The first in a three-part series on Competitive Cost Analysis, this note provides an introduction to cost drivers and a conceptual framework for thinking about the different types. It also provides some general guidance on developing cost models.
Competitive cost analysis, a method for analyzing the cost structure of two competing companies, represents a strategic application of cost modeling. The first note in this three-part series on competitive cost analysis identified the basic conceptual framework and principles for developing accurate and comprehensive cost models with four categories of cost drivers -- design, facility, geography, and execution. The framework coupled with cost-modeling techniques can help the operations analyst/consultant achieve the quantitative rigor required to ensure solid operations decisions at the strategic and tactical level. This note provides a general discussion of four specific tools that will further assist in analyzing cost drivers for competitive analysis. These techniques include teardown analysis, public data sources, scale curve and utilization curve. The final note in this three-part series will provide step-by-step guidance on estimating scale curves and calculating utilization impact.
An understanding of the factors that drive the microeconomics of a business provides the insight needed for strategic and tactical improvements in operational effectiveness. Competitive-cost analysis, a method for analyzing the cost structure of a company, represents a strategic application of cost modeling. The first note in this three-part series (UV3521) identifies the basic framework and principles for developing accurate and comprehensive cost models. The second note (UV3558) discusses specific techniques that will further assist in analyzing cost drivers for competitive analysis. This final note provides detailed guidance on calculating scale curves and utilization effects.