Q. What kinds of cost analyses can be performed and what are the goals of each of them?
There can be a variety of reasons for conducting a cost analysis, from trying to build a business case or grant proposal, to attempting to determining levels of service required to maintain sustainability over the long-run when you no longer have grant funding. Cost analyses can also be used to assess both operational efficiency and make comparisons of service effectiveness under different management or resource levels, quality of service levels, and technology/human resource combinations. The goal of your cost analysis will determine what kinds of information you need to acquire, what level of granularity you must provide, and just as important, how you will present the final analysis to your stakeholders. It will also determine the timeframe over which you should collect and analyze costs.
If you are attempting to create a benefit-cost analysis or business case, however, you may not have a full understanding of what activities will be necessary and will have to delineate them before you can begin to create cost categories and gather cost information. You will need to determine the scope of your workflow and processes. To prepare for this, understanding basic project management can be helpful.
- Determine whether your cost analysis is for (1) a cost/benefit analysis or business case, (2) assessing potential cost changes if you undertake a new service or type of technology (that is, a service enhancement cost study), (2) updating annual budgets, or (3) or a cost-effectiveness study.
- Determine whether your cost analysis is going to be retrospective, current, or prospective and how long the timeframe is that you wish to examine.
- Determine whether you need your cost analysis to allow you to do "If-then" or sensitivity analyses. If you would like to compare a variety of different options for technology usage, human resource needs, and impacts of policies, you will want to turn your cost analysis into a full-blow cost model that can update total costs over time based upon your different potential assumptions. These are often done in Excel spreadsheets, Access databases, or via specialized software that can be purchased or built in-house.
Review use cases
Beagrie, Neil, Lorraine Eakin-Richards (now Richards), Todd Vision. "Business Models and Cost Estimation: Dryad Repository Case Study." In Rauber, Andreas, Rebecca Guenther, Panos Constantopoulos. (Eds.) Proceedings of 7th International Conference on Preservation of Digital Objects. Vienna, Austria: Österreichische Computer Gesellschaft, 365-370, 2010. http://www.ifs.tuwien.ac.at/dp/ipres2010/papers/beagrie-37.pdf
Discusses the manner by which the Dryad Digital Repository, a digital data repository supporting the archiving of data sets that support published articles in the biosciences, developed a sustainability plan. It discusses the goals of the plan, the development of a cost model, and the development of a long-term business plan for the repository.
Charles Beagrie, Ltd. Keeping Research Data Safe: Cost-Benefit Studies, Tools, and Methodologies Focussing on Long-Lived Data. [website]. http://www.beagrie.com/krds.php
Provides a large number of resources on costs and benefits of preserving research data, including the KRDS model and its components, and a wide variety of citations.
Eakin-Richards, Lorraine (now Richards). Dryad Cost Model Report: Submitted in Support of Dryad Cost Model, V1.0, 2010. http://wiki.datadryad.org/wg/dryad/images/5/54/Cost_model_Eakins_Feb_2010.pdf
Final report submitted in conjunction with an Excel-based cost model developed for the Dryad Digital Repository. It discusses assumptions that went into developing the cost analysis, and offers views of the model, and per article projected costs.
The Life Website. http://www.life.ac.uk/
Presents the results of all three stages of the LIFE Project, which analyzed costs and developed a complex cost model for preserving e-Literature. The site includes information from all three stages of the project, and offers case studies, the cost models themselves, and interpretations of the results for higher education.
Maron, Nancy L., K. Kirby Smith, and Matthew Loy. Sustaining Digital Resources: An On-the-Ground View of Projects Today: Ithaka Case Studies in Sustainability. JISC, 2009. http://www.esa.org/science_resources/DocumentFiles/SCA_Ithaka_SustainingDigitalResources_Report.pdf
"Rather than focus only on methods for generating revenue, we sought to capture a fuller range of the activities carried out by projects today to develop creative strategies for both revenue generation and cost management" (p. 4). While Sustainability and Revenue Models presented the theory, readers wanted to see how the models were working in practice. How did project leaders define their mission and revenue goals? What steps did they take to develop revenue-generating and cost-management strategies? How did these align with the organisations’ missions? To what extent were certain models successful, and how did project leaders define that success? Where were they running into problems?...Our goal is to help illuminate the ways in which the general principles outlined in the first report play out in the real world, as well as to highlight lessons for leaders of other digital projects and other stakeholders in the community" (p. 6).
Testbed Digitale Bewaring. Costs of Digital Preservation. The Hague, Netherlands: National Archief of the Netherlands, 2005. http://www.nationaalarchief.nl/sites/default/files/docs/kennisbank/codpv1.pdf
Reports upon a cost analysis involved in the long term preservation of digital records and the indicators that can exert influences on these costs.
Levin, Henry M. and Patrick J. McEwan.Cost-Effectiveness Analysis: Methods and Applications. Thousand Oaks, CA: Sage Publications, Inc., 2000.
Although this book primarily presents information on how to perform cost-effectiveness analyses, it also does a good job of explaining the various different types of cost analyses that can be performed, and how one can determine which analysis is appropriate for one's purposes. It also discusses how to determine whether you really need to perform a cost analysis, given your goals, how to properly identify the problem, the audience, and how to find and measure costs.
Kingma, Bruce R. Economics of Information: A Guide to Economic and Cost-Benefit Analysis for Information Professionals. Second edition. Englewood, CO: Libraries Unlimited, 2001. http://18.104.22.168/get?nametype=orig&md5=189851ebd3a1542ef9e26bc2080301d0
Designed specifically for information professionals, this theoretical book is accessible to the beginner with little to no experience in economics. It is filled with examples from library services and information markets, and includes a chapter on digital libraries and internet economics. The text will not provide detailed information on how to conduct a cost analysis, but it does present information regarding the economics that provide a foundation for cost analyses.
Michel, R. Gregory. Cost Analysis and Activity-Based Costing for Government.Chicago: Government Finance Officers Association (GFOA), 2004.
Focusing specifically on performing cost analyses within the public sector, this book provides information on cost concepts and explains cost analysis for government decision-making. It also introduces activity based costing (i.e., "ABC"), which is a means for analyzing costs that allocates indirect or overhead costs to the products or processes that actually incur the costs.
Venkataraman, Ray R. and Jeffrey K. Pinto. Cost and Value Management in Projects.Hoboken, NJ: John Wiley & Sons, Inc., 2008.
This textbook introduces both cost and value management in a project-based environment, giving examples throughout. It provides information on project planning, cost estimation and budgeting, cost control, financial management, and ways to define value and measure it over time. It also introduces change control, quality management, and ways to integrate costs and value within a single report.
Last updated on 08/26/13, 9:25 pm by callee