Introduction to Cost Modeling, Template Overview for ...
Introduction to Cost Modeling, Template Overview for Performers
ARPA-E Tech-to-Market
February 12, 2014
Outline
Context for Cost Modeling
? Motivation, Definitions, and Examples
Template Description
? Scope, Overview, Worksheet Details
Final Remarks
February 18, 2016
Cost Modeling
1
Part I
Context for Cost Modeling
? Motivation, Definitions, and Examples
Template Description
? Scope, Overview, Worksheet Details
Final Remarks
February 18, 2016
Cost Modeling
2
Cost & Value
Production cost (necessary but not sufficient by itself)
+ Willingness to pay (customer value) Value creation potential of product
WTP
+
$
Cost
Value Created
Price
Consumer Surplus
Producer Surplus (Profit)
February 18, 2016
Cost Modeling
3
Economic Modeling for Technology
Full Business Financial Model
Cash flow, dynamics of ramping production and varying sales, investments timing
Similar information for other projects
competing for resources decision-making
Production / Operation Cost Model
Determine resources (and $$) required for
at-scale production/operation
Tabulate material/component flow, labor & energy use, equipment, etc
Basic Materials & Process
Bill of Materials (BOM) ? list of "ingredients"
Simple block diagram of production steps
Most performers aim for basic form of "Production Cost Model"
February 18, 2016
Cost Modeling
4
Cost Modeling Enables Research & Development
Integrates calculations together for
holistic consideration
Identify cost drivers steer
research
Communicate results with
stakeholders
? Internal: R&D, Management, Marketing ? External: Industry Advisors, Investors,
Customers, Licensing Partners
February 18, 2016
Cost Modeling
5
Modeling Benefits, Despite Uncertainty
Possible concern:
"It's too early--there is too much uncertainty to calculate exactly how profitable this company/product would be."
Modeling still beneficial:
$
? Make uncertainties explicit
? Identify most valuable improvements
? Develop targets, metrics
? Bound with theoretical limits
? Create thought framework for reducing uncertainties
+ WTP
Cost
February 18, 2016
Cost Modeling
6
Example Techno-Economic Analysis
Wave Energy Converters
Cost ($/kWh)
0.50
0.4P5 roposal 0.09 0.40 ? Reduce buoy cost by order of magnitude 0.35 0.12 0.30
00..22D05 iscovery 0.17 0.15 ? Buoy contributes small portion of overall 0.10 cost 0.05
0.00
Opportunity
? Enhance wave sensing boost output, achieve competitive cost of electricity
(Courtesy of Sea Engineering, Inc.)
February 18, 2016
Cost Modeling
7
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