Apr 102012
 
PCM_World_Map_feature

 

On the last blog post (Product Cost Management – What is it?), I talked the different ways that my colleagues and I have seen the meaning of Product Cost Management take shape over our careers and PCM’s development.  I offered what I believe is a good operating definition of PCM:

 

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.

This definition can certainly be fleshed out further.  I was at a conference a few weeks ago and heard a great presentation on social media by Overdrive Interactive. Part of the presentation was showing their map of the social media sphere that has become viral on the internet and the de facto standard many people use to orient themselves to the social web. I really liked that idea, and I’m a big believer in 1-page maps that give the reader an overview of a complex subject, as well as a starting point to dig for deeper detail.

What does Product Cost Management look like from a graphical viewpoint?   I believe that it looks like the attached map (click on the diagram to enlarge the map or DOWNLOAD IT IN .PDF FORMAT.

Like any other major discipline that product companies follow, PCM contains four main areas:

  1. Culture, Goals, and Incentives
  2. Processes (tied to the product life cycle)
  3. Team Structure and Participants (tied to the product life cycle)
  4. Tools/Software that can help

    World Map of Product Cost Management

    CLICK TO ENLARGE!

Culture, Goals, Incentives – before attempting to put in place any process, people, or tools, the organization first has to ask the tough strategic questions.   Where is our organization today in the PCM journey? To where does we hope to get and by when? And the big question: What is the priority of PCM and how much investment (honestly) will we make to close the gap from between today’s state to our goal? Once the company answers these questions, it can talk about the strategic structures that drive behavior (roles, incentives, and leadership support).

The next two continents on the PCM world map  (PCM Processes, and PCM Tools/Software) follow the product lifecycle, and need to integrate with the company’s product development process. Different processes and different participants are appropriate at different points in the cycle.

Finally, we have the PCM Tools available to take on the journey.  They fall into different buckets as follows:  (a) homegrown tools (including Excel), (b) general platforms (e.g. PLM, ERP) that may be customized, and (c) specialty Best-In-Class (BIC) tools that focus on PCM processes. In the PCM World Map, many of the major BIC software systems are shown in a 2×2 diagram. We’ll discuss the 2×2 in more detail in a future post, but I don’t want readers to think there is a “magic [best] quadrant” in this 2×2. It is simply a descriptive conceptual diagram

One important thing for people who are navigating the map to realize is that Culture, Process, Team, and Tools are all interconnected and influence one another (see the top right in the header of the map). For example, if you are at the beginning of the PCM journey, it is likely that your company is not ready for all the processes shown. It also may only use one or two of the tools. The company may not have reached a capability level to benefit from some processes, people, or teams.  Despite the inter-connectivity of the system, the best place to start when beginning the PCM journey is with the Culture (see blue arrows on the left of the map).

Like all high level maps, there are cities and even countries shown on it that have more detailed maps of their own.  However, most companies would do well to focus on understanding the geography at the world level first, before hoping on a plane to a specific city.  We can worry about street maps once we decide which cities we are going to visit!

 

  41 Responses to “World Map of Product Cost Management”

  1. Nice chart, Eric. I like your four bucket approach, starting with company goals and culture.

    I like to define behaviors of the people doing the work. One important behavior is working across boundaries. I’ve found it critical for engineering to actively reach out to manufacturing (as subject matter experts on process and cost) in order to co-design function and cost.

    Mike

  2. @Mike – yes, I agree. The X-functional ‘collaboration’ problem seems to age old, and even though there has been a big focus on that idea since the the eighties?, it still seems to be a challenge today, even with all the newest tools for sharing information and communicating. Why do you think it still exists and is so heavily lamented? Where are people missing the boat?

  3. Eric, this is a very good overview of the product costing software that is available on the market. Some brands are new to me, allthough I am investigating for more than two years. I am the owner of ORAGO, a german software company that offers product costing & project controlling software.

    Joerg

  4. Hi Eric,

    we also like this overview! Which software is it in the upper right field? There is just an icon, no name.

    And to complete your list of software vendors, you should know us ;-) Since 2000 we develope software for product costing including calculation data.

    Greetings from Germany
    Claudia

    • Hi Claudia,

      Thanks for your interest. I think that the logo that you are referring to is Boothroyd & Dewhurst DFMA. As far as your software, I am happy to learn about it. Please drop me a line to eric(at)hillerassociates(dot)com, and we can set up a time to chat.

      Thanks,

      Eric

  5. [...] may sound like an oxymoron, but some form of this statement is uttered every day in the world of Product Cost Management (PCM).  Usually, a company, will say, “I don’t have time for profit.” right [...]

  6. [...] Perfect Costing Solutions who makes Tsetinis Perfect Pro-Calc and Perfect Calcard.  In the biggest Product Cost Management (PCM) news of the day, Siemens PLM (specifically the Industry Automation Division) [...]

  7. [...] theme of the presentation was driven by the latest research in Product Cost Management done by Hiller Associates.  Those who follow us regularly know that we segment problems in our [...]

  8. [...] How often does your company meet its product cost targets?  Does anyone know in your company know? These are questions you cannot afford not to ask. Is your firm the 17%… or the 83%.  If you are in the 83%, consider starting or improving your efforts in Product Cost Management. [...]

