranging for funds from outside especially through a bank with whom the

enterprise has loan facilities in case of deficit in the cash flow statement; if on

the contrary, the cash flow statement reveals a surplus, dealing with this

surplus in a suitable manner (For further details, please refer to chapter no. 7

on “working capital management”)

Management of investment outside the organisation

Over a period of time the enterprise reinvests a part of the profits for future growth of

the organisation in business. The Finance manager can invest such funds outside the

business in other enterprises also provided the parent enterprise does not require them

immediately. Short-term surplus as revealed by the Cash flow statement is also

invested for short duration. Thus investment outside one’s own business becomes the

responsibility of the Finance Manager

Management of risk in foreign exchange etc.

A business enterprise may require imports and do exports also. Whenever this is done

the invoice is in foreign currency. In imports the business enterprise requires foreign

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exchange while in exports it gets foreign exchange. There is a risk involved while

doing imports or exports. The risk is that the exchange rate of the foreign currency in

terms of Indian Rupees can keep changing. We will explain this through an example.

Short-term and long-term objectives of Financial Management

Short-term objective

The short-term objective of Financial Management is to procure financial resources at

an affordable cost thereby increasing the return to the shareholders in the form of

Earnings Per Share (EPS). EPS comprises two elements namely Dividend per share

(DPS) and Retained Earnings per share (REPS or Reserves per share). This objective

is often times referred to as “profit maximisation”. This is known as the short-term

objective as it is done on a continuous, year-to-year basis. One or more of the

following measures can achieve this:

Monitoring of costs on a continuous basis through budgets

Suitable cost reduction techniques wherever the costs are high

Minimisation of cost of borrowed capital from outside through financial discipline

Proper mix of equity and debt (known as financial leverage – for further details please

refer to Chapter no. 5 – Operating and financial leverages

Control over liquidity available in the organisation so as to minimise the cost of

carrying too much cashi etc.

Long-term objective

The long-term objective of financial management is to increase the wealth of the

shareholders. The term “wealth” refers to various business assets of the

enterprise that are free of debt. This means that this wealth belongs to the equity

shareholders. It is often reflected in the “book value” of the share as reflected in

the balance sheet Financial system in India

In order to understand financial management better, we need to understand the

“Financial System” that exists in India. Any country needs a system to regulate,

supervise, monitor and control the players, intermediaries, the investors etc. who take

part in the financial markets in the system. Further an efficient system alone can

ensure that the national objective on “Economy” of the country is met by aligning the

developments in the system with the national priorities. An example of the national

priority deciding the development in the financial markets is – “infrastructure

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development and need for longer duration financial resources” and development of

“deep discounted bonds” to meet this requirement. (For further details please refer to

Chapter no. 4 – Financial sources)

WHAT IS COST ANALYSIS?

Cost analysis (also called economic evaluation, cost allocation, efficiency

assessment, cost-benefit analysis, or cost-effectiveness analysis by different authors)

is currently a somewhat controversial set of methods in program evaluation. One

reason for the controversy is that these terms cover a wide range of methods, but are

often used interchangeably.

At the most basic level, cost allocation 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 (Kettner, Moroney, & Martin, 1990). At the most

ambitious level, well-publicized cost-benefit studies of early intervention programs

have claimed to show substantial long-term social gains for participants and cost

savings for the public (Berreuta-Clement, Schweinhart, Barnett, et al., 1984). Because

these studies have been widely cited and credited with convincing legislators to

increase their support for early childhood programs, some practitioners advocate

making more use of cost-benefit analysis in evaluating social programs (Barnett,

1988, 1993). Others have cautioned that good cost-benefit or cost-effectiveness

studies are complex, require very sophisticated technical skills and training in

methodology and in principles of economics, and should not be undertaken lightly

(White, 1988). Whatever position you take in this controversy, it is a good idea for

program evaluators to have some understanding of the concepts involved, because the

cost and effort involved in producing change is a concern in most impact evaluations

(Rossi & Freeman, 1993).

COST ANALYSIS IS OF THREE IN EVALUATION:

1. Cost Allocation

2. Cost - Effectiveness analysis

3. Cost - Benefit analysis

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represent a continuum of 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 (see some suggested references at the end of this discussion) before

deciding to attempt them.

COST ALLOCATION:

Cost allocation is a simpler concept than either cost-benefit analysis or cost-

effectiveness analysis. At the program or agency level, 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. 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. For example, for evaluation purposes, you might want to know the average

cost per child of providing an after-school tutoring program, including the costs of

staff salaries, snacks, and other overhead costs.

Besides budget information, being able to determine unit costs means that

you need to be collecting the right kind of information about clients and outcomes. In

many agencies, the information recorded in service records is based on reporting

requirements, which are not always in a form that is useful for evaluation.

If staff in a prenatal clinic simply reports the number of clients served by

gender, for example, you might know only that 157 females were served in March.

For an evaluation, however, you might want to be able to break down that number in

different ways. For example, do young first-time mothers usually require more visits

than older women? Do single mothers or women with several children miss more

appointments? Is transportation to appointments more of a problem for women who

live in rural areas? Are any client characteristics commonly related to important

outcomes such as birth weight of the baby? Deciding how to collect enough client and

service data to give useful information, without overburdening staff with unnecessary

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paperwork requirements, requires a lot of planning. Larger agencies often hire experts

to design data systems, which are called MIS or management-and-information-

systems.

If you are working for an existing agency, your ability to separate out unit

costs for services or outcomes may depend on the systems that are already in place for

budgeting, accounting, and collecting service data. However, if you are in a position

to influence these functions, or need to supplement an existing system, there are a

number of texts that discuss the pros and cons of different ways of budgeting,

accounting, and designing MIS or management-and-information-systems (see

Kettner, Moroney & Martin, 1990).

COST - EFFECTIVENESS ANALYSIS :

Most often, cost-effectiveness and cost-benefit studies are conducted at a

level that involves more than just a local program (such as an individual State

Strengthening project). Sometimes they also involve following up over a long period

of time, to look at the long-term impact of interventions. They are often used by

policy analysts and legislators to make broad policy decisions, so they might look at a

large federal program, or compare several smaller pilot programs that take different

approaches to solving the same social problem. People often use the terms

interchangeably, but there are important differences between them.

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?" By definition, cost-effectiveness analysis is comparative, while cost-benefit

analysis usually considers only one program at a time. Another important difference is

that while cost-benefit analysis always compares the monetary costs and benefits of a

program, cost-effectiveness studies often compare programs on the basis of some

other common scale for measuring outcomes (eg., number of students who graduate

from high school, infant mortality rate, test scores that meet a certain level, reports of

child abuse). They address whether the unit cost is greater for one program or

approach than another, which is often much easier to do, and more informative, than

assigning a dollar value to the outcome (White, 1988).

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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.

The idea behind cost-benefit analysis is simple: if all inputs and outcomes of a

proposed alternative can be reduced to a common unit of impact (namely dollars),

they can be aggregated and compared. If people would be willing to pay dollars to

have something, presumably it is a benefit; if they would pay to avoid it, it is a cost.

