Imagine that you are responsible for managing product development costs at your organization. Your organization does a good job of managing costs for your products as they are produced and commercialized; however, you know that if you could manage design-stage costs, you could save money and give your organization a competitive edge in the marketplace.
Nearly 80% of the costs of a product or service are determined during the design phase when the process is designed or the activities of the service are determined. Yet most of our tools for managing these costs focus on production and commercialization once the design can no longer be changed. Costing systems such as activity-based costing tell us about current costs but not about future costs.
It is vital to introduce cost considerations at the design stage, that is, early on in the process. Effective costing techniques bridge the gap between several functions, from engineering to operations, logistics, and marketing. Some costing techniques require a strategic perspective on the interaction between product offerings, while others are applicable to individual development projects.
Managing costs at the product development stage requires solid information from marketing to understand customer needs. It also requires a good understanding of the economic structure of the company. Today, most costs are not directly tied to products and services. Rather, they come from shared resources, ranging from R&D to logistics, after-sales support, marketing and distribution, and manufacturing. A significant number of cost-reduction opportunities come from strategically managing the portfolio of offerings from the company.
Cost management techniques use quantitative information intensively. This information comes from the costing system of the organization. These techniques rely on information that the system provides or on the cost models that are used. Concepts such as activity-based costing, cost allocation, and direct and indirect costs are all factors that contribute to an organization’s cost strategy.
So how do you determine whether to make cost-related decisions at the strategic level or to make them during the product design phase? The Accenture Academy course Managing Costs at the Design Stage
provides you with techniques such as target costing, modular design, postponement, and part and process commonality to help you make better-informed choices in these cost-related decisions.