  9. [...] talked about these three elements and the fourth (Tools) in our discussion on the PCM World Map before.  I would argue that you need to start with Process.  Depending on the maturity of your [...]

  10. [...] the end of the day, the data and assumptions that we use in Product Cost Management, specifically in cost models, is as (or more) important than the equations and the approach to [...]

  11. [...] week we began talking about a common problem in many projects, including Product Cost Management: the withholding of needed data for analysis and modeling.  We also talked about the many reasons, [...]

  12. [...] we strip off the automotive context, the main premises of the article from a Product Cost Management point of view are as [...]

  13. [...] studies in the world of product development and probably the most famous study in the history of Product Cost Management.  It was done in the 1960’s (reportedly) by DARPA (The US Defense Advanced Research Projects [...]

  14. [...] product attribute is more important:   time-to-market, product cost, or performance?  There’s no right or wrong answer, in general, but there is a right answer for [...]

  15. [...] of the ways that industry has tried to remedy this situation is with sophisticated Product Cost Management software. This software codifies a lot of the tribal knowledge that resided in the manufacturing [...]

  16. [...] 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 world. The same is true with companies. Granted, one might argue that one company simply is imitating another company and that is why they share a simple practice or the important of a certain number. We believe that this is, indeed, true in most cases. Still, there are a couple of numbers in companies that seem to arise independently in all companies. We are going to talk about some of those universal and independent numbers today with respect to Product Cost Management. [...]

  17. [...] good news and there is bad news with respect to the estimation of the size of the Product Cost Management market. The good news is that the market is fairly self contained, i.e. there are only a certain [...]

  18. [...] group of included vendors today in 2012. This does NOT represent the Total Addressable Market for Product Cost Management [...]

  19. [...] and the rest of the Rangers don’t really have a home, and so it is also with Product Cost Management in most organizations. It’s very rare to find Product Cost Management a department that is not a [...]

  20. [...] the end of the day, the data and assumptions that we use in Product Cost Management, specifically in cost models, is as (or more) important than the equations and the approach to [...]

  21. [...] at Harley-Davidson) What are you trying to boil? (Part 2 of Pete Schmitz at Harley-Davidson) World Map of Product Cost Management The Voice of Should-Cost (Voices Series, Part [...]

  22. [...] may sound like an oxymoron, but some form of this statement is uttered every day in the world of Product Cost Management (PCM).  Usually, a company, will say, “I don’t have time for profit.” right [...]

  23. [...] product attribute is more important:   time-to-market, product cost, or performance?  There’s no right or wrong answer, in general, but there is a right answer for [...]

  24. [...] New Article by HA in Tech Clarity: PRODUCT COST MANAGEMENT AS A LINK BETWEEN ENTERPRISE SYSTEMS World Map of Product Cost Management It’s not the club… it’s YOU! (Lean = Vertical Integration = Better Product Cost [...]

  25. [...] Where’s Finance and Accounting in Product Cost Management? (Part 1 of Pete Schmitz at Harley-Davidson) The Rangers of the Wilds – Where does product cost management live in the organization? Project Cost Management vs. Product Cost Management World Map of Product Cost Management [...]

  26. [...] been talking about a 100% cost reduction strategy vs. a 100% cost avoidance strategy. The field of product cost management would teach us to focus on what practically works and generates maximum profit. In this case, the [...]

  27. [...] Product Cost Management Post to Upset Everyone! World Map of Product Cost Management Project Cost Management vs. Product Cost Management Product Cost Management – What is [...]

  28. [...] 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 world. The same is true with companies. Granted, one might argue that one company simply is imitating another company and that is why they share a simple practice or the important of a certain number. We believe that this is, indeed, true in most cases. Still, there are a couple of numbers in companies that seem to arise independently in all companies. We are going to talk about some of those universal and independent numbers today with respect to Product Cost Management. [...]

  29. [...] or Improvement You want to be within 10% of the cost? (Internal Variance in Product Costing) World Map of Product Cost Management Don’t Pave the Cowpath; Plan the Autobahn (Part 3 of Pete Schmitz at [...]

  30. [...] studies in the world of product development and probably the most famous study in the history of Product Cost Management.  It was done in the 1960’s (reportedly) by DARPA (The US Defense Advanced Research Projects [...]

  31. [...] Siemens buys Perfect Costing Solutions (Tsetinis) PLM, ERP, and the Effect on Product Cost Management 2012 Revenues in the Product Cost Management Software Market World Map of Product Cost Management [...]

  32. [...] week we began talking about a common problem in many projects, including Product Cost Management: the withholding of needed data for analysis and modeling.  We also talked about the many reasons, [...]

  33. [...] the subjects about which you wrote. For example, let’s say that you write an article about Product Cost Management. Someone comments on your blog site or linkedin, etc. They may write about the same topic as the [...]

  34. [...] of companies tightly clustered around a lake of profit.  Lake Costbegone is the vacation spot of Product Cost Management. Lake Costbegone (and maybe many other corporate disciplines besides Product Cost Management) are [...]

  35. [...] we strip off the automotive context, the main premises of the article from a Product Cost Management point of view are as [...]

  36. […] managing partner of Hiller Associates, an operational and strategic consultancy specializing in product cost management, financial modeling, operations, business planning, software product management, and product […]

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