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Cost benefit Analysis

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Cost benefit Analysis

Abstract

Before taking on a new project, judicious managers must consider the cost and benefits of their projects. This paper aims to provide the cost and benefits of a project. The project to be done is on reminiscence therapy to treat depression among adults in a nursing home. This is a crucial topic in the field of nursing, and that is why a cost-benefit analysis is needed to enable the nursing home to determine the benefits of this project and the cost it will incur. The several factors discussed below include cost benefits, break-even analysis, how the project will save the organization’s money, and some financial calculations. At the end of this paper, the nursing home should know what the project will cost and the benefits.

Introduction

Good managers don’t make decisions based on their instinct because of the constant shifting economics and the variables involved. Thus, they rely on data collected with charts, spreadsheets, and reporting tools. A project cannot be complete without having a cost-benefit analysis. This can be defined as a technique used to compare the value that a project will produce with the cost of producing that value (Rowthorn & Maciejowski, 2020). In most cases, cost-benefit analysis is done during the initiation stage of a project so that the project managers can determine the value of their project at the beginning. Knowing the value of a given project is vital since it motivates the team to work on the project and finish on time. Cost-benefit is done by gathering data on the values of the benefit and the project’s cost in the initiation stage so that the finding can be provided to the required organizations. The importance of doing this is because most organizations do not sponsor projects that cost more than the value to be produced.

The cost Benefits

A significant number of organizations have rules on cost benefits. Most of them prefer to approve projects with a cost-benefit ratio of 1.2, which indicates that the benefits are likely to exceed the cost by 20%. Generally, any project that can pay back the cost and a 20% gain sounds like a good deal to any investors. The best way to determine this is through a cost-benefit analysis.

To determine the cost-benefit of this project, there are several steps to be followed. The first one is to come up with a list of all the costs and benefits associated with the project (Martens & Ciommo,2017). Below are some of the costs to be considered: One is the raw materials because there will be the construction of more buildings where the sessions will be carried out. The second cost is on labour because manpower will be required during the whole process. The third cost is the management cost. The manager in charge of the project will need to be paid to oversee the project’s progress. There will be another cost on recruiting new caretakers and nurses because, without medicine, the elders will require more assistance with the therapy sessions. Lastly, it is about maintenance costs.

The step is the benefits associated with the project. One of the benefits is having a competitive advantage in the market. If the nursing home uses reminiscence therapy, there will be a competitive advantage since the other homes will still be depending on drugs to treat elders who have depression. Thus, this will attract more clients. Another benefit will be on customer satisfaction because this method will prove to be more effective than drugs. Most patients with depression do not like taking drugs because of their taste and side effects. Hence, they will be more satisfied with this therapy. There will also be a growth in talent for those who will participate in painting, music, and other activities. Some elders will discover their talents despite their old age. Another crucial benefit will be on the cost of drugs, which will reduce since a few drugs will be ordered from the pharmacies. Lastly, it is about the transport cost, which is used during the shipment of drugs from different places since not all the medicines are found in one drugstore.

The third step is the application of the monetary measurements to all items. Below is a table with the calculations for all the items.

From the above table, the benefits amount to $113,000, while the cost is $72000. The cost-benefit ratio can be calculated by dividing benefits ($113,000) with cost ($72000). The benefit exceeds the cost by $41,000. The cost-benefit ratio is 1.57, which is a good consideration for the nursing home.

Importance of Implementation of this Project

There are several reasons why the implementation of this project is vital to the nursing home. One of the reasons is the implementation cost. This is the sum of the total cost to implement the new measures involved by this project. Looking at the calculations above, the implementation cost is less than the project’s benefit to the nursing home. Thus, this organization should consider sponsoring the project because of the less cost involved compared to what it will gain by having the project in place (Cordes, 2017). When looking at most of the projects, they fail to be implemented because of the cost incurred since most organizations cannot sponsor something that will not benefit the future. In this situation, it is evident that the organization will stand to make more profit if the project is implemented.

Another importance is that the project will ensure the well-being of the older adults in the nursing home. This project is unique from the others because the primary concern is on the patients. This implies that apart from the nursing home making profits, it will also enhance the patients’ good health. One of the reasons older adults are taken to the nursing home is for them to receive enough care that the family members cannot give because of their day-to-day activities. A significant number of families prefer to pay a lot of money so that their loved ones can be taken good care of at the nursing home. Good health is a priority of the nursing home, and having this project will improve the health of those suffering from depression. Depression is a silent killer, and the medication used has some side effects on the patients. Thus, reminiscence therapy will be of more benefit than the use of medicine. Most of the older people refuse to take drugs, but they will find it interesting to do this kind of therapy.

Additionally, the cost-benefit analysis shows that the benefit made from this project will exceed the cost by $ 14,000. This amount will be used to do other activities within the organization. If there are new materials to be purchased, the organization will use thin money. There will be enough money to carry out day-to-day activities, which will result in the growth of the organization (Yang et al., 2018). The organization will be well maintained, and employees will be satisfied since their salary will increase.

How the Project will Save the Organization Money

The primary goal of any organization is to save some money, which is considered as a profit. Even though this project is done to enhance the treatment of depression, the organization can still make more money from the project. One way that the project will make money is by having a competitive advantage in the market. A nursing home is considered to be a business, just like any other business. This is because there are investors who used their money to establish it and are looking forward to earning some money (Cordes, 2017). Having a competitive advantage means that the organization will be more unique compared to other nursing homes because of the introduction of reminiscence therapy. This kind of therapy will attract new clients suffering from depression.  A significant number of clients will prefer to take their loved ones to such an institution because older adults do not need to continue taking drugs. There will be a competitive advantage, and this organization will earn more money through the admission of more patients.

Another way that the project will save the organization some money is through the growth of talents. Reminiscence therapy involves drawing, singing, and other activities that older people love doing. Some of these activities are likely to make some money for both the patients and the organization. An example, those who love singing might participate in a competition and win some money. A small percentage of this money will go to the organization. The organization will still save some money used to purchase drugs. This is because, with this kind of therapy, patients will not be using drugs anymore. Only a few patients will be in need of the drugs, which implies that there will be a cut on the drug cost. This way, the nursing home will make some savings from the drug money. For the drugs to reach the nursing home, transportation is required. This therapy will save the organization from spending more money on transportation because only a few drugs will be ordered.

Conclusion

This discussion has provided a cost-benefit analysis of the project, which is to be done in nursing homes. The project is about reminiscence therapy to treat depression among older adults in a nursing home. There are calculations done to determine the cost-benefit of this project, and it is evident that there are more benefits than the costs involved. Thus, the nursing home should consider sponsoring this project because of the benefits it will bring to the older adults’ well-being and the organization as a whole.

References

Rowthorn, R., & Maciejowski, J. (2020). A cost-benefit analysis of the COVID-19 disease. Oxford Review of Economic Policy, 36(Supplement_1), S38-S55.

Martens, K., & Di Ciommo, F. (2017). Travel time savings, accessibility gains, and equity effects in cost–benefit analysis. Transport reviews, 37(2), 152-169.

Yang, S., Zhu, X., & Guo, W. (2018). Cost-benefit analysis for the concentrated solar power in China. Journal of Electrical and Computer Engineering, 2018.

Cordes, J. J. (2017). Using cost-benefit analysis and social return on investment to evaluate the impact of social enterprise: Promises, implementation, and limitations. Evaluation and Program Planning, 64, 98-104.

 

 

 

 

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