Design For Cost-A Review of Methods, Tools - Mörtl - Schmied

Journal of the Indian Institute of Science
A Multidisciplinary Reviews Journal

ISSN: 0970-4140 Coden-JIISAD
© Indian Institute of Science
Reviews
Design for Cost—A Review of Methods, Tools
and Research Directions
Markus Mörtl and Christian Schmied
Abstract | Whether they know it or not, everything designers do influences

cost issues, which can be crucial for success on the market. Providing key
support, research in design for cost aims to enable designers to make
better decisions to develop cost-efficient and competitive products. This
review presents basic findings of cost impact on engineering design as
well as major achievements in the field of design for cost. Being the most Design for cost: Design
methodology that
important source for research in this field is industrial practice, a framework incorporates all important
for cost reduction projects is included. Recent research work is reviewed, influence factors for cost
efficient design.
with regard to origins and influences. In this approach, a generic framework
is provided, which identifies drivers for future work in design for cost. This
review is of value for both academics and industry.
Content product quality, number of pieces, design concept

The initial sections describe the basics of cost and more. The awareness of expenses, cost concepts
accounting as they are required in design and and calculation procedures are very important for
their application. In the introduction we present the designer. As a result, the designer can already
an overview of the basic problems that arise begin evaluating product concept variations based
when dealing with cost in the early stages of on the projected costs at an early stage and select
product development. In particular, we look at one or more cost-efficient concepts that can be
the influence of the market and recent changes. examined in more detail later.
In the following, the importance of design and While in the past these products were
development for cost causation will be considered. largely mechanical, electronics and information
Then the essential business management basics technology for mechatronic systems are becoming
and the associated concepts will be introduced, increasingly important in design; so more and more
along with several cost accounting methods. On designers from these fields have to work together
this basis, factors that influence costs and potential to create a functioning system. In the early design
options for cost reduction will be discussed. After phase, the solution space includes a huge number
that, methods and approaches for dealing with cost of possible concepts. Therefore, it becomes
reduction and cost estimation will be presented. difficult to analyse and evaluate the influence of
Because the most important source for research each domain on the product concept.
in this field is industrial practice, a systematic In the field of mechanical engineering, there is
methodology (Section 3.1) and framework for a large choice of estimation methods with respect
cost reduction projects is included. Then, a review to material expenses and production costs. The
on recent research is presented by structuring the evaluation of potential future financial losses
area of design for cost in three major domains, and consequential costs comes on top, once the
and emphasising some recent and future research electrical engineering domain joins the project. Lehrstuhl für
Produktentwicklung,
directions. Within the scope of information technology, Technische Universität
expenses are calculated according to the estimated München, Germany.
1 Introduction personnel cost for specification, development, Institute for Product
Development, Technical
Developing cost-efficient products involves taking implementation and testing (Zirkler 2010). For University of Munich,
into consideration materials, manufacturing mechatronic products, cost estimation procedures Germany.
methods, transportation, energy consumption, are still being researched. moertl@pe.mw.tum.de
Journal of the Indian Institute of Science VOL 95:4 Oct.–Dec. 2015 journal.iisc.ernet.in
Services offered in connection with a product There are exceptions, of course, where the
usually have to be taken into consideration. In products are new to the market, for which there
this way companies try to secure existing markets, is yet no competition. Here, manufacturers dictate
expand within them, or try to open up new price, and thus as leaders try to set high prices and
markets. skim higher profits.
Naturally, there are companies that only offer This approach is risky, especially if it is a
services (for example maintenance and repair) product that can be easily copied or designed.
targeting products or systems of other suppliers. Smart companies might quickly establish a
Product manufacturers may not offer this service competition and underbid the first supplier with
yet, or the demand on the market might be so high substantially lower prices.
Design to cost: Design that several companies can offer these services. The subject areas of imitation products, know-
methodology that Increasingly, e.g., on the basis of legal how protection and piracy of products were
incorporates cost as a
design parameter. guidelines, it is becoming necessary for designers examined by (Ernicke et al. 2010) and (Labuttis &
Bottom-up approach:
to look not only at the production and overhead Meiwald 2010).
