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Cost Saving

Early is the only way to save big $!

Well documented across many industries is the fact that the design and the cost of the design both become "almost frozen" just a very short way into the development project. The specifics of each study differ slightly, but the range is well bounded across studies. Approximately 10-25% into the development effort as measured by the development cost/budget, the product cost becomes 75-95% fixed. Typically, cross-functional resources have not been seriously involved in a critical review mode until approximately 35-50% of the budget has been spent. At this time, the product design and product cost are "really frozen" and some parts and materials are already on order. Finding omissions and errors at this time requires drawing changes, engineering change orders, and often reordering of materials. This is much more costly than finding an error before a solid model is built or software is coded.

This management science is often referred to as "the shadow theory of cost management." It answers the question "how big a shadow on product cost does the progressive expenditure of development cost cast on the product being designed." Before the 1980s, it was believed that the manufacturing function was the primary determiner of product cost. We now know that the engineering function is the primary determiner of product cost. Independent reviews, especially by cross-functional downstream persons that will ultimately be involved in the manufacturing and release of the product, pay big benefits.



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