[PDF] HOW TO BUILD A GOOD COST MODEL | AssessCCUS

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1. Page 4

   MODEL HEIRARCHY Sue Babinec, ARPA-e “Tech to Market” presentation “Also known as: capital expenditure, capital cost, investment cost, upfront cost”  Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr

   In Outbound cost model

2. Page 4

   MODEL HEIRARCHY Sue Babinec, ARPA-e “Tech to Market” presentation “Also known as: operating expenditure, operating cost”  Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr

   In Outbound cost model

3. Page 9

   Modeled physical system DEFEAT SKEPTICISM: SHOW YOUR ASSUMPTIONS COSTREAL DATA Show assumptions! “ Confusion  skepticism” Physical (non-cost) Calculations  Clarify what numbers are vs. calculated (color key)  Easy to read : 220,000 vs 224531.692  Show units everywhere  Disaggregate calculations (show intermediate values) to avoid complex formulas, which are hard to follow  Name your variables for easy formula reading  Comments (use them) inputs  Diagrams (make them)  Process flow diagrams  Device diagrams  On separate tabs  Physical system parameters  Capital cost  Operating cost  Summary page: key inputs/outputs, financial assumptions STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Physical (non-cost) OPEX CAPEX Summary

   In Trust and proof objections

4. Page 11

   Physical (non-cost) Calculations  Clarify what numbers are vs. calculated (color key)  Easy to read : 220,000 vs 224531.692  Show units everywhere  Disaggregate calculations (show intermediate values) to avoid complex formulas, which are hard to follow  Name your variables for easy formula reading  Comments (use them) inputs  Diagrams (make them)  Process flow diagrams  Device diagrams  On separate tabs  Physical system parameters  Capital cost  Operating cost  Summary page: key inputs/outputs, financial assumptions STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Physical (non-cost) OPEX CAPEX Summary “ Quantify cost savings from process scale-up” OPEX sheet Physical calculations sheet (multiple tabs by module) STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Module Parameter Unit Value Assumptions & source info Input Module units/yr $/Unit Total $ Assumptions & source info CAPEX sheet Module Equipment Scaling unit Installed cost multiplier Installed Cost Model Value Basis Value Basis Cost Equipment Cost Cost-driving physical units drawn from calcs sheets (all hypothetical)  L e f t - to - r i g h t r e a d i n g  O P E X , C A P E X s h e et s p u l l n o n - c o st va l u e s f r o m ot h e r s h e et s  A s s u m pt i o n s e a s y to s e e a n d fo l l ow to s o u r c e

   In Economic value propositions

5. Page 13

   OPEX sheet Physical calculations sheet (multiple tabs by module) STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Module Parameter Unit Value Assumptions & source info Input Module units/yr $/Unit Total $ Assumptions & source info CAPEX sheet Module Equipment Scaling unit Installed cost multiplier Installed Cost Model Value Basis Value Basis Cost Equipment Cost Cost-driving physical units drawn from calcs sheets (all hypothetical)  L e f t - to - r i g h t r e a d i n g  O P E X , C A P E X s h e et s p u l l n o n - c o st va l u e s f r o m ot h e r s h e et s  A s s u m pt i o n s e a s y to s e e a n d fo l l ow to s o u r c e “ Total CapEx, OpEx, and $/unit”  Market repor ts  Free data only  Price ≠ Cost  Tip: screenshots!  Google books  Vendor specs  Charts and tables  because you won’t remember your keywords  “How its Made” videos  Seeing process helps parameterize your process & equipment variables TIPS FOR THE LONG SCAVENGER HUNT: WEB

   In Outbound stack total cost of ownership

6. Page 18

    Getting information from other excel models, such as  sources of data  process assumptions  installed cost multipliers  input costs  ...but always validate on your own. Models are by definition not real, and often idealized SCAVENGER HUNT: EXCEL MODELS Example from BatPaC (battery performance and cost) model by Argonne Lab “ Reach outside your model for real data from other industries  What others know, and will compare you against  Powerful in validating your model  Even if major differences exist, focus on analogies”  Consider scenarios when  Qualitative system differences  Pilot/commercial scale  Pilot/Commercial scenarios  Pilot - uses near term technical targets → market entry cost  Commercial – long-term, external communication, the possible  Example dif ferences  Pilot uses outsourced inputs (materials, labor, leased equipment) that become in-house at commercial scale  Step-change cost reductions at scale  Pilot is retrofit, commercial is new construction WHEN TO USE SCENARIOS

   In Company and industry research

7. Page 18

    Getting information from other excel models, such as  sources of data  process assumptions  installed cost multipliers  input costs  ...but always validate on your own. Models are by definition not real, and often idealized SCAVENGER HUNT: EXCEL MODELS Example from BatPaC (battery performance and cost) model by Argonne Lab “Validate calculated values with real numbers”  Consider scenarios when  Qualitative system differences  Pilot/commercial scale  Pilot/Commercial scenarios  Pilot - uses near term technical targets → market entry cost  Commercial – long-term, external communication, the possible  Example dif ferences  Pilot uses outsourced inputs (materials, labor, leased equipment) that become in-house at commercial scale  Step-change cost reductions at scale  Pilot is retrofit, commercial is new construction WHEN TO USE SCENARIOS

   In Quantified outcome proof

8. Page 19

    Interdependency requires high use of formulas = accuracy risk Validate calculated values with real numbers  Reach outside your model for real data from other industries  What others know, and will compare you against  Powerful in validating your model  Even if major differences exist, focus on analogies  Real numbers - preferable to calculated numbers when you have them  Results too good to be true? then they probably aren’t DO REALIT Y CHECKS: VALIDATE “ Pilot - uses near term technical targets → market entry cost” POTATO CHIP FACTORY

   In Market-entry offer design