In practice, however, assigning monetary values to inputs and outcomes in social

programs is rarely so simple, and it is not always appropriate to do so (Weimer &

Vining, 1992; Thompson, 1982; Zeckhauser, 1975).

"Suppose the drop-out rate in an inner-city high school is 50%. Prevention

Program A enrolls 20 students, costs $20,000, and 15 of the 20 students (75%)

graduate. Thus Program A resulted in 5 additional graduates at a cost of $20,000, or

one additional graduate for every $4,000. Prevention Program B enrolls 20 students,

costs $15,000, and 12 of the 20 students (60%) graduate. Thus Program B resulted in

2 additional graduates at a cost of $15,000, or one additional graduate for every

$7,500 spent. Although Program B is cheaper ($15,000 compared to $20,000),

Program A is more COST-EFFECTIVE ($4,000/each additional graduate, compared

to $7,500/additional graduate). A COST-BENEFIT ANALYSIS in this situation,

instead of comparing unit costs, would require estimating the dollar value of high

school graduation

OBJECTIVES OF STUDY

Cost analyses can provide estimates of what a program's costs and benefits are

likely to be, before it is implemented. "Ex-ante" or "before the fact" cost

analyses may have to be based on very rough estimates of costs and expected

benefits. However, if a program is likely to be very expensive to implement,

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very difficult to "un-do" once it is in place, or very difficult to evaluate, even a

rough estimate of efficiency may be quite valuable in the planning stages

(Rossi & Freeman, 1993).

Cost analyses may improve understanding of program operation, and tell what

levels of intervention are most cost-effective. A careful cost analysis within a

program might tell you, for example, that it doesn't so much matter whether

you have a half-day program or a full-day preschool program for children, but

that the teacher-to-child ratio does matter (that is, children benefit more from

low ratios than they do from longer days). This information might influence

decisions about how many teachers you need to hire, or how many classrooms

you need, or how many children you can serve effectively.

Cost analyses may reveal unexpected costs. A speech therapy program might

unexpectedly find that it costs more to use paraprofessionals to work with

children than professionals, because the paraprofessionals need more training

and supervision, or work with fewer children at a time (White, 1988). Or,

cutting the number of home visits allowed by caseworkers serving a large rural

area (in order to save on mileage reimbursements) might have the unplanned

result of higher long-distance phone bills, because the workers still feel a need

to stay in close touch with their clients.

SCOPE :

Cost analysis can be used at several levels . At the most basic level, cost

allocation is simply part of good program budgeting and accounting practices , which

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allow managers to determine the true cost of providing a given unit of service. it deals

with cost allocation , cost effectiveness and cost benefit.

Five Tiers :

Tier 1 – Program definition

Tier 2 – Accountability

Tier 3 – Understanding & refining

Tier – 4 Progam towards objective

Tier 5 – Program impact

COST ANALYSIS METHODOLOGY :

PRIMARY DATA COLLECTION :-

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All the data collection process has been carried out through the

constitutions with the staff members concerned in the department of

finance in the organization.

Direct interactions with the manager, The accountants and the related staff

concern helped me in gathering of the required data.

Took the help of the management from the other departments and the

guidance from the internal guide.

SECONDATY DATA COLLECTION :-

Certain assumptions have been made in regard to the future projects of the

company.

The data have been prepared in the consultation with the various personals

of the organization indirectly.

The changes in capital due to expected better management have been taken

in the account while calculating the related capital structures.

The results of the capital structures forecasts have been analyzed to give

suggestions for improvement of the performance of the Organization.

PERIOD OF STUDY :

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The study has been conducted taking into an account the past five years data

i.e. from 2002 – 03 to 2006 – 07

LIMITATIONS OF COST ANALYSES :

Whether or not the program is having a significant net effect on the desired

outcomes. Unless you know for sure that the program is producing a benefit, it

doesn't make sense to talk about the cost of producing that benefit (Rossi &

Freeman, 1993). Cost analysis may be considered an extension of an impact or

outcome evaluation, but it cannot take the place of one.

Whether the least expensive alternative is always the best alternative. Often

political or social values other than cost need to determine program and policy

choices. When there are competing values or goals involved, cost analysis is

often just one factor to be considered, and we need to have some other way of

deciding which factors should take priority.

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COMPANY PROFILE:

Bevcon Wayors Limited is a leading manufacturer of material handling

equipment company that operates out of Hyderabad, the Capital of South Indian State

of Andhra Pradesh. This particular unit has Established in 1999, BW’s registered an

exponential growth within the first five years under the sterling leadership of the

company’s chairman C.M. Ramesh.

BW’s expertise is outstanding in following project areas: masonry / Concrete

dams spill ways, tunneling, formation of earth dams and bunds, canals, bridges, roads

and buildings. befittingly, the company has the privilege of working for or on behalf

of such infrastructure majors as the Tehri Hydro power development corporation,

steel Authority of India Limited, NTPC, NHPC, Reliance, and Engineering projects

India Limited.

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BW’s expertise, Virtually in all areas of civil and engineering construction, is best

reflected in the successful execution of following projects.

Rs.350 Cores Koteshwar Dam for the Tehri Hydro Electric power project in

Uttaranchal,

Rs.250 - Crores project for transportation of iron ore form Kalta iron ore mines to

SAIL in orissa state engaging an unprecedented workforce of 4000 people.

Rs.150-crores project for construction of B.G. single Line Tunnel No.5 (Bakkal

Tunnel) form Km 43.040 to 48.940 on the Katra-Laole section of the Udahampur

srinagar- Baramulla Rail Link.

Environments, Mr., Ramesh plans to bank from when the change of

Rs.8-crores Owk Reservoir Complex in Andhra Pradesh, and

Rs22-cores project for construction of barrage across ponnai River near

Kalavagunta, Chittoor district in Andhra Pradesh.

BOARD OF DIRECTORS

Mr. C. M. Ramesh, Chairman & Managing Director

Mr. CM Ramesh, Chairman and Managing Director of Bevcon Projects

Limited, comes form a value-based business family in Kadapa district of Andhra

Pradesh. His entrepreneurial success within a short span of five years is exponential.

As his first major business diversification effort, Mr. Ramesh established

Bevcon Wayors Limited in 1999 in Hyderabad, the state capital of Andhra Pradesh.

Within the next couple of years, he shaped the company into an outstanding

infrastructure development leader with specific thrust on mega construction and mining

projects. Mr. Ramesh also has the distinction of conceiving and development a

profitable 6MW Bio-Mass-based electricity project in Khammam district of Andhra

Pradesh. This project is recognized as the most significant in its class for industry best

practices.

A commerce graduate with a sharp insight into national infrastructure

requirement, Mr. Ramesh has a decade and half experience in developing mega

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projects. In addition to managing his own enterprises successfully Mr. Ramesh takes

time out to provide professional consultancy to several infrastructure leaders such as the

Hyderabad-based Progressive Constructions Limited,

Operating efficiently out of a network of corporate and project offices across the

country, Mr. Ramesh presents the picture of a cutting edge entrepreneur endowed with

exemplary vision, leadership, resource mobilization, and management skills.

