Costing Considerations and
Cost Reductions

Essential Product Development for Engineers

Product Development Costing Considerations and Cost Reductions 

Business Context: Budgets, Costs and Product Development

Costing is a crucial part of product development. Whether it’s setting budgets and monitoring spends, or minimising costs through design for manufacture and assembly techniques. Crucially for small manufacturers, product development is an expensive business, with resources typically being scarce. As such, a sound understanding of costing considerations is crucial if engineering businesses are to get the best return on their product development investment.

Product development requires a budget. This should be agreed by senior managers in the business, in line with strategic objectives and long-term planning. The amount within the budget needs to be estimated before it can be agreed. Estimating the budget can be achieved by the cross-functional team members all approximating how much they will require, possible per stage, before totalling an overall budget.

Alternatively a budget may be estimated as a whole, perhaps derived from similar projects in the past or industry equivalents. The product development budget may cover a range of things such as prototyping and materials costs, design staff time, outsourcing and hire of test facilities, day-rate of technical experts, as well as both technical and market research.

As you progress during product development, as a bare minimum track your costs by listing them on a simple spreadsheet. Be sure to capture key information such as what you spent money on, how much and when the money was spent. Having visibility of what you spend against your budget, enables you to judge and make better financial decisions. Involve your finance and accounts people, who should be able to provide guidance and assistance.

Use the review phase at the end of each stage to track and monitor spending. To start, try asking these questions; Is it on track - if not what needs to be changed? How are costs to be adjusted or controlled? Do you need to adjust the budget forecast for the remainder of the project?

Costing Considerations

Costing Considerations for New Products

Product Cost and Cost Flow  

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