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Considering the Costs of MUS Interventions

Considering the Costs of MUS Interventions. Direct Costs v. Opportunity Costs. Direct Costs Expenditures and investments to achieve a particular outcome or to implement a project These can be described easily in a cost accounting framework. Opportunity Costs

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Considering the Costs of MUS Interventions

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  1. Considering the Costs of MUS Interventions

  2. Direct Costs v. Opportunity Costs Direct Costs • Expenditures and investments to achieve a particular outcome or to implement a project • These can be described easily in a cost accounting framework • Opportunity Costs • The benefit that could be gained through an alternative allocation or investment • These must be considered in a full economic analysis

  3. Financial Cost v. Economic Cost Financial • Actual expenses by those who pay • These might or might not reflect the true economic costs • Often reflect private costs (and benefits) • Economic • The true opportunity costs of inputs and resources • Can include direct and indirect costs • Often reflect public or social costs (and benefits)

  4. Full Cost v. Incremental Cost Full Cost • The cost of all project components, including development and implementation • Important when considering a new project or investment • Can require substantial effort to estimate these • Incremental Cost • The cost of implementing one more component of a project • Important for decision making in many settings • Often less work is required to estimate

  5. Fixed Cost v. Annual Costs Fixed Cost • Capital expenditures, such as investments in land, equipment, and infrastructure • Interest on the capital investment • Should not influence incremental decisions • Annual Costs • Management, operation, and maintenance • Labor, materials, repairs, service, and support • The should influence incremental decisions regarding service levels

  6. Additional Considerations Regarding Costs • A fully descriptive Cost:Benefit Analysis is not always pertinent – Often incremental costs matter • If measurable, incremental benefits exceed the incremental costs, further work might not be needed • Cost effectiveness analysis also is important • Financial analysis, payback periods, and life cycle costs often are important when considering investments in the water sector • In some settings, cost minimization will be the goal

  7. Often the incremental benefits will exceed the incremental costs.

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