Costing for Biomanufacturing: Standard vs. Actual Cost and Variance Tracking

Biomanufacturing is unlike most manufacturing processes. Batch-based, long production cycles, and inherent variability are its hallmarks, and even the tiniest anomalies can have profound effects on the result (and therefore, finances). 

In this world, costing isn’t solely a financial function; it is essential for assessing profitability and the basis for most operational decision-making. 

Standard costing, variance tracking, and actual costing all play a role in the process:

• Standard costing establishes a baseline for planning.

• Actual costs reflect performance in real-time.

• Variance tracking bridges the gap between. 

These three approaches make up the foundations of cost management. Done right, the process can significantly reduce production costs and highlight cost-impacting processes or materials.

What Makes Biomanufacturing Costing So Complex?

Several factors contribute to the complexity of biomanufacturing costs. 

First and foremost, the process is batch-oriented, which means costs are analyzed at the batch level rather than per unit. Visibility is challenging, as some batches may take weeks or months to complete. As a result, accurate batch costing is typically delayed. 

Biological materials costs are another factor. Reagents, cell cultures, and biologics are sensitive to environmental conditions, and yields can vary dramatically due to material inconsistencies, contamination, or process deviations. If even a single batch fails, it drives up costs across the entire production cycle. 

Regulatory and quality control issues add yet another layer of costs that are not always easy to identify or understand. Ideally, all testing, validation, and compliance tasks are embedded in the production workflow itself, but for costing purposes, they may be allocated to overhead. In the end, achieving consistency in costing becomes challenging, and more focused costing strategies are needed.

Standard Costing Explained

The standard costing method considers the costs of materials, labor, and overhead based on production conditions. Typically, biomanufacturers will base these costs on expected yields, batch sizes, and processes. 

The advantage of this method lies in its consistency. It tends to simplify inventory costing and provides finance with a relatively stable baseline, contributing to budgeting and pricing decisions. In a perfect world, standard costing enables decently accurate margin and profitability assessments at the pre-production stage.

The caveat is that the processes themselves are so variable that maintaining a standard quickly becomes challenging unless continuous manufacturing is possible. Any changes in material quality, yield, or processes can make the calculation obsolete, which would, understandably, have a direct effect on the bottom line. 

A dynamic approach is the only solution. Systems must be reviewed and updated regularly, especially when process improvements and scaling up are in the mix. 

Actual Costing Explained

Whereas standard costing lays out the overarching plan, actual costing gives you a reality check. You’ll capture the real costs of each batch and all its elements by pulling data from various systems. 

The difference between standard and actual costing is accuracy. It is here that you can determine the financial impact of yield variations and production inefficiencies. For example, if a batch results in reduced output, the cost per unit increases. Only actual costing can capture this detail. 

You need actual costing to enable improvements. It will help you identify the root causes of cost spikes and inefficiencies and improve processes over time. 

On the downside, the process is complex. You’re pulling data from disparate sources across manufacturing, procurement, quality control, and financial systems. Additionally, some costs can only be adequately assessed over long production cycles, which may delay insights. Without a structured framework, this can be less useful for planning. 

How Variance Tracking Works

Variance tracking highlights the gaps between expectations and verified performance. In biomanufacturing, these metrics reveal what’s driving costs and where improvements can be made. 

Examples of where you’ll find variances include material pricing, material usage, yield, efficiency, and labor variance. Of all these data points, yield variation is the most critical as even a small change can balloon costs and shrink margins. 

To ensure efficient variance tracking, it should be done quickly and at the batch level. Doing so supports decision-making and enables you to isolate the specific issues driving up costs. If you choose to aggregate variance tracking, you may miss some important details that could inform process improvement. 

In best practice, aim to track variances as close to real-time as possible. Define ownership across functions to ensure useful data collection, focus on actionable insights, and investigate causal factors when they arise. 

Costing and Variance Management Tips for Biomanufacturing

Accurate biomanufacturing costing requires a balance, consistency, and processes that are fully integrated into the manufacturing workflow. 

• Standard costs must be updated consistently to provide an accurate interpretation of the process, improvements, and related costs. Investing in a modern data-capture system is an excellent way to streamline the process and reduce the manual workload.

• Prioritize a cross-functional approach so that finance, production, operations, and QA/QC teams collaborate to interpret the data and enable improvements. Variance tracking should be built into all review processes to ensure trends are identified and addressed before they impact costs or other systems. 

And while there are few ways to simplify biomanufacturing, keep this in mind: your costing systems should aim to reduce complexities, not compound them. Focus on clear, actionable insights and streamlined models that can be easily understood by all stakeholders. When data is too complex, it gets in the way of timely decision-making and makes the variance tracking process less meaningful. 

The Bottom Line

Establishing and analyzing biomanufacturing costs is a layered process. Each of the three strategies, standard costing, actual costing, and variance tracking, is critical to ensure reasonably accurate costing despite the potential for wildly fluctuating costs and inconsistencies at the batch level. 

Working collaboratively across internal teams, biomanufacturing organizations can gain better control over costs while enabling consistent cost and process improvements over time. 

The biomanufacturing experts at Growise understand the need for diligence and how sustainable processes can support long-term success. Set up a call today, and let’s get you primed for success.