COST

Determining the cost of a product, service, and so forth, involves calculating a combination of three variables: investment, implementation, and operations.

The investment costs are the initial monies invested in the product or service to get it started, such as buying hardware. Implementation costs are costs incurred while getting the product or service implemented, such as labor. Operating costs are recurring costs, or those needed to keep the service or product available and ongoing.

Knowing the costs of a product or service enables calculating other formulas for a cost/benefit study, calculations that include the payback period and net present value.

for Determining the Cost of a Product or Service

• Exactly define the product, service, and so on.
• Determine the elements that comprise each of the major cost categories (investments, implementation, and operating costs).
• Calculate the annual or cumulative costs.
  • For annual costs:
    
    
  • For cumulative costs:
    
    Σ(Investment and Implementation Costs) + (Number of Years * Yearly Operating Costs)
    
    Where Σ means the summation of