Cost calculation approach costs for a product, but all life cycle costs, including With ‘bottom-up’ approach (Figure 1), price
that derives the selling the removal of the product from the market. In was formerly generated from added up costs
price from the basis of
expected manufacturing
design to cost (text book), Michaels & Wood (material, manufacturing, management) with an
costs plus a company (1989) states this very comprehensively: “design additional overhead margin. Today, this would still
specific overhead rate. to cost explores the entire range of a project from be possible for companies with strong market
Concurrent engineering: concept selection through end use. It captures the position or with products that have unique selling
Design method using essentials of planning, designing, and carrying out features, special customer benefits or even
overlapping or simultaneous
design steps to save time.
activities or producing outputs within given enthusiasm-activation features. In the now-more-
financial constraints, and comprehensively common contrasting ‘top-down’ approach from
Value engineering:
Design method where the provides all the necessary tools, techniques, and the Japanese target costing, the possible market
focus is not only on product data to successfully set and adhere to cost goals. It price to be achieved is to be determined first.
cost but also on product value
embodies essential aspects of both ‘concurrent Seidenschwarz (1991) describes five ways to derive
for the customer.
engineering’ and ‘total quality management’. The target costs: the most common is to derive target
Cost estimating:
The process of
authors show how the disciplines of value costs from the prices attainable in the market and
approximating/forecasting engineering, cost estimating, cost control, and profit planning, which is the purest form of target
costs from preliminary quality design are used to establish realistic and costing. In addition, there is the possibility to
data of the product or
estimation object. For this
attainable cost goals, and the means to carry out derive target cost due to design and production
task, several tools and projects without exceeding these established factors in relation to existing skills and abilities
methods are available to targets”. In recent times, even more topics have (production capacity). A combination of both the
support the designer.
emerged that need to be considered by the above-mentioned methods is also possible;
Cost control: designer. Perry (2002) states: ‘design for cost is a nevertheless, this is critical because the direct
Monitoring of expenses
during the whole product
name for total cost management of a product for market and customer reference as well as the
life cycle. its full life cycle. In addition design for cost (DfC) method to derive target costs by benchmarking
Design for excellence (DfX):
is the hard face of all design for excellence (DfX) from competitor products is softened or missing.
Methodologies to address disciplines …’ Based on the calculated price, the profit necessary
special design requirements. Therefore, the designer should be aware for the enterprise and overhead (including
Top-down approach:
not only of the close topics like Design for Lean administrative and development costs) is deducted.
Cost calculation approach (Mascitelli 2007), but all the DfX disciplines, The remaining cost target is the manufacturing
where the market price because cost influence will be determined by every cost of the product. This value is given to the
determines the cost targets.
design task in every area. An important basis for designers or product manager as the cost target,
Target costing: design for cost is effective cost estimation like which he should be able to attain or reduce further
In target costing, the currently (Sheldon et al. 1991) states: ‘Design for cost relies with the result of his work, system, product, or
foreseeable product costs and
the established target costs heavily on effective cost estimating, so that the component. Depending on the size of the system
are continuously compared designer can use it for a quick check on cost when or product, it can be useful to break down the cost
to actual and anticipated (s)he makes a decision.’ target into partial goals.
performance. The target
costs are derived from
market analysis. 1.1 Market change 1.1.1 Total cost: The total cost comprises
Life cycle cost (LCC): In earlier days, there was rather a seller’s market in manufacturing, administrative and development
Costs of the entire product which a company could dictate the price; however, costs (see Figure 2).
life span, e.g. initial costs, today companies often find themselves in a buyer’s
one-time cots, operating
costs, maintenance costs market: The buyer or a competitor dictates the 1.1.2 Life cycle cost: The life cycle cost (LCC)
and other costs. price. consists of the costs incurred at the product
380 Journal of the Indian Institute of Science VOL 95:4 Oct.–Dec. 2015 journal.iisc.ernet.in
Design for Cost—A Review of Methods, Tools and Research Directions
Figure 1: The market price determines the cost target (not the expected manufacturing costs, but the
market price!) (Hundal et al. 2007, translated from 5th ed. of Ehrlenspiel et al. 2014).
Figure 2: Composition of lifecycle costs (Hundal et al. 2007).
manufacturer (total costs plus profit margin), the This may include possibly several cycles of product
profit margin, and all the accumulating costs while use, if the product is subjected to modernization or
the product is used, including its recycling (see upgrading, and therefore, is again- or re-used in
Figure 5). identical or similar form (Phleps 1999, Mörtl 2002).