Current diversification plans of Mr. Ramesh include tapping the excellent hydropower

generation opportunities that the highly progressive State of Sikkim is unfolding.

Mr. C.M. Rajesh Director

Mr. C.M. Rajesh, Director of Bevcon Wayors Limited A graduate in the Arts

from Andhra Loyola College, Vijayawada, Andhra Pradesh is yhe current successful

Director of the profit-making Bevcon Power Projects Limited in Khammam district of

Andhra Pradesh. He brings a sharp sense of focus, dynamism, dedication and

competitive spirit to the company to shape into a successful, professionally managed

enterprise.

A hands-on leader, Mr. Rajesh’s experience is significant in successful

management of the 6 MW Bio-Mass-based electricity projects in Khammam. This

project is recognized as the most significant in its class for implementation of the power

industry’s best practices.

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Vision & mission of the organization :

vision : we envisage being a market leader by 2010 in bulk material processing & Handeling solutions through satisfy Customers , stakeholders and Employee needs.

Mission :

As a part of our vision we are bringing in business and manufacturing experts from global players and forge new business alliances to bring in futuristic technologies to Indian markets.

INTERNATIONAL ALLIANCES:

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We have Technology tie-ups with companies such as Burwell Technologies of

Australia, Sanland - China, Friedrich & Noma - Germany, Statec – Austria, Nergeco

France-Australia, Thermo stop - Canada.

MISSION:

Our Mission is to create Smarter Engineering & Management Solutions

evolved by a technology driven team. The Mission is achieved by the following

edicts.

Strong Engineering & Management skills by Design and Quality base.

Strict conformance and compliance to quality of equipment and work procedures.

Excellence in service to Customers & Clients

Honesty, Integrity and Transparency in all relationships.

Respect for the Individual.

QUALITY IS NOT A MERE LABEL FOR US BUT IT IS AN ORGANIC

REALITY.

We provide turnkey solutions for company Bulk material handling needs for

Crushing, Screening, conveying.

Our expertise is based on nearly decade and half experience in designing custom

material handling solutions for various sectors of Production Industry. The Turnkey

Material Handling Solutions can be a combination of Crushing - Screening -

Conveying Systems coupled with Pneumatic Handling and cartridge dust extraction

system are Engineered and Executed as per the needs.

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OUR PROMOTORS:

P SUNEEL LAKSHMAN

Managing Director

A Mechanical Engineer from BITS Pilani with 25 years of experience in Engineering

Sector, especially in Material Handling Industry.

He is the driving force behind the Company and has a clear Vision of making our

organization as the best Project Engineering Company in Bulk Material Handling,

Dust Extraction and Pneumatic Handling.

Y.SRINIVASREDDY

Technical Director

A Mechanical Engineer with 20 years of experience in material handling equipments

technology. He is the founder director of the company and heads our manufacturing

facility. His forte is Design and Engineering for complex Material Handling

requirements. He is also the key force in new product development at our company.

OUR FACTORY AND OFFICEINFRASTRUCTURE

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OUR COLLABORATORS

As part of merging the business & manufacturing expertise with global players and

forge new business alliances to bring in Futuristic Technologies to Indian Markets,

Bevcon Wayors has formed JV/Technology tie-up with companies like Burwell-

Australia, Nergeco Australia, Sanland - China, Friedrich & Noma - Germany, Statec –

Austria, SBS Belting - UK, Airtec Systems - Italy, Aerobelt – Australia.

MILESTONES:

The first major product introduction, the Comet truck, is reflective of the role

this Company has played over the years. Built keeping in mind the operating

conditions obtained at that time, the product became a major success and robustness

and reliability became integral brand values of the Company’s products.

Over the years, the Company created a creditable track record of moulding a

nascent commercial vehicle sector in the country with pioneering technologies and

product concepts. No doubt, access to global technology was an advantage enjoyed by

the Company. More importantly, the choice of technology was determined by the

unique requirements of the Indian market. Somewhat incredibly, in the 90s, in the

face of bulk handling shortage in relation to freight availability, registering authorities

used to permit 25 percent overload, marked up on the manufacturer’s

recommendation and some States even allowed up to 50 percent overload.

ACHIEVEMENTS:

Introduction of these required corresponding development of engines,

transmissions and axles. Company led with the country's first turbo charged engine

and gearboxes and axles to go with the higher power engines. Company has also been

proactive in improving safety of Bulk handling, by introducing Air Lock Valves with

dual line safety systems. Along with power steering, another first from your

Company, these have since become standard fitment. Recognition of product

development as a customer-inspired function came early in your Company. The series

of products that anticipated market requirements is a testimony to the well-entrenched

practice of keeping one’s ears close to the ground.

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At the end of the decade came the expansion phase, with units set up at Hosur,

Bhandara and Alwar to create an all India manufacturing presence. This was also the

time long-term partnerships were forged with global technology leaders.

The next significant chapter in your Company's history was marked by

economic liberalization. In seizing the new opportunities that opened up in the years

that followed, the backing and support of the Bevcon Group in the last two decades

has been crucial. The infusion of vital capital and technology triggered the

modernization of the Company’s physical infrastructure which still continues. New

benchmarks have since been set in manufacturing, product development and HR

infrastructure and processes. The first decade after the economic liberalization was

marked by quality and efficiency improvements to reach global competitiveness. That

set the stage for the multi-pronged growth plans - capacity expansion, globalization

and diversification.

FUTURE FORAYS:

The Bevcon Group has repeatedly reiterated its commitment to the growth of its

Indian flagship - and has followed that up with matching action, creating the

confidence to seek global growth. The holding company of Bevcon Wayors

spearheads the ambitious growth plans of the Group to achieve significant presence

and leadership in the Bulk Handling industry, across geographies and in adjacent

sectors including auto components, foundry products, technology and engineering

services, automotive electronics, construction equipment and even defence products.

ABOUT BEVCON WAYORS PVT. LTD.

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MISSION

Convergence of ideas, experience, competencies and an unflinching

ambition. At the heart of this convergence is a grand vision.

To be the best in every field that we operate in.

To be the market leader and set higher standards of performance for the

industry.

To redefine the expectation levels of our customers, partners and employees.

To deliver the highest levels of service and provide maximum value to our

customers.

VISION:

Bevcon Wayors is grounded on the fundamentally strong idea of making a

significant impact while serving consumers across diverse industry segments.

Keeping in line with this philosophy and vision, Bevcon Wayors has a highly

diversified product offering; serving Home Users, SME users, Large Corporate & also

providing Customized Internet and Networking

BROADBAND INTERNET

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The Honorable TRAI has defined broadband as "an always-on data

connection with minimum speeds of 256Kbps”. The company have many Pure

Broadband packages on offer.

