Cost breakdown analysis

The most common factors among direct cost are labor, raw materials and subcontracting.

[4] Businesses can also combine this strategy with a value chain analysis, which allows price forecasts and hence, quicker responses to changes in the market.

[1] Because of its identifiability, labor typically is one of the most common starting points of manipulation in the hope of cost reduction.

[4] The costs involved with logistics can be further divided into sub-categories, which mainly regard custom clearance, transportation, warehousing and distribution.

For simplicity's sake, these random percentages have been assigned to the six cost drivers of transportation this example entails.

The third largest determinant that drives the costs of corrugated boxes is the population's average nominal income.

Additionally to the materials, expenses for electric energy as well as shipping fees have to be calculated.

[14][15] Parametric estimating (also called parametric formulas) is a mathematical representation of cost relationships, that provide a logical and predictable correlation between the physical or functional characteristics of a project and its resultant cost.In the mathematic model, the dependent variables (cost) are being regressed on the independent variables (cost drivers), which are physical, operational or performance characteristics associated with the project to be estimated.

Additionally to that, this type of analysis avails itself from long-term data collection, that is, in order to create reliable cost relationship models, historical data and frameworks are required, which also have to be applicable to the new cost prediction project.

[14][15][16] Admirers of the parametric estimating technique laud five advantages to other cost prediction methods:[16]