Cost Effectiveness and its Importance

Do the benefits of providing a service or product outweigh the costs? How efficient is a particular process? Which is the most cost effective method of doing a job?

To stay competitive and profitable, all of these questions need to be asked and answered in the every-day running of your business.

Today, I would like to look at each of these 3 questions in a bit more detail:

1. Do the benefits of providing a service or product outweigh the costs?

Doing a cost-benefit analysis will answer this question. A cost-benefit analysis can be done on either an individual product basis or on a project basis.

Doing a cost-benefit analysis weighs the total expected costs against the total expected benefits and provides estimates of the costs and benefits PRIOR to implementing a service or producing a product.

The process may uncover unexpected costs as well. A cost-benefit analysis can help a company set priorities where resources are limited.

2. How efficient is a particular process?

Efficiency analysis is the process of analyzing how efficient a current process is and from this analysis determining areas where improvement or change may be necessary.

3. Which is the most cost effective method of doing a job?

Cost effectiveness analysis is the process of comparing resource allocation alternatives to assist in determining the most effective and/or least expensive way to produce something or attain a particular beneCost effectiveness analysis is also used to measure the financial cost of arriving at a specified outcome. If something is dubbed “cost effective” it is considered to be good value.

Cost effectiveness analysis supports objective decision making. It is often used wherever resources are limited.
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Tracy Wright,CMA
Tel: 250-470-8421
mailto: tracy@wrightwayconsulting.ca
http://www.wrightwayconsulting.ca/

Why Is Cost Accounting So Important?

There is more to accounting than accounting. Cost accounting is something a lot of business owners rarely think about.

I believe that if more companies had better cost accounting we wouldn’t have the issues we have in the downturn in the economy today. Businesses that understand cost accounting do well in these economic times and are more profitable than their competitors. Too often companies don’t realize they have a problem until it is too late to do something about it.

Cost accounting is a specialized branch of accounting, which involves classifications, accumulation, assignment and control of costs.

The use of cost accounting concepts and practices is required for a company to be successful. Cost accounting helps managers make better decisions by providing key information for planning and controlling. Cost accounting assists with measuring performance, determining costs & prices for goods or services, reducing costs, managing costs, and analyzing the benefits of an activity or process.

Companies need to measure their costs and then understand the behaviour of those costs over varying conditions such as changes in the volume of goods or services produced. Once this has been done, the costs can be assigned to the items produced or services provided and the profitability of each can be determined.

Ensure your company survives, and thrives, now by improving your understanding of your costs.

“If you can measure it, you can improve it.”

Tracy Wright,CMA

Tel: 250-470-8421

mailto: tracy@wrightwayconsulting.ca

http://www.wrightwayconsulting.ca/