Brutal Truth About Cost Engineering ROI

Sasan Hashemi (Host): Hello and welcome back to another episode of Beyond Cost. Today we're going to talk about cost engineering: the history, the current status, and where it is going. For that, we have brought a very special guest today: Severin Heimrath from AWS Innovation Partners. They are a cost engineering service provider in the manufacturing industry, supporting leading companies globally. Severin, really nice to have you. Thank you for making the time. Maybe for the audience, you want to make a quick introduction about yourself?

Severin Heimrath (Guest): Yes, absolutely. I’ve been working in cost and value engineering for more than 15 years now. I started with studying industrial engineering in Munich. I always thought the interaction between finance and technology was something very interesting and definitely something for the future. After a few semesters, I got in contact with one of our professors, Professor Ben Schultz. He was one of the employees of AWS at that time and asked me if I wanted to join as a working student. I started doing research in cost and value engineering, machine research, material research, and things like that. Afterwards, I worked in the automotive industry and a bit in aerospace. But finally, I recognized that cost and value engineering is really what an industrial engineer learns at university. You often hear that you “learn how to learn,” but in cost engineering, you can really apply what you learned. In January 2010, I started at AWS as an analyst and project engineer, nowadays called cost engineer. I did a few years of very basic cost engineering work and then moved into project management. For roughly 10 years now, I’ve been one of the Managing Directors of AWS, co-leading the company with our team. It’s still very interesting because every day you see new things. That’s the reason why I’m still in cost and value engineering.

Sasan Hashemi: Tset is in the field of cost engineering, and your company’s name has come up quite often when we talk to clients. Let’s take a step back. The word “cost engineering” is very overloaded. It’s sometimes called cost estimation, cost analysis. One of my colleagues says that in some ways, you cannot not do cost engineering. You’re just maybe not aware of it. How would you define it? Especially when you talk with prospects who maybe do not have this function explicitly defined?

Severin Heimrath: It’s absolutely right that there are different levels of cost engineering. Sometimes cost estimation is the right approach. Sometimes a deep-dive cost engineering approach is necessary. We always connect cost engineering with value engineering. Cost engineering focuses on the cost structure. Value engineering integrates the full technical perspective: the geometry of the part, the manufacturing process, and all related aspects. If you're talking about cost engineering, it’s always cross-functional. It integrates different functions within a company. It’s about getting clarity on the product and the costs connected to the product. Once you have that clarity, you can start to work with it.

Sasan Hashemi: Throughout your journey, you had the academic background from a technical perspective. Were you surprised about the approach when you first started? And how did it evolve over time?

Severin Heimrath: Honestly, when we started in 2010, we had maybe 10 to 15 different materials in our database: steel sheet, steel rod, plastic materials like ABS or PP, and some special materials. Today, our AWS database includes roughly 800 different machines. It could even be more, but at some point, we decided it’s not about the pure number of machines. It’s about the quality behind the data. The same applies to materials. Today, there are probably over a million different material data points available. That’s a huge difference compared to 2010. Back then, it was more on the level of cost estimation. Over time, we started interacting more deeply with different disciplines inside companies and also with suppliers. For suppliers, it was often an eye-opener when we came back and asked why a part should cost a certain price. They started engaging more in the discussion. And then it really became a deep-dive process.

Sasan Hashemi: One word that we often use is cost modeling. Because you focus on building a model and creating explainability. Many people think cost engineering is someone typing numbers into Excel and getting a price. But you’ve become much more sophisticated over time. Can you give an example of how deep you go into understanding cost drivers?

Severin Heimrath: Let’s take a milled metal part. First, we determine the right machine. Then we look at each individual process step. For every step, we analyze the cycle time and the right tool. We create a detailed breakdown of all work steps. Afterwards, you get clarity about the real cost drivers within the process. A few years ago, you might have said: “It’s a metal part, 1.5 kilograms, let’s use a kilo price.” That’s a rough estimate. But if you want to understand and assess the details, you need to know the details.

Sasan Hashemi: Hiring cost engineers is difficult. You need technical understanding, manufacturing knowledge, and commercial awareness. Now that you’re CEO, how do you educate your team?

Severin Heimrath: At AWS, we have an integrated knowledge management system. For each technology, we have a responsible expert who stays in close contact with industry developments.  They ensure that our machine database is up to date and educate the rest of the team. We build generalists who can handle full projects. But behind them, we always have a network of AWS experts who can be consulted when deep specialization is required. That combination really helps.

