Considering the Costs of MUS Interventions

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

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

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

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

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

Often the incremental benefits will exceed the incremental costs.