COST ANALYSIS OF PROJECT

BY VARSHA V. AWASARKAR

OBJECTIVE

1. To know the meaning of cost & study its types.2. To know the meaning of project management.3. To focus on cost analysis & to emphasize on general cost

analysis procedures.4. To study the analysis of cost incurred on

Procedures(operation cost analysis) Clinical trails Instrumentations Raw materials ( with examples).

5. To emphasize on Advantages of Project Cost Management.

WHAT IS COST???

• In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore.

• In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this case, money is the input that is gone in order to acquire the thing.

• This acquisition cost may be the sum of the cost of production as incurred by the original producer, and further costs of transaction as incurred by the acquirer over and above the price paid to the producer.

• Usually, the price also includes a mark-up for profit over the cost of production.

Cost estimation

• When developing a business plan for a new or existing company, product, or project, planners typically make cost estimates in order to assess whether revenues/benefits will cover costs (cost-benefit analysis). This is done in both business and government.

Costs are often underestimated, resulting in cost overrun during execution.

TYPES OF COST

F

Direct materials Manufacturing

cost overhead cost

MANUFACTURING COST

Direct labor cost

NON MANUFACTURING

COST

ADMINISTRATIVE COST SELLING AND DISTRIBUTION

COST

OTHER TYPES

Project management

• Project management is the discipline of planning, organizing, motivating, and controlling resources to achieve specific goals.

• A project is a temporary endeavor(attempt by employing effort) designed to produce a unique product, service or result with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables), undertaken to meet unique goals and objectives, to bring about beneficial change or added value.

• The temporary nature of projects stands in contrast with business as usual(or operations) which are repetitive, permanent, or semi-permanent functional activities to produce products or services.

• The primary challenge of project management is to achieve all of the project goals.

• The primary constraints are scope, time, quality and budget.

• The secondary challenge is to optimize the allocation of necessary inputs and integrate them to meet pre-defined objectives.

Fig. Project Management Stages

Project Cost Management

Strategies

Officers involved in project cost

management• Cost Manager-Cost Analysis, VAT Assessment

• Project Manager-Life Cycle Analysis, Operation and Maintenance of documentation and the operating business plan for any new facility

COST ANALYSIS

DEFINITION : Cost analysis is the: o Review and evaluation of the separate cost

elements and profit/fee in an offeror's or contractor's proposal (including cost or pricing data or information other than cost or pricing data), and

o Application of judgment Used to determine how well the proposed costs

represent what the cost of the contract should be, assuming reasonable economy and efficiency.

General Cost Analysis Techniques and

Procedures

Use the following techniques and procedures to perform cost analysis:

• Verify cost or pricing data or information other than cost or pricing data.

• Evaluate cost elements, including:

o The necessity for and reasonableness of proposed costs, including allowances for contingencies;

o Projections of the offeror's cost trends, on the basis of current and historical cost or pricing data or information other than cost or pricing data;

o A technical appraisal of the estimated labor, material, tooling, and facilities requirements, and scrap and spoilage factors; and

o The application of audited or negotiated indirect cost rates, labor rates, cost of money factors, and other factors.

CONT…..

• Evaluate the effect of the offeror's current practices on future costs. o Ensure that the effects of inefficient or uneconomical past

practices are not projected into the future. o In pricing production of recently developed complex equipment,

perform a trend analysis of basic labor and materials even in periods of relative price stability.

• Compare costs proposed by the offeror for individual cost elements with:

o Actual costs previously incurred by the offeror; o Previous cost estimates from the offeror or from other offerors

for the same or similar items; o Other cost estimates received in response to the Government's

request; o Forecasts or planned expenditures.

COST INCURRED ON

PROCEDURES

• A process is one part of a complete set of activities that an item must pass through during manufacture.

• It is also called as Process Cost Systems; Under a process cost system, direct costs are charged to a process even though end-items (which may not be identical) for more than one contract are being run through the process at the same time. At the end of the accounting period, the costs incurred for that process are assigned to the units completed during the period and to the incomplete units still in process.

1. The completed item results from a series of processes, each of which produces some changes in the item.

2. The number of processes involved will vary with the complexity of the item.

3. The greater the similarity between two end-items, the more likely they are to go through the same process, during the same period of time, with factory laborers devoting a part of their time to each item.

• If all items being processed are identical, the contractor may add the costs incurred during the accounting period to the cost of the beginning work-in-process inventory and subtract the estimated cost of the ending work-in-process inventory to arrive at the total costs of items completed.

Unit cost = total cost number of units completed

E.g. Annual Operating Cost Summary Table of Superpro

COST INCURRED ON CLINICAL

TRAILS• Clinical trials are sets of tests in medical research

and drug development that generate safety and efficacy data (or more specifically, information about adverse drug reactions and adverse effects of other treatments) for health interventions (e.g., drugs, diagnostics, devices, therapy protocols).

• They are conducted only after satisfactory information has been gathered on the quality of the nonclinical safety, and health authority/ethics committee approval is granted in the country where approval of the drug or device is sought.

CONT……

• A full series of trials may incur sizable costs, and the burden of paying for all the necessary people and services is usually borne by the sponsor, which may be a governmental organization or a pharmaceutical, biotechnology or medical device company.

• When the diversity of required support roles exceeds the resources of the sponsor, a clinical trial is managed by an outsourced partner, such as a contract research organization or a clinical trials unit in the academic sector.

PHASES

Phase 3

Phase 4

COST OF CLINICAL TRAILS

CONT…..