Bevcon Wayors System has redundant bandwidth connections to the Internet via fiber

optic cable systems to ensure maximum uptime and availability. Comprehensive

peering arrangements with other players in the industry ensure maximum redundancy

and optimum traffic routing. Beam Cable System customers enjoy the benefits of a

global backbone, high-performance network architecture and industry-leading peering

arrangements which comes together to offer maximum site availability.

BEST SOLUTIONS OF BEVCON WAYORS PRIVATE Ltd.

CORPORATE SOLUTIONS

SME SOLUTIONS

HOME USERS SOLUTIONS

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Chapter- 3

THEORITICAL FRAME WORK:

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COST ANALYSIS METHODS

Main Types of Cost Analysis

Quandrants of Cost-Effectiveness

Key Attributes of Cost Analyses

Collecting Cost Data Alongside Clinical Studies

Studies of costs and related economic implications comprise a major group of

methods used in HTA. These studies can involve attributes of either or both of

primary data collection and integrative methods. That is, cost data can be collected as

part of RCTs and other clinical studies, as well as administrative databases used in

health care payment. Cost data from one or more such sources often are combined

with data from primary clinical studies, epidemiological studies, and other sources to

conduct cost-effectiveness analyses and other cost studies that involve weighing

health and economic impacts of health technology.

Interest in cost analyses has accompanied concerns about rising health care

costs, pressures on health care policymakers to allocate resources, and the need for

health product makers and other technology advocates to demonstrate the economic

benefits of their technologies. This interest is reflected in a considerable increase in

the number of reports of cost analyses in the literature and further refinement of

methods.

Main Types of Cost Analysis

There is a variety of approaches to cost analysis, the suitability of any of

which depends upon the purpose of an assessment and the availability of data and

other resources. It is rarely possible or necessary to identify and quantify all costs and

all benefits (or outcomes), and the units used to quantify these may differ.

Main types of cost analysis include the following.

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Cost-of-illness analysis : determination of the economic impact of an

illness or condition (typically on a given population, region, or country) e.g.,

of smoking, arthritis or bedsores, including associated treatment costs

Cost-minimization analysis : determination of the least costly among

alternative interventions that are assumed to produce equivalent outcomes

Cost-effectiveness analysis (CEA): a comparison of costs in monetary

units with outcomes in quantitative non-monetary units, e.g., reduced

mortality or morbidity

Cost-utility analysis (CUA): a form of cost-effectiveness analysis that

compares costs in monetary units with outcomes in terms of their utility,

usually to the patient, measured, e.g., in QALYs

Cost-consequence analysis: a form of cost-effectiveness analysis that

presents costs and outcomes in discrete categories, without aggregating or

weighting them

Cost-benefit analysis (CBA): compares costs and benefits, both of which

are quantified in common monetary units.

The valuation of costs and outcomes among these alternative economic

analyses.  

28

Different Types of Economic Analysis

 

  Valuation

of Costs

  Valuation of Outcomes

Cost of Illness $ vs. None

Cost Minimization $ vs. Assume same

Cost Effectiveness $ ÷ Natural units

Cost Utility $ ÷ Utiles (e.g., QALYs)

Cost Benefit $ ÷ or - $

Cost - minimization analysis, CEA and CUA necessarily involve comparisons

of alternative interventions. A technology cannot be simply cost effective, though it

may be cost effective compared to something else. Although CBA typically involves

comparisons of alternative technologies, this is not necessary.

Because it measures costs and outcomes in monetary (not disease-specific)

terms, CBA enables comparison of disparate technologies, e.g., coronary artery

bypass graft surgery and screening for breast cancer. A drawback of CBA is the

difficulty of assigning monetary values to all pertinent outcomes, including changes in

the length or quality of human life. CEA avoids this limitation by using more direct or

natural units of outcomes such as lives saved or strokes averted. As such, CEA can

only compare technologies whose outcomes are measured in the same units. In CUA,

estimates of utility are assigned to health outcomes, enabling comparisons of disparate

technologies.  

29

Two basic approaches for cost-benefit analysis (CBA) are ratio approach and the net

benefit approach. The ratio approach indicates the amount of benefits (or outcomes)

that can be realized per unit expenditure on a technology vs. a comparator. In the ratio

approach, a technology is cost beneficial vs. a comparator if the ratio of the change in

costs to the change in benefits is less than one. The net benefits approach indicates the

absolute amount of money saved or lost due to a use of a technology vs. a comparator.

In the net benefits formulation, a technology is cost-beneficial vs. a comparator if the

net change in benefits exceeds the net

change in costs. The choice between a net benefits approach or a benefit/cost

approach for a CBA can affect findings. The approach selected may depend upon

such factors as whether costs must be limited to a certain level, whether the intent is

to maximize the absolute level of benefits, whether the intent is to minimize the

cost/benefit ratio regardless of the absolute level of costs, etc. Indeed, under certain

circumstances these two basic approaches may yield different preferences among

alternative technologies.  

Box 19 shows basic formulas for determining CEA, CUA, and CBA.

Basic Formulas for CEA, CUA, and CBA

30

COST ANALYSIS RATIOS :

31

Quadrants of Cost-Effectiveness

A basic approach to portraying a cost-effectiveness (or cost-utility)

comparison of a new intervention to a standard of care is to consider the cost and

effectiveness of a new intervention in the space of four fields as shown in Box 20,

starting with the upper figure. The level of costs and the level of effectiveness for the

standard of care are indicated by the "X" in the middle of the figure. A new

intervention may have higher or lower costs, and higher or lower effectiveness, such

that its plot may fall into one of the four quadrants surrounding the costs and

effectiveness of the standard of care. If it is known that the plot of the new

intervention falls into either of two of the quadrants, i.e., where the new intervention

has higher costs and lower effectiveness (indicating that it should be rejected), or it

has lower costs and higher effectiveness (indicating that it should be adopted), then no

further analysis may be required. If it is known that the plot of the new intervention

falls into either of the other two quadrants, i.e., where the new intervention has higher

costs and higher effectiveness, or it has lower costs and lower effectiveness, then

further analysis weighing the marginal costs and effectiveness of the new intervention

compared to the standard of care may be required.

Within either of the two quadrants that entail weighing tradeoffs of costs and

effectiveness, it may be apparent that the marginal tradeoff of costs and outcomes is

so high or low as to suggest rejection or adoption. As shown in the lower figure of

Box 20, this arises when the new intervention yields only very low marginal gain in

effectiveness at a very high marginal cost (reject), or yields very high marginal

improvements in effectiveness at a very low marginal cost (adopt).  

Key Attributes of Cost Analyses

The approaches to accounting for costs and outcomes in cost analyses can vary in a

number of important respects, some of which are addressed briefly below. These

should be carefully considered by assessors, as well as the policymakers who intend

to make use of assessment findings. Given the different ways in which costs and

32

outcomes may be determined, all studies should make clear their methodology in

these respects (Byford 1998; Drummond 1997; Gold 1996).

Comparator. Any cost analysis of one intervention versus another must be specific

about the comparator. This may be standard of care (current best practice), minimum

practice, or no intervention. Some analyses that declare the superiority of a new

intervention may have used a comparator that is no longer in practice or is considered

sub-standard care or that is not appropriate for the patient population of interest.

