Parametric cost estimation based on activity-based costing: A case study for design and development of rotational parts

Li Qian and David Ben-Arieh

International Journal of Production Economics, 2008, vol. 113, issue 2, 805-818

Abstract: Modern manufacturing systems are facing a globally competitive market to an extent not experienced before. This competitive pressure forces manufacturers to produce more products with shorter life span and better quality, yet at a lower cost. To succeed in this environment, manufacturing firms need to have an accurate estimate of product design and development costs. This is especially important since the shorter life span of products accentuates design and development stages. This paper presents a cost-estimation model that links activity-based costing (ABC) with parametric cost representations of the design and development phases of machined rotational parts. It also presents several parametric models applicable at design time by using parts' feature geometry. A comparison of various parametric cost models is provided, reflecting on the accuracy of the various approaches. There is an evident trade-off between the details embedded in the parametric representation and the cost-estimation accuracy. Thus, more detailed methods, which can be used later in the life cycle of the product, are more precise, while these methods that can be used as early as design time have a higher but acceptable error rate.

Date: 2008
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