Journal of the Indian Institute of Science VOL 95:4 Oct.–Dec. 2015 journal.iisc.ernet.in 381
The amount of the shares of the different types having important influence on cost (Barton et al.
of costs (investment-, operating-, maintenance-, 2001).
disposal costs etc.) can be very different depending Therefore, one has to extrapolate not only the
on the product: A screwdriver has, for e.g., no cost target that needs to be undercut, but also the
operation and maintenance cost. In contrast, a cost resulting from development, management
professionally used motor vehicle causes—as a and prototyping, i.e. spent cost during the project
result of the higher miles achievement—more period that already incurred. It is most important
operational and less investment cost than a making an early and qualified estimate of the
privately used car, whose cost focus is rather on future product costs (material and production
investment cost. costs): how much the product will cost that we
are planning and developing now? What assembly
1.2 Cost responsibility in the early stages effort do we have to expect? What costs until the
The previously referred aspects can already show product or system ready for use by the customer?
that it is becoming increasingly important to Because only with early knowledge (estimation)
involve cost analysis and cost considerations as of later incurring costs it would be possible, at the
early as possible in product design. right time, to plan and execute the right measures
A publication from 2006 (Nißl 2006) outlines to reduce product costs.
that for about 25 years since this publication, no Evaluation of the prospective cost is based on
company or industry investigation was published imperfect information at the early stage. Yet, a
to review, or, if necessary, update any aspects variety of possible and proven methods and tools
of the distribution of the cost responsibility have been developed to solve exactly this problem.
Relative cost figures: displayed in the VDI-Guideline 2235 (1987), These range from quickly applicable relative cost
Quick tool for calculating see Figure 3. This representation of 1987 as well figures or cost estimating relationships (CERs)
product costs with
graph support. as recent publications, therefore, rely on three (e.g. based on product mass/weight) to more
sources: (Bronner 1968), (Ehrlenspiel 1980) sophisticated software systems (E.g. HKB, Facton,
Cost estimating and (DFG 1978). In international literature, we XKIS, KosKA, CoCoS, etc.), which require
relationships (CERs): can find a similar pattern, where some authors maintenance of their supporting databases
Mathematical functions
that calculate costs of a new mistakenly even go on to state that later phases (Reischl 2001, Nißl 2005, Gahr 2006, Hellenbrand
product based on one or in product design should also be addressed as et al. 2010).
more parameters to simplify
cost estimations.
Figure 3: Costs set and costs incurred in different departments (VDI-Guideline 2235 1987).
Figure 4: Possibilities of influencing and establishing costs—know how-transfer to future projects

(Mörtl 2012). The image has a similar statement as the figure in VDI-Guideline 2235 (1987).
Not all cost information is available when Above all, the developers involved in the
a project starts. This, on the one hand, depends early stages of the product development process
on how precise, up to date, and extensive the themselves consume costs (salaries), and are, on
basis of current cost information for currently the other hand, responsible for the costs incurred
manufactured products, former products and in the later parts of the product life cycle (materials,
their prefabricated parts and design steps is. On manufacturing, purchased parts,... maintenance
the other hand, cost data in the literature on other costs, recycling). For meeting the requirements
companies and products are not transferable 1:1, given to them by the management, sales
since this in turn depends on a variety of factors: for departments, and product managers, designers
example, the specific situation (location, facilities, have a particularly high level of responsibility in
wage levels, laws etc.), the product (e.g. variants, adhering to the cost targets for the product to be
complexity), or major influencing factors on the manufactured. Staying within the target cost can
costs (material, size, number of pieces, etc.). be facilitated and improved if cost information
It is virtually impossible to make cost estimate from previous, similar or external products is
hit the bull’s-eye for the first time. Cost estimation accessible (Figure 4). A good documentation and Cost estimation:
must be practiced, one has to gain experience and search is an important step in this direction. Forecasting of costs.
continuously expand the supporting data base. In the early stages, numerous possibilities are
If one completely neglects cost management, available for the designer to influence the later-
the risk of developing too expensive a product incurring costs. In the course of the project progress,
and causing a failure in the market will be high. these chances drop rapidly. Figure 3 shows that the
Such situations have often led to bankruptcy of later the changes in a product design are carried
companies. For highly-priced products, cheaper out, the more expensive the products eventually
competitors can also more easily emerge. will be.
