Cost Analysis - A Project Management Efficiency Tool

By reducing the favourable and unfavourable impacts of a project to their equivalent money value, the Cost determines whether on balance the project is worthwhile. The equivalent money value are based upon information derived from consumer and producer market choices, i. e. , the demand and supply schedules for the goods and services affected by the project. Study must be taking to properly allow for such things as inflation. When all this has been considered, a worthwhile project is one for which the discounted value of the benefits exceeds the discounted value of the costs, i. e. , the net benefits are favourable. This is equivalent to the benefit/cost ratio being greater than one and the internal rate of return being greater than the cost of capital with effective management.