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Cost Engineering

Set Goals and Evaluate Early: Effective Target Setting and Technical Concept Evaluation

Developing new products efficiently and cost-effectively is essential for success. One of the most impactful ways to achieve this is by setting clear goals early in the process and carefully evaluating technical concepts. By aligning the team and reducing risks from the outset, companies can streamline their development cycles, reduce costs, and improve product functionality.

Setting Targets

When developing a new product, setting targets puts the team on the same page and establishes a baseline to work towards by starting from the end in mind. Setting the goals as early in development as possible facilitates an easier development cycle and ultimately reduces costs and resources associated with the product.

The goal can look different for various participants. For all departments however, cost and function will always be part of the main target. By identifying and estimating costs at the beginning, and in a detailed manner, potential risks and unexpected expenses can be anticipated and mitigated during the lifecycle of the product.

Part of target setting is to create goals that are measurable. The most straightforward way to do that is setting a target cost for the final product to be made.


Technical Concept

A technical concept is predetermined based on the function and cost of the final product, as well as economic, regulatory and legal considerations (e.g. licenses and patents) and whatever additional goals a company might have (e.g. environmental). The development of the technical concept is usually an iterative process where the different constraints are evaluated against each other to give a high level approach to the final product. These starting hypotheses limit the number of technology options, materials, assembly methods, etc. that can be utilized when creating the concept for the final product. 

Creating a technical concept is a necessary step in order to break down and set the target cost of a product and its elements.

Target Costing

The target cost is the cost either set by market research or a predetermined cost by a prospective customer. This maximum amount therefore also predetermines the maximum permissible cost, or the cost a product is manufactured for. 

Determining a target cost can help save on resources, because specifying this cost as soon as possible means that the number of later correction loops is reduced, or even nullified. The sooner the target cost is available, the better it can be prepared, calculated and analysed. Setting a target cost also communicates to the product team that cost cutting is something that needs to be focused on at the beginning of the product life cycle and in a structured manner. Target costing is a proactive cost management and cost reduction action.

The target cost can be broken up onto the different elements to set their own target costs. This further categorization can happen along the lines of the different components the final product is made out of, or for example by aggregating material and manufacturing costs separately.

This categorization can be based on market prices, but it can also already use the tools of cost and value engineering by utilizing data of previous products, assumptions and the engineers’ knowhow. Doing this can help determine which cost components are the cost drivers and therefore need more attention during the conception phase, and which cost components are static and cannot be changed. Overheads, like profit, are also determined at this stage.

Target costing helps avoid unnecessary and unanticipated costs, which in turn prevents these costs occurring during the life cycle of the product. This then results in large lifetime savings on minimal cost at an early stage, and eliminates the need for later cost-cutting measures, which could incur additional resource overheads.

The goal of the product team afterwards is to stick to the target costs and not exceed them. Calculating greenfield bottom-up costs of a given design gives the baseline of a comparison between the target cost and current cost. Finding the gaps is just the first step though, and a more detailed analysis of the predetermined cost elements is needed, and one way to achieve this is to utilize the toolbox of VA/VE.

What is VA/VE?

VA/VE stands for Value Analysis/Value Engineering. It is commonly used during the product conception, development, and design, as well as post-SOP evaluations of an already existing product or manufacturing technology. The reason for its usage can vary based on where in the product lifecycle it is utilized, but overall companies should always strive to improve their products and processes, as well as reducing costs in the early phases of a project. The objective of this method is to improve the value proposition of the product, by reducing the costs and/or improving functionality within the existing constraints and to capture saving opportunities. Using VA/VE can lead to a 5-30% cost reduction of the final product.

VA/VE is usually conducted by a person or team with engineering, industrial and commercial knowledge. The analysis is a systematic and end-to-end approach that strives to evaluate a product by the lines of its design, manufacturability.

The process of the analysis begins with identifying which part or parts need to be the subject of the analysis. This is usually done as a function of cost and volume. Then functional and cost analysis is undertaken on the parts, which can be done by using bottom-up calculation tools and utilizing existing or assumed production data. Then proposals from the participants are gathered along the lines of cost, manufacturability and design, while still keeping true to the constraints predetermined during the technical concept.

An image showing cost reduction strategies for a cylindrical mechanical part. Five green boxes surround the part, each describing a different approach: Manufacturing technology, Material selection, Design changes, Process optimization, and Standardization. Each strategy is briefly explained with its potential impact on reducing manufacturing costs.

Many different solutions can be proposed for the same cost driver, and these also need to be evaluated against each other. It is also important to keep in mind that these solutions can have intermingling effects, so the concurrent implementation of many changes also needs to be studied.

Once the analysis is performed, the proposed selected changes are handed over to parallel departments (design, procurement, process engineering) to be implemented. These solutions can be in-house modifications, but also changes made collaboratively with the suppliers of the analyzed parts.

How Tset Can Help You in the Evaluation

Tset offers many different solutions and functionalities to enable you identify cost drivers, evaluate technical elements and iterate your plans easily. Tset lowers the barriers to performing, modifying and evaluating concepts and calculations, and in turn reduces the time and resources needed to perform these operations.

Bottom-up Calculation

Bottom-up calculation is the main methodology Tset is working with. It enables the project’s participants to better understand the components of a given project. Complex products can be modelled in the software utilizing our automated, semi-automated and manual calculations, as well as the master data with its machine, material, exchange rate, manufacturing step and location data. The automated modules provide the manufacturing know-how: what resources (materials, machines, labor, etc.) and with which parameters (e.g. cycle time) are needed in order to calculate a given concept by just providing a few parameters per part.

Tset cost and carbon calculation software

Milling components in Tset software

Identifying Cost Drivers and Reduction Opportunities

For each calculation, the cost- and carbon breakdown is readily available, making finding the main cost elements easy. Changes made to the model by the users are reflected instantly and its effects are traceable throughout the model.

Finding Effectivities


Modelling the same product using different modules to calculate the same product and thus finding the best outcome for a given product. Utilizing the master data to find benchmark data relevant to the product and compare variations to each other.


Tracking and Measuring

You can use Tset through the implementation and measurement stages as well, through import-export functions, and utilization of our open API. Calculations are also available after initial product launch, providing valuable data, understanding and benchmarking for future projects. 

A graph comparing speed versus effort with and without Tset. The green line labeled "With Tset" shows a steeper, exponential increase in speed as effort increases, while the red line labeled "Without Tset" shows a more gradual, linear increase. The graph suggests that using Tset results in higher speed gains for the same amount of effort.

Time Reduction

Tset is fast! No need to start over every time: calculations are reusable and modifiable. The master data service ensures up-to-date and relevant base data. The cloud-native and collaborative environment facilitate this speed. Even though a project can contain hundreds of parts with thousands of data points to account for, Tset can automate the creation and maintenance of the calculation.

Conclusion

By setting measurable goals early, evaluating technical concepts systematically, and employing methodologies like target costing and value analysis/value engineering (VA/VE), companies can significantly improve their product development process. Not only does this approach help avoid unnecessary costs, it also empowers teams to make informed decisions at every stage of the product life cycle. Tset offers an innovative software to support these efforts, providing transparency, efficiency, and insight to drive better results.

Would you like to know more?

Our latest blog highlights the importance of setting early goals for cost and carbon optimisation. For a deeper dive, download our whitepaper 10 Steps to Build Up Your Own Cost Engineering Department and start building a data-driven approach to cost efficiency and sustainability.

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Author

Gina Gocza
Solution Consultant

19.09.2024

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