For companies to survive in the long term,
long-term strategic as well as short-term tactical 2 Influences on Cost Reduction
measures need to be employed. Though cost With the basic knowledge of business management
management primarily concerns the strategic area, and cost accounting from the previous section, we
short-term measures may also be necessary to be now examine the most important parameters. It
implemented. Cost management is targeted has been shown that the early stages of product Cost management:
control of resources to achieve a profit and development have a big influence on the product Targeted and systematic
steering of costs.
competitive advantage in the long term. This concept, production costs as well as life cycle
includes constantly repeated evaluation of costs, costs.
and active continuous improvement using Figure 5 highlights some parameters that
systematic approaches. influence production cost, broken down into three
Figure 5: Examples of parameters affecting manufacturing costs (Hundal et al. 2007).
different elements. The elements or departments be (particularly for high wage countries). The
have special competencies with which they investment in the machinery will also be higher,
influence production costs.In order to exert influence but batch sizes can be higher as well. However, the
on certain parameters, several departments need demand for a reduction in capital charges (e.g.,
to co-operate closely and deal with areas of storage charges) comes along with a reduction of
overlap in responsibility. An optimum must be batch sizes (because more frequent delivery to the
found within complex interdependencies on total customer becomes necessary) that subsequently
costs. If everybody in the departments is working requires more frequent set-up of the machinery.
just on his own, it could be that a minor change, Special demands for the quick set up of the
e.g. the cost of materials, given by the purchasing machines are made, which raise the cost of the
department leads to a substantial increase in system again, meaning that the cost for more
the production costs. As a result, the product frequent changes of the set up ( = set up cost)
cost could increase. These errors can be avoided have to be covered by lower batch sizes.
by close cooperation and an open exchange of In the following, some influence parameters
information. are examined. For additional parameters and the
One must look at the network of influence possibilities to influence costs, see Hundal et al.
parameters repeatedly and make decisions with 2007.
regard to the optimisation of the relationship
between, say, manufacturing methods, batch 2.1 Requirements
size, number of pieces and capital requirements. A clear definition of tasks, requirements and
As a rule, the higher the number of pieces, the customer requests (see Figure 5) can reduce
more automated the manufacturing process will costs. Accordingly, product developers should
be integrated into a project team at this stage to new concept led to an overall reduction in life
understand the customer needs early, which could cycle costs (Hundal et al. 2007).
result in lower costs.
On the other hand, the requirements have 2.3 Shape
to be re-checked and scrutinized constantly. Shape includes the entirety of the geometric
High expenditure can be caused by too-high features of a product. These are fixed while
requirements, guarantees, acceptance conditions sketching and working out. There are guidelines,
and the fulfilment of legal requirements. like for example, ‘from the most important to the
least important’.
2.2 Concept In designing, not the first-best solution should
New product concepts must fulfil new market be implemented, but to look for alternatives
requirements as well as be substantially cheaper, (Figure 6) and to evaluate them technically and
as illustrated below. economically.
• Electromechanical switches consist of five to 2.4 Quantity

six parts, but are suitable for higher current. Quantity is a very significant factor influencing
Membrane switches, in contrast, consist production costs. With increased quantity or lot
of only three parts (top, inner and bottom size, fixed costs (e.g. advertising, proposals, Fixed costs:
membranes), save space, and are lightweight manufacturing planning, purchasing and shipping Fixed costs are those whose
value is independent of the
with 50 to 70% cheaper production costs. operations, material testing, etc.) are shared by appearance of a specific
• Before the oil crisis in the 1970s, container more produced parts. Larger quantities also cost-controlling variable.
ships were driven by medium sized diesel generate training effects (learning curve) that lead In contrast to variable costs,
these are costs whose value is
engines increasing cargo volume; however, to acceleration of work procedures and reduced dependent on the appearance
they required higher-quality, more expensive costs. of a specific cost-controlling
fuel. Due to the rising fuel prices, these engines If production costs of a component have high variable (e.g. material direct
costs).
were replaced by low speed diesel engines, setup cost proportion, so the setup costs decreases
though they needed more space, which reduced very quickly when quantities increase, even when
the cargo size, they could burn cheap fuel. This quantity is increasing only slightly. If production
Figure 6: Overview of shape variational features (illustrative sketches and examples are given in
(Hundal et al. 2007).
costs have a low setup cost share, the set-up costs processes for the whole spectrum of primary
per piece decrease only slightly, even if the quantity shaping, deformation, separation, joining,
increases more. This rule to ‘increase quantity’ is property change and coating processes. Even if
effective for cost reduction, particularly for high only one small number of procedures gained
set up or fixed costs. acceptance and became industry standards,
For companies producing low quantities, some procedures could bring cost savings to
measures for cost reduction should rather be, say, even a one time cost (effort) (introduction,
for reducing material costs, production costs or training, know-how accumulation) dealing with
variants management. a new manufacturing method, or mounting
procedure may deter many companies from
2.5 Size and dimensions investing in technology and capital. It has to be
For calculating cost changes for size adjustments, mentioned that companies with new, innovative
the size ratio ϕ is applied: manufacturing processes definitely have the
chance to take over a cost- and market leadership.
