# Engineering Change Cost Impact Calculator > Source: https://netray.co/tools/engineering-change-cost-impact-calculator > Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems. > Section: Free Tools ## Short answer Estimate the full one-time cost of an engineering change and the payback period against annual savings before you approve it. ## Category engineering-plm ## Industry Discrete Manufacturing ## Audience - Engineering manager - Cost accountant - Change control board ## Tool **Kind:** calculator **Currency:** $ **Inputs:** #### Engineering effort **Key:** eng_hours **Type:** number **Default:** 60 **Min:** 0 **Step:** 5 **Unit:** hours **Help:** Design, analysis, testing support and review time. #### Loaded engineering rate **Key:** eng_rate **Type:** number **Default:** 95 **Min:** 0 **Step:** 5 **Unit:** $/hour #### Documents and records to update **Key:** docs **Type:** number **Default:** 12 **Min:** 0 **Step:** 1 **Unit:** docs **Help:** Drawings, BOMs, routings, work instructions, inspection plans. #### Time per document **Key:** doc_hours **Type:** number **Default:** 1.5 **Min:** 0 **Step:** 0.25 **Unit:** hours #### Affected stock and WIP **Key:** onhand **Type:** number **Default:** 800 **Min:** 0 **Step:** 50 **Unit:** units **Help:** On hand, in process and on open orders that cannot be cancelled. #### Unit cost of affected parts **Key:** unit_cost **Type:** number **Default:** 42.5 **Min:** 0 **Step:** 0.5 **Unit:** $ #### Share to be scrapped **Key:** scrap_pct **Type:** number **Default:** 30 **Min:** 0 **Max:** 100 **Step:** 5 **Unit:** % **Help:** Scrap plus rework share should not exceed 100%. #### Share to be reworked **Key:** rework_pct **Type:** number **Default:** 40 **Min:** 0 **Max:** 100 **Step:** 5 **Unit:** % #### Rework cost per unit **Key:** rework_cost **Type:** number **Default:** 6.5 **Min:** 0 **Step:** 0.5 **Unit:** $ #### New tooling and fixtures **Key:** tooling **Type:** number **Default:** 8500 **Min:** 0 **Step:** 500 **Unit:** $ #### Requalification and testing **Key:** requal **Type:** number **Default:** 4000 **Min:** 0 **Step:** 500 **Unit:** $ #### Annual saving per unit produced **Key:** saving **Type:** number **Default:** 1.2 **Min:** 0 **Step:** 0.1 **Unit:** $/unit **Help:** Material, labor, warranty or scrap savings after the change. #### Annual volume **Key:** volume **Type:** number **Default:** 20000 **Min:** 0 **Step:** 1000 **Unit:** units/year **Outputs:** #### Engineering and documentation labor **Key:** labor **Expr:** (eng_hours + docs * doc_hours) * eng_rate **Format:** currency #### Scrapped stock write-off **Key:** writeoff **Expr:** onhand * scrap_pct / 100 * unit_cost **Format:** currency **Description:** Cost of stock and WIP that cannot be used after the change. #### Rework cost **Key:** rework_total **Expr:** onhand * rework_pct / 100 * rework_cost **Format:** currency #### Total one-time cost **Key:** one_time **Expr:** labor + writeoff + rework_total + tooling + requal **Format:** currency **Primary:** true #### Annual benefit **Key:** annual_benefit **Expr:** saving * volume **Format:** currency #### Payback period **Key:** payback **Expr:** if(gt(annual_benefit, 0), one_time / annual_benefit * 12, 0) **Format:** months **Primary:** true **Description:** Zero means there is no annual benefit to pay back the cost. #### Net benefit after 3 years **Key:** net3 **Expr:** annual_benefit * 3 - one_time **Format:** currency **Chart:** #### Payback (months) vs annual volume **Type:** line **X:** volume **From:** 2000 **To:** 60000 **Steps:** 30 **Series:** - payback **Disclaimer:** Planning estimate based on your inputs. It excludes cost of capital, customer re-approval fees, warranty exposure and schedule delay unless you include them in the inputs. Use actual ERP stock and open order quantities where possible. ## Content **Intro:** An engineering change is rarely just the cost of the engineer's time. Stock that becomes obsolete, rework, tooling and requalification often dwarf labor. This calculator adds them up and shows the payback against the savings the change is meant to deliver. **Sections:** #### How to use the calculator **Body:** Enter the effort to design and document the change, the