Management of product costs in research and development : exploring the frontiers of target costing

dc.contributorAalto-yliopistofi
dc.contributorAalto Universityen
dc.contributor.authorKarjalainen, Jouko
dc.contributor.authorBescherer, Frank
dc.contributor.authorHinkka, Ville
dc.contributor.authorKoskela, Maija
dc.contributor.departmentDepartment of Industrial Engineering and Managementen
dc.contributor.departmentTuotantotalouden osastofi
dc.date.accessioned2011-11-28T13:14:01Z
dc.date.available2011-11-28T13:14:01Z
dc.date.issued2007
dc.description.abstractAlthough prior decisions constrain the freedom of further choices and commit the organization to subsequent incurrence of costs, they do not discard the need for continuous cost management. Our main proposition is that product cost management should start before the well-structured product development in order to ensure built-in cost capability of a product. This report is based on the findings of a two-year research project. Professionals from ten companies or divisions of a company cooperated with the researchers. The researchers used a literature research, interviews, and interventionist approach in gathering data. Streamlining the product development process transfers important cost-inflicting decisions from this process to the earlier development stages. The uncertainty related to these early stages makes the direct application of target costing difficult. For example, modular product structures support the target costing process because the design process can be separated into somewhat independent tasks. However, concepts based on new technologies may be created to challenge the prevailing product architecture, which complicates the process of calculating the product-level target cost to the component level. Modular designs, part commonality, and product platforms reflect design policies which individual product development teams must follow. Since design policies contain implicit assumptions of cost effectiveness, those who create these policies must be aware of cost behavior. Cost management should focus especially in those costs that are influenced by the decisions at hand. The underlying ideas of target costing can be adjusted to the earlier development stages. The studied organizations use versatile methods to manage costs. In the early stages, the methods are not purely cost management methods but innovation is managed as a whole. Building and maintaining cost databases for the various R&D purposes requires significant effort by management accounting and technology experts. The virtual price table tool is an example of such a database. Potential suppliers are asked to make quotes on specified cost drivers and to show a trajectory of future price developments for specifications, which reflect the future components. The tool is based on a detailed model of cost drivers, a database of old price quotations, and constant updating. Another approach is introduced to evaluate offerings of different suppliers concerning technologically challenging products. Because of technological challenges, there are gaps that can not be eliminated without extra development effort by the supplier. The approach seeks for a competitive price given to a supplier that can eliminate the gaps. In information-intensive products, the unit-level cost of a product becomes less significant compared to the costs incurred in product-sustaining and product-founding activities. The change in the life-cycle cost structure means that managing product costs requires more attention to the trade-offs between development effort and functionality. Equally, the target costing equation should be adjusted. Radical changes in a product may also mean changes in the value chain and in business models; thus, demanding a broader perspective of costs. Seeing the costs from customers' perspective is important for the product's success. The decisions made in development also affect the customer's costs of using the product.en
dc.format.extent49
dc.format.mimetypeapplication/pdf
dc.identifier.isbn978-951-22-8711-6
dc.identifier.issn1795-2018
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/859
dc.identifier.urnurn:nbn:fi:tkk-007714
dc.language.isoenen
dc.publisherHelsinki University of Technologyen
dc.publisherTeknillinen korkeakoulufi
dc.relation.ispartofseriesReport / Helsinki University of Technology, Laboratory of Industrial Managementen
dc.relation.ispartofseries2007/2en
dc.subject.keywordcost managementen
dc.subject.keywordcost estimationen
dc.subject.keywordtarget costingen
dc.subject.keywordproduct costingen
dc.subject.otherEconomicsen
dc.titleManagement of product costs in research and development : exploring the frontiers of target costingen
dc.typeD4 Julkaistu kehittämis- tai tutkimusraportti taikka -selvitysfi
dc.type.dcmitypetexten
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