PPBS is a way to improve the methods used in planning, programing, budgeting, and evaluating Federal programs. Careful analysis of proposed expenditures and investments are an explicit part of the PPB system. The process of examining various alternatives in order to assure efficient and effective allocation of resources is known as cost analysis. Cost analysis is concerned with investment decisions, both present and future. This paper presents a concept of cost analysis by starting with a very simple problem in three parts. The basic theory of cost analysis is then explained. Finally, cost analysis is applied to an educational problem. (Author)