In today's global economic environment, successful
product development requires achieving the proper balance between cost,
performance, and schedule objectives. Historically, product development,
especially for defense equipment, has been performance-based, with minimal
emphasis on controlling cost. Consequently, the costs associated with product
development typically have increased dramatically throughout a product's
An extensive array of cost tools and techniques are
available for assessing, managing, and controlling costs in a product
development and manufacturing enterprise. In addition to accepted accounting
procedures for computing the cost of sales of a product after it has been
manufactured, specific techniques are aimed at determining the elements of those
costs and on predicting the costs of new products prior to production. Some of
these techniques include:
- Activity-Based Costing (ABC) which is used to assess the cost of every step in a process including all indirect overhead costs. Adding of the costs for each activity yields the cost of the product.
- Cost As an Independent Variable (CAIV) which treats cradle-to-grave, life-cycle cost as one of the independent variables in a design process and encourages trading it with performance and schedule.
- Design-for-Cost (DFC) which encourages the consideration of cost from the beginning of the design process.
- Design-to-Cost (DTC) which focuses on the product development and manufacturing costs, the setting of a target cost, and the achievement of that cost.
- Parametric Cost Estimating which consists of the analysis of models of the cost of
developing and producing each of the standard components of a design.
Cost tools provide the basis for focusing attention on
cost from the inception of a product development activity. Such tools vary in
their difficulty of application and hence will not be used by every enterprise
uniformly. The important point is to ensure that cost is addressed early in the
design and development process. Achieving affordable products requires designing
the products to be affordable.
From the producibility perspective, by developing and
maintaining a database of cost data, new product costs can be predicted and
assessed. At the beginning of the design process, costs should be estimated
for each element needed to achieve each performance goal of the product and
for the timely development of those elements so that the product will be
available on schedule. Design tradeoffs should include the impact on cost as
well as on performance and schedule. As manufacturing simulations (see Appendix F.1.12) and
prototypes (see Appendix F.1.15 -
Prototyping and Appendix
F.1.17 - Rapid Prototyping) are developed and limited production begins,
the cost estimates should be re-evaluated and modified as appropriate.
Implementation is facilitated through the use of an empowered team approach
(see Appendix F.1.9
Integrated Product Team), which includes customer representation and is most
effective for establishing and continuously evaluating the various objectives
and making the necessary tradeoff decisions throughout the development
Cost tools and methodologies provide an effective means
for integrating cost management techniques into the product development process.
When successfully executed in conjunction with other producibility practices,
these tools provide a means for reducing total life-cycle costs while optimizing
the product development process.
Anderson, D. M. (1990). Design for Manufacturability: Optimizing Cost, Quality, and Time-to-Market. Cambria: CIM Press.
Dean, E. B. (1992). Design for Cost: Techniques and Impact on the Cost Community. NASA Cost Estimating Symposium.
Hoult, D. P., & Meador, C. L. (1995). Methods of Integrating Design and Cost Information to Achieve Enhanced Manufacturing Cost/Performance Trade-Offs. Management Support Technology Corporation.
Kaplan, R. S., & Cooper, R. (1997). Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston: Harvard Business School Press.
Magrah, E. (1997). Integrated Product and Process Design and Development. New York: CRC Press.
Michaels, J. V., & Wood, W. P. (1997). Design to Cost. New York: John Wiley & Sons.