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Analyzing Costs - Scope of Work

Q. How much time is available to you for your cost assessment?

The level of granularity of your cost analysis will affect the length of time it takes to complete it. However, it may also affect the accuracy of your model. Some people, who have very little time available for conducting a cost analysis will mistakenly attempt to use past or current budgets as a way of estimating costs. In fact, this tends to create highly unrealistic and inaccurate cost analyses. It is important to plan an adequate period of time for conducting one's analysis, based upon the granularity of the analysis, the accuracy and availability of necessary cost records, and the availability and approachability of the financial, managerial, and operational personnel with whom you will need to meet to understand work processes, requirements, and resource availability.

 

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  • Federal Aviation Administration. Cost Analysis: Cost Analysi. [website} http://www.ipa.faa.gov/Tasks.cfm?PageName=Cost%20Analysis

    This website provides several tools and a lot of information about building a cost analysis. Although it is primarily oriented toward engineering and aviation types of projects, it gives a very good "12-step process" for building a cost analysis. By highlighting all of the steps that an exemplary cost analysis will include, it can enable you to estimate better how long your cost analysis is likely to take. (Keep in mind that the work effort you want to put into your analysis will depend upon the benefits you expect to receive from it. Cost analyses can be quite time consuming, depending upon the level of granularity.)

     

  • Levin, Henry M. and Patrick J. McEwan.Cost-Effectiveness Analysis: Methods and Applications. Thousand Oaks, CA: Sage Publications, Inc., 2000.

    Pages 40-42 discuss the potential factors that can influence the amount of time it will take to perform your analysis.
  • Telework Toolkit. Cost Benefit Analysis Guide. [website] http://www.teleworktoolkit.com/library/CostBenefitAnalysisGuide.pdf

    This webpage gives an example of one way of drawing up a cost benefit analysis. It can allow you to see some common ways that cost categories are thought of in business. More importantly, it shows that when you create a cost analysis or cost/benefit analysis for a project that has not yet started, you need to think about two separate types of costs: start-up costs and ongoing (i.e., operational or maintenance) costs. Because start-up costs are one-time costs, in a multi-year project, they would NOT be included when discounting is performed.

Last updated on 08/26/13, 9:27 pm by callee

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