Twelve steps to better cost analysis

What does the conduct of an accurate total cost analysis involve? And how should teaching be arranged to teach this in a good way? These questions are answered in a doctoral thesis recently presented at LiU.

Björn Oskarsson, researcher at Linköping University. Björn Oskarsson had been teaching at LiU for many years, when his interest in research was attracted. Photo credit: Mikael Sönne

Simple question, tuff answers

“What does it cost?” This question accompanies most decisions in which companies and organisations choose between alternatives. But even though the question is easy to pose, it may be highly complicated to carry out an accurate total cost analysis.

The difficulties include such issues as how to determine the lifetime of investments, how the costs are affected by the alternatives available, and how reliable the information on which the calculations are based is. Cost analyses that are below par, or even completely wrong, lead in turn to the risk that decisions are taken on very flimsy grounds.

Björn Oskarsson, researcher at Linköping University.Björn Oskarsson in front ot the covers of previous dissertations.

In his doctoral thesis, Total Cost Analysis in Logistics: Practical Execution, Learning, and Teaching in Higher Education, Björn Oskarsson investigates not only the true extent of total cost analyses, but also how teaching in the topic at university level should be arranged. He has based the study on extensive literature studies and interviews with teachers and students at four institutions of higher education.

“Cost analysis is a very common procedure, but remarkably little research has been carried out in the field. This is true both for the actual analysis methods, and for how they are taught”, says Björn Oskarsson.

Process in 12 steps

The thesis describes total cost analysis as a structured process comprising 12 steps, each of which has its own challenges. It is, for example, necessary to understand the preconditions of the decisions that are to be taken, to have relevant knowledge of the topic, and to adapt the calculations to the current situation. It is equally important to take a critical approach, and be able to question the data used to support the decision.

The second part of the thesis deals with teaching methods, and arose from Björn Oskarsson’s many years of experience as a teacher. He has often discussed with colleagues the best way of teaching cost analysis.

“Even though we taught all about the models and equations on the course, the students couldn’t quite master the methods in real-life situations. They often lacked a critical mindset, and the ability to understand a particular system and adapt the analysis methods to it. It was this insight that inspired my research”, he says.

Avoiding expensive mistakes

What is crucial for successful teaching is that it stimulates the students and creates commitment. It must be experienced as authentic, and the students must feel that it reflects the future professional life for which they are preparing. Björn Oskarsson recommends using case studies based on true experiences, together with simulations that demonstrate the effects of various decisions, and projects commissioned by companies.

“What’s important is to give the students a foundation on which they can construct their own understanding. As teachers, we can create the conditions required for learning, but the learning process is something that the students themselves must do”, says Björn Oskarsson, who is quick to point out that much of the teaching at LiU already follows this principle.

The conclusions of the thesis support the idea that teachers should design their teaching such that students are prepared for their careers by acquiring increased knowledge about cost analysis, which enables better decisions to be taken. This reduces the risk of faulty decisions that may be expensive for both organisations and companies.

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