Perspective. The perspective of a cost analysis refers to the standpoint at

which costs and outcomes (or consequences or benefits) are realized. For instance, the

perspective of an analysis may be that of society overall, a third-party payer, a

physician, a hospital, or a patient. Clearly, costs and outcomes are not realized in the

same way from each of these perspectives. Many analysts favor using the broad

perspective of society and identifying all costs and all outcomes accordingly.

However, "society" as such may not be the decision maker, and what is cost effective

from that perspective may not be what is cost effective from the standpoint of a

ministry of health, third-party payer, hospital manager, patient, or other decision

maker. It is possible that this perspective may resemble that of a national or regional

government, if indeed that government experiences (or is responsible for representing

the perspectives of those that experience) all of the costs and outcomes that are

included in a societal perspective.

33

Quadrants of Cost-Effectiveness

34

Direct Costs. Depending upon the perspective taken, cost analyses should

identify two types of direct costs. Direct costs represent the value of all goods,

services, and other resources consumed in providing health care or dealing with side

effects or other current and future consequences of health care. Two types of direct

costs are direct health care costs and direct non-health care costs.

Direct health care costs include costs of physician services, hospital services,

drugs, etc. involved in delivery of health care. Direct non-health care costs are

incurred in connection with health care, such as for care provided by family members

and transportation to and from the site of care. In quantifying direct health care costs,

many analyses use readily available hospital or physician charges (i.e., price lists)

rather than true costs, whose determination may require special analyses of resource

consumption. However, charges (as well as actual payments) tend to reflect provider

cost shifting and other factors that decrease the validity of using charges to represent

the true costs of providing care.

Indirect Costs. Analyses should account for indirect costs, sometimes

known as "productivity losses." These include the costs of lost work due to

absenteeism or early retirement, impaired productivity at work, and lost or impaired

leisure activity. Indirect costs also include the costs of premature mortality. Intangible

costs of pain, suffering, and grief are real, yet very difficult to measure and are often

omitted from cost analyses.

Time Horizon. Interpretation of cost analyses must consider that the time

horizon (or time-frame) of a study is likely to affect the findings regarding the relative

magnitudes of costs and outcomes of a health care intervention. Costs and outcomes

usually do not accrue in steady streams over time. Comparisons of costs and outcomes

after one year may yield much different findings than comparisons made after 5, 10,

or 25 years. The meaningful time horizons for assessing the cost horizons of each of

emergency appendectomies, cholesterol-lowering in high-risk adults, and smoking

cessation in teenagers are likely to be quite different.

35

For example, an analysis conducted for the Medicare program in the US to determine

cost and time tradeoffs of hemodialysis and kidney transplantation showed that the

annualized expenditure by the Medicare End-Stage Renal Disease Program for a

dialysis patient was $32,000. Although patients with functioning transplanted kidneys

required a first-year expenditure of $56,000, they cost Medicare only an average of

$6,400 in succeeding years. On average, estimated cumulative dialysis and

transplantation costs reach a break-even point in about three years, after which

transplantation provides a net financial gain compared to dialysis (Rettig 1991).

Time horizons should be long enough to capture streams of health and

economic outcomes (including significant intended and unintended ones). These

could encompass a disease episode, patient life, or even multiple generations of life

(such as for interventions in women of child-bearing age or interventions that may

cause heritable genetic changes). Quantitative modeling approaches may be needed to

estimate costs and outcomes that are beyond those of available data. Of course, the

higher the discount rate used in an analysis, the less important are future outcomes

and costs.

Average Costs vs. Marginal Costs. Assessments should make clear whether

average costs or marginal costs are being used in the analysis. Whereas average cost

analysis considers the total (or absolute) costs and outcomes of an intervention,

marginal cost analysis considers how outcomes change with changes in costs (e.g.,

relative to a comparator), which may provide more information about how to use

resources efficiently. Marginal cost analysis may reveal that, beyond a certain level of

spending, the

Additional benefits are no longer worth the additional costs. For example, as

shown in Box 21, the average cost per desired outcome of an iterative screening test

may appear to be quite acceptable (e.g.,$2,451 per case of colorectal cancer detected

assuming a total of six tests per person), whereas marginal cost analysis demonstrates

that the cost of adding the last test (i.e., the additional cost of the sixth test per person)

to detect another case of cancer would be astronomical.

.

36

USING COST ANALYSES WITH THE STATE STRENGTHENING EVALUATION

GUIDE:

If you are using the Five-Tiered Approach to Program Evaluation outlined in

the State Strengthening Evaluation Guide, cost analyses can be used at several levels:

Tier 1 - Program Definition

At this stage, you will probably be using cost studies based on other people's

experience in similar programs, since you are unlikely to have cost data of your own

yet. This means that the estimates you use will only be approximations, and may not

accurately reflect what your program's experience will be. However, "ex-ante" cost

analyses, done in the planning stages before implementing a program, can potentially

prevent some very costly mistakes. If you have access to cost-effectiveness studies of

programs similar to the one you are considering, especially if they allow you to

compare the relative costs and benefits of several different ways of delivering a

service, before you have made substantial investments of time or money, some

program design decisions may be easier. One common example in community-based

programs is staffing (eg., deciding whether to use highly-trained professionals to

deliver services, or to rely on less highly-paid paraprofessionals or volunteers). While

many people assume that the paraprofessionals or volunteers are always less

expensive, cost-effectiveness studies in some cases have found that the professionals

may be less costly in the long run because they can see more clients, require less

supervision time, or are more effective. Of course, costs also need to be weighed

against other considerations, such as the fact that paraprofessionals recruited from the

community served may more easily gain the trust of clients.

37

Tier 2 - Accountability

Clearly, fiscal accountability is one of the primary reasons for using any

kind of cost analysis as part of your evaluation. Any responsible program should keep

service statistics and financial records that are accurate and up-to-date enough to be

able to determine some very basic information about unit costs, and funders usually

require this. However, the minimal information routinely collected by programs for

fiscal and reporting purposes is not always in a form that lends itself to evaluation

uses.

Tier 3 - Understanding and Refining

Like any other type of information gathered for evaluation purposes, the cost

information collected in Tier 2 for accountability purposes provides programs with a

basis for mid-course adjustments and program refinements, either at the end of a

funding cycle, or in the course of implementation.

Tier 4 - Progress Toward Objectives

Using cost information in Tier 4 is closely tied to the program design issues

of Tier 1, and the accountability issues of Tier 2. If appropriate program outcomes and

indicators have been identified in Tier 1, and the appropriate unit cost information is

included in the routine data that is collected as part of Tier 2, then the job of

identifying progress toward objectives in Tier 4 becomes much easier.

Tier 5 - Program Impact

When it has been possible to conduct a full-scale cost-benefit analysis over a

long period of time, and it shows significant long-term gains and cost savings in a

particular population or problem area, the policy implications may be great. One of

the best-known examples is the Perry Preschool Study (discussed earlier), which has

been credited with persuading lawmakers to sustain or significantly increase their

support for early intervention programs, including Head Start.

