Programs that overlap to a significant degree may be lumped together, rather than evaluated separately. Go with what makes the most sense for the operations of your organization, avoiding duplication of efforts wherever possible. To determine whether programs should be separated, look at the services offered by each program, the resources needed to provide those services, and who those services are provided to. If two programs are the same in 2 out of 3 of those dimensions, they probably should be treated as one for the purposes of cost analysis.
For example, if you’re trying to decide whether to charge for a specific service, you would first determine how much that service costs you to provide. You would then do a longer term cost analysis to determine whether your organization can sustain a loss for providing that service. It’s generally best to choose a time period for which you can acquire accurate revenue data, rather than estimates. This will help if you plan to use your cost analysis as a basis for further economic evaluation. [4] X Research source
If you are conducting a cost analysis merely to set a budget or plan strategically for the future, you would typically conduct a cost analysis that extended organization-wide. On the other hand, a narrower or more specific purpose, such as determining whether to bill for a particular service (and how much), might require a narrower cost analysis that only addressed the costs of that particular service.
For example, you may be interested in the cost to your clients of offering a particular service. You would look at costs from their perspective, taking into account the amount you bill (or plan to bill) for the service, transportation to your location, and other costs. If you’re simply looking at the cost of the program to your organization, you’ll look at your organizational expenses generally. You might also look at opportunity costs, such as whether offering one program means you will be unable to offer other programs.
You might also look at cost analyses conducted by similar organizations implementing similar programs or providing similar services.
Direct costs are specific to the program or service you’re evaluating in your cost analysis – they are not shared with any other programs. Overhead costs, such as utilities or rent, may be a direct cost if the program or service has its own location.
Ultimately, when you calculate the costs of an individual program or service, you’ll need to allocate these indirect costs
Standard categories may include personnel costs, operational costs, and start-up costs. Within each category, identify which costs are direct and which are indirect.
Use actual cost information as much as possible. It will increase the utility and reliability of your ultimate cost analysis. [11] X Trustworthy Source Centers for Disease Control and Prevention Main public health institute for the US, run by the Dept. of Health and Human Services Go to source For estimates, seek out reliable sources that can be applied as narrowly as possible. For example, if you need to estimate pay, use average rates for employees locally, not nationally.
If you’re doing a longer term cost analysis, compute direct costs first on a weekly or monthly basis, and then extend them out. When computing personnel costs, be sure to include the cost (or value) of any benefits offered to employees working on the program.
For example, suppose you’re allocating the salary of the director of human resources. Since they are responsible for personnel, it makes sense to divide their salary by the number of people on staff. If you have 10 employees total, 2 of whom are dedicated to the program or service you’re evaluating, you can allocate 20 percent of the director’s salary to the program for the purposes of your cost analysis.
Calculating depreciation can be a complicated endeavor. If you don’t have experience doing it, consider hiring an accountant. [14] X Research source
For example, if you’re doing the cost analysis of a program for a non-profit, hidden costs might include the estimated value of volunteer hours, donated materials, or donated space. Hidden costs might also include opportunity costs. For example, launching one program may affect your organization’s ability to offer other programs.
At a minimum, your cost analysis should provide your organization with the true cost of running a program or providing a particular service. Your cost analysis may also raise additional questions, indicating further analysis is necessary before an ultimate decision can be made.