Sasan Hashemi: How has the client perspective on cost engineering changed over the past 10 years?

Severin Heimrath: In automotive, everyone knows cost engineering. Not everyone has implemented it perfectly, but it’s well established. In industries like consumer goods or industrial goods, maturity levels differ significantly. Some companies have integrated cost engineering; others are still quite immature. Cost engineering requires challengers. It requires people who re-evaluate products and don’t accept the status quo. You need technical interest and commercial interest combined. If someone has both, they’re well suited to be a cost engineer.

Sasan Hashemi: Where should companies place cost engineering organizationally?

Severin Heimrath: It depends on the business model. If 80% of your parts are purchased, it makes sense to place cost engineering in purchasing. If most value creation happens internally, engineering might be the right place. What is not right is having it duplicated in both without alignment. If embedded, you still need centralized data and steering. Otherwise, you risk sending inconsistent signals to suppliers. Alignment on data and assumptions is critical.

Sasan Hashemi: What are the biggest blockers companies face today?

Severin Heimrath: Two main challenges: First, integrating cost and value engineering into the DNA of the company. It must be a clear process with no excuses. Second, starting too late. In R&D, you have maximum freedom. But 80–90% of our work still happens when products are already designed and in production. Then changes are much harder and more expensive.

Sasan Hashemi: ROI is often difficult to communicate. How do you approach it?

Severin Heimrath: We start by estimating saving potential and timing. If you know the current price and the should cost, you can estimate potential savings. But realization depends on negotiation, supplier strategy, and internal alignment. Cost engineering provides transparency. Realization requires action.

Sasan Hashemi: Purchasing departments sometimes feel attacked. How do you handle that?

Severin Heimrath: We position cost engineering as an additional lever, not as criticism. Should costing is not an ultimate weapon. It’s part of a journey. If there is only one supplier, there may be no incentive for price reduction. You need sourcing strategy, competition, and negotiation. Cost engineering makes profit margins transparent. But realization requires system steering.

Sasan Hashemi: How do you get engineering on board?

Severin Heimrath: Cost and value engineering aim to achieve the best product at the best price.  We provide transparency about cost impacts of tolerances, materials, or design choices. We once analyzed a metal housing. After long discussions about powder coating, we discovered the true cost driver was a 1 mm bend radius that caused production risk and scrap.  By identifying the real root cause, we enabled a fact-based discussion. Cost engineering becomes a catalyst for constructive dialogue.

Sasan Hashemi: If I invest one euro into cost engineering, how much do I get back?

Severin Heimrath: Between 10 and 100 euros. It depends on volume, maturity, and previous work done. But those are normal factors we see.

Sasan Hashemi: How do you create the “aha” moment for companies?

Severin Heimrath: Clarity. You move from emotional arguments to fact-based decisions. When companies see the cost impact clearly, the mindset shifts.

Sasan Hashemi: Let’s talk about AI. How much is hype and how much is real?

Severin Heimrath: AI clearly helps with standard office processes: email drafting, meeting summaries, document summarization. It significantly improves research speed. Where AI is very powerful is handling large data sets. With historical cost databases, AI can generate good cost estimates quickly. But detailed negotiations and realization will not be fully automated. AI will scale cost engineering horizontally. It will free up time for complex challenges. It will change the role of the cost engineer, not replace it.

Sasan Hashemi: What skill sets will be most important in the future?

Severin Heimrath: Communication skills and networking. Cost engineers must be respected participants in negotiations. Roles must be aligned upfront. AI literacy is also underutilized. Companies need to train employees properly and define clear use cases.

Sasan Hashemi: Looking 10 years ahead, will cost engineering expand or fundamentally change?

Severin Heimrath: Both. It will expand into more industries. At the same time, AI-based costing will evolve and accelerate assessments. But realization, negotiation, and engineering adjustments will remain human-driven.

Sasan Hashemi: Final question: If I’m a VP in manufacturing and want to unlock full potential, what’s the one thing I should do tomorrow?

Severin Heimrath: Start early. If you’re negotiating, involve cost engineering weeks before, not one day before. Even better, integrate it at the beginning of product development. Make decisions fact-based, not feeling-based.

Sasan Hashemi: You heard it. That’s it for this episode of Beyond Cost. Thank you for watching. Like, subscribe, and see you next time.

Severin Heimrath: Thank you.