Measurement Methods and

Analysis

Group 6 :
Kusumantoro, Heribertus Rudi Nr.2217457
Susilo, Martinus Nr.2221237
Putra, Adhi Tharsia Nr.2217858
Gunawan, Marantika
Nr.2221228
Cost Benefit Analysis
Kusumantoro, Heribertus Rudi-Nr.2217457
 Definition and Purpose
A technique that can be used to evaluate the
projects and programs

It encompasses an appraisal of a policy based on

the costs and benefits of the project

It should be performed for each investment

alternative to enable the evaluation and
comparison of alternatives
 Measurement in the Cost Benefit
Analysis
1. Net Present Value
• The sum of the present value of each cost and other
effects of a project
• A positive NPV indicates that benefits outweigh the costs
of a project
4. Benefit Cost Ratio
• the ratio obtained by dividing of the sum of the present
value of the benefits by the sum of
the present value of the costs
• A BCR greater than 1 indicates that the benefits outweigh
the cost of a project
8. Net Present Value per unit of Investment
• the net present value divided by the present value of a
project’s capital cost
 Process
1. Determine/Define Objectives
 problem definition, pertinent background information and
a list of investment objectives that identify how the
system will improve the work process and support the
mission.
2. Document Current Process, with items to consider:
 Customer service
 System architecture
3. Estimate Future Requirements
 Lifecycle time
 Lifecycle demands
 Process
4. Collect Cost Data
 Historical Organization Data
 Current System Costs
 Market Research
 Publications
 Special Studies
 Analyst Judgment
5. Choose at Least Three Alternatives
“Do nothing” or “Continue current operations” should
not be considered as an alternative !
6. Document CBA Assumptions
 If an alternative is eliminated because it is not feasible, the
assumption should be clearly explained and justified
7. Estimate Costs (annual, personnel costs, depreciation,activities)
 Process
8. Estimate Benefits
 Define Benefits
 Identify Benefits
 Establish Measurement Criteria
 Classify Benefits
 Estimate Tangible Benefits
 Quantify Intangible Benefits
9. Discount Costs and Benefits
convert to a common measurement unit by discounting
future dollar values and transforming future benefits and
costs to their “present value”
 Process
10. Evaluate Alternatives
Table 1. Sample Investment Comparison

Alternative Discounted Discounted Discounted Benefit-Cost

Cost (DC) Benefit (DB) Net (DC-DB) Ratio (DC/DB)

1 1,800,000 2,200,000 400,000 1,22

2 1,850,000 1,750,000 (-100,000) 0,95
3 2,000,000 2,000,000 0 1,00
4 2,200,000 2,100,000 (-100,000) 0,95
11. Perform Sensitivity Analysis
Identify Input Parameters
Repeat the Cost Analysis
Evaluate results
 Process
12. Compare Investments
 Even if the CBA shows that benefits will outweigh costs, using
Payback Period and Return on Investment (ROI) analysis help
demonstrate an investment is a better utilization of funds than
other proposed investments
Cost Effectiveness Analysis
Susilo, Martinus-Nr.2221237
 Introduction

Oxford Dictionary Successfully producing the result that you want

Alternative Analysis to Benefit-Cost Analysis

Cost of Given Specific Measures

Alternative Of Program Objectives

Developed : Military, First applied : Health Care (mid-1960s)

Introduced to clinicians by Weinstein and Stason (1977)

Source-http://www.w3.org/
 Basic of CEA
Decision Oriented Tools Costs

Consideration of decision alternatives

Consequences

Comparison Tools

Costs Unit of Program Objectives

Compare
A New Strategy Current Practice

Evaluate Choice & attain Particular Goals that the Most Effective

Educational
 Common Applications
Cost-Effectiveness for Dropout Prevention
Strategy
The Percentage increase in the number of Graduating Students

Strategy Costs Effectiveness C/E Ratio

Mentoring $80,000 10 $8000
After School Sport $65,000 5 $13,000

The cost for each percent increase in the number of students

 Deciding Between Cost-
Effectiveness Analysis and Benefit-
Cost Analysis
1. How will you use the results?
CEA is useful for comparing strategies
that are trying to achieve the same objective (e.g., increased graduation rates).

2. What resources do you have?

Analysis
BCA Require more resources
Involve significance methological expertise

3. How difficult are costs and benefits to value?

Weight the value of increased accuracy
New Data Data Collection
 Conclusion

The more Intangible the Benefit

The more likely that a CEA will be a great use as

Decision Maker

Conditions:
(Cost is Justifiable) and Same Fund
Utility Analysis
Putra, Adhi Tharsia Nr.2217858
 Utility
• Utility is another term for the satisfaction of
wants and needs obtained from the consumption
of goods or services.
• The concept of utility is integral to utility analysis,
consumer demand theory, and the
microeconomic analysis of consumer behavior
and market demand.
• Cannot be exactly quantiabled.
 Utility Analysis
• A subset of consumer demand theory that analysis
consumer behavior and market demand using total utility
and marginal utility.
• The key principle of utility analysis is the law of
diminishing marginal utility, which offers an explanation
for the law of demand and the negative slope of the
demand curve.
• The Law of Demand : Utility generated declines as the
quantitiy consumed increases.
 Total Utility
• Total utility is simply a measure of the total satisfaction of wants and
needs obtained from the consumption or use of a good or service.
• Total Utility:
 Marginal Utility
• Total utility is used as a starting point for utility analysis.
However, a great deal of additional insight is gained from
marginal utility.
• Marginal utility is the additional utility, or extra
satisfaction of wants and needs, obtained from the
consumption or use of an additional unit of a good or
service.

