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Week 15
Learning Objectives
Costing Analysis
• Cost-Benefit Ratio:
  – Cost Benefit ratio = Benefit / Ratio
  – The Costs of the software A,B and C
   Software           A       B        C
   Fixed Costs        5,000   10,000   20,000
   Variable Costs     1,000   5,000    10,000
   10% Contingency    600     1,500    3,000
   Total Costs        6,600   16,500   33,000

  – From the analysis above, software A looks the
    cheapest to purchase.
Costing Analysis
• Cost-Benefit Ratio:
   – The Benefits of the software A,B and C
    Software                           A            B          C
    Enhance Productivity               1,000        10,000     5,000
    Better response to customer        5,000        20,000     1,000
    Total Benefits                     6,000        30,000     6,000


Software                   A                    B                      C
Cost-Benefit ratio         6,000 / 6,600        30,000 / 16,500        6,000 / 33,000
                           = 0.91               = 1.82                 = 0.18

     From the cost-benefit ratio calculation above, it is noted that software B
     brings the best benefit to the company.
Costing Analysis
• Cost-Benefit Analysis:
   Description                           Total      Tot. monthly cost
   Purchase cost (depreciation 5 yrs.)   - 10,000   10,000/5/12 = - 167
   License (depreciation 5 yrs.)         - 50,000   50,000/5/12 = - 833
   Revenue                                          +30,000
   Productivity Gain                                +5,000
   Better customer orders                           +1,000
   Net Savings                                      +3,500
Break-Even
• Break Even , N = Fixed Cost (Fc) / unit cost
  where unit cost = selling price – Unit variable
                                     cost
Example:
Fc = 15,000
Selling Price = 500
Unit var cost = 50
N = 15,000 / (500 – 50) = 33
ROI, Return of Investment
• ROI = (Gain – Cost ) / Cost
• Example: Gain = 10,000
            Cost = 8,000
  ROI = (10,000 – 8,000) / 8,000
       = 0.25
Eastman Kodak Co
• Video on Kodak declaring bankruptcy
• Digital world of film

• Question: If you were given a project to start-
  up Kodak what are the list of things that you
  would embark on?
Last Chapter
• Video on Control of project
• Project tracking & closing

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Week 15 learning objectives

  • 2. Costing Analysis • Cost-Benefit Ratio: – Cost Benefit ratio = Benefit / Ratio – The Costs of the software A,B and C Software A B C Fixed Costs 5,000 10,000 20,000 Variable Costs 1,000 5,000 10,000 10% Contingency 600 1,500 3,000 Total Costs 6,600 16,500 33,000 – From the analysis above, software A looks the cheapest to purchase.
  • 3. Costing Analysis • Cost-Benefit Ratio: – The Benefits of the software A,B and C Software A B C Enhance Productivity 1,000 10,000 5,000 Better response to customer 5,000 20,000 1,000 Total Benefits 6,000 30,000 6,000 Software A B C Cost-Benefit ratio 6,000 / 6,600 30,000 / 16,500 6,000 / 33,000 = 0.91 = 1.82 = 0.18 From the cost-benefit ratio calculation above, it is noted that software B brings the best benefit to the company.
  • 4. Costing Analysis • Cost-Benefit Analysis: Description Total Tot. monthly cost Purchase cost (depreciation 5 yrs.) - 10,000 10,000/5/12 = - 167 License (depreciation 5 yrs.) - 50,000 50,000/5/12 = - 833 Revenue +30,000 Productivity Gain +5,000 Better customer orders +1,000 Net Savings +3,500
  • 5. Break-Even • Break Even , N = Fixed Cost (Fc) / unit cost where unit cost = selling price – Unit variable cost Example: Fc = 15,000 Selling Price = 500 Unit var cost = 50 N = 15,000 / (500 – 50) = 33
  • 6. ROI, Return of Investment • ROI = (Gain – Cost ) / Cost • Example: Gain = 10,000 Cost = 8,000 ROI = (10,000 – 8,000) / 8,000 = 0.25
  • 7. Eastman Kodak Co • Video on Kodak declaring bankruptcy • Digital world of film • Question: If you were given a project to start- up Kodak what are the list of things that you would embark on?
  • 8.
  • 9. Last Chapter • Video on Control of project • Project tracking & closing