How to build a cost model people will actually use?

For years, I've seen many organizations build cost models with the same energy with which someone puts together a thousand-piece puzzle... without the box.
The result is usually the same: something complicated, messy and that no one knows very well what it is for. That's why, in this article, I want to tell you what you should do if you really want your cost model to work, be useful, and survive beyond the presentation PowerPoint.

Talking about cost models may seem like a technical exercise reserved for accountants or financial analysts. But in practice, it is one of the most powerful tools to guide strategic decision-making in any company aiming to survive and grow in competitive environments. However, in many cases, cost models end up as complex, misunderstood, or simply ignored artifacts not due to a lack of intelligence, but a lack of focus. The problem isn’t the intention, it’s the execution.

At ICX, we’ve seen up close how companies of all sizes repeatedly fall into the same traps: models that try to cover everything from day one, drivers that are impossible to maintain, reports that arrive too late, and tools that complicate rather than clarify the analysis. All of this happens when the model is built without a strategic vision or real executive sponsorship. It’s like building a GPS without a map, without users, and without a connection to the reality of the business.

That’s why this article doesn’t aim to teach you formulas or showcase fancy dashboards. Its purpose is much simpler: to help you avoid the most common mistakes and show you which decisions make the difference between a cost model that works and one that gets forever trapped in a spreadsheet. Because costing with purpose isn’t just a financial task: it’s a lever for business transformation.

Start with the simple

One of the most frequent mistakes is to think that a cost model has to pay for absolutely everything, from the coffee in the office to the time it takes the guard to say hello in the morning. The truth is that a good model starts from the essentials. Don't wear yourself out looking for 100% precision in every detail; Focus on paying well for what really moves the needle: your key processes, your most representative products, the units that generate or consume the most resources. Starting simple is not a weakness, it is a strategy. Successful models evolve in layers: first the important, then the urgent, and lastly, the refined. That's how they work in real life, and that's how they stay alive.

That the drivers are useful and not perfect

One of the most dangerous myths in the construction of a cost model is to believe that the ideal driver is the most technical or the most accurate. In reality, the best driver is the one that you can get frequently, that understands all areas and that reasonably represents how the resource is consumed. It is not a question of finding the most sophisticated measure, but the most useful. If there's a KPI that's already measured and that everyone understands, use it. Historical averages? Welcome. Estimates? Sometimes they are more sensible than accurate "theoretically" data that no one can update. The obsession with the perfect is the fastest route to the unfeasible.

Without useful and timely reports, what for?

There's nothing more frustrating than building a brilliant model... that delivers reports when the decisions have already passed. The key is to integrate the model with the dynamics of the business. That means the cost of each line, process, or customer has to be available at the right time. Not weeks later. How is this achieved? With automation, of course, but also with criteria: define from the beginning what you need to measure, how often, and for what. A model that delivers reports late, or in formats that no one understands, loses meaning even if the calculation is impeccable. Because in the end, a cost model is not evaluated by how it calculates, but by what it manages to change.

Without the support of senior management, you are lost

Few things kill a cost model faster than the indifference of the management team. If management does not support, the data does not arrive, the areas do not collaborate, and the model becomes a house of cards. That's why your first strategic move should be to win over the CFO, COO, or general manager. Not with formulas, but with vision. Help them see how this model can be their compass in the midst of chaos. When leadership understands that the model is a decision-making tool—not just an accountant's hobby—everything flows better: data is validated, reports are read, and decisions are justified with evidence.

Tools: Don't Marry Excel

Yes, we know. Excel is noble, versatile and is everywhere. But it also has limits, and when the model grows, it becomes a jungle that is difficult to maintain. It's not about despising Excel but about knowing when to look for something more robust. Specialized tools, costing platforms, or even low-code solutions can help you build models that scale, automate, and connect with the rest of your operation. The important thing is that the tool does not become a brake, but a bridge between your cost logic and the operation of the business. If the model is only understood by the one who designed it, you're in trouble. The right tool makes everyone engaged.

ERP can become your straitjacket

Even though your ERP is powerful and contains complex cost modules, that doesn't necessarily mean it's the best choice for building your business model. ERP systems are primarily intended for financial accounting, not for in-depth strategic analysis. If you need to simulate various scenarios, test new drivers, or model alternative structures, you'll probably feel freer outside of the functional limitations of your ERP. And there's nothing wrong with that. Not all of your tools should reside exclusively within the confines of SAP or Oracle. The key is that you have enough flexibility to do what your business really needs, not just what your system allows. And if you later need to dump those results into your ERP, this will be done. But first, focus on getting your model to perform at its best.

Epilogue for people who want results

A successful cost model is not born from an Excel spreadsheet with 20 tabs or a six-hour workshop where everyone leaves confused. It is born from clear decisions, practical approach and institutional support. It's a living tool that evolves, adapts, and when done right transforms the way the company views its profitability.

So, if you're going to build one, make sure it's purposeful, judicious, and with the right people on board. Because costing well is not just about knowing how much something costs... but to understand how much value it really generates.

A cost model that truly works isn’t built with technical jargon it’s built with common sense, clarity of purpose, and commitment from the key stakeholders in the business. It’s not about chasing perfection in every calculation; it’s about making sure the information is useful, timely, and actionable. If it doesn’t help drive better decisions, then it’s not a cost model it’s just an empty simulation.

The good news is that you don’t need futuristic technology or a massive consulting team to get started. What you need is to start simple, choose the right drivers, integrate the model into day-to-day operations, and above all secure the support of leadership. When executives understand the strategic value of cost modeling, everything changes: data flows, reports are interpreted, and profitability stops being a mystery and becomes a compass.

At ICX, we believe cost models should serve strategy not Excel. That’s why, if you’re ready to build a tool that doesn’t just calculate but transforms, we’re ready to support you. Because more than knowing how much something costs, what truly matters… is understanding how much value it generates. Schedule a session with our team and let’s take that first step together.

Want help designing your cost model? At ICX, we have the experience, tools, and strategic approach to turn your information into powerful decisions. Schedule a meeting with our consultants and let's take the first step together.