A

PROJECT REPORT
ON

COST CONTROL & ANALYSIS

OF

ASHOK LEYLAND LTD.

ABSTRACT
This project titled cost control & analysis at Ashok Leyland Ltd

is a study at

conducted in this company for the purpose of analyzing cost control.

Cost analysis means The economic evaluation, efficiency assessment, cost-benefit
analysis and cost effectiveness are called as cost control and analysis. It is mainly depends
on Cost allocation and determination, Cost effective analysis Economic benefits
The objective of this decision aid is to facilitate the cost calculation for the ranch
pickup and/or a livestock trailer. The decision aid calculates the per mile and annual costs of a
pickup or trailer, the cost of making a trip with livestock, and also allows for calculation of
costs for enterprises by allocating the percent costs between forages, livestock, and crops.
The program is useful for enterprise budgeting, estimating transportation costs and evaluating
purchasing alternatives. Promote the accountability, to increase the profitability of the
company,
to study the performance of the organization.
Inputs are 14 variables that are used to describe the pickup and trailer. These can
be observed in the attached decision aid example. Current market value can be the purchased
value on a new pickup or trailer or the market value (net) for a used pickup or trailer. Total
miles used should equal remaining miles of use for a new pickup or trailer. Remaining miles
of use would reflect miles left for use for used pickup or trailer. See the definition section for
a description of other input items.
It can be concluded that outputs are three sections of output for the decision aid:
per mile and annual costs, trip costs and allocated costs. The trip cost or allocated cost section
can be ignored if they are not desired. The pickup cost can be calculated without the trailer;
however, to calculate the combined pickup and trailer cost, the pickup must be included to
generate these costs.

INDEX
S.No.

TOPIC

P.No.

INTRODUCTION:
CHAPTER - 1

COST ANALYSIS IN EVALUATION

01-08

TYPES OF COST ANALYSIS

ADVANTAGES & DISADVANTAGES

CONCEPTIONAL FRAME WORKS
THEROTICAL STUDY
CHAPTER - 2

USING WITH THE STATE

STRENGTHENING

09-20

BUDGET & ALLOCATION COST

EFFICIENCY & EFFECTIVENESS
COST BENEFIT ANALYSIS

APPLICATIONS AND HISTORY

COST OVERRUN
CHAPTER - 3

COST ANALYSIS & CONTROL

21-45

METHODS
COST ANALYSIS RATIO
CHAPTER - 4 COMPANY PROFILE

46-54

DATA ANALYSIS AND INTERPRETATION

LOST PRODUCTION COST
CHAPTER - 5

OEM RESPONCE TIME

55-61

ANNUAL OEM COST

CHAPTER - 6 FINDINGS, SUGGESTIONSAND

CONCLUSIONS
BIBLIOGRAPHY

62-66

CHAPTER-I
INTRODUCTION

WHAT IS COST ANALYSIS?

Cost analysis (also called economic evaluation, cost allocation, efficiency assessment,
cost-benefit analysis, or cost-effectiveness analysis by different authors) is currently a
somewhat controversial set of methods in program evaluation. One reason for the controversy
is that these terms cover a wide range of methods, but are often used interchangeably.
At the most basic level, cost allocation is simply part of good program budgeting and
accounting practices, which allow managers to determine the true cost of providing a given
unit of service (Kettner, Moroney, & Martin, 1990). At the most ambitious level, wellpublicized cost-benefit studies of early intervention programs have claimed to show
substantial long-term social gains for participants and cost savings for the public (BerreutaClement, Schweinhart, Barnett, et al., 1984). Because these studies have been widely cited
and credited with convincing legislators to increase their support for early childhood
programs, some practitioners advocate making more use of cost-benefit analysis in evaluating
social programs (Barnett, 1988, 1993). Others have cautioned that good cost-benefit or costeffectiveness studies are complex, require very sophisticated technical skills and training in
methodology and in principles of economics, and should not be undertaken lightly (White,
1988). Whatever position you take in this controversy, it is a good idea for program
evaluators to have some understanding of the concepts involved, because the cost and effort
involved in producing change is a concern in most impact evaluations (Rossi & Freeman,
1993).

COST ANALYSIS IS OF THREE IN EVALUATION:

1. Cost Allocation
2.

Cost - Effectiveness analysis

3.

Cost - Benefit analysis

Represent a continuum of types of cost analysis which can have a place in

program evaluation. They range from fairly simple program-level methods to highly
technical and specialized methods. However, all have specialized and technical aspects. If
you are not already familiar with these methods and the language used, you should plan to
work with a consultant or read some more in-depth texts (see some suggested references
at the end of this discussion) before deciding to attempt them.

COST ALLOCATION:
Cost allocation is a simpler concept than either cost-benefit analysis or costeffectiveness analysis. At the program or agency level, it basically means setting up
budgeting and accounting systems in a way that allows program managers to determine a unit
cost or cost per unit of service. This information is primarily a management tool. However, if
the units measured are also outcomes of interest to evaluators, cost allocation provides some
of the basic information needed to conduct more ambitious Cost Control Analysissuch as
cost-benefit analysis or cost-effectiveness analysis. For example, for evaluation purposes, you
might want to know the average cost per child of providing an after-school tutoring program,
including the costs of staff salaries, snacks, and other overhead costs.
Besides budget information, being able to determine unit costs means that you need
to be collecting the right kind of information about clients and outcomes. In many agencies,
the information recorded in service records is based on reporting requirements, which are not
always in a form that is useful for evaluation.
If staff in a prenatal clinic simply report the number of clients served by gender, for
example, you might know only that 157 females were served in March. For an evaluation,
however, you might want to be able to break down that number in different ways. For
example, do young first-time mothers usually require more visits than older women? Do
single mothers or women with several children miss more appointments? Is transportation to
appointments more of a problem for women who live in rural areas? Are any client
characteristics commonly related to important outcomes such as birth weight of the baby?
Deciding how to collect enough client and service data to give useful information, without
overburdening staff with unnecessary paperwork requirements, requires a lot of planning.

Larger agencies often hire experts to design data systems, which are called MIS or
management-and-information-systems.
If you are working for an existing agency, your ability to separate out unit costs for
services or outcomes may depend on the systems that are already in place for budgeting,
accounting, and collecting service data. However, if you are in a position to influence these
functions, or need to supplement an existing system, there are a number of texts that discuss
the pros and cons of different ways of budgeting, accounting, and designing MIS or
management-and-information-systems (see Kettner, Moroney & Martin, 1990).

COST - EFFECTIVENESS ANALYSIS

Most often, cost-effectiveness and cost-benefit studies are conducted at a level that
involves more than just a local program (such as an individual State Strengthening project).
Sometimes they also involve following up over a long period of time, to look at the long-term
impact of interventions. They are often used by policy analysts and legislators to make broad
policy decisions, so they might look at a large federal program, or compare several smaller
pilot programs that take different approaches to solving the same social problem. People
often use the terms interchangeably, but there are important differences between them.
Cost - Effectiveness analysis assumes that a certain benefit or outcome is desired,
and that there are several alternative ways to achieve it. The basic question asked is, "Which
of these alternatives is the cheapest or most efficient way to get this benefit?" By definition,
cost-effectiveness analysis is comparative, while cost-benefit analysis usually considers only
one program at a time. Another important difference is that while cost-benefit analysis always
compares the monetary costs and benefits of a program, cost-effectiveness studies often
compare programs on the basis of some other common scale for measuring outcomes (eg.,
number of students who graduate from high school, infant mortality rate, test scores that meet
a certain level, reports of child abuse). They address whether the unit cost is greater for one
program or approach than another, which is often much easier to do, and more informative,
than assigning a dollar value to the outcome (White, 1988).

COST - BENEFIT ANALYSIS:

7

The basic questions asked in a cost-benefit analysis are, "Do the economic benefits
of providing this service outweigh the economic costs" and "Is it worth doing at all"? One
important tool of cost-benefit analysis is the benefit-to-costs ratio, which is the total monetary
cost of the benefits or outcomes divided by the total monetary costs of obtaining them.
Another tool for comparison in cost-benefit analysis is the net rate of return, which is
basically total costs minus the total value of benefits.

The idea behind cost-benefit analysis is simple: if all inputs and outcomes of a
proposed alternative can be reduced to a common unit of impact (namely dollars), they can be
aggregated and compared. If people would be willing to pay dollars to have something,
presumably it is a benefit; if they would pay to avoid it, it is a cost. In practice, however,
assigning monetary values to inputs and outcomes in social programs is rarely so simple, and
it is not always appropriate to do so (Weimer & Vining, 1992; Thompson, 1982; Zeckhauser,
1975).
An example will illustrate some of the differences between Cost-Effectiveness and
Cost-Benefit studies, what they can tell you, and some of the issues that neither can
effectively address:
"Suppose the drop-out rate in an inner-city high school is 50%. Prevention Program A
enrolls 20 students, costs $20,000, and 15 of the 20 students (75%) graduate. Thus Program A
resulted in 5 additional graduates at a cost of $20,000, or one additional graduate for every
$4,000. Prevention Program B enrolls 20 students, costs $15,000, and 12 of the 20 students
(60%) graduate. Thus Program B resulted in 2 additional graduates at a cost of $15,000, or
one additional graduate for every $7,500 spent. Although Program B is cheaper ($15,000
compared to $20,000), Program A is more COST-EFFECTIVE ($4,000/each additional
graduate, compared to $7,500/additional graduate). A COST-BENEFIT ANALYSIS in this
situation, instead of comparing unit costs, would require estimating the dollar value of high
school graduation (for example, by projecting the difference in lifetime earning capacity of
graduates over drop-outs, and lifetime social service costs), and comparing the monetary
value of producing more graduates to the monetary cost of providing the program in the first
place. Neither method effectively addresses more intangible outcomes of graduation, such as
increased self-esteem, or the value of a peer support system." (White, 1988, p. 430)

ADVANTAGES AND DIS ADVANTAGES OF COST CONTROL

WHAT COST ANALYSIS CAN TELL YOU:

Cost Control Analysiscan provide estimates of what a program's costs and benefits are
likely to be, before it is implemented. "Ex-ante" or "before the fact" Cost Control
Analysismay have to be based on very rough estimates of costs and expected benefits.
However, if a program is likely to be very expensive to implement, very difficult to
"un-do" once it is in place, or very difficult to evaluate, even a rough estimate of
efficiency may be quite valuable in the planning stages (Rossi & Freeman, 1993).