38

HOW TO BUDGET & ALLOCATE COSTS FOR COST EFFECTIVENESS

STUDIES:

The type of budgeting and accounting system your program or agency uses

may well determine how much useful cost data is available for evaluating your

program, or comparing it to others. Three major types of budgeting formats

commonly used in social service programs will provide different types and amounts

of information (Kettner, Moroney, & Martin, 1990).

The most common format is the Line-Item Budget format, which simply

looks at revenues (money coming in from various sources, including grants, user fees

or United Way funds) and expenditures (costs broken down into broad categories like

salaries, rent, utilities, and postage), and tries to ensure that they balance. The main

purpose of a line-item budget is financial control, and the categories are usually too

broad to give much information about the cost of providing a particular service or

obtaining a particular result.

The Functional Budget format starts with a line-item budget, and takes it a

step further. It focuses on process, or the cost of providing a service. For example,

with a Functional Budget, we could determine that it cost an adoption agency $45,000

to conduct 100 home studies (an activity which is a necessary part of the process of

placing children in permanent homes).

The Program Budget, which also starts with a line-item budget, looks at the

same information from the point of view of outcomes, or the cost of achieving a

result. For example, if the 100 home studies resulted in actually placing 50 children in

adoptive homes, the Program Budget would allow us to say that it cost the agency

$45,000 to place 50 children, which is an outcome.

Another way to look at this is that functional budgets measure productivity,

and program budgets measure the cost of achieving goals and objectives.

39

COMMON STEPS IN DEVELOPING PROGRAM & FUNCTIONAL

BUDGETS (Kettner, et al., 1990):

1. Develop a line-item budget that shows all expenditures. This is the minimal level of

budgeting and accounting that is required by many funders, such as the United Way.

Some funders require a specific format, so that the categories used are standard across

the programs that they fund.

2. Determine the agency's program structure. A distinct program is a set of activities

or services designed to accomplish a specific set of agency goals and objectives.

Many agencies have several different programs.

3. Identify all direct costs and indirect costs. Direct costs are those that benefit only

one program (for example, salaries of staff who work only for one program, or

supplies and equipment used only for that program). Indirect costs or "overhead"

costs are those that benefit or are shared by more than one program (for example,

several programs in an agency might share the same building, and be served by the

same bookkeeping and secretarial staff, utilities, or janitorial services).

4. Assign direct costs to the appropriate program or project. This is usually fairly

straightforward. If one county agent has full-time responsibility for operating your

State Strengthening project, for example, then 100% of his or her salary and benefits

would be assigned as an expense to that project in the budget. If a staff member

spends 50% of his or her time on the State Strengthening project and 50% on another

assignment, then half of that person's salary and benefits would be assigned to the

State Strengthening project as a direct cost.

5. Allocate indirect costs to programs. Deciding how to divide up the indirect (shared)

cost pool among several programs in the agency can be much more complicated and

technical. The actual practice of allocating or dividing up the indirect costs is usually

best left to an accountant. There are several methods for doing this, each with

particular advantages and disadvantages

40

6. Determine total program costs. The total cost of a particular program (such as your

State Strengthening project) is the sum of the direct costs, and the portion of indirect

costs that is allocated to that program.

Once we have this information about total program costs, then we can

calculate unit costs. For a Functional Budget, this involves defining the units of

service for each program (eg., hours of day care provided, meals delivered, home

studies conducted), and calculating the cost per unit of service. In the adoption agency

example above, the unit cost of conducting a home study would be $450 (total

program cost divided by number of units of service provided). For a Program Budget,

the final steps are determining the total cost of achieving the outcome objectives for

the year, and calculating the cost per outcome. Using the adoption example again, we

can say that the adoption agency described above successfully placed children in

adoptive homes at a unit cost of $900/child (total program costs divided by the

number of successful outcomes).

EFFICIENCY & COST - EFFECTIVENESS STUDIES:

41

From the point of view of program evaluation, both the Program and Functional

Budgeting systems are more useful than a Line-Item Budget. Unit cost information

allows for useful comparisons of the costs of delivering services and getting results.

With this information, we can look at the unit cost of one adoption agency compared

to another, to see whether one operates more efficiently. We can also compare the unit

cost (per child) of adoptive placement to the unit cost (per child) of placement in

foster care or residential treatment. This is basically what happens in a cost-

effectiveness study.

In general, a cost-effectiveness study is more appropriate than a cost-benefit

analysis when your goals or outcomes can't easily be quantified or monetized, or

when there are multiple competing goals. As with budgeting and cost allocation, there

are a variety of approaches to cost-effectiveness studies. The approach that is best for

your purposes will depend on a number of factors. A good source of more detailed

information about deciding what approach is most appropriate, and conducting the

various types of cost-effectiveness studies, is Weimer & Vining (1992).

 

HOW TO CONDUCT A COST - BENEFIT ANALYSIS:

42

Cost-benefit analysis is by far the most complex and controversial of the three

methods of costs analysis we have discussed. It should not be attempted by those who

lack technical expertise in this area. However, for some purposes, it is also one of the

most powerful methods. For those who decide to undertake a cost-benefit analysis in

spite of the difficulties, Barnett (1993) outlines a nine step process. Various standard

texts are recommended for more in-depth information (see below).

Step 1: Define the Scope or Perspective of the Analysis - The first step is to describe

the alternative(s) to be evaluated, and determine whose perspective will guide the

evaluation. A narrow cost analysis might look only at the monetary costs and

benefits to the individual participant or target of services, or to a particular funder or

agency. A broader perspective might attempt to look at a wide range of costs and

consequences (intended and unintended, direct and indirect) for society as a whole.

A program that is not cost-effective from the perspective of a particular agency

within its limited mission and budget may well be cost-effective from the

perspective of society, because it saves expenses or prevents problems in other

areas. Rossi and Freeman (1993) note that because different stakeholders may have

different values and priorities, mixing different viewpoints is likely to result in

"confused specifications and overlapping or double counting." Whether we like it or

not, the perspective chosen for cost evaluation may have political implications.

Step 2: Conduct Cost Analysis - The next step is to identify and estimate the

monetary value of all resources used in the intervention, not just the budgetary

costs. Some costs, such as salaries of direct service staff, rental of office space, or

program supplies, are obvious and simple to determine. Indirect costs of supervision

and administration need to be included as well. Other resources and costs may go

well beyond the items that are usually included in an agency budget. Sometimes

"overhead" (like office space or supervision) is provided as an in-kind service by an

existing agency, but since there are probably some additional demands made on the

time of the agency staff, this should be figured into the "real" cost of the

intervention

i

43

Step 3: Estimate Program Effects - This is where more traditional impact or

outcome evaluation methods come in. As noted earlier, if we don't know that there

is a significant beneficial effect of our program, there is little point in asking how

much it costs to get the effect, or whether it is more cost-effective than another kind

of program. Many texts on evaluation can assist you in designing a valid evaluation

(Rossi & Freeman, 1993; State Strengthening Evaluation Guide, 1997). Often it is

not possible to use a true experimental design in evaluating community-based

programs, but there are a number of quasi-experimental designs available (Cook &

Campbell, 1979). Also, don't forget that it is often possible to use existing data to

estimate program effects, as well. If you are looking at an ongoing program, or one

that is based on a national model (such as the Parents As Teachers program), check

to see if formal evaluations have already been done elsewhere. You may also be

able to get useful information from the program's service statistics, or from local,

state, or federal census data [insert link here to Using Existing Data URL].

