Dissect the cost function

It is important to separate distinct types of costs so that each aspect of the cost function can be appropriately studied while the model is being built.

It is important to have a clear definition of the cost function (or objective) to optimize. Often this function will contain diverse components or terms to optimize, each relating to a different part of the business.

Only part of this cost function may be a measure of monetary profit or cost. Other parts may be related to subjective criteria or perceived inconvenience to the business. For example, some parts of the cost function may depend on work practices, labor conventions, customary habits of employees. Parts of the cost function corresponding to these optimizations can often change quite dramatically during the course of a project.

It is important to separate distinct types of costs so that each aspect of the cost function can be appropriately studied while the model is being built. Such a separation will also help you represent the problem more accurately in your model. A good representation of the cost function will also help you communicate effectively with your client.