Finance
Cost Benefit and Cost Effectiveness Analysis of DSM Measures
This section is based on the financial and economic issues related to DSM
measures. It is divided into three sub sections namely Cost Effectiveness, Cost
Benefit Analysis and Financing Instruments of DSM measures.
The importance of this section is highlighted in the fact that DSM measures require
huge investments in terms of monetary as well as non monetary resources which usually
have alternative use. These investments need to be justified by the benefits so
derived otherwise they can turn out to be costly to the society at large.
This section explains how this justification can be made i.e. how can the costs
and benefits be analyzed, and how resources can be employed in the most efficient
program. This section also spells out what are the various financing options available
for DSM measures once the most appropriate one has been chosen.
As mentioned above, this section consists of three subsections which have been covered
in four chapters. First, is the introductory chapter which briefly explains the
terms Cost effectiveness and Cost Benefit Analysis and highlights the difference
between the two, along with explaining the need for carrying out these analyses.
It also gives a brief overview of the kind of financing options available for DSM
measures. The next two parts look at Cost effectiveness and Cost Benefit analysis
individually and in much detail. Each of the two chapters is structured as follows.
It begins with a general meaning and discussion of the term (cost effectiveness/cost
benefit analysis, as the case may be). Then, the general procedures to do the analysis
are explained along with explanations of the meanings and definitions of all terms
used. Finally, the procedures are explained in context of DSM measures.
Cost Effectiveness is usually done for a short time horizon and its basic purpose
is to help choose the program/ measure which is the most cost effective i.e. from
the given set of alternatives, all giving the same output, the one that requires
the least cost.
Cost benefit analysis on the other hand takes a long term perspective and helps
choose the program which has the highest net (economic) benefits (where net benefits
can be defined as benefits - costs).
This section describes the procedures for carrying out these analyses in detail,
spelling out the different techniques that can be used. Furthermore, it discusses
in detail which of these techniques are best suited for DSM measures taking into
account the different consumer subgroups of the society who get affected by these
programs/measures.
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