Apr 222013
 

 

Good Morning PCM world,

Another reader sent in questions with respect to the article 2012 revenues of the Product Cost Management market.   However, this question was a little more broad:

 

Is there any difference between Project cost management and Product cost management from your your point of view?

That’s a very simple but good question.  We had not considered addressing it before the question came in.  The short answer is “YES!,” there is a big difference.  The big difference is as simple as the two words:

PRODUCT vs. PROJECT

We have defined Product Cost Management before here as:

Product Cost Management – An agreed, coherent, and publicized system of culture/goals, processes, people, and tools following the product lifecycle, that ensures the product meets its profit (or cost) target on the day that it launches to the customer.

The definition of “Project Cost Management” is more murky.  The wiki entry on Project Cost Management is less than satisfying.  Here is the main definition portion of the entry:

“Project cost management (PCM) is a method which uses technology to measure cost and productivity through the full life cycle of enterprise level projects.[citation needed] PCM encompasses several specific functions of project management that include estimating, job controls, field data collection, scheduling, accounting and design.”

Other resources for a definition are Ecosys EPC, the Project Smart blog, Hard Dollar Software, and TutorialsPoint.  Based on the knowledge from these sources, we would define Project Cost Managemenet as:

Project Cost Management – Project cost management is a group of techniques, including budgeting, forecasting/estimating, change control, field data collection, scheduling, accounting and design, and reporting that are used together to ensure that a project is completed at its target cost and on schedule.  It is most often associated with the construction industry.  In construction projects, it would include tracking of both project costs and the costs of the materials for structure being built.  In the world of manufacturing, it would only include the costs of the project such as R&D and SG&A.

Note that in the definition we make a distinction between two very different industries:  Manufacturing vs. Construction.  In construction, we are most often making one thing — some sort of structure WHILE we are in in the midst of the project itself.  In manufacturing, we are undertaking the project in order that we make many copies of a product in the future (when production begins).  In manufacturing, we call the project, “Product Development,” including sourcing, testing, design, manufacturing planning, etc.   In manufacturing, which is our primary focus on this blog, there is a fundamental difference in Product vs. Project cost management that goes all the way to the income statement itself.

Income Statement and Product Cost Hiller Associates

CLICK TO ENLARGE!

See the figure to above to understand the focus of Product vs. Project Cost Management on an example income statement for a manufacturing company.  The question then probably arises in everyone’s minds:  Do we need both and which one is more important?  That’s beyond this article, but maybe we can talk about it further in the future, if there is interest.  We’ve left you some clues to answer those questions yourself in the figure above.

In the meantime, somebody call the Project Cost Management guys and tell them they are infringing our acronym!  Everyone knows that the *real* PCM stands for PRODUCT Cost Management!

 

 

Apr 172013
 
2012 Product Cost Management Revenue Assumptions

  Hello Internet and Product Cost Management industry! We’ve had strong interest in our latest article on the 2012 revenues of the Product Cost Management market. There have been several good questions that have made us want to clarify some of the assumptions in the analysis, so that people are clear on what is and Read More!

Apr 152013
 
2012 Revenues in the Product Cost Management Software Market

Hiller Associates received a question this week from a business school asking us what the revenue of the product cost management market is. That was a very interesting question, and one that we have thought about before. However, we’ve never actually sat down to think about the question formally. So rather than answer the person privately, we Read More!

Mar 182013
 
You want to be within 10% of the cost? (Internal Variance in Product Costing)

There are universalities that seem to cross people and cultures, such as, it’s polite to say “please” and “thank you.” These universalities also occur numerically. For example, designs that follow the Golden Ratiopop up all over the world. Many other aspects of one group versus another may vary, but there are these universal touchstones that pervade the Read More!

Mar 042013
 
DARPA false!?  80% of Cost is Not Controlled by Design?

  We are still on our epic quest to find the DARPA study (a.k.a. the legendary seminal study reported to say that ~80% of product cost is determine in the first ~20% of the product lifecycle).  However, during our search we have been aided by Steve Craven from Caterpillar.  No, Steve did not find the DARPA Read More!

Feb 212013
 
It's not the club... it's YOU!   (Lean = Vertical Integration = Better Product Cost Management Part 2)

Last week we talked about the struggle in corporate strategy between Core Competency structures and Lean manufacturing. Whereas Core Competency thinking naturally leads to more outsourcing and extended supply chains, Lean manufacturing would advocate for a geographically tight supply chain, often with more vertical integration. So, what does this have to do with Product Cost Read More!

Feb 192013
 
New! IndustryWeek Article by Hiller Associates: Product Selection versus Product Development (What the product development team can learn from shopping on Amazon.com)

IndustryWeek.com has just published a new article authored by Hiller Associates title: Product Selection versus Product Development (What the product development team can learn from shopping on Amazon.com)  Synapsis: The process of product selection that people do in their personal lives (e.g. shopping on Amazon) is strikingly similar to the process of product development that Read More!

Feb 142013
 
BFO:  Lean = Vertical Integration = Better Product Cost Management (Part 1)

I just read the following article and was smiling wryly while experiencing a BFO (blinding flash of the obvious). The Death of Core Competence Thinking This article talks about the slow… the FAR too slow… death of “Core Competence” thinking.  This is the concept that organizations should only focus on the 1-2 things that they are Read More!

Feb 112013
 
Today's Product Cost Killing Tip -- Control the Evil Robot Overtolerancer!

There were a lot of comments last week to the article we posted with the title: Only 17% Percent of Companies Meet Product Cost Target Many people complained about the dearth of knowledge of the design engineer in Design for Manufacturability.  In the discussion, we also started to propose some solutions to overcome this problem.  However, Read More!

Feb 042013
 
Only 17% Percent of Companies Meet Product Cost Target

People complain about the profitability of products, especially early in production, but how often do products actually miss their profitability at launch? According to the latest research by Hiller Associates, most companies miss product cost targets.  We asked almost forty  people from a variety of corporate functions “How often do you meet or beat product Read More!

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