Cost Control Analysismay improve understanding of program operation, and tell what
levels of intervention are most cost-effective. A careful cost analysis within a program
might tell you, for example, that it doesn't so much matter whether you have a halfday program or a full-day preschool program for children, but that the teacher-to-child
ratio does matter (that is, children benefit more from low ratios than they do from
longer days). This information might influence decisions about how many teachers
you need to hire, or how many classrooms you need, or how many children you can
serve effectively.

Cost Control Analysismay reveal unexpected costs. A speech therapy program might
unexpectedly find that it costs more to use paraprofessionals to work with children
than professionals, because the paraprofessionals need more training and supervision,
or work with fewer children at a time (White, 1988). Or, cutting the number of home
visits allowed by caseworkers serving a large rural area (in order to save on mileage

reimbursements) might have the unplanned result of higher long-distance phone bills,
because the workers still feel a need to stay in close touch with their clients.

WHAT COST ANALYSIS CANNOT TELL YOU:

Whether or not the program is having a significant net effect on the desired outcomes.
Unless you know for sure that the program is producing a benefit, it doesn't make
sense to talk about the cost of producing that benefit (Rossi & Freeman, 1993). Cost
analysis may be considered an extension of an impact or outcome evaluation, but it
cannot take the place of one.

Whether the least expensive alternative is always the best alternative. Often political
or social values other than cost need to determine program and policy choices. When
there are competing values or goals involved, cost analysis is often just one factor to
be considered, and we need to have some other way of deciding which factors should
take priority.

ADVANTAGES OF USING COST ANALYSIS:

Promotes fiscal accountability in programs. Too often, program managers can't easily
determine the cost of providing particular services or achieving certain outcomes,
because they aren't systematically collecting the necessary data, either about clients or
about costs. At the least, programs should be able to tell funders (or potential funders)
that during a given time period, they provided a certain level of services to a specific
number of clients, and at what cost (Jacobs, 1988).

10

Helps set priorities when resources are limited. Program managers can use cost
information in designing programs, and in budgeting and allocating funds to get the
most out of their resources.

Can be extremely powerful and persuasive to legislators, policy makers, and other
funders. May help convince them to invest in particular kinds of programs. Some
argue that this advantage of cost-benefit analysis may hold true even when it is not
possible to assign monetary values to all program costs and outcomes; if the effect is
strong enough, even a relatively incomplete cost-benefit analysis may be persuasive
(Barnett, 1993).

DISADVANTAGES OF USING COST ANALYSIS:

Requires a great deal of technical skill and knowledge. A true cost-benefit analysis
requires a solid grounding in economic theory and techniques, which is beyond the
training of many evaluators. It may be necessary to hire a consultant if this type of
analysis is desired.

Critics feel that many Cost Control Analysisare overly simplistic, and suffer from
serious conceptual and methodological inadequacies. There is a danger that an overlysimplistic cost-benefit analysis may set up an intervention to fail, by promoting
expectations that are unrealistically high, and cannot really be achieved. This may
result in political backlash which actually hurts future funding prospects instead of
helping.

There are no standard ways to assign dollar values to some qualitative goals,
especially in social programs. For example, how do we value things like time, human
lives saved, or quality of life?

Market costs (what people actually pay for something) don't always reflect "real"
social costs. For example, sometimes one person's cost is another person's benefit.
Also, market costs don't necessarily reflect what economists call the "opportunity
costs" of choosing to do one thing instead of another.

11

Sometimes there are multiple competing goals, so we need to weight them or

prioritize them in some way. If a program leads to improvement in one area, but more
problems in another, is it still worth doing?

Sometimes costs and monetary values are considered less important than other, more
intangible values or program outcomes.

The best-known cost-benefit studies have looked at long-term outcomes, but most
program evaluations don't have the time or resources to conduct long-term follow-up
studies.

CHAPTER-II
CONCEPTIONAL FRAME WORK
THEORITICAL STUDY

12

USING

COST

CONTROL

ANALYSISWITH

THE

STATE

STRENGTHENING EVALUATION GUIDE:

If you are using the Five-Tiered Approach to Program Evaluation outlined in the State
Strengthening Evaluation Guide, Cost Control Analysiscan be used at several levels:

Tier 1 - Program Definition

At this stage, you will probably be using cost studies based on other people's experience
in similar programs, since you are unlikely to have cost data of your own yet. This means that
the estimates you use will only be approximations, and may not accurately reflect what your
program's experience will be. However, "ex-ante" cost analyses, done in the planning stages
before implementing a program, can potentially prevent some very costly mistakes. If you
have access to cost-effectiveness studies of programs similar to the one you are considering,
especially if they allow you to compare the relative costs and benefits of several different
ways of delivering a service, before you have made substantial investments of time or money,
some program design decisions may be easier. One common example in community-based
programs is staffing (eg., deciding whether to use highly-trained professionals to deliver
services, or to rely on less highly-paid paraprofessionals or volunteers). While many people
assume that the paraprofessionals or volunteers are always less expensive, cost-effectiveness
studies in some cases have found that the professionals may be less costly in the long run
because they can see more clients, require less supervision time, or are more effective. Of
course, costs also need to be weighed against other considerations, such as the fact that

13

paraprofessionals recruited from the community served may more easily gain the trust of
clients.

Tier 2 - Accountability
Clearly, fiscal accountability is one of the primary reasons for using any kind of
cost analysis as part of your evaluation. Any responsible program should keep service
statistics and financial records that are accurate and up-to-date enough to be able to determine
some very basic information about unit costs, and funders usually require this. However, the
minimal information routinely collected by programs for fiscal and reporting purposes is not
always in a form that lends itself to evaluation uses. Often, unless advance planning has taken

place, this data is too aggregated to reflect outcomes of interest to researchers and evaluators.
At this stage (or earlier), careful consideration should be given to the kinds of client and cost
data that will be needed later, so that it can be built into the accounting and record-keeping
systems of the program (see Kettner, Moroney & Martin, 1990).

Tier 3 - Understanding and Refining

Like any other type of information gathered for evaluation purposes, the cost
information collected in Tier 2 for accountability purposes provides programs with a basis for
mid-course adjustments and program refinements, either at the end of a funding cycle, or in
the course of implementation.

Tier 4 - Progress toward Objectives

Using cost information in Tier 4 is closely tied to the program design issues of Tier
1, and the accountability issues of Tier 2. If appropriate program outcomes and indicators
have been identified in Tier 1, and the appropriate unit cost information is included in the
routine data that is collected as part of Tier 2, then the job of identifying progress toward
objectives in Tier 4 becomes much easier.

Tier 5 - Program Impact

When it has been possible to conduct a full-scale cost-benefit analysis over a long
period of time, and it shows significant long-term gains and cost savings in a particular

14

population or problem area, the policy implications may be great. One of the best-known
examples is the Perry Preschool Study (discussed earlier), which has been credited with
persuading lawmakers to sustain or significantly increase their support for early intervention
programs, including Head Start. It is widely believed that one reason that this study was so
influential was the fact that it included a cost-benefit analysis. While monetary cost is not the
only basis for policy decisions, it is usually a very salient one for voters and politicians.

HOW TO BUDGET & ALLOCATE COSTS FOR COST

EFFECTIVENESS STUDIES:
The type of budgeting and accounting system your program or agency uses may
well determine how much useful cost data is available for evaluating your program, or
comparing it to others. Three major types of budgeting formats commonly used in social
service programs will provide different types and amounts of information (Kettner, Moroney,
& Martin, 1990).
The most common format is the Line-Item Budget format, which simply looks at
revenues (money coming in from various sources, including grants, user fees or United Way
funds) and expenditures (costs broken down into broad categories like salaries, rent, utilities,
and postage), and tries to ensure that they balance. The main purpose of a line-item budget is
financial control, and the categories are usually too broad to give much information about the
cost of providing a particular service or obtaining a particular result.
The Functional Budget format starts with a line-item budget, and takes it a step
further. It focuses on process, or the cost of providing a service. For example, with a
Functional Budget, we could determine that it cost an adoption agency $45,000 to conduct
100 home studies (an activity which is a necessary part of the process of placing children in
permanent homes).

15

The Program Budget, which also starts with a line-item budget, looks at the same
information from the point of view of outcomes, or the cost of achieving a result. For
example, if the 100 home studies resulted in actually placing 50 children in adoptive homes,
the Program Budget would allow us to say that it cost the agency $45,000 to place 50
children, which is an outcome.
Another way to look at this is that functional budgets measure productivity, and
program budgets measure the cost of achieving goals and objectives.