change in total utility

= marginal utility
change in quantity
Marginal Utility
 The Law of Diminishing Marginal
Utility
• The law of diminishing marginal utility states that
marginal utility, or the extra utility obtained from
consuming a good, decreases as the quantity
consumed increases.
• If each additional unit of a good is less
satisfying, then a buyer is willing to pay less. As
such, the demand price declines.
 Utility Maximization
• The process or goal of obtaining the highest level of
utility from the consumption of goods or services. The
goal of maximizing utility is a key assumption underlying
consumer behavior studied in consumer demand theory.
 UTILITY MEASUREMENT:
• A quantification of the satisfaction of wants and
needs achieved through the consumption of
goods and services. In principle, utility
measurement can take one of two forms:
2. cardinal, which is based on numerical values
(1, 2, 3, etc.) and
3. ordinal which is based on rankings (first,
second, third, etc.).
BALANCED SCORECARD
Gunawan, Marantika Nr.2221228
 BALANCED SCORECARD
a new approach to strategic management which was develop by
Kaplan & Norton
“ recognizing some of the weakness and vagueness of previous
management approaches “

Purposes of Balanced Scorecard :

• Clarify and update strategy

• Communicate strategy throughout the company

• Align unit and individual goals with strategy

• Link strategic objectives to long term targets and annual budgets

• Conduct periodic performance reviews to learn about and improve

strategy
 Four Fundamental Perspectives
Financial perspective

How do we perform
according to our
shareholders?

Customer perspective Vision Business proses

and perspective
How do our customers Strategy
see us? What must we excel at?

Learning and growth

perspective

Can we continue to
improve & create value?
 Example BSC : Regionale Airline
• Mission : Dedication to the highest quality customer service
delivered with a sense of warmth, friendliness, individual pride,
and company spirit
• Vision : Continue building on our unique position – the short haul,
low fare, high frequency, point to point carrier in America
Advantages Balanced Scorecard

• Helps align key performance measures

• Provides management with a comprehensive picture of

business goals and strategies

• Transforms the strategic plan from an attractive but

passive document into the marching orders for the
organization on a daily basis

• Enables executives to truly execute their strategies

 Disadvantages Balanced
Scorecard
• Lack of time for the decision makers to focus on strategy

• Difficult in creating well defined metrics and connecting them

to deliverables

• Difficult and time consuming to implement the objectives down

to the staff in a large organization

• Require sustained top level support and commitment to ramp

up and put the system in place
The Balanced Scorecard is part of a performance
management system to enable organizations :

– to achieve their goals by translates vision and strategy

– to provide feedback to senior management

THANK YOU
Revolution in Strategic Planning
TRADITIONAL
N STRATEGIC
BALANCED SCORECARD
o PLANNING    
Planning cycle typically 5 Planning process shorter than 3
1
years years  
Contains a large number Focus on a 3 or 4 strategic
2  
of goals, objectives themes  
Managers tend to focus Managers have a balanced view
3 on short term financial   of the major perspectives of
goals performance  
Performance data is widely
No performance reporting
4   reported via a distributed
mechanism  
software system
5 Not transparent   Transparent  
Organization Sector Country

Bank of Tokyo-Mitsubishi Banking Japan

BMW Financial Services Financial Services Germany

DaimlerChrysler Manufacturing Germany

ExxonMobil Corp. Energy USA

Hilton Hotels Corp. Hospitality USA

IBM Information Technology USA

Philips Electronics Manufacturing Netherlands

Sears Roebuck & Company Retail USA

Siemens AG Manufacturing Germany

Southern Gardens Citrus Processing Corp. Food Processing USA

St. Michael's Hospital Health Care Canada

UK Ministry of Defence Government UK

Unicco Service Co. Industrial Services USA

United Way of Southeastern New England Humanitarian USA

University of California, Los Angeles Higher Education USA

UPS Shipping United States

US West Telecommunications USA

Walt Disney World Company Entertainment USA

 How to Implement BSC
• Organizational assessment

• Identify strategic themes

• Define perspectives and strategic objectives

• Develop a strategy map

• Derive performance metrics

• Craft and prioritize strategic initiatives

• Automate and communicate

• Cascade the balanced scorecard through the

organization

• Collect data, evaluate, and revise