Cost-based Methods Research Articles

The Relationship between Cost Analysis and Program Management

Abstract Cost analysis is often viewed as applying basic principles and cost methodologies to determine total system cost. These finished estimates then flow into a decision making process and the cost estimator leaves the stage. Reality shows that the cost estimator is actually one of the main contributors to the decision making process. Our introduction to this special issue explores the areas where cost estimating plays a major role in program management in areas beyond the normal program estimate. We have included articles that show the key role cost estimators can play in source selection strategies and evaluation; cost of delay analysis for management decisions, earned value management methods to predict program costs; decision criteria to rank competing projects that complement traditional cost-based methods; and a new methodology for determining research and development budget profiles.

Corporate environments and international transfer pricing: an empirical study of China in a developing economy framework

This paper investigates the international transfer pricing methods adopted by multinational corporations (MNCs) in China and how their choices are affected by their specific corporate attributes in the context of the business environment in China. Empirical test results based on structured interviews indicate that MNCs having a local (Chinese) partner in management tend to adopt market-based transfer pricing methods. The influence of local partners on the choice of transfer pricing methods is modified by the impact of the source of foreign investment, as the analysis reveals that US-sourced MNCs are more likely to use cost-based pricing methods for international transfers. The influences of these two variables on the choice of transfer pricing methods are significant both directly and interactively. There is also some evidence that export-oriented enterprises are more likely to adopt cost-based transfer pricing than those aiming at China's domestic market. By providing empirical evidence on the impact of key corporate attributes on transfer pricing which have not been studied by prior research in the context of a developing economy, this research contributes to a more comprehensive understanding of transfer pricing in developing countries.

Cost-Effective Allocation of Research Funds for Emerging Technologies

Developers of emerging technologies, and the agencies who fund them, need an alternative to traditional cost-based risk prediction methods to help them predict how the costs of their technologies might change under future deployment scenarios. Often the only data available for predicting risk are the limited but complex data generated by field testing emerging technologies in the prototype phase of development. This paper presents a conceptual framework for evaluating cost and performance constraints of emerging technologies; the framework can be used to prioritize the allocation of research and development funds for the development of such technologies.

Unbundling of transmission and ancillary services. II. Cost-based pricing framework

For pt.I see ibid., vol.12, no.2 (1997). This paper presents a systematic framework for pricing transmission and ancillary services in competitive power markets. This framework is based on the recovery of fixed and operating costs, and it meets the traditional revenue requirements. It is practical, feasible, easy to implement, and to regulate. It can be implemented with minimum transition cost. This network flow-dependent and nondiscriminatory framework is based on the decomposition approach presented in Part I of this paper. This decomposition forms an essential part of the proposed framework for usage-based recovery of the fixed and operating costs. The transmission system related fixed cost component is recovered from all transactions based on percentage utilization of the transmission system equipment. The charge is based on the actual network power flows. The ancillary service charge for a given transaction can be computed as the sum of the costs incurred at secondary generation for compensating the imbalance caused by that specific transaction. The path providing function of the transmission grid is viewed as a true monopolistic service, its pricing is cost based, and charge for its use is usage based; the generation based ancillary service supply can be made competitive, its pricing is market based, and charge for it is usage based. A global overview of the proposed pricing strategy is analyzed in the context of other alternatives, especially cost-based methods. A numerical example on a five-bus system is given to illustrate the use of this pricing strategy.

Factors motivating transfer pricing choices of Japanese and United States transnational corporations

Contrary to prior findings, Japanese transnational corporations (TNCs) seem to have changed their preferences for international transfer pricing methods from cost-based to market-based and negotiated methods. Use of negotiated methods is supported by the Japanese preference for collectivism and consensus. The significant risk of an audit of U.S. TNCs by both the U.S. Internal Revenue Service and the Japanese National Tax Administration is at odds with both tax authorities' official policies, which theoretically accord cost-based methods equal standing with market methods. In practice, however, cost-based methods trigger IRS audits more than twice as often as other methods, suggesting that the IRS acceptance o f the “best method” in reality is acceptance of market methods and negotiated methods based on market prices. Japanese TNCs consider segment profit to be more important than all other measures when evaluating managers, regardless of station. When choosing a pricing method, performance evaluation concerns are significantly more important to Japanese TNCs than to U.S. TNCs. U.S. TNCs employ various practices to counter the internal distorting effects of transfer pricing practices but use pricing transfer methods that provide distorted results and increase audit risk. Finally, it appears that effective, rather than statutory tax rates, might guide TNC behavior on income shifting. Increased disclosure seems necessary to deter these and other transfer pricing manipulations.

Economic Aspects of Clinical Decision Making: Applications in Patient Care

An overview of the techniques of cost-effectiveness analysis as they apply to clinical decision making is presented, and ways that the techniques can assist decision makers in a limited-resource environment are identified. Most applications of cost-effectiveness analysis concern a problem in which a choice must be made between different ways of accomplishing a given clinical goal, such as treating a particular illness. As such, these applications involve comparisons between competing and mutually exclusive strategies and attempt to identify those strategies that provide the greatest benefit for a given set of resource constraints. The need for these analyses continues to increase as a consequence of the growing importance of rate-based and capitated (as opposed to cost-based) methods of paying for patient care. Despite this growing need, most decision makers will not want or be able to conduct such analyses on a regular basis; they may nonetheless benefit from formal studies of clinical problems conducted and reported by others. The validity and quality of these reports, however, need to be carefully assessed before decisions can be based on such information. Properly done, cost-effectiveness analyses can be powerful tools in clinical decision making, particularly as the concern with providing quality care in a cost-constrained environment continues to grow.