COMMON STEPS IN DEVELOPING PROGRAM & FUNCTIONAL

BUDGETS (Kettner, et al., 1990):
1. Develop a line-item budget that shows all expenditures. This is the minimal level of
budgeting and accounting that is required by many funders, such as the United Way. Some
funders require a specific format, so that the categories used are standard across the programs
that they fund.
2. Determine the agency's program structure. A distinct program is a set of activities or
services designed to accomplish a specific set of agency goals and objectives. Many agencies
have several different programs.
3. Identify all direct costs and indirect costs. Direct costs are those that benefit only one
program (for example, salaries of staff who work only for one program, or supplies and
equipment used only for that program). Indirect costs or "overhead" costs are those that
benefit or are shared by more than one program (for example, several programs in an agency
might share the same building, and be served by the same bookkeeping and secretarial staff,
utilities, or janitorial services).
4. Assign direct costs to the appropriate program or project. This is usually fairly
straightforward. If one county agent has full-time responsibility for operating your State
Strengthening project, for example, then 100% of his or her salary and benefits would be
assigned as an expense to that project in the budget. If a staff member spends 50% of his or

16

her time on the State Strengthening project and 50% on another assignment, then half of that
person's salary and benefits would be assigned to the State Strengthening project as a direct
cost.
5. Allocate indirect costs to programs. Deciding how to divide up the indirect (shared) cost
pool among several programs in the agency can be much more complicated and technical.
The actual practice of allocating or dividing up the indirect costs is usually best left to an
accountant. There are several methods for doing this, each with particular advantages and
disadvantages (see

Kettner, et al., 1990). Although cost allocation of indirect costs can be a time-consuming step,
it is considered well worth doing because of the increased information it provides about the
real costs of providing services.
6. Determine total program costs. The total cost of a particular program (such as your State
Strengthening project) is the sum of the direct costs, and the portion of indirect costs that is
allocated to that program.
Once we have this information about total program costs, then we can calculate unit
costs. For a Functional Budget, this involves defining the units of service for each program
(eg., hours of day care provided, meals delivered, home studies conducted), and calculating
the cost per unit of service. In the adoption agency example above, the unit cost of
conducting a home study would be $450 (total program cost divided by number of units of
service provided). For a Program Budget, the final steps are determining the total cost of
achieving the outcome objectives for the year, and calculating the cost per outcome. Using
the adoption example again, we can say that the adoption agency described above
successfully placed children in adoptive homes at a unit cost of $900/child (total program
costs divided by the number of successful outcomes).

17

COST - EFFICIENCY & COST - EFFECTIVENESS STUDIES:

From the point of view of program evaluation, both the Program and Functional
Budgeting systems are more useful than a Line-Item Budget. Unit cost information allows for
useful comparisons of the costs of delivering services and getting results. With this
information, we can look at the unit cost of one adoption agency compared to another, to see
whether one operates more efficiently. We can also compare the unit cost (per child) of
adoptive placement to the unit cost (per child) of placement in foster care or residential
treatment. This is basically what happens in a cost-effectiveness study.
In general, a cost-effectiveness study is more appropriate than a cost-benefit analysis
when your goals or outcomes can't easily be quantified or monetized, or when there are
multiple competing goals. As with budgeting and cost allocation, there are a variety of
approaches to cost-effectiveness studies. The approach that is best for your purposes will
depend on a number of factors. A good source of more detailed information about deciding
what approach is most appropriate, and conducting the various types of cost-effectiveness
studies, is Weimer & Vining (1992).

HOW TO CONDUCT A COST - BENEFIT ANALYSIS:

18

Cost-benefit analysis is by far the most complex and controversial of the three methods of
costs analysis we have discussed. It should not be attempted by those who lack technical
expertise in this area. However, for some purposes, it is also one of the most powerful
methods. For those who decide to undertake a cost-benefit analysis in spite of the difficulties,
Barnett (1993) outlines a nine step process. Various standard texts are recommended for more
in-depth information (see below).

Step 1: Define the Scope or Perspective of the Analysis - The first step is to describe the
alternative(s) to be evaluated, and determine whose perspective will guide the evaluation. A
narrow cost analysis might look only at the monetary costs and benefits to the individual
participant or target of services, or to a particular funder or agency. A broader perspective
might attempt to look at a wide range of costs and consequences (intended and unintended,
direct and indirect) for society as a whole. A program that is not cost-effective from the

perspective of a particular agency within its limited mission and budget may well be costeffective from the perspective of society, because it saves expenses or prevents problems in
other areas. Rossi and Freeman (1993) note that because different stakeholders may have
different values and priorities, mixing different viewpoints is likely to result in "confused
specifications and overlapping or double counting." Whether we like it or not, the
perspective chosen for cost evaluation may have political implications. Therefore, while
there are limitations to any one perspective, it is important for the evaluator to clearly state
his or her position.

Step 2: Conduct Cost Analysis - The next step is to identify and estimate the monetary
value of all resources used in the intervention, not just the budgetary costs. Some costs,
such as salaries of direct service staff, rental of office space, or program supplies, are
obvious and simple to determine.

Indirect costs of supervision and administration need to be included as well. Other

resources and costs may go well beyond the items that are usually included in an agency
budget. Sometimes "overhead" (like office space or supervision) is provided as an in-kind
service by an existing agency, but since there are probably some additional demands made
on the time of the agency staff, this should be figured into the "real" cost of the intervention
(what would you have to pay if the time or space had not been donated)?. What about the
value of the time of program volunteers (what would you have to pay them if they weren't
volunteering their services)? Barnett argues that parent time is a frequently ignored cost

19

factor in intervention programs for children; if a high level of parent involvement is

required (for example, teaching the child, conducting physical therapy exercises, or
attending many meetings and appointments), it may represent a cost savings to the agency,
but a cost to the parent because there may be less time available for paid work, housework,
spending time with other children in the family, or just the cuddling and nurturing aspects
of being a parent.

Step 3: Estimate Program Effects - This is where more traditional impact or outcome
evaluation methods come in. As noted earlier, if we don't know that there is a significant
beneficial effect of our program, there is little point in asking how much it costs to get the
effect, or whether it is more cost-effective than another kind of program. Many texts on
evaluation can assist you in designing a valid evaluation (Rossi & Freeman, 1993; State
Strengthening Evaluation Guide, 1997). Often it is not possible to use a true experimental

design in evaluating community-based programs, but there are a number of quasiexperimental designs available (Cook & Campbell, 1979). Also, don't forget that it is often
possible to use existing data to estimate program effects, as well. If you are looking at an
ongoing program, or one that is based on a national model (such as the Parents As Teachers
program), check to see if formal evaluations have already been done elsewhere. You may
also be able to get useful information from the program's service statistics, or from local,
state, or federal census data [insert link here to Using Existing Data URL].

Step 4: Estimate the Monetary Value of Outcomes - This is one of the most difficult and
controversial aspects of conducting a cost-benefit analysis, and it may require the help of
consultants. Some cost-savings are easier to estimate than others. For example, we may
have data that the average cost of placing a child in residential treatment is $20,000 a year,
so if we are able to prevent 20 children from being placed in residential treatment, the
estimated savings is 20 X $20,000. However, other important outcomes may be much less
obvious, and much harder to estimate.

Step 5: Account for the Effects of Time - One of the trickiest and most technical aspects of
cost-benefit analysis, especially for longitudinal studies that follow clients or outcomes
over a period of years, is discounting of costs and calculating rates of return for alternative
uses of the money (such as investing it). This includes taking into account the effects of
inflation on the value of the dollar over time, or figuring the depreciation in the value of
things like buildings and other capital equipment. Similar issues apply in estimating the

20

value of benefits over a period of time. For example, if we want to look at the projected
life-time earnings of a teenager who stays in school due to a drop-out prevention program
compared to one who does not, we need to make projections about wages. If we want to
look at whether the government will eventually recover its investment in the drop-out
program through the taxes he or she will pay on the increased income, we need to make
projections about future tax rates as well. These projections all require assumptions. Unless
you or someone on the program staff has expertise in this area, it is strongly advised that
you seek out a skilled consultant to help with this step.

Step 6: Aggregate and Apply a Decision Rule - If you are looking at the costs and benefits
on several outcomes (which is often the case), how will you decide which has priority? If a
program for pregnant teenagers results in healthier babies (and lower hospital costs), but
not in fewer repeat pregnancies, which outcome is more important?

Step 7: Describe Distributional Consequences - This is related to choosing your perspective

of analysis. It involves specifying who gains and who loses under different conditions
(because in some cases, one party's benefit is another party's loss). This may be a highly
controversial and political step in the process.

Step 8: Conduct Sensitivity Analysis - This step involves identifying the assumptions
behind your cost estimates, and considering how critical they are to your calculations. If
one of your assumptions turns out not to be accurate, or if conditions change during the
time of your study (for example, the minimum wage goes up, affecting salary costs), will
that change your whole conclusion, or is the effect strong enough that there is some
leeway?

Step 9: Discuss the Qualitative Residual - Since there are almost always some things that
can't be quantified or given monetary values, it is important that your report include some
discussion of these issues. A frank description of some of these qualitative issues in your
report can help round out your conclusions, and reduce the chances of your study being
used inappropriately.

Cost - Benefit Analysis

Cost-benefit analysis is a term that refers both to:

21

a formal discipline used to help appraise, or assess, the case for a project or proposal,
which itself is a process known as project appraisal; and

an informal approach to making decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly, weighing

the total expected costs against the total expected benefits of one or more actions in order to
choose the best or most profitable option. The formal process is often referred to as either
CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).
A hallmark of CBA is that all benefits and all costs are expressed in money terms, and
are adjusted for the time value of money, so that all flows of benefits and flows of project
costs over time (which tend to occur at different points in time) are expressed on a common
basis in terms of their present value. Closely related, but slightly different, formal
techniques include Cost-effectiveness analysis, Economic impact analysis, Fiscal impact
analysis and Social Return on Investment(SROI) analysis. The latter builds upon the logic of

Cost-benefit analysis, but differs in that it is explicitly designed to inform the practical
decision-making of enterprise managers and investors focused on optimizing their social and
environmental impacts.

