Budget Cost Analysis

A budget cost analysis will give you clarity at the beginning and a firm foundation on which to control the costs of your project. Based on concept drawings the materials required, labour and other costs are calculated to see what the concept will actually cost to make real. You can then adjust the concept to fit your budget. Or use this information to make better decisions on builders quotes and tenders.

A budget cost analysis will look at a building or renovation project and determine the costs involved. This would be done early on when concept drawings are being done. The amount of the materials that will be required and associated costs are calculated. Different design features and building approaches can also have quite a big impact on the cost. For an outlay of less than 5% of the likely completion cost, you get piece of mind that you know exactly what that project will cost.

A budget cost analysis will tell you: 1. How much of a specific material will be used 2. How much the materials will cost 3. How much the labour costs will be

Knowing this means:

You won't be charged for materials not needed or used You won't get caught out by exclusions and 'tags' You can better negotiate cost savings

Budget helps to aid the planning of actual operations by forcing managers to consider how the conditions might change and what steps should be taken now and by encouraging managers to consider problems before they arise. It also helps co-ordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments. Other essentials of budget include:

To control resources To communicate plans to various responsibility center managers. To motivate managers to strive to achieve budget goals. To evaluate the performance of managers To provide visibility into the company's performance

Buget types:

Sales budget an estimate of future sales, often broken down into both units and currency. It is used to create company sales goals. Production budget an estimate of the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labor and material. Created by product oriented companies.

Capital budget - used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing.

Cash flow/cash budget a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.

Marketing budget an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.

Project budget a prediction of the costs associated with a particular company project. These costs include labour, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each. A cost estimate is used to establish a project budget.

Revenue budget consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies.

Expenditure budget includes spending data items.

Cost analysis 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.

TYPES OF COST ANALYSIS IN EVALUATION:

Cost allocation, cost-effectiveness analysis, and cost-benefit analysis represent a continuum of types of cost analysis which can have a place in program evaluation.

COST ALLOCATION: Cost allocation is a simpler concept than either cost-benefit analysis or cost-effectiveness analysis. At the program or agency level, it basically means setting up budgeting and accounting systems in a way that allows program managers to determine a unit cost or cost per unit of service.

COST-EFFECTIVENESS ANALYSIS: 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. COST-BENEFIT ANALYSIS: 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.

WHAT COST ANALYSES CAN TELL YOU: -Cost analyses can provide estimates of what a program's costs and benefits are likely to be, before it is implemented -Cost analyses may improve understanding of program operation, and tell what levels of intervention are most cost-effective -Cost analyses may reveal unexpected costs

WHAT COST ANALYSES CANNOT TELL YOU: -Whether or not the program is having a significant net effect on the desired outcomes -Whether the least expensive alternative is always the best alternative

Cost analyses can be used at several levels: -Program Definition-uses cost studies based on other people's experience in similar
programs, since you are unlikely to have cost data of your own yet. This means that the estimates you use will only be approximations, and may not accurately reflect what your program's experience will be

-Accountability- Clearly, fiscal accountability is one of the primary reasons for using any
kind of cost analysis as part of your evaluation. Any responsible program should keep service statistics and financial records that are accurate and up-to-date enough to be able to determine some very basic information about unit costs, and funders usually require this. -Understanding and Refining -Progress Toward Objectives

-Program Impact-When it has been possible to conduct a full-scale cost-benefit analysis over
a long period of time, and it shows significant long-term gains and cost savings in a particular population or problem area, the policy implications may be great.

ADVANTAGES OF USING COST ANALYSES: -Promotes fiscal accountability in programs -Helps set priorities when resources are limited -Can be extremely powerful and persuasive to legislators, policy makers, and other funders

DISADVANTAGES OF USING COST ANALYSES: -Requires a great deal of technical skill and knowledge -Market costs (what people actually pay for something) don't always reflect "real" social costs -Sometimes costs and monetary values are considered less important than other, more intangible values or program outcomes

The Functional Budget format starts with a line-item budget, and takes it a step further. It focuses on process, or the cost of providing a service. The Program Budget, which also starts with a line-item budget, looks at the same information from the point of view of outcomes, or the cost of achieving a result.

COMMON STEPS IN DEVELOPING PROGRAM & FUNCTIONAL BUDGETS:

1. Develop a line-item budget that shows all expenditures 2. Determine the agency's program structure 3. Identify all direct costs and indirect costs 4. Assign direct costs to the appropriate program or project 5. Allocate indirect costs to programs 6. Determine total program costs

Once we have this information about total program costs, then we can calculate unit costs. For a Functional Budget, this involves defining the units of service for each program, and calculating the cost per unit of service. For a Program Budget, the final steps are determining the total cost of achieving the outcome objectives for the year, and calculating the cost per outcome.