Cost Analysis

The framework for conducting a cost analysis is fairly generic and typically involves a set of guidelines that define the approach to be taken and the expected purpose (outcome) of the analysis for decision making.

A cost analysis generally

  • begins with a concise definition of objectives (why)
  • includes a statement of who is interested in the analysis, its scope (who, where)
  • states what is needed/relevant to be measured (what)
  • and describes how the analysis will be conducted (how).

You can use several methods and approaches to conduct cost analyses (the how). The options may differ based on whether

  • you are trying to analyze the impact of a specific intervention or practice, or
  • you are looking to more systemically monitor, analyze, and manage costs.

Examples of options to analyze intervention or dated costs include cost-effectiveness analysis, cost-benefit or return on investment analysis, and cost-utility analysis. Examples of more systemic cost analyses are activity-based analysis, target or should-costing, and cost of quality analysis.

The following guidelines are relevant when beginning a cost analysis (the how):

  • decide on whether a retrospective or prospective data collection is appropriate
  • decide on the timeline (e.g., recommend to analyze costs for the equivalent of a year)
  • use reasonable estimates when precise numbers are not available or not easily obtained.
Fixed and Variable Costs
SCM Costing

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