Theory
Cost Benefit Analysis is typically used by governments to evaluate the desirability of
a given intervention. The aim is to gauge the efficiency of the intervention relative to the
status quo. The costs and benefits of the impacts of an intervention are evaluated in terms of
the public's willingness to pay for them (benefits) or willingness to pay to avoid them (costs).
Inputs are typically measured in terms of opportunity costs - the value in their best alternative
use. The guiding principle is to list all of the parties affected by an intervention, and place a
monetary value of the effect it has on their welfare as it would be valued by them.
The process involves monetary value of initial and ongoing expenses vs. expected
return. Constructing plausible measures of the costs and benefits of specific actions is often
very difficult. In practice, analysts try to estimate costs and benefits either by using survey
methods or by drawing inferences from market behaviors. For example, a product manager
may compare manufacturing and marketing expenses to projected sales for a proposed

22

product, and only decide to produce it if he expects the revenues to eventually recoup the
costs. Cost-benefit analysis attempts to put all relevant costs and benefits on a common
temporal footing. A discount rate is chosen, which is then used to compute all relevant future
costs and benefits in present-value terms. Most commonly, the discount rate used for presentvalue calculations is an interest rate taken from financial markets (R.H. Frank 2000). This can
be very controversial - for example, a high discount rate implies a very low value on the
welfare of future generations, which may have a huge impact on the desirability of
interventions to help the environment, and so on. Empirical studies have suggested that in
reality, people's discount rates do decline over time. Because CBA aims to measure the
public's true willingness to pay, this feature is typically built into studies.

During cost-benefit analysis, monetary values may also be assigned to less tangible
effects such as the various risks which could contribute to partial or total project failure; loss
of reputation, market penetration, long-term enterprise strategy alignments, etc. This is
especially true when governments use the technique, for instance to decide whether to
introduce business regulation, build a new road or offer a new drug on the state healthcare. In
this case, a value must be put on human life or the environment, often causing great
controversy. The cost-benefit principle says, for example, that we should install a guardrail on
a dangerous stretch of mountain road if the dollar cost of doing so is less than the implicit
dollar value of the injuries, deaths, and property damage thus prevented (R.H. Frank 2000).
Cost-benefit calculations typically involve using time value of money formula. This
is usually done by converting the future expected streams of costs and benefits to a present
value amount.

OBJECTIVES OF STUDY

23

Cost Control Analysis can provide estimates of what a program's costs and benefits
are likely to be, before it is implemented. "Ex-ante" or "before the fact" Cost Control
Analysis may have to be based on very rough estimates of costs and expected
benefits. However, if a program is likely to be very expensive to implement, very
difficult to "un-do" once it is in place, or very difficult to evaluate, even a rough
estimate of efficiency may be quite valuable in the planning stages (Rossi & Freeman,
1993).

Cost Control Analysis may improve understanding of program operation, and tell
what levels of intervention are most cost-effective. A careful cost analysis within a
program might tell you, for example, that it doesn't so much matter whether you have
a half-day program or a full-day preschool program for children, but that the teacherto-child ratio does matter (that is, children benefit more from low ratios than they do
from longer days). This information might influence decisions about how many
teachers you need to hire, or how many classrooms you need, or how many children
you can serve effectively.

Cost Control Analysismay reveal unexpected costs. A speech therapy program might
unexpectedly find that it costs more to use paraprofessionals to work with children
than professionals, because the paraprofessionals need more training and supervision,
or work with fewer children at a time (White, 1988). Or, cutting the number of home
visits allowed by caseworkers serving a large rural area (in order to save on mileage
reimbursements) might have the unplanned result of higher long-distance phone bills,
because the workers still feel a need to stay in close touch with their clients.

SCOPE :
Cost analysis can be used at several levels . At the most basic level, cost allocation is
simply part of good program budgeting and accounting practices , which allow managers
to determine the true cost of providing a given unit of service. it deals with cost
allocation , cost effectiveness and cost benefit.

Five Tiers :
Tier 1 Program definition

24

Tier 2 Accountability
Tier 3 Understanding & refining
Tier 4 Progam towards objective
Tier 5 Program impact

COST ANALYSIS METHODOLOGY :

PRIMARY DATA COLLECTION :

All the data collection process has been carried out through the constitutions with
the staff members concerned in the department of finance in the organization.

Direct interactions with the manager, The accountants and the related staff concern
helped me in gathering of the required data.

Took the help of the management from the other departments and the guidance
from the internal guide.

SECONDATY DATA COLLECTION :-

25

Certain assumptions have been made in regard to the future projects of the
company.

The data have been prepared in the consultation with the various personals of the
organization indirectly.

The changes in capital due to expected better management have been taken in the
account while calculating the related capital structures.

The results of the capital structures forecasts have been analyzed to give suggestions
for improvement of the performance of the Organization.

PERIOD OF STUDY :
The study has been conducted taking into an account the past five years data i.e. from
2002 03 to 2006 07

LIMITATIONS OF COST CONTROL ANALYSIS:

Whether or not the program is having a significant net effect on the desired outcomes.
Unless you know for sure that the program is producing a benefit, it doesn't make
sense to talk about the cost of producing that benefit (Rossi & Freeman, 1993). Cost
analysis may be considered an extension of an impact or outcome evaluation, but it
cannot take the place of one.

Whether the least expensive alternative is always the best alternative. Often political
or social values other than cost need to determine program and policy choices. When
there are competing values or goals involved, cost analysis is often just one factor to
be considered, and we need to have some other way of deciding which factors should
take priority.

26

CHAPTER-III
APPLICATION & HISTORY

27

Application and History

Cost-benefit analysis is mainly, but not exclusively, used to assess the value for money
of very large private and public sector projects. This is because such projects tend to include
costs and benefits that are less amenable to being expressed in financial or monetary terms
(e.g. environmental damage), as well as those that can be expressed in monetary terms.
Private sector organizations tend to make much more use of other project appraisal
techniques, such as rate of return, where feasible.
The practice of cost-benefit analysis differs between countries and between sectors (e.g.
transport, health) within countries. Some of the main differences include the types of impacts
that are included as costs and benefits within appraisals, the extent to which impacts are
expressed in monetary terms and differences in discount rate between countries. Agencies
across the world rely on a basic set of key cost-benefit indicators, including:

PVB (present value of benefits);

PVC (present value of costs);

NPV (PVB less PVC);

NPV/k (where k is the level of funds available) and

BCR (benefit cost ratio, PVB divided by PVC).

The concept of CBA dates back to an 1848 article by Dupuit, and was formalized in

subsequent works by Alfred Marshall. The practical application of CBA was initiated in the
US by the Army Corps of Engineers, after the Federal Navigation Act of 1936 effectively
required cost-benefit analysis for proposed federal waterway infrastructure. [1]
Subsequently, cost-benefit techniques were applied to the development of highway and
motorway investments in the US and UK during the 1950s and 60s. An early, and often
quoted, more developed application of the technique was made to London Underground's
Victoria Line. Over the last 40 years, cost-benefit techniques have gradually developed to the

28

extent that substantial guidance now exists on how transport projects should be appraised in
many countries around the world.

In the UK, the New Approach to Appraisal (NATA) was introduced by the then
Department for Transport, Environment and the Regions. This brought together cost-benefit
results with those from detailed environmental impact assessments and presented them in a
balanced way. NATA was first applied to national road schemes in the 1998 Roads Review,
but subsequently rolled out to all modes of transport. It is now a cornerstone of transport
appraisal in the UK and is maintained and developed by the Department for Transport.[10]
The EU's 'Developing Harmonised European Approaches for Transport Costing and
Project Assessment' (HEATCO) project, part of its Sixth Framework Programme, has
reviewed transport appraisal guidance across EU member states and found that significant
differences exist between countries. HEATCO's aim is to develop guidelines to harmonise
transport appraisal practice across the EU.[11][12] [2]
Transport Canada has also promoted the use of CBA for major transport investments
since the issuance of its Guidebook in 1994.
More recent guidance has been provided by the US Dept. of Transportation and
several state transportation departments, with discussion of available software tools for
application of CBA in transportation, including HERS, BCA.Net, StatBenCost, CalBC, and
TREDIS. Available guides are provided by the Federal Highway Administration[4][5], Federal
Aviation Administration[6], Minnesota Department of Transportation [7] and California
Department of Transportation (Caltrans)
During the early 1960s, CBA was also extended to assessment of the relative
benefits and costs of health care and education in works by Burton Weisbrod.[9][10]. Later, the
US Dept. of Health and Human Services issued its CBA Guidebook[11].

Accuracy problems
The accuracy of the outcome of a cost-benefit analysis is dependent on how accurately
costs and benefits have been estimated. A peer-reviewed study [13] of the accuracy of cost

29

estimates in transportation infrastructure planning found that for rail projects actual costs
turned out to be on average 44.7 percent higher than estimated costs, and for roads 20.4
percent higher (Flyvbjerg, Holm, and Buhl, 2002). For benefits, another peer-reviewed study
[14] found that actual rail ridership was on average 51.4 percent lower than estimated

ridership; for roads it was found that for half of all projects estimated traffic was wrong by
more than 20 percent (Flyvbjerg, Holm, and Buhl, 2012). Comparative studies indicate that
similar inaccuracies apply to fields other than transportation. These studies indicate that the
outcomes of cost-benefit analyses should be treated with caution, because they may be highly
inaccurate. In fact, inaccurate cost-benefit analyses may be argued to be a substantial risk in
planning, because inaccuracies of the size documented are likely to lead to inefficient
decisions, as defined by Pareto and Kaldor-Hicks efficiency ([15] Flyvbjerg, Bruzelius, and
Rothengatter, 2003).
These outcomes (almost always tending to underestimation, unless significant new
approaches are overlooked) are to be expected, since such estimates:
1. Rely heavily on past like projects (frequently differing markedly in function or size, and
certainly in the skill levels of the team members),
2. Rely heavily on the project's members to identify (remember from their collective past
experiences) the significant cost drivers,
3. Rely on very crude heuristics ('rules of thumb') to estimate the money cost of the intangible
elements, and
4. Are unable to completely dispel the usually (unconscious) biases of the team members
(who often have a vested interest in a decision to 'go ahead') and the natural psychological
tendency to "think positive" (whatever that involves).
Another challenge to cost-benefit analysis comes from determining which costs
should be included in an analysis (the significant cost drivers). This is often controversial as
organizations or interest groups may feel that some costs should be included or excluded
from a study.