MC1 = PCs0/n ∗ ϕ0.5 + PCe0 ∗ ϕ2 + MtC0 ∗ ϕ3 When choosing a cost-efficient manufacturing
method, attention has to be given not only to
ϕ = the typical linear dimension of the succeeding the quantity, availability, reliability, delivery time
design l1/the typical linear dimension of the basic etc.—but also to the interlinking of shape of
(initial) design l0. With index 0: cost of basic design; parts, material, connecting processes and design
manufacturing costs MC1: cost of succeeding structure. Note that this could possibly make a
design; n = quantity. further redesign necessary.
For the cost of modified size, the cost shares
MC, PCe and PCs influence cost by different 2.7 In-house manufacturing
proportions. The exponents are applicable for and outsourcing
rough order of magnitude assessments, but can In connection with manufacturing, one needs
still vary in detail: make a choice as to whether to ‘make-or-buy’, i.e.
outsourcing. In this case, there is a variety of pros
• The material costs grow with the third power and cons to be weighed. Arguments in favour of
of the size ratio, because the material is a solid: a performance-depth reduction may be, for
MtC1 = MtC0 * ϕ3. example, a higher flexibility with order
• Production costs from individual times fluctuations and a lower capital commitment.
grow with the square of the size ratio, since The know-how loss, possible supply outages or
processing steps are usually dependent on the insufficient quality, and the increased overhead
surfaces: PCe1 = PCe0 * ϕ2. for coordination with the suppliers are the
• Production costs from set-up times grow in negatives. If one looks at the decision ‘make-or-
the ratio PCs1 = PCs0 * ϕ0.5. buy’, cost needs to be taken into account, since
purchased parts cause additional costs for the
Therefore, it is apparent that by changing company, in addition to the purchase price, like
the size, primarily cost of materials can change order processes, receiving of goods, material
substantially. The changes in production costs testing, or storage costs. Often, these are accounted
Overhead costs: from single- and set-up times remain lower in for as overhead costs.
All costs that cannot be relation to the changes in material costs.
directly assigned to an
allocation object or to an The rule derived from that, to pursue small 2.8 Variants
application (e.g. salaries of design, yet, must be seen under concurrent During market analysis, information about
management). Therefore, attention to the objective. If smaller design e.g. possible future variants and their potential
overheads are also called
‘indirect costs’. requires changing materials (expensive special quantities can be obtained, also about the
materials) or complex lightweight design, this can estimated time when they would be requested
also result in a more sophisticated manufacturing on the market. Even the company’s external
method with even increased cost! causes for these variants are diverse: increasing
competition, demand for product
2.6 Manufacturing and assembly individualisation, differentiated ergonomic
According to VDMA (2006), production costs requirements of globally dispersed customers,
represent a high percentage of total costs, global different climatic conditions, prevention
approximately 28% in mechanical engineering. of product piracy, etc. The reasons within the
On the other hand, there are a number of company may be, for e.g., the lack of cooperation
between departments, an unsystematic change project types. Therefore, a method is required Change management:
management, lack of an effective, rapid system in most cases which allows a flexible approach Covers all aspects of planning
and execution of engineering
for search of repeat parts and similar designs, to the designer. Only in rare cases where the changes.
the missing use of experience and on an designer still has little experience with cost-
insufficient internal standardisation system. In reduction projects, a rigid approach makes sense.
many cases, the sales department may also raise Experienced designers will rather employ flexible
the variety of variants in design and development, methodologies, where they can set the focus of
accepting special orders and customized their work according to the above mentioned
solutions. A task of the variant management in questions.
the sense of reducing costs is to increase The procedural cycle of how to reduce cost
quantities (e.g. using similar design or repeated of products (according to Hundal et al. 2007) is
parts), thus influencing fixed costs (e.g. drawing shown in Figure 7 in compressed form. Under
practice, item numbers) and to affect variable item II of the procedure cycle, suggested questions,
costs. including notes in part are given in Section 2.
