In my last post I outlined briefly the role of a systems analyst in whole. In this post I’m going to take a look at one of the tasks of a systems analyst (cost-analysis) and describe what it is and all that is involved with that task.
Cost analysis is a systematic process for calculating and comparing benefits and costs of a project. Cost analysis has two purposes:
1. To determine if it is a sound investment/decision.
2. To provide a basis for comparing projects.It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.
An analyst using cost analysis should recognize that perfect evaluation of all present and future costs and benefits is difficult, and while cost analysis can offer a well-educated estimate of the best alternative, perfection in terms of economic efficiency and social welfare are not guaranteed.
The following is a list of steps that comprise a cost analysis:
1. List alternative projects/programs.
2. List stakeholders.
3. Select measurement(s) and measure all cost/benefit elements.
4. Predict outcome of cost and benefits over relevant time period.
5. Convert all costs and benefits into common currency.
6. Apply discount rate.
7. Calculate net present value of project options.
8. Perform sensitivity analysis.
9. Adopt recommended choice.
Cost analysis attempts to measure the positive or negative consequences of a project, which may include:
1. Effects on users or participants.
2. Effects on non-users or non-participants.
3. Externality effects.
4. Option value or other social benefits.
In my next blog I will discuss another task of a systems analyst in detail thanks.