30

In the case of the Ford Pinto (where, due to design flaws, the Pinto was liable to
burst into flames in a rear-impact collision), the Ford company's decision was not to issue a
recall. Ford's cost benefit analysis had estimated that: based on the number of cars in use and
the probable accident rate, deaths due to the design flaw would run about $49.5 million (the
amount Ford would pay out of court to settle wrongful death lawsuits). This was estimated to
be less than the cost of issuing a recall ($137.5 million) [16]. In the event, Ford overlooked
(or considered insignificant) the costs of the negative publicity so engendered, which turned
out to be quite significant (since it led to the recall anyway and to measurable losses in sales).
In the field of Health Economics, some analysts feel that cost-benefit analysis can
be an inadequate measure, as willingness-to-pay methods of determining the value of human
life can be subject to bias according to income inequity. They support use of variants such as
cost-utility analysis and quality-adjusted life year to analyze the effects of health policies.

Cost overrun
Cost overrun is defined as excess of actual cost over budget. Cost overrun is also
sometimes called "cost escalation," "cost increase," or "budget overrun." However, cost
escalation and increases do not necessarily result in cost overruns if cost escalation is
included in the budget.
Cost overrun is common in infrastructure, building, and technology projects.
One of the most comprehensive studies [1] of cost overrun that exists found that 9 out of 10
projects had overrun, overruns of 50 to 100 percent were common, overrun was found in each
of 20 nations and five continents covered by the study, and overrun had been constant for the
70 years for which data were available. For IT projects, an industry study by the Standish
Group (2004) found that average cost overrun was 43 percent, 71 percent of projects were
over budget, over time, and under scope, and total waste was estimated at US$55 billion per
year in the US alone. Spectacular examples of cost overrun are the Sydney Opera House
with 1,400 percent, and the Concorde supersonic aeroplane with 1,100 percent. The cost
overrun of Boston's Big Dig was 275 percent, or US$11 billion. The cost overrun for the

31

Channel tunnel between the UK and France was 80 percent for construction costs and 140
percent for financing costs.

Three types of explanation of cost overrun exist: technical, psychological, and

political-economic. Technical explanations account for cost overrun in terms of imperfect
forecasting techniques, inadequate data, etc. Psychological explanations account for overrun
in terms of optimism bias with forecasters. Finally, political-economic explanations see
overrun as the result of strategic misrepresentation of scope and/or budgets.
All of the explanations above can be considered a form of risk. A project's budgeted
costs should always include cost contingency funds to cover risks (other than scope changes
imposed on the project). As has been shown in cost engineering research [1], poor risk analysis
and contingency estimating practices account for many project cost overruns. Numerous
studies have found that the greatest cause of cost growth was poorly defined scope at the time
that the budget was established. The cost growth (overrun of budget before cost contingency
is added) can be predicted by rating the extent of scope definition, even on complex projects
with new technology. [2]
Cost overrun is typically calculated in one of two ways. Either as a percentage,
namely actual cost minus budgeted cost, in percent of budgeted cost. Or as a ratio, viz. actual
cost divided by budgeted cost. For example, if the budget for building a new bridge was $100
million and the actual cost was $150 million then the cost overrun may be expressed as 50
percent or by the ratio 1.5.

32

COST ANALYSIS METHODS

Main Types of Cost Analysis

Quadrants of Cost-Effectiveness

Key Attributes of Cost Analyses

Collecting Cost Data Alongside Clinical Studies

Studies of costs and related economic implications comprise a major group of

methods used in HTA. These studies can involve attributes of either or both of primary data
collection and integrative methods. That is, cost data can be collected as part of RCTs and
other clinical studies, as well as administrative databases used in health care payment. Cost
data from one or more such sources often are combined with data from primary clinical
studies, epidemiological studies, and other sources to conduct cost-effectiveness analyses and
other cost studies that involve weighing health and economic impacts of health technology.
Interest in Cost Control Analysishas accompanied concerns about rising health care
costs, pressures on health care policymakers to allocate resources, and the need for health
product makers and other technology advocates to demonstrate the economic benefits of their
technologies. This interest is reflected in a considerable increase in the number of reports of
Cost Control Analysisin the literature and further refinement of methods.

Main Types of Cost Analysis

There is a variety of approaches to cost analysis, the suitability of any of which
depends upon the purpose of an assessment and the availability of data and other resources. It
is rarely possible or necessary to identify and quantify all costs and all benefits (or outcomes),
and the units used to quantify these may differ.

33

Main types of cost analysis include the following.

Cost-of-illness analysis : determination of the economic impact of an illness or

condition (typically on a given population, region, or country) e.g., of smoking,
arthritis or bedsores, including associated treatment costs

Cost-minimization analysis : determination of the least costly among

alternative interventions that are assumed to produce equivalent outcomes

Cost-effectiveness analysis (CEA): a comparison of costs in monetary units

with outcomes in quantitative non-monetary units, e.g., reduced mortality or
morbidity

Cost-utility analysis (CUA): a form of cost-effectiveness analysis that compares

costs in monetary units with outcomes in terms of their utility, usually to the patient,
measured, e.g., in QALYs

Cost-consequence analysis: a form of cost-effectiveness analysis that presents

costs and outcomes in discrete categories, without aggregating or weighting them

Cost-benefit analysis (CBA): compares costs and benefits, both of which are
quantified in common monetary units.

The valuation of costs and outcomes among these alternative economic

analyses.
Different Types of Economic Analysis
Valuation of

Valuation of Outcomes

Costs
Cost of Illness

vs.

None

Cost Minimization

vs.

Assume same

Cost Effectiveness

Natural units

34

Cost Utility

Cost Benefit

Utile (e.g., QALYs)

or - $

Cost - Minimization Analysis, CEA and CUA necessarily involve comparisons of

alternative interventions. A technology cannot be simply cost effective, though it may be cost
effective compared to something else. Although CBA typically involves comparisons of
alternative technologies, this is not necessary.
Because it measures costs and outcomes in monetary (not disease-specific) terms,
CBA enables comparison of disparate technologies, e.g., coronary artery bypass graft surgery
and screening for breast cancer. A drawback of CBA is the difficulty of assigning monetary
values to all pertinent outcomes, including changes in the length or quality of human life.
CEA avoids this limitation by using more direct or natural units of outcomes such as lives
saved or strokes averted. As such, CEA can only compare technologies whose outcomes are
measured in the same units. In CUA, estimates of utility are assigned to health outcomes,
enabling comparisons of disparate technologies.
Two basic approaches for cost-benefit analysis (CBA) are ratio approach and
the net benefit approach. The ratio approach indicates the amount of benefits (or outcomes)
that can be realized per unit expenditure on a technology vs. a comparator. In the ratio
approach, a technology is cost beneficial vs. a comparator if the ratio of the change in costs to
the change in benefits is less than one. The net benefits approach indicates the absolute
amount of money saved or lost due to a use of a technology vs. a comparator. In the net
benefits formulation, a technology is cost-beneficial vs. a comparator if the net change in
benefits exceeds the net change in costs. The choice between a net benefits approach or a
benefit/cost approach for a CBA can affect findings. The approach selected may depend upon
such factors as whether costs must be limited to a certain level, whether the intent is to
maximize the absolute level of benefits, whether the intent is to minimize the cost/benefit
ratio regardless of the absolute level of costs, etc. Indeed, under certain circumstances these
two basic approaches may yield different preferences among alternative technologies.

35

Box 19 shows basic formulas for determining CEA, CUA, and CBA.

COST ANALYSIS RATIO

36

Quadrants of Cost-Effectiveness
A basic approach to portraying a cost-effectiveness (or cost-utility) comparison of
a new intervention to a standard of care is to consider the cost and effectiveness of a new
intervention in the space of four fields as shown in Box 20, starting with the upper figure.
The level of costs and the level of effectiveness for the standard of care are indicated by the
"X" in the middle of the figure. A new intervention may have higher or lower costs, and
higher or lower effectiveness, such that its plot may fall into one of the four quadrants

surrounding the costs and effectiveness of the standard of care. If it is known that the plot of
the new intervention falls into either of two of the quadrants, i.e., where the new intervention
has higher costs and lower effectiveness (indicating that it should be rejected), or it has lower
costs and higher effectiveness (indicating that it should be adopted), then no further analysis
may be required. If it is known that the plot of the new intervention falls into either of the
other two quadrants, i.e., where the new intervention has higher costs and higher
effectiveness, or it has lower costs and lower effectiveness, then further analysis weighing the
marginal costs and effectiveness of the new intervention compared to the standard of care
may be required.
Within either of the two quadrants that entail weighing tradeoffs of costs and
effectiveness, it may be apparent that the marginal tradeoff of costs and outcomes is so high
or low as to suggest rejection or adoption. As shown in the lower figure of Box 20, this arises
when the new intervention yields only very low marginal gain in effectiveness at a very high
marginal cost (reject), or yields very high marginal improvements in effectiveness at a very
low marginal cost (adopt).

Key Attributes of Cost Analyses

The approaches to accounting for costs and outcomes in Cost Control Analysiscan
vary in a number of important respects, some of which are addressed briefly below. These
should be carefully considered by assessors, as well as the policymakers who intend to make
use of assessment findings. Given the different ways in which costs and outcomes may be
determined, all studies should make clear their methodology in these respects (Byford 1998;
Drummond 1997; Gold 1996).

