Question

What factors do you think are important when developing a total cost model? What do you think might be the greatest barriers to developing a total cost of ownership measurement system?

Answer 1

Total Cost Model - It is a model which provides the stakeholder with the information of total costs to be incurred. This helps in making decisions regarding ownership,management,production etc. The type of costs included in the model depends upon the interest of stakeholder as to what kind of decision needs to be made.

Factors Important to develop a Total Cost Model-:

1. Maintenance Costs.( costs related to physical infrastructure i.e repairs,depreciation etc)
2. Recruitment and labour costs.(costs involved in hiring qualified personnel and cost of already existing staff)
3. Emergency costs(costs that are unexpected and maybe incurred in uncertain situations)
4. Reserve Capacity . ( the unused resources that can be used to in case of increased demand)
5. Expected costs( fixed costs i.e. rent and variable costs i.e. raw material etc)
6. Identifying Cost Drivers ( It is important to identify cost drivers because it helps to analyse the elements which can increase or decrease cost)
7. Segmenting of expenses ( the expenses must be segmented so that the types of costs are easily identified in a nutshell)
8. identifying supply chain costs.
9. Assessing environmental costs.

Barriers in developing total cost of ownership measurement system -:

1. Difficult to analyse future costs.
2. Lack of tools and training for assessing costs.
3. Difficult to identify cost drivers.
4. Difficult to assess the environmental damages.
5. Lack of readily available data.
6. Time and Labour intensive process(needs time and efforts)
7. Lack of expert staff for the process.
8. Difficult to identify hidden costs.