This document discusses cost and benefit analysis as it relates to libraries. It defines cost analysis as a tool to study costs and identifies the key steps as identifying and quantifying processes, dividing processes into smaller steps, determining resource requirements, and relating costs to time and volume. It then describes different approaches to cost analysis including cost effectiveness, cost benefit, cost utility, and cost feasibility analysis. Cost benefit analysis specifically evaluates alternatives based on their monetary costs and benefits. The document provides examples of how cost analysis can be applied to libraries and information centers to estimate expenditures, measure efficiency, and support decision making.

1. COST AND BENEFIT
ANALYSIS
BY
PICHANO KIKON
PHD SCHOLAR
LIS- 451

2. Introduction
• Cost analysis is the basic tool of cost study .
• It is the primary mode of study which helps in carrying out other descriptive and
analytical methods of cost studies.
• Moreover, data derived from cost analyses can be further used for accounting,
budgeting, and performance measurement procedures.
• A sound and convincing presentation of a budget is generally based on underlying cost
analysis of different alternatives.

3. The steps involved in cost analysis are
Identification and quantification of the process:
• The process to be analyzed must be named in a manner which will permit
isolation of that particular item throughout the accounting process e.g.
acquisition process, circulation process etc.
Division of the process into smaller component steps:
• After identification of the process to be analyzed, it is divided into smaller units
or components to facilitate analysis, for instance, the acquisition process can be
divided into book selection, ordering, purchase, accession etc.

4. Determination of resource requirements for each step:
• Identification of the resources required for each and every component step is
essential for cost analysis purpose.
• Four resources that are generally associated with any process are - manpower,
supplies, supervision and environment.
Identification of time and volume for a process and relate it to cost :
• The process under analysis needs to be quantified in terms of time required or
volume of work done in order to relate it to cost.
Cost analysis and alternates
• Cost analysis involves not only the scrutiny of the activities involved in the
process but also the alternate methods of doing the job. This way one can
correctly judge the benefits derived from a particular process.

5. Cost Analysis Approaches
• cost effectiveness;
• cost benefit;
• cost utility;. and
• cost feasibility

6. Cost Effectiveness Analysis
• Cost effectiveness analysis refers to the study of the alternatives in
relation to their cost and effects to achieve certain goal or outcome.
• The focus is, therefore, on the achievement of certain objectives or
goals.

7. Cost Benefit Analysis
• Cost benefit analysis is an important tool used by the welfare
economists.
• It refers to the evaluation of alternatives in relation to their cost and
benefits measured in monetary terms.

8. The advantages of cost benefit analysis:
• Ascertaining if any particular alternative has benefits exceeding its
costs;
• Identifying the set of alternatives with different objectives which have
the lowest cost benefit ratio; and
• Determination of the set of alternatives among different programmed
areas
e.g. education, health, security, etc. having least cost benefit ratio for an overall
analysis of investment for the well being of the society as a whole.

9. Cost Utility Analysis
• Cost utility analysis refers to the study of the alternatives in relation to their
costs and the estimated utility derived thereof.
• While cost effective and cost benefit analysis requires use of quantitative
data for decision making, the cost utility approach uses a wide range of
qualitative and quantitative data for the purpose.
• Cost utility is an appropriate tool where subjective assessments are made
e.g. the assessment of the possible outcome of a particular library service.

10. Cost Feasibility Analysis
• Cost feasibility analysis is an approach of estimating the cost of alternatives
in order to ascertain whether they could be considered or not.
• If the cost of any alternative exceeds the budget or other resources then
that alternative is not considered for further analysis.
• While other approaches like cost benefit, cost effectiveness and cost utility
considers both the cost and result of the alternatives, the cost feasibility
approach considers only the cost factor for the analysis purpose.

11. Methods of Cost Analysis
The various stages of cost analysis measurement are:
Costing of the Input
• At this stage the quantities of various inputs i.e., labor, materials etc. required to carry
out the process are identified and their costs are established.
Costing of the Throughput
• Throughput is the stage in which the actual work of production is carried out.
Costing of the Output
• Output costing is the final stage of cost analysis. This is calculated on the basis of the
summing up of input and throughput costs.

12. There are basically two methods of cost analysis:
i) Work measurement
• Work measurement attempts to measure the exact quantities of labor time used
to carry out particular tasks under study.
• It is primarily based on the work and time study and uses various methods of
data collection
• e.g. work diaries, activity or work sampling etc.
ii) Estimation or ingredient method.
• Estimation or ingredient method, on the other hand, is the sub-class of work
measurement study and is used wherever work measurement is not possible.
• In this method the quantities of resource inputs required to produce outcomes
are first identified either through observation or through discussion with the
staff.

13. Analysing Cost in Library and
Information Centres
• It helps in the estimation of expenditure for each service or operation.
• Cost data can be utilized for the measurement of efficiency of an operation
and the benefits derived from it.
• It ensures optimal utilization of the resources of the library.
• It helps in evaluating the efficiency of the staff.
• Library managers can utilize them for decision making to determine the
future actions.
• It helps in controlling the library operations by keeping track of the inputs
required and the output derived thereof.

14. Cost and benefit analysis
• Cost-benefit analysis(CBA) is the implicit or explicit assessment of the benefits
and costs (i.e. pros and cons, advantages and disadvantages) associated with a
particular choice.
• Benefits and costs may be monetary (financial) or non-monetary (non-pecuniary,
“psychic”).

15. What is Cost-Benefit Analysis (CBA)?
• Economic techniques that measure and compare the monetary value of benefits
from a good, service, or activity to the cost of the good, service or activity; in
policy analysis, a formal way of measuring the benefits of alternative public-
sector options relative to the cost of those options.

16. Library Examples

17. What should be included in a CBA?
• Initial Cost
• Operating Costs
• Staffing Requirements/ Hours of Operation
• Shelving Capacity
• Circulation per Patron Base
• Longevity of Facility
• Service Area
• Marketing Potential

18. How do I perform a CBA analysis?
• Define specified time period for analysis.
• Make numerical summaries of costs for items being evaluated (ie.
Utilities, hours of required staff, number of patrons, years of service
for item, etc.).
• Analyze numbers pairing a cost with a benefit.
• Write an unbiased narrative summary.

19. References
• www.accountingtools.com
• http://www.sjsu.edu/faculty/watkins/cba.htm
• http://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/c
ba_guide.pdf
• IGNOU materials.

20. THANK YOU