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Cost effectiveness analysisBY: David Prakash Kumar | Category: Business and Finance | Post Date: 2009-06-19
In any business or activity, to make a profit, cost effectiveness is necessary. To be cost effective, we must know how to analyze the cost and the expenditure. Here this article shows in five simple steps, the method of cost effectiveness analysis Cost effectiveness analysis is done to determine if a programme fulfills the objectives with minimum cost. It is also done to rank various programmes. In a group of programmes,cost effectiveness if the best way to identify the programme that is running at a loss or profit. It also helps us to take appropriate measures. These measures may be to make the programme more cost effective or to completely abolish it if it is found that the programme cannot become cost effective. The examples given in this cost effectiveness analysis is based on health care. It is applicable to other business models also. There are five major steps for successful cost - effectiveness analysis: 1. Define the basic programme: The aim, focus and limits of the programme should be defined. It should distinguish programme from objectives. (e.g) To reduce infant mortality is an objective but the programmes may be immunization, treatment, health education etc. 2. Compute the monetary cost of the project: We should calculate the cost of prevention and treatment of illness including the cost to the society. In other business models, the expenditure is calculated. 3.Compute/Calculate the benefits: The benefits of health care is measured in monetary terms. One such measure is the quality adjusted life years (QALY). This measure the difference between the number of years of healthy life a person would live of healthy life because of the implementation of the project and the number of years he would have lived with a project. In other words we calculate the total costs and gains to society as a whole and not for few individuals. In a business model, the total cost and expenditure are calculated and the difference notes to see if a programme is running at a profit or loss. 4. Use a decision rule based on the net costs and not health effects: Effects can sometimes be negative. Effectiveness is the improvement in years of healthy life or the positive result of a programme(profit). The lower the cost, higher the effectiveness the more efficient the programme. 5.Perform a sensitivity test: Sensitivity analysis involves making different assumption about the level of uncertainly to examine the effect on the cost effectiveness. These are the steps that can help to assess the cost effectiveness of a programme. Article Source: http://www.saching.com About Author / Additional Info: I am a physiotherapist by profession. A writer by interest. I take up freelance assignments for various websites and blogs. Comments are welcome at prakashdavid@rediffmail.com Additional Articles: * Entertaining the people through movies * Environmental Risk Top down Model towards Best Practice Recycled Waste Bioenergy( RWB) Generation fo * Women of India * Television: Harmful Effects in Social life * How to deal with Office Politics. Does this article violate or infringe on your copyright ? It is a violation of our terms for authors to submit content which they did not write and claim it as their own. If this article infringes on your copyrights, then use our Contact us form with the detailed proof of infringement along with the offending article's title, URL and writer name. If you do not hear back from us then contact us again in another 10 days. Thank you. Comments on this article: (0 comments so far) * Additional comments are now closed for this article *
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