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

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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"

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Cost Modeling

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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

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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

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Cost Modeling

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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

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