Answers to item III are given in the following
3 Cost Estimation and Quick paragraphs.
Calculation Procedures Mörtl (2016) recommends preparatory steps
Cost estimation in the early phase of product that are necessary even before a project officially
development is done using cost estimation or quick starts. This guides project managers and team to
calculation procedures. Besides computational become aware of targets and project scope, and
tools, organizational boundary conditions are also enables a better planning. Thus, this will facilitate
necessary for obtaining a speedy and exact cost the processing of subsequent, detailed steps within
estimate. A cost estimate has several objectives, the project. Cost estimate:
including: Not every cost reduction project can be Cost approximation as
result of the cost estimating
carried out under the same conditions, and with process. Estimation goes faster
• Continuous calculation and control during the same methods and tools. Once the time frame than calculation, even it is
the product development process. for the project available changes, in another case, less accurate, it is sufficiently
enough for many cases.
• Comparison of actual costs with the previous the design freedoms to achieve cost reductions
estimate and with the current cost target. may alter. Therefore, different cases need to be
• Comparison of variants on component or treated differently. The proposed procedural
functional level. model is useful for those that need to initiate,
• Early detection of cost reduction opportunities. guide, or perform new cost reduction projects.
• Supporting development and sales department Responsibility for a cost reduction project can be
for proposal submission. in operations (design, development) as well as in
• Control of supplier offers and compare with overall areas (product manager).
own estimates.
Procedure
3.1 Methodology The described procedural model follows the
There is a variety of methods for systematic principle ‘from coarse to detail’. First the
product design. In part, these can also be adapted coarse, oriented questions about the system to
and applied in cost reduction projects. First, some be worked on in the cost reduction project are
fundamental questions concerning the project answered. Then the degrees of freedom within
need should be addressed are: the project framework relating to functions,
design, manufacturing processes and others
• one-time cost reduction vs. repeated cost are analysed. After this, the cost structure is
reduction project examined, and the essential cost impact factors
• time-criticality are identified. Detailed analyses be carried out
• small vs. large cost reduction subsequently.
• whether single, small, or mass-produced.
3.1.1 Initial questions: First, the scope of the
By answering these questions, a project project should be decided. These questions serve
manager can make an initial assessment for to answer the following:
possible methods. Though a method should show
a certain guideline, no uniform recommendation • How quickly do cost targets need to be
is possible on account of the very different implemented and obtained?
Figure 7: Procedural cycle for cost reduction of products (Hundal et al. 2007).
• Which type of cost target must be achieved: a in concept, design and manufacturing processes
minor (< 10 percent), a medium (10–20%) or arise for cost reduction.
high (over 20 percent) cost reduction?
• Is the project a new design, an adaptation of 3.1.2 Analysis of margins: In addition to project
existing design or a variant design? boundary conditions (e.g., budget, schedule, staff/
• What is the quantity? Is the product capacity etc. as shown in 3.1.1), design freedoms
manufactured individually, in small or mass or limitations are also of high importance for a
production? cost reduction project:
• Does the cost reduction project concern the
entire product range, one product or only a • Is the previous task negotiable or can the
single component? product requirements be changed?
• What costs seem relevant in the project: which • Are there margins in the function of the
market is the target? What costs will be major product, or in the feature concept?
sales argument to our customers? Life cycle, • Can alternative product concepts be
total or production costs? designed?
• Are there change opportunities in product
These questions are not strictly sequentially design?
isolated, nor to be answered individually. They • Can other manufacturing or assembly
need to be considered in an interconnected methods be applied?
manner, because many cost factors and boundary
conditions affect each other. If, for example, only The less the margins in each issue, the less the
one variant is designed and its costs reduced, scope for cost reduction is. This requires thinking
there might be very little opportunities within a in the project not only in requirements and
systematic variant management. If the variant is wishes, but explicitly for searching for margins
produced in higher quantities, more opportunities and documenting them.
3.1.3 Preliminary cost analysis: After the early 3.1.6 Concluding remarks on the procedure
considerations and assessments, it is now necessary model: To conclude, it is essential to conduct
to deal with preliminary but more detailed cost a costing of the project or product. It should be
issues (if the project is still evaluated as positive compared with the previous cost estimate, which
and feasible). will show up as the difference between the earlier
Determine the main cost shares of the estimate and the final costing. This knowledge can
project: Analyse which costs represent significant be of benefit to future projects in cost estimation
shares in the project. corrections, and in adjusting or reducing errors
Determine the main cost factors/cost drivers: and increasing accuracy.