number of documents to update and the loaded hourly rate. Then enter the stock and work in process affected, its unit cost and how much will be scrapped or reworked. Add tooling, fixtures and requalification or test costs. Finally enter the annual saving per unit and annual volume. The calculator shows total one-time cost, annual benefit, payback in months and net benefit over three years. The chart sweeps volume so you can see how sensitive the decision is to forecast. Take affected stock from your ERP rather than guessing. **Bullets:** - Include open purchase orders you cannot cancel in affected stock - Use fully loaded rates, not base salary - Keep scrap plus rework percentages at or below 100 - Test the result at low, base and high volume #### The formulas **Body:** Labor is (engineering hours + documents times hours per document) times the rate. Write-off is affected units times the scrap share times unit cost. Rework is affected units times the rework share times rework cost per unit. One-time cost is the sum of labor, write-off, rework, tooling and requalification. Annual benefit is saving per unit times annual volume, and payback in months is one-time cost divided by annual benefit times twelve. Net benefit after three years is three years of benefit minus one-time cost. There is no discounting, which is acceptable for short paybacks but understates cost for long ones. #### Worked example **Body:** With the default inputs, labor is (60 + 12 x 1.5) x 95 = 7,410. Scrapped stock is 800 x 30% x 42.50 = 10,200, and rework is 800 x 40% x 6.50 = 2,080. Adding 8,500 tooling and 4,000 requalification gives a one-time cost of 32,190. Annual benefit is 1.20 x 20,000 = 24,000, so payback is about 16 months and the three-year net benefit is about 39,800. If volume halves, payback roughly doubles, which is exactly what the chart shows. This helps a change board see whether the saving case is robust. #### Common mistakes **Body:** The most common mistake is counting only engineering hours and ignoring the write-off of stock that cannot be used. The second is optimistic savings that ignore the fact that the saving might be partly offset by higher purchase price or cycle time. The third is forgetting that timing matters: a use-up effectivity can reduce write-off to almost zero, which is why the effectivity choice on the ECO is a financial decision. Finally, remember soft costs such as customer re-approval, certification and delayed shipments, which you can add to the requalification input. **Cta:** Netray can help pull on-hand, WIP and open order quantities straight from your ERP so each change gets an accurate write-off estimate. The calculator works on its own with your own numbers. **Faq:** #### What costs should be included in an engineering change? **Answer:** Engineering and documentation labor, scrapped or reworked stock and WIP, tooling and fixtures, requalification and testing, and customer or certification costs. Also consider schedule delay and warranty exposure if they apply. #### How do I reduce engineering change cost? **Answer:** Choose use-up or serial effectivity to avoid scrapping stock, bundle related changes into one ECO, make changes early in the lifecycle, and review impact before approval. Early design reviews prevent many changes entirely. #### What is a good payback period for an engineering change? **Answer:** It depends on your company's hurdle rate and product life. Many organizations look for payback within 12 to 24 months for cost reduction changes, while safety or regulatory changes are driven by necessity rather than payback. #### Does this include the cost of delay? **Answer:** Not directly. Add any expected cost of delay, such as expediting or lost sales, to the requalification input or increase the engineering effort, so that it appears in the total one-time cost. ## Search terms engineering change cost calculator, ECO cost impact, cost of engineering change, engineering change payback, ECN cost estimate, design change cost analysis, engineering change obsolete inventory cost, change order cost estimate template --- Talk to an engineer: https://netray.co/contact?intent=erp_ai | Machine catalog: https://netray.co/agent/catalog.json