37

Comparator. Any cost analysis of one intervention versus another must be specific
about the comparator. This may be standard of care (current best practice), minimum practice,
or no intervention. Some analyses that declare the superiority of a new intervention may have
used a comparator that is no longer in practice or is considered sub-standard care or that is
not appropriate for the patient population of interest.

Perspective. The perspective of a cost analysis refers to the standpoint at which

costs and outcomes (or consequences or benefits) are realized. For instance, the perspective
of an analysis may be that of society overall, a third-party payer, a physician, a hospital, or a
patient. Clearly, costs and outcomes are not realized in the same way from each of these
perspectives. Many analysts favor using the broad perspective of society and identifying all
costs and all outcomes accordingly. However, "society" as such may not be the decision
maker, and what is cost effective from that perspective may not be what is cost effective from
the standpoint of a ministry of health, third-party payer, hospital manager, patient, or other
decision maker. It is possible that this perspective may resemble that of a national or regional
government, if indeed that government experiences (or is responsible for representing the
perspectives of those that experience) all of the costs and outcomes that are included in a
societal perspective.

Quadrants of Cost-Effectiveness

Direct Costs: Depending upon the perspective taken, Cost Control Analysisshould
identify two types of direct costs. Direct costs represent the value of all goods, services, and
other resources consumed in providing health care or dealing with side effects or other
current and future consequences of health care. Two types of direct costs are direct health
care costs and direct non-health care costs.
Direct health care costs include costs of physician services, hospital services,
drugs, etc. involved in delivery of health care. Direct non-health care costs are incurred in
connection with health care, such as for care provided by family members and transportation
to and from the site of care. In quantifying direct health care costs, many analyses use readily
available hospital or physician charges (i.e., price lists) rather than true costs, whose

38

determination may require special analyses of resource consumption. However, charges (as
well as actual payments) tend to reflect provider cost shifting and other factors that decrease
the validity of using charges to represent the true costs of providing care.

39

Indirect Costs: Analyses should account for indirect costs, sometimes known as
"productivity losses." These include the costs of lost work due to absenteeism or early
retirement, impaired productivity at work, and lost or impaired leisure activity. Indirect costs
also include the costs of premature mortality. Intangible costs of pain, suffering, and grief are
real, yet very difficult to measure and are often omitted from cost analyses.

Time Horizon: Interpretation of Cost Control Analysismust consider that the time
horizon (or time-frame) of a study is likely to affect the findings regarding the relative
magnitudes of costs and outcomes of a health care intervention. Costs and outcomes usually
do not accrue in steady streams over time. Comparisons of costs and outcomes after one year
may yield much different findings than comparisons made after 5, 10, or 25 years. The
meaningful time horizons for assessing the cost horizons of each of emergency
appendectomies, cholesterol-lowering in high-risk adults, and smoking cessation in teenagers
are likely to be quite different. For example, an analysis conducted for the Medicare program
in the US to determine cost and time tradeoffs of hemodialysis and kidney transplantation
showed that the annualized expenditure by the Medicare End-Stage Renal Disease Program
for a dialysis patient was $32,000. Although patients with functioning transplanted kidneys
required a first-year expenditure of $56,000, they cost Medicare only an average of $6,400 in
succeeding years. On average, estimated cumulative dialysis and transplantation costs reach a
break-even point in about three years, after which transplantation provides a net financial
gain compared to dialysis. Time horizons should be long enough to capture streams of health
and economic outcomes (including significant intended and unintended ones). These could
encompass a disease episode, patient life, or even multiple generations of life (such as for
interventions in women of child-bearing age or interventions that may cause heritable genetic
changes). Quantitative modeling approaches may be needed to estimate costs and outcomes
that are beyond those of available data. Of course, the higher the discount rate used in an
analysis, the less important are future outcomes and costs.
Average Costs vs. Marginal Costs: Assessments should make clear whether
average costs or marginal costs are being used in the analysis. Whereas average cost analysis
considers the total (or absolute) costs and outcomes of an intervention, marginal cost analysis
considers how outcomes change with changes in costs (e.g., relative to a comparator), which
may provide more information about how to use resources efficiently. Marginal cost analysis
may reveal that, beyond a certain level of spending, the

40

Additional benefits are no longer worth the additional costs. For example, as shown
in Box 21, the average cost per desired outcome of an iterative screening test may appear to
be quite acceptable whereas marginal cost analysis demonstrates that the cost of adding the
last test (i.e., the additional cost of the sixth test per person) to detect another case of cancer
would be astronomical.

Average Cost Analysis vs. Marginal Cost Analysis

The importance of determining marginal costs is apparent in the analysis by Neuhauser and
Lewicki of a proposed protocol of sequential stool guaiac testing for colon cancer. Here,
average cost figures obscure a steep rise in marginal costs of testing because the high
detection rate from the initial tests is averaged over subsequent tests that contribute little to
the detection rate. This type of analysis helps to demonstrate how it is possible to spend
steeply increasing health care resources for diminishing returns in health benefits.
Cancer screening and detection costs with sequential guaiac tests

No. No.
of Additional Total cost ($) Additional Average Marginal
of cancers cancers
of diagnosis ($) cost of cost
($) cost
($)
tests detected detected
diagnosis
per cancer per cancer
detected detected
1
2
3
4
5
6

65.9469

65.9469

77,511

77,511

1,175

1,175

71.4424
71.9004
71.9385
71.9417
71.9420

5.4956
0.4580
0.0382
0.0032
0.0003

107,690
130,199
148,116
163,141
176,331

30,179
22,509
17,917
15,024
13,190

1,507
1,810
2,059
2,268
2,451

5,492
49,150
469,534
4,724,695
47,107,214

This analysis assumed that there were 72 true cancer cases per 10,000
populations. The testing protocol provided six stool guaiac tests per person to detect colon
cancer. If any one of the six tests was positive, a barium-enema test was performed, which
was assumed to yield no false positive and no false-negative results. Other assumptions: the
true-positive cancer detection rate of any single guaiac test was 91.667%; the false-positive
rate of any single guaiac test was 36.508%; the cost of the first stool guaiac test was $4 and

41

each subsequent guaiac test was $1; the cost of a barium-enema was $100. The marginal cost
per case detected depends on the population screened and the sensitivity of the test used.

Discounting: Cost Control Analysisshould account for the effect of the passage of time on
the value of costs and outcomes. Costs and outcomes that occur in the future usually have
less present value than costs and outcomes realized today. Discounting reflects the time
preference for benefits earlier rather than later; it also reflects the opportunity costs of capital,
i.e., whatever returns on investment that could have been gained if resources had been
invested elsewhere. Thus, costs and outcomes should be discounted relative to their present
value (e.g., at a rate of five percent per year).
Discounting allows comparisons involving costs and benefits that flow differently
over time. It is less relevant for "pay as you go" benefits, such as if all costs and benefits are
realized together within one year. It is more relevant in instances where these do not occur in
parallel, such as when most costs are realized early and most benefits are realized in later
years. Discount rates used in Cost Control Analysisare typically based on interest rates of
government bonds or the market interest rates for the cost of capital whose maturity is about
the same as the duration of the effective time horizon of the health care intervention of
program being evaluated. Box 22 shows the basic formula for calculating present values for a
given discount rate, as well as how the present value of a cost or benefit that is discounted at
selected rates is affected over time.
Cost Control Analysisshould also correct for the effects of inflation (which is
different from the time preference accounted for by discounting), such as when costs or costeffectiveness for one year are compared to another year.
Sensitivity Analysis: Any estimate of costs, outcomes, and other variables used in
a cost analysis is subject to some uncertainty. Therefore, sensitivity analysis should be
performed to determine if plausible variations in the estimates of certain variables thought to
be subject to significant uncertainty affect the results of the cost analysis. A sensitivity
analysis may reveal, for example, that including indirect costs, or assuming the use of generic

42

as opposed to brand name drugs in a medical therapy, or using a plausible higher discount
rate in an analysis changes the cost-effectiveness of one intervention compared to another.

Collecting Cost Data alongside Clinical Studies

The validity of a cost-related study depends upon the sources of the data for costs
and outcomes. Increased attention is being given to collection of cost data in more rigorous,
prospective studies, particularly RCTs. The closer integration of economic and clinical
studies raises important methodological issues. In order to promote more rational diffusion of
new technologies, it would be desirable to generate reliable cost and outcomes data during
the early part of a technology's lifecycle, such as during RCTs required prior to marketing
approval. An RCT would be expected to yield the most reliable data concerning efficacy of
an intervention; however, the care given in an RCT and the costs of providing it may be
atypical compared to more general settings. For example, RCTs may involve more extensive
and frequent laboratory tests and other patient monitoring, and may occur more often in
academic medical centers whose costs tend to be higher than in community health care
institutions. Other aspects of trial design, sample size, choice of outcome measures,
identification and tabulation of costs, burden on investigators of data collection and related
matters affect the usefulness of clinical trial data for meaningful economic studies (Briggs
2003; Drummond 2004;2013). Also, the growth of multinational clinical trials of drugs and
other technologies raises challenges of estimating country-specific treatment effects and costeffectiveness, given differences in epidemiological factors, health care delivery models,
resource use, and other factors (Willke 2001).

43

Discount Rate Calculation and Use in Determining Present Value

of Future Costs and Benefits

In practice, there is wide variation in economic study methodologies (Elixhauser

1998; Nixon 2000). Although some variation is unavoidable, many differences in perspective,
accounting for direct and indirect costs, time frames, discounting and other aspects are often
arbitrary, result from lack of expertise, and may reflect biases on the part of investigators or
sponsors. This diminishes comparability and transferability of study results as well as
credibility of findings. National and international groups have developed and revised
voluntary standards for conducting and reporting economic studies of health care
technologies (Drummond 2013; 2012; Gold 2008). A recent review of 25 guidelines from

44

North America, Europe, and Australia found a general trend toward harmonization in most
methodological aspects, although there were more differences in such dimensions as choice
of economic perspective, resources, and costs to be included in analysis (Hjelmgren 2007).

