Cost driver analysis

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Cost Driver Analysis



Definition

A cost driver is an element that causes cost to be

incurred. The cost of most items can be modeled

by a major cost driver. The item can then be

looked at by its cost per cost driver.


Example

The cost driver of a casting is its weight.Castings can then be analyzed through their cost per pound.


Why do a cost driver analysis?

Understanding the cost drivers for a type of items is important as it tells you what affects cost the most.

This is the starting for cost reduction. Focus your effort on these cost drivers as they will lead to the largest savings.Can you reduce the cost driver for a given part? It will reduce its cost. For example, reducing the weight of a casting will reduce its cost.


Once you understand your cost drivers do the following:• Plot all the items within a

category in a cost vs cost driver chart

• You should see a trend in the data. Cost should increase relatively to the cost driver

• Look for outliers (high and low)

• Items that are above the cost trend have something that makes them more expensive: a design difficult to manufacture, a different material, etc. Look into these parts and eliminate what makes them different, it will reduce their costs.

• Look into the parts that are under the cost trend as there is something special about them that makes them cheaper. Learn from these parts to create best practices.

The analysis


• For more information on “Cost Driver Analysis” and other Cost Reduction techniques, visit

www.aheadconsulting.com

• Use to analyze your Cost Drivers

Cost driver analysis

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