Establishing activity-based cost models to aid cost estimation at early design stage

Activity-based costing (ABC) is been used by many organizations for product costing and to manage resource consumption patterns and monitor activity performance. Its implementation in these areas has been well documented. However, attempts to use ABC concepts during the early stage of product design or system design are less forthcoming. A possible reason may be due to the difficulty in identifying relevant cost drivers that are evident during the early stage of design. This paper presents a concept for establishing viable ABC models that can aid cost estimation during the early stage of designing products and systems. The concept proposed a three-phase structured approach for identifying cost drivers that will relate to early design information and thus facilitate the use of ABC models for early cost estimation. The concept is generalizable and can be used in different types of design. With this concept, the application of ABC models in design will be less inhibiting.