Step 4: Estimate the Monetary Value of Outcomes - This is one of the most difficult

and controversial aspects of conducting a cost-benefit analysis, and it may require

the help of consultants. Some cost-savings are easier to estimate than others. For

example, we may have data that the average cost of placing a child in residential

treatment is $20,000 a year, so if we are able to prevent 20 children from being

placed in residential treatment, the estimated savings is 20 X $20,000. However,

other important outcomes may be much less obvious, and much harder to estimate.

Step 5: Account for the Effects of Time - One of the trickiest and most technical

aspects of cost-benefit analysis, especially for longitudinal studies that follow

clients or outcomes over a period of years, is discounting of costs and calculating

rates of return for alternative uses of the money (such as investing it). This includes

taking into account the effects of inflation on the value of the dollar over time, or

figuring the depreciation in the value of things like buildings and other capital

equipment. Similar issues apply in estimating the value of benefits over a period of

time. For example, if we want to look at the projected life-time earnings of a

teenager who stays in school due to a drop-out prevention program compared to one

who does not, we need to make projections

44

about wages. If we want to look at whether the government will eventually recover its

investment in the drop-out program through the taxes he or she will pay on the

increased income, we need to make projections about future tax rates as well. These

projections all require assumptions. Unless you or someone on the program staff has

expertise in this area, it is strongly advised that you seek out a skilled consultant to

help with this step.

Step 6: Aggregate and Apply a Decision Rule - If you are looking at the costs and

benefits on several outcomes (which is often the case), how will you decide which

has priority? If a program for pregnant teenagers results in healthier babies (and

lower hospital costs), but not in fewer repeat pregnancies, which outcome is more

important?

Step 7: Describe Distributional Consequences - This is related to choosing your

perspective of analysis. It involves specifying who gains and who loses under

different conditions (because in some cases, one party's benefit is another party's

loss). This may be a highly controversial and political step in the process.

Step 8: Conduct Sensitivity Analysis - This step involves identifying the

assumptions behind your cost estimates, and considering how critical they are to

your calculations. If one of your assumptions turns out not to be accurate, or if

conditions change during the time of your study (for example, the minimum wage

goes up, affecting salary costs), will that change your whole conclusion, or is the

effect strong enough that there is some leeway?

Step 9: Discuss the Qualitative Residual - Since there are almost always some things

that can't be quantified or given monetary values, it is important that your report

include some discussion of these issues. A frank description of some of these

qualitative issues in your report can help round out your conclusions, and reduce the

chances of your study being used inappropriately.

45

Cost - Benefit Analysis

From Wikipedia, the free encyclopedia

Jump to: navigation, search

Cost-benefit analysis is a term that refers both to:

a formal discipline used to help appraise, or assess, the case for a project or

proposal, which itself is a process known as project appraisal; and

an informal approach to making decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly,

weighing the total expected costs against the total expected benefits of one or more

actions in order to choose the best or most profitable option. The formal process is

often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost

Analysis).

A hallmark of CBA is that all benefits and all costs are expressed in money

terms, and are adjusted for the time value of money, so that all flows of benefits and

flows of project costs over time (which tend to occur at different points in time) are

expressed on a common basis in terms of their “present value.” Closely related, but

slightly different, formal techniques include Cost-effectiveness analysis, Economic

impact analysis, Fiscal impact analysis and Social Return on Investment(SROI)

analysis. The latter builds upon the logic of cost-benefit analysis, but differs in that it

is explicitly designed to inform the practical decision-making of enterprise managers

and investors focused on optimizing their social and environmental impacts.

46

Chapter- 4

47

ANALYSIS PART IS CALCULATED: The data is collected by using website bin95@bin95.com after the receiving permission from business industrial networks. This database and documentation is the confidential and proprietary information of Business Industrial Network ("Confidential Information"). I tried my best to get this data , cost details can t be disclosed in detail being a confidential data .

Analysis is done industry wise.

48

DATA ANALYSIS & INTERPRETATION :

 Business Industrial Network 

Don't be laymen by the low bars for the "Paper" industry. The survey

participants did not supply monthly T&M cost. This could be a result of participants

not being aware of cost, or not trusting that they remain anonymous in this survey.

Lost Production Cost

Industry

49

Analysis:

This graph shows us just how unaware each industry is, of the "True Cost" of

downtime. For example it has been calculated in some paper facilities, that a

corrugator down cost $10K per hour. One might construed the bar for paper industry

indicates the corrugator has not been down for more than an hour the entire year!  The

graph indicates the Automotive, Food and Metal industries are most aware of "True

Cost" of downtime. 

Once the tools and articles at bin95.com are used to calculate, track, and

benchmark the "True Cost" of downtime, this information should be used in daily

management decisions. (Such as repair or replace.)

 

This database and documentation is the confidential and proprietary

information of Business Industrial Network ("Confidential Information"). You shall

not disclose such Confidential Information and shall use it only in accordance with

the terms of the license agreement you entered into with Business Industrial Network.

No portion of these proceedings or exhibits may be copied, duplicated, used

or referenced without written permission from Business Industrial Network.

bin95@bin95.com

50

OEM Response Time

lndustry

_ = Highest Maximum time reported by any one facility, waiting on OEM to respond.

_ = Average maximum time for industry  that OEM took to respond.

51

Analysis:

Note: These are averages among industry of maximum respond time. Not

average respond time of OEM. This graph is just to show extreme cases, to bring

attention to cost involved.

For example if you calculated your true cost of down time as $1,000 per hour,

some instances cost as much as $50,000. If that breakdown was a bottle neck, the

hourly cost could escalate to over a half a million!

This is yet another example of why you should take out insurance against costly

downtime, and subscribe to Business Industrial Network's technical resources.

(If you only shave 10% off one instance, with our services, you could see a ROI of

more than 500%.)

52

Annual OEM Cost

53

Analysis:

With an increase in outsourcing, industry wide, $100K a year is not bad. If you dig deeper,

you'll find these figures to be actual dollars paid out. Not actual cost of downtime related to OEM

service.

You will find that service is not the only OEM related cause for downtime cost. Most

facilities do not track downtime cost related to OEM warranty work, and OEM new

installations/upgrades.

The first step is to accurately track cost related OEM service, warranty, and installations.

Then you will see the "True Cost", and potential for savings. (Lack of standards for dealing with

OEMs is the primary reason for cost ten times the scale in the graph above. BIN95 is working on a

set of tools and standards you can use to save thousands.)

54

.

