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A Project Report ON Cost Analysis: Chapter - 1
A Project Report ON Cost Analysis: Chapter - 1
ON
COST ANALYSIS
CHAPTER - 1
INTRODUCTION :
FINANCE 3
COST ANALYSIS 7
OBJECTIVES 12
SCOPE 13
METHODOLOGY 14
LIMITATIONS 15
CHAPTER - 2
COMPANY PROFILE : 17
CHAPTER – 3
CHAPTER – 4
CHAPTER – 5
CONCLUSION : 61
CHAPTER – 6
BIBLIOGRAPHY : 63
CHAPTER - 1
INTRODUCTION
INTRODUCTION TO FINANCE
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
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.
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).
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
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 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 objective
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
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).
1. Cost Allocation
2. Cost - Effectiveness analysis
3. Cost - Benefit analysis
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:
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 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).
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).
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, 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 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 2 – Accountability
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.
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 :
The study has been conducted taking into an account the past five years data i.e. from
2021 – to 2022
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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