I need to write a cost benefit analysis on the production of hand sanitizers. What is a "cost analysis" and a "cost profile"?

Expert Answers
kipling2448 eNotes educator| Certified Educator

A cost-benefit analysis (which is similar to a cost profile) involves an examination of all the identifiable factors or variables that must be considered when determining whether it makes economic sense to pursue a certain approach.  In other words, is there room in the identified market for another product intended to address that market?  Will the costs of production and distribution be low enough to sell the product at a competitive price?  Are there research and development costs?  Basically, you're asking whether it makes financial sense to go forward with a business idea.  Development and production costs might be reasonable, but transportation costs could prove prohibitively high.  And, what are the anticipated expenses required for marketing the new product?  What kinds of equipment purchases will have to be made to produce the new product, or what kinds, and at what costs, of modifications to existing equipment will have to be made? Will employee retraining be a factor and, if so, at what cost?  Answering these questions is all a part of conducting a cost or cost-benefit analysis.  A cost profile, similarly, involves an examination of all of the anticipated costs associated with a particular project.  What are the costs associated with each phase of a manufacturing process? What are the distribution challenges?  What are the marketing expenses, etc.?

A cost benefit analysis specific to hand sanitizers wouldn't differ markedly than from other products.  There are a number of such products already on the market, so a determination would have to be made about the challenges of breaking into that market, which would primarily involve marketing strategies.  What are the ingredients in the product, and what are the challenges of securing stable supplies of those ingredients?  There are soap and alcohol-based hand sanitizers available.  Which type is being contemplated?  Is the market commercial use or consumer use?  In other words, is the company in question contemplating selling to individual consumers in stores, or is the plan to sell in bulk to suppliers for use in public restrooms?  Each involves different packaging requirements as well as vastly different markets and customer bases.  

When preparing a cost benefit analysis specific to hand sanitizers, questions to be considered include the costs of materials, including containers and other packaging material, labor costs associated with the product's manufacturing and distribution (the latter includes fuel costs), marketing expenses, especially when the retail market is the target, and compliance with applicable government regulations.  The U.S. Government Food and Drug Administration regulates the marketing of hand sanitizers and is on the look out for fraudulent advertising, as well as for the negative ramifications of the excessive use of anti-bacterial hand cleaners, abuse of which is facilitating the evolution of anti-bacteria-resistant strains of germs.  A cost benefit analysis would need to include an assessment of the costs and administrative challenges involved in complying with federal laws.

Conceptually, there is nothing complicated about a cost benefit analysis.  It really comes down to the logical question of whether it makes financial sense to proceed with a certain line of business.  The details, however, can be very complicated.  Among the URL links provided below is one for a template for cost benefit analyses prepared by the University of Pennsylvania.  As home to the most prestigious business school in the country -- the Wharton School -- it might be a good idea to look it over.