_ = Average number of PLC techs per industry

_ = Average number of PLCs per industry

Analysis:

Its amazing to find out how many don't know exactly how many PLCs are in

their facility. Injection Molding was the lowest in our survey. But with just about

every Molding machine and extruder having some flavor of PLC in it, I suspect the

numbers are a lot higher than surveyed.

TIPS:

1. Take an inventory of all machines.

2. Insure you have manuals and preferably software on hand, for each brand

Business Industrial Network has personnel who will inventory for you, and

make back up copies of all programs.

55

.

_ = Average monthly downtime for industry

_ = Average total annual downtime for industry

Analysis:

The Automotive, metal and paper industries reported monthly averages where

off by an average of 30% of what they reported for an annual downtime. One of 2

conclusion can be drawn from this fact.

1. They are not aware of the true monthly average downtime.

2. They had one or more major break downs that where not calculated in monthly

averages

Cancer screening and detection costs with sequential guaiac tests

56

No.of tests

No. of cancersdetected

Additionalcancers detected

Total cost ($) of diagnosis

Additional($) cost of diagnosis

Average cost ($)per cancer detected

Marginal cost ($)per cancerdetected

165.9469 65.9469 77,511 77,511 1,175 1,175

2 71.4424 5.4956 107,690 30,179 1,507 5,492

3 71.9004 0.4580 130,199 22,509 1,810 49,150

4 71.9385 0.0382 148,116 17,917 2,059 469,534

5 71.9417 0.0032 163,141 15,024 2,268 4,724,695

6 71.9420 0.0003 176,331 13,190 2,451 47,107,214

This analysis assumed that there were 72 true cancer cases per 10,000

population. The testing protocol provided six stool guaiac tests per person to detect

colon cancer. If any one of the six tests was positive, a barium-enema test was

performed, which was assumed to yield no false positive and no false-negative results.

Other assumptions: the true-positive cancer detection rate of any single guaiac test

was 91.667%; the false-positive rate of any single guaiac test was 36.508%; the cost

of the first stool guaiac test was $4 and each subsequent guaiac test was $1; the cost

of a barium-enema was $100. The marginal cost per case detected depends on the

population screened and the sensitivity of the test used.

Source: Neuhauser 1975.

Discounting. Cost analyses should account for the effect of the passage of time

on the value of costs and outcomes. Costs and outcomes that occur in the future

usually have less present value than costs and outcomes realized today. Discounting

reflects the time preference for benefits earlier rather than later; it also reflects the

opportunity costs of capital, i.e., whatever returns on investment that could have been

gained if resources had been invested elsewhere. Thus, costs and outcomes should be

discounted relative to their present value (e.g., at a rate of five percent per year).

57

Discounting allows comparisons involving costs and benefits that flow differently

over time. It is less relevant for "pay as you go" benefits, such as if all costs and

benefits are realized together within one year. It is more relevant in instances where

these do not occur in parallel, such as when most costs are realized early and most

benefits are realized in later years. Discount rates used in cost analyses are typically

based on interest rates of government bonds or the market interest rates for the cost of

capital whose maturity is about the same as the duration of the effective time horizon

of the health care intervention of program being evaluated. Box 22 shows the basic

formula for calculating present values for a given discount rate, as well as how the

present value of a cost or benefit that is discounted at selected rates is affected over

time.

Cost analyses should also correct for the effects of inflation (which is

different from the time preference accounted for by discounting), such as when costs

or cost-effectiveness for one year is compared to another year.

Sensitivity Analysis. Any estimate of costs, outcomes, and other variables

used in a cost analysis is subject to some uncertainty. Therefore, sensitivity analysis

should be performed to determine if plausible variations in the estimates of certain

variables thought to be subject to significant.

58

CHAPTER- 5

59

FINDINGS & SUGGESTIONS :

FIND A SOLUTION TO THE BUSINESS DILEMMA:

YOU WANT TO CONTROL

Travel & Telephony Costs IT Maintenance Costs

Energy consumption Server Hardware Purchases

Slower Decision-Making Problematic Content Workflow

Ineffective Reporting Formats Multiplicity of Software Licenses

Unproductive Customer Service Poor IT Service Levels

Upfront payment for Software

Licenses

COST ANALYSIS:

The Aberdeen's Spend Analysis Benchmark Study - 2007 while enterprises are clearly

able to recognize and communicate the benefits of utilizing spend analysis

technology, they have not yet bridged the gap to action. Sixty percent of organizations

currently rely on manual tools to collect and analyze spend data, resulting in limited

spend visibility and the inability to improve cost savings.

Best-in-Class Performance

Aberdeen evaluated over 700 enterprises in July and August of 2007 and

distinguished Best-in-Class enterprises by the percentage of enterprise spend under

management. Best in Class enterprises in this study are notable for their superior

performance and credit spends analysis solutions for delivering the following benefits:

  12.7% savings due to sourcing efforts based on spend analysis data

  9.1% reduction in manual correction of spend cleansed and classified

  73% rate of compliance to contractual agreements

60

CONCLUSION :

The goal of this primer has been to describe the major principals, concepts and

methods for doing economic analysis of highway projects. The coverage of these

subjects has been necessary brief . For the interested reader, a wealth of additional

information from publicly accessible sources.

First and foremost, economic analysis provides valuable information to the

planning, design, construction, preservation, and operation of the transportation

infrastructure. The limited supply of transportation dollars must be invested in a

manner that gives the greatest return to the public .The most objective way to

accomplish this is to compare the benefits and costs of transportation projects

through the standard unit of the discounted dollar over the life cycle of projects.

Benefit cost analysis is the most comprehensive method to evaluate the

reasonableness of highway projects in economic terms. In some cases, when it is

clear that a project must be undertaken regardless of its cost. (e.g., a critical bridge

on a inter state highway must be repaired or replaced in kind).

State agencies and other practitioners typically must invent some effort to

establish the skills and procedures needed to conduct economic analysis. Once

established ,however, economic analysis integrates with existing planning,

environmental, and engineering practices with minimal additional work

Uncertainty is a complicating factor in economic analysis as it is in virtually every

area of human endeavor. Uncertainty can be measured and quantified as risk

through risk analysis methods.

Finally, through the mechanism of the marketplaces, the direct benefits and costs

of highway projects will cause various indirect effects on local and regional

economies, including impacts on employment levels, wages, business activity and

housing prices. EIA tools can measure these indirect effects of highway projects

based on the findings of BCA. Indirect effects are often of major interest to

decision makers and the public and particularly for large projects, can be

presented in a complementary analysis to the BCA.

61

CHAPTER- 6

62

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Throughout the text of this introduction to benefit cost analysis, emphasis is

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preview - About this book - Add to my shared library

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This book attempts to build a bridge between cost-benefit analysis, as developed by

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Limited preview - About this book - Add to my shared library

Cost-benefit Analysis

by Richard Layard, Stephen Glaister - Business & Economics - 1994 - 497

pages

Covering all the main problems that arise in a typical cost-benefit exercise, this

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Literaturangaben

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