Cost and Optimization in Government

By Aman Khan | Go to book overview

long run, properties of cost functions, and cost estimation. In the short run, costs of input factors such as rent, interest payment on debt, and depreciation on structure are fixed. Since these input factors have to be provided regardless of the quantity produced, the payments for these factors of production remain constant. As such, they are called fixed costs of production. In the long run, all inputs are variable meaning that all costs are variable. As a result, costs in the long run are treated more as a planning horizon than as an operating cost for an organization.

On the other hand, the basic idea behind cost estimation is to estimate the relationship between costs and the variables affecting these costs. This chapter has presented three of the most widely used cost estimation techniques, namely the graphical method, the high-low method, and the regression method. Of these, the regression method is considered more rigorous and analytically more sophisticated than either the graphical or the high-low method. The reasons for this is that (1) it utilizes all the available information in a data set, (2) the estimated parameters are more precise than those obtained by the other two methods, and (3) the estimated parameterd can be tested for their statistical significance. Perhaps the greatest advantage of the regression method is that once the parameters have been estimated, they can be tested for (statistical) siginificance. Not only that, they can be used to forecast the costs of providing services in the future.


Notes
1.
A. Khan, "Forecasting A Local Government Budget with Time-Series Analysis." State and Local Government Review. Vol. 21, Fall 1989: 123-129.
2.
W. Gilchrist, Statistical Forecasting. New York, NY: John Wiley and Sons, 1976.
3.
D. G. Bails and L. C. Peppers, Business Forecasting: Forecasting Techniques and Application. Englewood-Cliffs, NJ: Prentice-Hall, 1982.
4.
R. S. Pindyck and D. L. Rubinfeld, Econometric Models and Economic Forecasts. New York, NY: McGraw-Hill, 1991.
5.
D. C. Montgomery and L. A. Johnson, Forecasting Time-Series Analysis. New York, NY: McGraw-Hill Book Company, 1976.
6.
G. E.P. Box and G. M. Jenkins, Time Series Analysis: Forecasting and Control. San Francisco, CA: Holden-Day, 1976.

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Cost and Optimization in Government
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Preface ix
  • Acknowledgments xii
  • Chapter 1 Basic Cost Concepts 1
  • Chapter 2 Cost Behavior 23
  • Notes 59
  • Chapter 3 Cost Analysis 60
  • Notes 105
  • Chapter 4 Cost Accounting 106
  • Notes 146
  • Chapter 5 Classical Optimization 148
  • Chapter 5 Classical Optimization 148
  • Notes 190
  • Chapter 6 Network Analysis 191
  • Notes 213
  • Chapter 7 Mathematical Programming 215
  • Notes 251
  • Chapter 8 - Games and Decisions 253
  • Notes 279
  • Chapter 9 Multicriteria Analysis 281
  • Chapter 9 Multicriteria Analysis 281
  • Notes 305
  • Chapter 10 Productivity Measurement 346
  • Chapter 11 Quality Control 348
  • Notes 373
  • Chapter 12 Besides Cost and Optimization 375
  • Notes 381
  • Bibliography 383
  • Index 389
  • About the Author 395
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