The EXA Way Supplement

Should Cost Model

Page 348

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Consider a product enhancement project that provides:

·      New functionality

·      Sustained operations through obsolescence management

·      Improved performance, longevity, and reliability

·      Lower overall cost of ownership and operation

The project work will include:

·      Replacement of obsolete hardware components

·      Addition of new hardware components

·      Integration of replacement and new hardware components with the legacy hardware

·      Major upgrade to the master control software module

The engineering process will follow a typical V-development model.

The Should Cost Model for such a project might look like this.  

1. Internal Costs:
   • Direct Labor: Engineers: $800k
   • Technicians: $500k
   • Project Managers: $700k
     • Subtotal $2 million
   • Indirect Labor:
     • Support Staff: $300k
     • HR: $100k
     • IT: $100k
       • Subtotal: $500k
   • Materials and Supplies:
     • Hardware Components: $1 million
     • Software Licenses: $500k
       • Subtotal: $1.5 million
   • Facilities:
     • Office Space: $200k
     • Manufacturing/Assembly Areas: $100k
       • Subtotal: $300k
   • Equipment and Tools:
     • Specialized Machinery: $250k
     • Software Tools: $150k
       • Subtotal: $400k
   • IT and Services:
     • Network Infrastructure: $300k
     • Cloud Services: $300k
       • Subtotal: $600k
   • Administration:
     • Management: $200k
     • Legal: $100k
     • Finance: $50k
       • Subtotal: $350k
   • Business Development:
     • Marketing: $100k
     • Sales: $50k
     • Customer Relations: $50k
       • Subtotal: $200k
   • Total Internal Costs: $5.85 million
2. V-Development Model
   • Requirements Analysis & Design Costs: $500k
   • Development and Implementation Costs: $1.5 million
   • Testing and Integration Costs: $700k
   • Maintenance Costs: $300k
   • Total V-Development Model Costs: $3 million
3. External Costs:
   • Subcontractor and Supplier Costs:
     • External Manufacturing: $1 million
     • Specialized Components: $500k
       • Subtotal: $1.5 million
   • License Fees and Royalties: $500k
   • Consultants and Professional Services
     • External Expertise: $300k
     • Legal Services: $200k
       • Subtotal: $500k
   • Insurance and Entertainment
     • Project-related Insurance: $100k
     • Client Relations: $50k
       • Subtotal: $150k
   • Total External Costs: $2.65 million
4. Joint Ventures and Parallel Arrangements
   • Investments and Transfers: $700k
   • Offset Obligations and Commitments: $300k
   • Total for Joint Ventures and Parallel Arrangements: $1 million
5. Risk Management
   • Market Risks: $250k
   • Technology Risks: $250k
   • Operational Risks: $250k
   • Total Risk Management Funds: $750k
6. Financial Considerations
   • Amortization and Depreciation: $400k
   • Amortization and Depreciation: $400k
   • Total Financial Considerations: $500k
7. Taxes and Duties
   • Corporate Taxes: $300k
   • Duties and Government Fees: $100k
   • Total Taxes and Duties: $400k
8. Certifications and Training
   • Accreditations and Certifications: $100k
   • Employee Training Costs: $50k
   • Total for Certifications and Training: $150k
9. Financial Costs
   • Cash Flow Costs: $300k
   • Financing Costs: $200k
   • Currency Exchange Costs: $100k
   • Write down Costs: $50k
   • Total Financial Costs: $650k
10. Overheads and Profit
    • Corporate Overheads: $700k
    • Profit Levies: $500k
    • Total Overheads and Profit: $1.2 million

Grand Total Estimated Project Cost: $16.15 million

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***Disclaimer: The information presented in this supplement is for information purposes only. It is not intended, and may not be used, as legal or business advice. The author makes no representations of warranty, accuracy, or fit for purpose of the information herein. Use at your own risk.