Examine which parameters primarily influence
costs. 3.2 Continuous cost tracking
Focus on the essential types of costs and In addition to the systematic approach, it is equally
identify cost reduction options: Consider how important to document the steps and also the
the main costs shares (e.g. costs of material) can changes of costs of a project. It is not enough to
be impacted and reduced. Create corresponding determine the cost target only at the beginning of
ideas (e.g. cheaper procurement, alternative a project. Internal (e.g. company specifications) or
materials, use of prefabricated products or external (market) influences move cost objective
increasing the quantity of purchase). conditions,and these changes should be tracked in the
Select an approach and supporting methods: documentation. Costs planned during the product
According to the time available, project scope, development process and actual costs consumed
necessary cost savings, identified costs drivers or (Figure 3) must both be constantly reviewed and
quantities, it may be necessary to select different costs planned continuously corrected.
approaches for the project. There are very A continuous monitoring of costs from project
different, even industry-specific procedure models, start to the final costing is the key to stay constantly
e.g. TOTE scheme, procedure cycle, the up to date, not to lose the overview about the costs
TOTE scheme:
munich procedure model (MVM), target costing, and also to learn from former projects. Even if this Basic Test-Operate-Test-Exit
integrated value engineering (IVE), value analysis, task ties up resources, it is essential for a steady cycle for design decisions.
variant management, etc. (Lindemann 2009). If a know-how growth in terms of cost-effective
Procedure cycle:
method is already established, it is to be examined design and a durable development of the company A basic scheme for problem
as to whether it is expedient for the present with competitive products. solving, including the steps:
task clarification, solution
project. Steps that can be performed in advance A cost tracking table (spreadsheet) is shown in
search and solution choice.
even before a big cost reduction project starts Figure 8. It represents a possible template to
now follow. anchor the cost topic extensively in a design Munich procedure model
(MVM): A structured
project, to document, to make for all procedure cycle that supports
3.1.4 Detailed cost analysis: Depending on the involved transparent and to constantly monitor the designer systematically
scope of the cost-reduction project and the project (download at http://files.hanser.de/hanser/ from target planning to target
attainment in engineering
boundaries shown in Section 2.2 (e.g. time, cost docs/20130801_2138113324-38_978-3-446- design processes.
target among others), more or less detailed 43000-6_Zusatzmaterial.zip). It should be applied
procedure models, methods and tools (e.g. value at the outset with consistent layout and a consistent Integrated value engineering
analysis, VDI standard, ...) must be applied. Mörtl cost structure. (IVE): Cost analysis method
that combines target costing
(2016) recommends an advance set up of a The following content can be documented in and value engineering.
transparent cost structure and to start with a such a table: Actual costs of the previous product
Value analysis:
simple ABC analysis. This would help recognise (if any) with its components, component costs Synonym used term for value
the cost focus and gain more knowledge, as and drawing numbers and drawing state, costs of a engineering.
described in the beginning of Section 2.3. competitor’s product, target costs, and parts of target
Cost tracking table:
costs for the new product with component costs. Tool to collect all incurred
3.1.5 Implementation: Procedure models need For these targets, proposals for measures can costs to estimate future
a detailed plan for cost reduction projects, but be established, with clear responsibilities as well costs and to compare them
with the target costs.
requires taking into account staff capacity, budget, as with corresponding milestones and deadlines.
dates, safeguard measures, supervisory bodies, In the following meetings, the state of actual cost ABC analysis:
Method to divide subjects/
organization a consistent cost management, or the cost estimation of the new parts can then items into three categories:
project cost documentation, etc. These be recorded and compared to predetermined A = very important,
organizational steps should be prepared in detail targets. B = medium important and
C = marginally important.
and agreed with the involved departments and The targets are controlled, if necessary adapted, This helps to focus on most
individuals. and new measures are decided upon. Over multiple important issues.
Figure 8: Cost tracking table, virtual, not complete example (Mörtl 2012).
meetings, the cost estimates and calculations on the scope and tension of a cost reduction project,
are continuously documented until the result is necessarily design freedoms are to be shown to the
achieved. A graphic can visualise the comparison team. The known killer arguments (‘we have tried
of actual costs, targets and competitor’s costs. for ever’, ‘this never worked’) should be prevented.
