# What is the cost-effectiveness

Any economic resources are limited and some of them, such as oil, earth, metal ores, gas, coal - do not play.Therefore, it is important to use resources efficiently.

In the general understanding of economic efficiency is the ratio of costs to results obtained.High efficiency is achieved with an increase in the results with respect to cost reduction.

results of economic activity embodied in products that meet the needs, and the costs directly related to the use of resources.Accordingly, the cost-effectiveness can be determined by the following formula:

Production efficiency = number of units established products, divided by the cost of inputs.

For example, using this formula, you can compare the effectiveness of the use of labor in the two plants, which produce the same products.In the first 15 company employees create 1,200 units of the product, while the second - 25 employees make 1800 units.According to the formula, the efficiency in the first case of 1200/15 = 80 units, and the second - 1800/25 = 72.It teaches that the first enterprise human resources are used more efficiently.

Economic efficiency is total (absolute), and comparative.

overall economic efficiency is equal to profitability.The main indicator of profitability (or profits) is the amount of profit, which falls on unit costs.

comparative economic efficiency is expressed in the ratio of profitability, which achieved certain time intervals, for example, a year or quarter.

In any business the most important economic efficiency of the project.It is expressed in the company's ability to produce as much as possible good quality products at minimum cost and sell these products at the lowest cost.Estimation of economic efficiency of the project consists of several stages:

1) Analysis and evaluation of investment costs - this payment needs of the project in the ground and working capital financing at various stages of its development and investment cycle.

2) Analysis and assessment of current expenses - is preparation of cost-estimates, the definition of the current cost of products or services, profitability, capital productivity, profitability and financial payback.

cost-effectiveness can be assessed as of each resource separately, and all the resources in the amount of.

If the denominator of the effectiveness of this formula we substitute the number of employees who participate in the production, we obtain a measure of productivity.

If you take into account the number of units of capital used (eg, machine tools), you can calculate the index capital return.And if used as capital tracts of land for agricultural production, then we will focus on calculating the yield (ie the quantity of product was collected from one hectare).

To evaluate the effectiveness of all the productive resources, it is necessary to have indicators of the monetary measure of all the resources that are folded, we get the overall cost.

Total production efficiency depends on the maximum use of borrowed resources.Firms that use resources better than their competitors will not be able to recoup their costs of the price, which was established in the market.Accordingly, they will be forced to withdraw from this sector of production.That is, the economic efficiency is provided by a greater degree of competitive market environment.Entrepreneurs are forced to seek ever new ways to improve the effectiveness of their projects by increasing the efficiency of their production resources and reduce overall manufacturing costs.