Should-cost analysis (should-cost review)

Should-cost analysis (SCA) is an evaluation of the cost of a product or service that includes a detailed examination of all the factors that contribute to its price. The purpose of SCA is to identify opportunities for cost reduction without sacrificing quality or performance.

SCA begins with a thorough analysis of the product or service's bill of materials (BOM) and a complete understanding of the manufacturing process. The cost of each component and step in the manufacturing process is then estimated, and the total cost of the finished product is calculated. The SCA team then looks for ways to reduce the cost of each component and manufacturing step.

SCA is a powerful tool for cost reduction, but it can be expensive and time-consuming. For this reason, it is often used only for high-value products and services.

Should cost Versus will cost?

There are a few key things to keep in mind when thinking about the difference between "should cost" and "will cost":

1. "Should cost" represents the cost that a product or service *should* cost, based on factors such as materials, labor, and overhead. It's important to note that this cost is not always the same as the actual cost of the product or service.

2. "Will cost" represents the actual cost of the product or service, including all taxes, shipping, and other fees. This cost is usually higher than the "should cost" because it takes into account all of the real-world factors that can affect the price.

3. In most cases, the "should cost" is lower than the "will cost." However, there are exceptions to this rule. For example, if a company is selling a product at a loss in order to gain market share, the "should cost" may be higher than the "will cost."

4. "Should cost" is often used as a benchmark to measure the efficiency of a company's manufacturing and production processes. If the "should cost" is higher than the "will cost," it may indicate that the company is not operating as efficiently as it could be.

5. "Should cost" is also used to negotiate prices with suppliers. If a company knows the "should cost" of a product, it can negotiate a better price with the supplier

Should cost models be parameters?

There is no one-size-fits-all answer to this question, as the appropriateness of using cost models as parameters depends on the specific organization and application. In general, cost models should only be used as parameters if there is a clear and well-defined need for doing so, as they can potentially introduce complexity and confusion if used unnecessarily.

Some factors that should be considered when deciding whether or not to use cost models as parameters include:

-The level of detail and complexity of the cost model. If the cost model is relatively simple and straightforward, it may not be necessary to use it as a parameter.

-The level of agreement and understanding among stakeholders about the cost model. If there is significant disagreement or confusion about the cost model, using it as a parameter may not be helpful.

-The extent to which the cost model is likely to change over time. If the cost model is likely to change frequently, using it as a parameter may make it more difficult to keep track of changes.

Does cost analysis include profit?

The simple answer is no, cost analysis does not include profit. Profit is a measure of financial performance, and cost analysis is a tool for understanding and managing costs. However, cost analysis can be used to help improve profitability.

For example, cost analysis can be used to identify areas where costs are higher than necessary, or where revenue is not sufficient to cover costs. This information can then be used to make changes that improve profitability. Additionally, cost analysis can be used to compare the costs of different options and choose the most cost-effective option.

In summary, cost analysis is a useful tool for understanding and managing costs, but it does not include profit in its analysis. However, cost analysis can be used to help improve profitability.