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Definition and Feature

A Cost Model is a mathematical model that needs parametric equations for estimating the costs of a product. It is typically necessary to get approval to proceed for a business plan or budget or financial planning. Initially, these equations were performed manually but it has become computerized for a long time now. The algorithm processes, depending on the product or project, are sometimes standardized or sometimes proprietary. Also standard spreadsheets are often used for simple models.

Usually, the models work through a way where the inputs of parameters are given of the product or project under query. Then it provides the necessary outputs of requirements that are needed for cost and time. Also some of the models only focus on estimating the project cost. Better attention is always needed for the development of any product or project through the estimation of resources necessary for that very product. There are other models more accurate that provide the cost of equipments needed for a project. Cost modeling practitioners often are known under the name of Cost Estimators, Parametric Analysts etc.

Cost Modeling applications include these categories-

  • Construction

  • Manufacturing

  • Software Development and

  • Product Development

There are a few ways through which one can plan a cost model-

  • Data gathering is the first and the most important phase for a cost model. One has to collect the particular data relevant for the particular industry and the pricing history as well. The external data and economic indicators are as important as the internal data and this can influence the commodity price.

  • Data preparation through removing and replacing missing data or standardize the data is the next step once the data is gathered.

  • Through an accurate Model building and validation technique a prediction can be made on the commodity cost through a time window.

  • In order to deploy the model built in the previous step and to have a forecast or prediction over the commodity price by manipulating the key variants found in the previous step it is important to make a Dashboard.

Through these steps one can achieve a perfect Cost Modeling scenario. 

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