Cost / Benefit Analysis

Evaluating Quantitatively Whether to Follow a Course of Action
You may have been intensely creative in generating solutions to a problem, and
rigorous in your selection of the best one available. However, this solution may still not be
worth implementing, as you may invest a lot of time and money in solving a problem that is
not worthy of this effort.
Cost Benefit Analysis or CBA is a relatively* simple and widely used technique for
deciding whether to make a change. As its name suggests, you simply add up the value of the
benefits of a course of action, and subtract the costs associated with it.
Costs are either one-off, or may be ongoing. Benefits are most often received over
time. We build this effect of time into our analysis by calculating a payback period. This is
the time it takes for the benefits of a change to repay its costs. Many companies look for
payback on projects over a specified period of time e.g. three years.

How to Use the Tool:

In its simple form, cost-benefit analysis is carried out using only financial costs and
financial benefits. For example, a simple cost benefit ratio for a road scheme would measure
the cost of building the road, and subtract this from the economic benefit of improving
transport links. It would not measure either the cost of environmental damage or the benefit
of quicker and easier travel to work.
A more sophisticated approach to building a cost benefit models is to try to put a
financial value on intangible costs and benefits. This can be highly subjective - is, for
example, a historic water meadow worth $25,000, or is it worth $500,000 because if its
environmental importance? What is the value of stress-free travel to work in the morning?

45

These are all questions that people have to answer, and answers that people have to
defend.

The version of the cost benefit approach we explain here is necessarily simple.
Where large sums of money are involved (for example, in financial market transactions),
project evaluation can become an extremely complex and sophisticated art. The fundamentals
of this are explained in Principles of Corporate Finance by Richard Brealey and Stewart
Myers - this is something of an authority on the subject.

Example: A sales director is deciding whether to implement a new computer-based contact

management and sales processing system. His department has only a few computers,
and his salespeople are not computer literate. He is aware that computerized sales
forces are able to contact more customers and give a higher quality of reliability and
service to those customers. They are more able to meet commitments, and can work
more efficiently with fulfilment and delivery staff.
His financial cost/benefit analysis is shown below:

Costs:
New computer equipment:

10 network-ready PCs with supporting software @ $2,450 each

1 server @ $3,500

3 printers @ $1,200 each

Cabling & Installation @ $4,600

Sales Support Software @ $15,000

Training costs:

Computer introduction - 8 people @ $400 each

Keyboard skills - 8 people @ $400 each

Sales Support System - 12 people @ $700 each

Other costs:
46

Lost time: 40 man days @ $200 / day

Lost sales through disruption: estimate: $20,000

Lost sales through inefficiency during first months: estimate: $20,000

Total cost: $114,000

Benefits:

Tripling of mail shot capacity: estimate: $40,000 / year

Ability to sustain telesales campaigns: estimate: $20,000 / year

Improved efficiency and reliability of follow-up: estimate: $50,000 / year

Improved customer service and retention: estimate: $30,000 / year

Improved accuracy of customer information: estimate: $10,000 / year

More ability to manage sales effort: $30,000 / year

Key points:
Cost/Benefit Analysis is a powerful, widely used and relatively easy tool for deciding
whether to make a change.
To use the tool, firstly work out how much the change will cost to make. Then calculate the
benefit you will from it.
Where costs or benefits are paid or received over time, work out the time it will take for the
benefits to repay the costs.
Cost/Benefit Analysis can be carried out using only financial costs and financial benefits. You
may, however, decide to include intangible items within the analysis. As you must estimate a
value for these, this inevitably brings an element of subjectivity into the process.
Larger projects are evaluated using formal finance/capital budgeting, which takes into
account many of the complexities involved with financial Decision Making. This is a
complex area and is beyond the scope of this site.
Whenever people decide whether the advantages of a particular action are likely to
outweigh its drawbacks, they engage in a form of benefit-cost analysis (BCA). In the public

47

arena, formal BCA is a sometimes controversial technique for thoroughly and consistently
evaluating the pros and cons associated with prospective policy changes. Specifically, it is an
attempt to identify and express in dollar terms all of the effects of proposed government
policies or projects. While not intended to be the only basis for decision making, BCA can be
a valuable aid to policymakers.

Although conceived more than 150 years ago by the French engineer Jules
Dupuit, BCA saw its first widespread use in the evaluation of federal water projects in the
United States in the late 1930s. Since then, it has also been used to analyze policies affecting
transportation, public health, criminal justice,

DEFENSE, EDUCATION,

and the environment.

Because some of BCAs most important and controversial applications have been in
environmental policy, this discussion of key issues in BCA is illustrated with examples from
the environmental arena.
To ascertain the net effect of a proposed policy change on social well-being, we
must first have a way of measuring the gains to the gainers and the losses to the losers.
Implicit in this statement is a central tenet of BCA: the effects of a policy change on society
are no more or no less than the aggregate of the effects on the individuals who constitute
society. Thus, if no individual would be made better off by a policy change, there are no
benefits associated with it; nor are there costs if no one is made worse off. In other words,
BCA counts no values other than those held by the individual members of society.
It is equally important to note that benefits and costs, even though they are almost
always expressed in dollar terms in BCA, go well beyond changes in individuals incomes. If
someones well-being is improved because of cleaner airthrough improved visibility, for
instancehe experiences a benefit even though his income may not change. Similarly, an
increase in pollution that puts people at higher risk of disease imposes a cost on them even
though their incomes may not fall. Indeed, a person would bear a cost (be made worse off) if
the pollution posed a threat to an exotic and little-known species of animal that he cared
about. Some criticize BCA on the grounds that
FREE MARKET

it supposedly enshrines the

and discourages government intervention. However, BCA exists precisely

because economists recognize that free markets sometimes allocate resources inefficiently,
causing problems such as dirty air and water.

48

How, then, are benefits and costs estimated? While it is generally assumed that they
are measured differently, benefits and costs are actually flip sides of the same coin. Benefits
are measured by the willingness of individuals to pay for the outputs of the policy or project
in question. The proper calculation of costs is the amount of compensation required to exactly
offset negative consequences. Willingness to pay or compensation required should each be
the dollar amount that would leave every individual just as well off following the
implementation of the policy as before it.

Suppose, for example, we wished to evaluate the benefits and costs of a proposal
to control air pollution emissions from a large factory. On the positive side, pollution
abatement will mean reduced damage to exposed materials, diminished health risks to people
living nearby, improved visibility, and even new jobs for those who manufacture pollution
control equipment. On the negative side, the required investments in pollution control may
cause the firm to raise the price of its products, close down several marginal operations at its
plant and lay off workers, and put off other planned investments designed to modernize its
production facilities.
How do we determine the willingness to pay for the favorable effects? First, it
is relatively easy to value the reduced damage to materials. If, say, awnings will now last ten
years rather than five years, it is straightforward to multiply the number of awnings times
their price to get an idea of savings to consumersso long as the price of awnings is not
affected by the policy. If reduced pollution meant more agricultural output, it would be
similarly easy to value because crops have well-defined market prices. In other words, when
benefits involve marketed outputs, valuing them is not difficult.
But what about reduced health risks or improved visibility? Because these are not
things that people buy and sell directly, it is much less clear how to estimate the willingness
to pay (the value of the benefits). Two major techniques are available. One, called the
contingent

valuation

method,

involves

asking

people

directly, via

sophisticated

questionnaires, how much they would pay for reduced health risks or improved visibility.
This approach makes it possible to estimate the benefits of programsfor example, the
preservation of a remote wilderness areafor which other techniques generally are
inapplicable. However, this approach has its limitations. One is that it often requires
individuals to place dollar values on things they are unused to viewing in economic terms. As

49

a result, their responses may not be as reliable as we would like. Also, responses to surveys
are hypothetical; economists prefer values revealed in actual market transactions.
Another approach is to observe how much people are willing to pay for goods that
have an

ENVIRONMENTAL QUALITY

component. For example, houses in unpolluted

neighborhoods sell for more than those in polluted areas. Using statistical techniques to hold
constant the other characteristics of houses and the neighborhoods in which they are located,
it is possible to identify a clean air premium. This provides important

INFORMATION

on the

value to individuals of air quality improvements. A similar approach for estimating how much
people value pollution control and other public policies that reduce health risks is to estimate
how much of a wage premium they are paid to work in jobs that pose health risks. Yet other
techniques infer values from such things as the time and money people spend traveling to and
from desirable recreation sites.
It is generally assumed that cost estimation involves a mere toting up of the
expenditures that affected parties must make, as in our example of the firm controlling air
pollution. As suggested above, however, matters are more complicated than this. Some firms
not initially affected by REGULATION will incur higher coststhose purchasing the product of
the regulated firm, for example. These ripple effects must be taken into account. Or if the
polluting firm closes down some operations rather than purchase pollution control devices, its
expenditures will be zero but the social costs are still positive. In such cases the costs are
borne by employees, shareholders, and purchasers of its output. Unfortunately, techniques for
making these more sophisticated cost estimates are still in their infancy; for this reason,
virtually all BCAs still use direct expenditures as rough measures of true social costs.
Three additional issues in BCA bear mention. First, government policies or projects
typically produce streams of benefits and costs over time rather than in one-shot increments.
Commonly, in fact, a substantial portion of the costs is incurred early in the life of a project,
while benefits may extend for many years (perhaps beginning only after some delay). Yet,
because people prefer a dollar today to one ten years from now (see

INTEREST RATES),

BCA

typically discounts future benefits and costs back to present values. Not only are there
technical disagreements among economists about the interest rate (or rates) at which these
future impacts should be discounted, but discounting raises ethical problems as well. At a
discount rate of 10 percent, for instance, $1 million in benefits to people fifty years from now
has a PRESENT VALUE of only $8,500. This powerful effect of discounting is of concern when
BCA is applied to the evaluation of policies with significant intergenerational effects, such as

50

those pertaining to the prevention of global climate change or the disposal of high-level
radioactive wastes (which will be lethal for hundreds of thousands of years).
A second sticking point in BCA is the fact that the willingness to pay for the favorable
effects of a project or policy depends on the DISTRIBUTION OF INCOME: a billionaire would be
ableand therefore willingto pay more than a pauper for the same improvement in
environmental quality, even though both cared about it with equal intensity. Some critics
dislike BCA because it reduces benefits to pure dollar amounts.

