Differential cost analysis

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A differential cost analysis is the consideration of changes in a cost model as a result of the adjustment of an incomplete set of parameters .

Example:

The operation of a technical system is carried out by 3 employees. X liters of diesel are used to generate electricity per month. The generator was purchased three years ago. There are maintenance contracts for the generator. In addition, there are also conveyor belts, fans, etc.

If a profitability analysis is to be carried out that evaluates whether the system should be connected to a public energy supply, different approaches can be carried out:

Full cost accounting The operating costs of all the systems operated (generator, conveyor belts, etc.), the direct personnel costs and third-party services are actually determined using both a generator and an external supplier, and the results are compared.

Differential cost analysis It is first determined in which cost areas the use of an external energy supplier has an impact (e.g. no depreciation , lower personnel costs for maintenance, no purchase and storage costs for diesel, ...) and these or the cost changes are evaluated.

In complex organizations, the modeling of a full cost accounting can become impossible (in the given example it would be difficult to estimate the effect of the change in the use of personnel on the administrative costs, since the administrative cost share from the use of a generator is usually not recorded separately).

If only a selected set of well-understood or particularly critical cost areas is used when listing the cost elements to be considered, one moves to the area of ​​ABC cost analysis.

If, in addition to the costs mentioned, one also considers the effects of the fact that the employees spend time that they previously spent on the maintenance of the generators with colleagues in the administration - i.e. indirect costs - one moves into the area of ​​TCO analysis.

Differential cost analyzes can be used if:

• an existing complex model is to be used as part of a business study,
• but there is no time or money for the collection of all parameters and
• no reliable standard values ​​(benchmarks) can be set for the unclear parameters.

The differential cost analysis can be used in connection with ABC analyzes and TCO analyzes .