Sponsor The cost of a study depends on many factors, especially the

number of sites conducting the study, the number of patients required, and whether the study treatment is already approved for medical use.

Clinical trials follow a standardized process.• The costs to a pharmaceutical company of administering a

Phase 3 or 4 clinical trial may include, among others:• manufacturing the drug(s)/device(s) tested• staff salaries for the designers and administrators of the trial• payments to the contract research organization, the site

management organization (if used) and any outside consultants

CONT……

• payments to local researchers (and their staffs) for their time and effort in recruiting patients and collecting data for the sponsor

• study materials and shipping• communication with the local researchers, including on-site

monitoring by the CRO before and (in some cases) multiple times during the study

• one or more investigator training meetings• costs incurred by the local researchers, such as pharmacy

fees, IRB fees and postage• any payments to patients enrolled in the trial (all payments are

strictly overseen by the IRBs to ensure the patients do not feel coerced to take part in the trial by overly attractive payments)

• These costs are incurred over several years.

CONT…..

• In the US, sponsors may receive a 50% tax credit for certain clinical trials,

• The enormous cost and risk of Phase III trials create incentives for researchers and investors to avoid work on medications for the chronic conditions and illnesses that pose the greatest threat to Americans, in terms of health spending and in terms of the number of people affected. This avoidance, in turn, harms overall U.S. health outcomes and drives up the cost of health care.

.

CONT……..

Investigators

• National health agencies, such as the US National Institutes of Health, offer grants to investigators who design clinical trials that attempt to answer research questions of interest to the agency.

• Many clinical trials do not involve any money. However, when the sponsor is a private company or a national health agency, investigators are almost always paid to participate.

• These amounts can be small, just covering a partial salary for research assistants and the cost of any supplies (usually the case with national health agency studies), or be substantial and include 'overhead' that allows the investigator to pay the research staff during times between clinical trials.

CONT……

Subjects• Participants in Phase 1 drug trials do not gain any direct benefit

from taking part.• They are generally paid an inconvenience allowance because

they give up their time (sometimes away from their homes); the amounts paid are regulated and are not related to the level of risk involved.

• In most other trials, subjects are not paid to ensure their motivation for participating is the hope of getting better or contributing to medical knowledge, without their judgment being skewed by financial considerations. However, they are often given small payments for study-related expenses such as travel or as compensation for their time in providing follow-up information about their health after they are discharged from medical care.

CONT….

Participation as labour• It has been suggested that clinical trial participants be

considered to be performing ‘experimental' or 'clinical labour’.

COST INCURRED IN INSTRUMENTATION

SuperPro and EnviroPro Designer perform thorough Cost Analysis and Project Economic Evaluation

EXAMPLE : Equipment Purchase Cost Table SuperPro is equipped with built-in functions that

estimate equipment purchase cost based on size, material of construction, and other characteristics. The user has the option to specify his/her own equipment purchase cost or provide his/her own parameters (in power-law format) for estimating the cost. Starting with version 5.0, the user may create an equipment database (in MS Access format) and store equipment-related info (including cost data) in a centralized and easily retrievable way.

COST INCURRED ON RAW MATERIALS

EXAMPLE : Raw Materials Cost Table

• The amount of raw materials is calculated based on the material balances. The unit cost is retrieved from the component database. The user has the option to nullify the unit cost (purchasing price) in the component database.

Profitability Analysis Table

Cont…

The profitability analysis table includes info on capital investment, annual production, unit production cost, revenues, profit, gross margin, return on investment and payback time.

The Advantages of Project Cost Management

• Stress Reduction When you manage money well, you can worry less about how you

are going to pay your expenses. Cost management thus both have the potential to reduce your stress level.

• Pursuing Other Objectives Effective cost management Cost management, thus, is a tool for

pursuing other objectives and goals.• Prioritization and Efficiency Often, when you engage cost management, it is not possible to do

everything initially proposed. Subsequently, you learn to prioritize and decide which projects deserve your funds and attention. If you want to do more with your money , then you need to find ways to be more efficient.

ADV

• Sense of Accomplishment People often feel a sense of pride or accomplishment when they are

able to do everything they set out to do. They also can feel proud when their cost management allows their company to take on additional projects, keep on employees, offer benefits and, in the fullest sense, keep the company in business.

• Awareness and Planning In order to manage costs effectively, you must gather and analyze

data. Doing this makes you continuously aware of what is going on in the marketplace and within your specific company. It lets you plan and make well-informed decisions about the goals you set and how you achieve them.

ADV

• Accountability When you try to manage costs, you typically assign people to

specific tasks and place deadlines on those duties. If the people assigned do not fulfill their obligations, you can hold them accountable and determine what disciplinary action, if any, is warranted Cost management also can find people accountable in instances of fraud.

• Expectations When you manage anything, you set a standard by which to

measure success. For example, when you are managing time, success can be completing reports within the week. When expectations are clear, employees have an easier time doing their jobs and have a better understanding of the ramifications of not meeting those expectations.

Conclusion

From this study we can conclude that the project cost management is a very essential tool in the research and day to day laboratory practices.

REFERENCES

1. Cost-Wikipedia, the free Encyclopedia2. Project management-Wikipedia, the free

Encyclopedia3. Clinical trails-Wikipedia, the free

Encyclopedia4. Final project cost management, by W. C.

Neurnst.5. Project cost management strategies,

Vilanova university, USA, ONLINE.