Third, suppose that the aforementioned problems were to disappear, and that
benefits and costs could be easily expressed in dollar terms and converted to present values.
According to modern BCA, a project or policy would be attractive if the benefits it would
produce exceed the costs. This is because, in theory, those gaining from the project could
compensate those made worse off and still be better off themselves. In our factory example,
for instance, those enjoying the benefits of cleaner air gain more than the losses to consumers
who must pay more for the factorys output or to workers whose jobs are eliminated. Thus,
the winners could compensate the losers and still come out ahead. In practice, of course, this
compensation is seldom paid. Therefore, even the most efficient projects create some losers.
This can undermine support for BCA in general and often makes it politically difficult to
enact efficient policiesor, conversely, to block very inefficient projects, whose costs exceed
benefits.
In spite of these sticking points, BCA seems to be playing an increasingly important
role in government decision making. One reason may be that shunning a comprehensive,
analytical approach to decision making simply because it has flaws inevitably pushes
decisions back into the realm of the ad hoc and purely political. While BCA does have very
real shortcomings, it appears preferable to smoke-filled rooms.

SEARCHES RELATED TO: COST ANALYSIS

Cost Analysis

Life Cycle Cost Analysis Benefit Cost Analysis

Cost Accounting

Example

51

Transaction Cost

Marginal Cost Analysis Product Cost Analysis

Analysis

Construction Cost
Analysis

CHAPTER-IV
COMPANY PROFILE

52

COMPANY PROFILE
The origin of Ashok Leyland can be traced to the urge for self-reliance, felt
by independent India. Pandit Jawaharlal Nehru, India's first Prime Minister persuaded Mr.
Raghunandan Saran, an industrialist, to enter automotive manufacture. In 1948, Ashok
Motors was set up in what was then Madras, for the assembly of Austin Cars. The Company's
destiny and name changed soon with equity participation by British Leyland and Ashok
.Leyland

commenced

manufacture

of

commercial

vehicles

in

1955

Since then Ashok Leyland has been a major presence in India's commercial vehicle industry
with a tradition of technological leadership, achieved through tie-ups with international
technology

leaders

and

through

vigorous

in-house

R&D

Access to international technology enabled the Company to set a tradition to be first

with technology. Be it full air brakes, power steering or rear engine busses, Ashok Leyland
pioneered all these concepts. Responding to the operating conditions and practices in the
country, the Company made its vehicles strong, over-engineering them with extra metallic
muscles. "Designing durable products that make economic sense to the consumer, using
appropriate technology", became the design philosophy of the Company, which in turn has
.moulded

consumer

attitudes

and

53

the

brand

personality

Ashok Leyland hasbuilt a reputation for reliability and ruggedness. The 5, 00,000
vehicles we have put on the roads have considerably eased the additional pressure placed on
.road transportation in independent India
In the populous Indian metros, four out of the five State Transport Undertaking
(STU) buses come from Ashok Leyland. Some of them like the double-decker and vestibule
.buses are unique models from Ashok Leyland, tailor-made for high-densityroutes

In 1987, the
overseas holding by Land Rover Leyland International Holdings Limited (LRLIH) was taken
over by a joint venture between the Hinduja Group, the Non-Resident Indian transnational
.group and IVECO. (Since July 2013, the Hinduja Groups 100% holder of LRLIH)
The blueprint prepared for the future reflected the global ambitions of the company,
captured in four words: Global Standards, Global Markets. This was at a time when
liberalization and globalization were not yet in the air. Ashok Leyland embarked on a major
.product and process up gradation to match world-class standards of technology
In the journey towards global standards of quality, Ashok Leyland reached a major
milestone in 1993 when it became the first in India's automobile history to win the ISO 9002
certification. The more comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998
and ISO 14001 certification for all vehicle
manufacturing units in 2002. It has also become the first Indian auto company to receive the
latest ISO/TS 16949 Corporate Certification (in July 2013) which is specific to the auto
industry. For over five decades, Ashok Leyland has been the technology leader in India's
commercial vehicle industry, molding the country's commercial vehicle profile by
.introducing technologies and product ideas that have gone on to become industry norms
From 18 seater to 82 seater double-decker buses, from 7.5 tone to 49 tone in
haulage vehicles, from numerous special application vehicles to diesel engines for industrial,
.marine and genet applications, Ashok Leyland offers a wide range of products

Corporate profile
For over five decades, Ashok Leyland, the flagship of Hinduja Group in India, has
been a major presence in India's Commercial Vehicle industry.

54

The Company's product range spans from 7.5 T GVW to 49T GTW in goods
transport and from 19 seaters to 80 seaters in passenger transport, a host of special application
vehicles and diesel engines.
Served by its own comprehensive R&D base, complemented by collaborations with
global technology leaders, Ashok Leyland has established a tradition of technological

leadership and a strong reputation for product reliability. The history of the Company has
been punctuated by a number of technological innovations, which have since become
industry norms. It was the first to introduce multi-axled trucks, full air brakes and a host of
innovations like the rear-engine and articulated buses in India. In 1997, the Company
launched the country's first CNG bus and in 2002, the first Hybrid Electric Vehicle.
With six manufacturing locations in India and one in Prague (Czech) producing
AVIA range of trucks, the Company has an annual production capacity of 80,000 vehicles and
90,000 engines. Its 2012-2013 turnover exceeded USD 1.2 billion, with international
operations contributing over USD 100 million. The Company's international operations span
over 30 countries in Asia, the Middle East and Africa.
In 2013, in a move that will expand its international footprint, Ashok Leyland signed
a MoU with the Ras AL Khaimah Investment Authority (RAKIA) for setting up a bus
assembly unit in Ras Al Khaimah, UAE.
Committed to Total Quality Management, Ashok Leyland is the country's first
automotive manufacturer to obtain the coveted ISO 9002 certification followed by the more
comprehensive ISO 9001: 1994 certification, QS 9000 (1998) and ISO 14001 (2001). Ashok
Leyland is also the first automobile company in India to receive the world-renowned ISO/TS16949 Certification in 2013. These are major milestones in the Company's TQM journey.
Making all this happen is a team of 12,000 who master the ever-changing
technologies and market environment, in a culture of continuous learning. Employee
participation is central to the all-round gains in internal efficiencies the Company has
achieved as it evolves as a global player in Commercial Vehicles.

55

Eight
out of
ten
metro state transport buses in India are from Ashok Leyland. With over 60 million passengers
!a day, Ashok Leyland buses carry more people than the entire Indian rail network

CORPORAT GOVERNANCE
The Board of Directors and the Management of Ashok Leyland are committed to the
enhancement of shareholder value.
> Through sound business decisions, prudent financial management and high standards of
> ethics throughout the organization
>

by ensuring transparency and professionalism in all decisions and transactions and

Achieving excellence in Corporate Governance by conforming to, and exceeding
wherever possible, the prevalent mandatory guidelines on Corporate Governance and by
regularly reviewing the Board processes and the Management systems for further
improvement.

The company has adopted a Code of Conduct for the members of the Board and senior
management, who have all affirmed in writing their adherence to this Code.

Ombudsman
Another significant step has been the appointment of an Ombudsman to deal with any
references, complaints or grievances about the Company, its employees or its dealings.

56

If the suppliers, employees or customers have any suggestions on governance issues or

grievances or complaints on Ashok Leyland's practices - inclusive of its executives in various
functions - which they feel ought to be raised with the Ombudsman and not with the usual
channels of business, they may do so.

It is advised that the regular business dealings should be through the usual business functional
channels. The Ombudsman will not deal with them under normal circumstances.
The Ombudsman is Mr. T. Anantha Narayanan, a former Executive Director of the Company,
with an excellent understanding of Ashok Leyland as an organization and its functioning,
having been with the company for nearly 30 years.

57

58

MONTHLY PRODUCTION & SALES FOR MAY 2009-07-05

Button of Form

MDV
Passenger

MDV
Goods

LCV

Total

Production
Sales
Domestic
Sales
Exports
Production
Sales
Domestic
Sales
Exports
Total MDV
Domestic
Sales
Production
Sales
Domestic
Sales
Exports
Production
Sales
Domestic
Sales
Exports
Total Sales
Year

May'2014 May'2013 Apr'2014 YTD

Apr'2014
to
May'2014
2079
708
1787
3866
1480
550
1097
2577
224
214
235
459
4774
5119
4846
9620
3890
4732
4366
8256
140
95
127
267
5370
5282
5463
10833
0
66
4
6853
5436
368
5804

58
40
5885
5322
309
5631

13
24
0
6646
5487
362
5849

13
90
4
13499
10923
730
11653

YTD
Apr'2013
to
May'2013
1421
948
401
9827
9067
197
10015

Ashok
Leyland

153
57
0
11401
10072
598
10670

X=x-04

X2

XY

2005

3,12,82

-2

-62,564

2006

3,51,86

-1

-35,186

2012

3,81,72

2013

4,18,60

41,860

2014

4,57,60

91,520

________
10

______________
35,630

_____________
1,92,260

59

60