How to build a cost model (from our help file FAQ)

A step-by-step process for cost model building is given after a discussion of the cost model structure and data required. This is followed by an explanation on how to use and link design and task variables to develop complex cost models.

• Description of cost model
• How to build a cost model
• Using variables and equations

Description of the Cost Model

• A product definition
• A design model with global variables and equations
• Multiple tasks or activites
• Task model (with equations) for each task if required
• Multiple cost elements for each task that define use of resources such as materials, labor, expenditures, tooling, machinery, investments.

Product Definition

 Product cost factors such as manufacturing duration, production volume, indirect overheads, and fiancials are defined for the product. A design model must be linked to a product, even if one is not used. (Hint: Attach a dummy design model if one is not required).

 Design Model

 Use of design model variables is optional but one must be linked to a product. A design model is used to calculate variable values using equations for use in product, task, and cost element cost factors.

You can directly link design model variables to product duration, volume, and profit rate or price. Links to tasks and cost elements are made by linking the design variables to task variables in the task model. Using such links, you can control complex cost relations throughout your model by changing a few variables in the design model. (see discussion later on using variables and links)

 Tasks (Activities)

 Tasks or activities are used to define work done at a work center as a product flows through a manufacturing line. Examples are: molding, painting, packing, processing a form, design task, etc. A task generally involves one or many cost elements. Tasks are defined by cycle time, whether one time, product scrap rate, task duration (can be independent of product manufacturing duration), and scale factor/repetitions.

For flexibility, DeccaPro allows you to make cost element cycle times independent of task cycle times.

 Task Models

 You can define task variables and related equations for each task similar to that for a design model. For example a painting task can have variables for area, number of coats, paint quantity, painting time, etc. You can use the area value in equations to define the other variables. Thus, by changing the area value, you automatically change the other cost factors.

You can link task variables to design model variables. For example the variable area in the painting task can be linked to a design model variable. Then, when the design model variable is changed, the task variables are also changed using the equations.

 Thus, many tasks can share common variables in the design model through links. For example the area value in the design model can also be linked to area in a task called "Install Drywall."

(see discussion later on using variables and links)

 Cost Elements

 Cost elements are defined for each task. They include materials, labor, expenditures, tooling, machinery & equipment (M&E), investments. These are considered resources that are used in the performing the tasks or activities.

Resource use flow through tasks to the product cost objective. This model gives you the ability to build a true activity based costing model for a product. You can minimize use of overhead factors and define all tasks that go into making a product. The result is versatile, accurate costing using detailed models with the ability to conduct what if analyses.

 Cost Model Building Process

• Select Costing from Applications or the tool bar after opening Deccapro. The previously used cost model is shown.
• To create a new cost model press the lookup button for product on the Product tab.

You have two choices:

1) Insert or add a new product

When adding a new product, define the product and remember to select a design model to link. Make sure to define the costing type: batch, continuous, or job as well as the default units. You cannot change these later.

2)Copy or clone an existing product, rename it, and select it for use.

During copying, a copy of the linked design model is also copied with a new name.

 At this time do not spend much time in fine tuning product values and links to the design model.

• Select the new model. You are returned to the Product screen.

• At this time you have a choice of working with the Product window or the Tree view. Choose whichever one works best for you.

• If you need to use design variables, this is a good time to do it. You may want to enter product dimensions, volume, weight, material ratios & quantitities, cycle times, scrap rate, target price, proudction volume, manufacturing duration etc, all related by equations if necessary. For Quick Entry you can flag variables as "use in question." 

• Now edit the product and enter values as necessary. Add links to the design model as required. Try to minimize overhead factors and define them as tasks for more accurate costing.

• Go to the task tab and define tasks or activities. A task is stuff done at a workstation or a given location. You have two choices:

•  1) Insert a new task.

• Enter the name, and other factors. The one time option cannot be changed later in the change task mode. Because you can independently define cost element factors, task cycle time or line rate may be irrelevant. Enter a dummy value and make sure the number of task lines turn out to be one.

  You can enter task variables and make links at this time. We recommend that you make links in the next step, after all tasks are created.

• 2) Drop a new task "From Standard" if you have a library of standard tasks.

•  The task, associated task variables, and cost elements are all added to the product. You may want to rename the task as well as check that all variable links to the design model exist. Make sure all linked variable units match.

• If necessary, go to the variables tab, press the Define button and enter task variables. Then go back to the tasks and make links to task cost factors. Note that you can link a task variable to a design variable.

• You can now define links between tasks by pressing the Task Sequence button on the Tasks tab. This is required only if you are interested in cumulate scrap rates for batch and continuous processes.

• Now define cost elements for each task on the Elements tab. Use task variables as necessary. You can use the Recalc button to see how costs add up as you add cost elements to each task. Go to the Reports and Analysis tab to see cost details.

•  Try to include your overhead activites in the appropriate task. For accurate costing this is better than using the optional percentage of costs approach at the product and cost element levels.

• Remember that you can only define one time elements for one time tasks.

• When you define variables they can be flagged for use in Quick Entry. If so, you can use the Quick Entry button to change variable values. Avoid adding variables to Quick Entry if they are defined by formulas and not numerical values.

• Voila! you now have a cost model. Have fun with it. DeccaPro makes it easy for you to play around and see what affects you cost and profitability.

Using Design and Task Variables to Model Costs

Design model variables are defined for a product. These can be linked to key product cost factors. Each task can have it's own model consisting of task variables and equations. Task variables can be linked to Design variables. So many tasks can share the same design variable value. This is analogous to the use of task "subroutines" with passed arguments from the design variables.

In the above example prouduct dimensions, quantity, scrap rate, and tooling costs are calculated in the design model. These variables are linked to the task variables and to task cost factors such as cycle time and scrap rate. Task variables are then used to define cost elements such as material quantity per part, etc.

You can also specify that certain variables (from Design and tasks) appear on a Quick Entry screen for convenient update. Thus by changing part dimensions in the Quick Entry you can propagate changes across the cost model to generate accurate cost estimates.

During parametric analysis, you can give up to 8 values to a design model variable and plot proudct cost/unit profit/total profit versus the design variable. For example you can vary part length and see how it affects costs. Using the equations models you can make any cost factor a function of the part dimension.