Though the final costing of a project on actual costs Instead, all opportunities for cost reductions are
basis is an unbeloved assignment, nevertheless, it to be documented and worked through step by
shows a necessary learning effect for future project step to evaluate costs.
treatments. Changes in design that lead to cost reduction
should be discussed and evaluated objectively,
3.3 ramework for cost reduction
F even together with the customer. Reducing costs
projects not only means having to change, but also being
A framework for cost reduction should be allowed to change—with supportive backing by
applied during or in addition to the daily work the supervisors and management.
of the developer’s ‘by the way’ costs reduction While reduced costs are quickly apparent in
and cost estimation activities. It is a must for initial cost estimates, the implemented projects
larger projects, but can involve high effort. When are reflected in balance sheets but only in a few
developing a system, the designer can be quite months. Measures for costs reduction can be
busy full time, so to collect cost data and maintain quickly planned and launched, yet their impact
the documentation for a continuous and timely will show only later. The contractor of the project
cost tracking can be difficult as an additional must be aware of this, if he has to demonstrate
task for the designer. A cost reduction or value project success with figures.
analysis project should, therefore, be initiated
by a higher supervisor, a department manager 3.4 Accuracy of cost estimation
or the executive board. It must be ‘installed’ and The earlier cost estimation is performed during
integrated in the company’s organization and the product development process, the less
processes. accurate it is; this is because cost estimation is not
Cost reduction teams consist ideally of yet calculated using actual costs. Here accuracy is
various departments (design, manufacturing compromised for speed.
preparation, production, assembly, quality Divergences between cost estimates and the
inspection, service, sales, marketing), to be able later actual costs can be reduced with the following
to implement, evaluate and adjust measures measures:
(Arnaout 2001). The employees who work only
part-time in the project must be given time for • Components that have a higher proportion
this (agreement between project manager and of costs (A-parts such as e.g. cast housings)
head of department!). A retraction in the day-to- of the total product should be estimated
day business is important to avoid in order not more precisely in their costs. In addition,
to jeopardize the ongoing project due to reduced components with a lower proportion of the
resources or delay. costs (C-parts such as screws) should be
Suppliers should be involved early in the estimated more coarsely.
development process in target costing, so as to • A cost estimate is more accurate, if a high
ensure a trusting and open cooperation (Arnaout number of repeat or similar parts can be used
2001). This common goal is to show a growth of instead of many, difficult to estimate, new
the market through significantly reduced costs. In parts. For such parts, the costs are usually
cooperation with the supplier, possible cost savings already known. At the same time, overhead in
must be planned, identified, and implemented; the drawing or standardization department is
this can be achieved inter alia through visits to reduced, if existing parts are used instead of
production lines, disclosure of work plans and creating new ones.
calculations of parts as well as by the analysis of • Dividing estimation: One should estimate the
error-records. cost of a product not as a whole. The product
Methodological approaches in projects and in instead should be broken down into sections.
the daily work of the product designers are to be This can be done not only for components and
supported by supervisors. Any necessary method processes, but also for features.
training must be encouraged by the personnel • Several people should carry out their
departments. estimations independently. The results are
Managers should not only demand, but also averaged, and then outliers are discussed and
give support and space for the project. Depending adjusted if necessary.
On a higher part, mathematical means out- of cost can be derived. Planned cost calculation
weigh random errors at a cost estimate. However, and detailed costing are also considered analytical
fundamentally, systematic errors such as fear methods in some literature.
surcharges or risk additions distort cost estimates. Synthetic methods are based on mathematical
These deviations must be balanced out. and statistical procedures, and require
specification of quantity, and availability of
3.5 Reducing cost estimation effort detailed design drawings and technical details.
Cost estimation as a design-concurrent calculation, Costs are calculated with the help of one or more
by means of quick calculation procedures, may cost determining factors on the basis of similarity
require a higher effort depending on product size, to already manufactured products.
degree of new- or standard parts, and complexity. These methods are also known as cost
Cost approximation The work can be simplified, taking into account approximation methods or cost forecasting
methods: the following principles: techniques (Schlink 2012). Most international
Estimation method with
formulas which use cost literature refer them as parametric methods (Niazi
drivers and information about • Use of purchased parts and norm-parts: Prices et al. 2006).
similar products. are available relatively quickly out of catalogues Intuitive methods are described only in
or from the supplier. international sources, and are assigned to the
• Use of repeated parts and similar-parts: Costs category of qualitative methods. These are based
are already known. on the application of previous experience. German
• Use of similar parts: Cost can be determined research literature does not subdivide qualitative
Cost growth law: with similarity laws, e.g. a cost growth law methods further; therefore, this term cannot be
A cost growth law (also production. This may concern own, known found there.
called similarity law) is the
relationship of the costs of products, or prefabricated parts from other Analogical methods (analogical techniques or
products similar to each suppliers that can be analysed, for example, by analogy-based methods) are based on the
other. For that, geometrical, the means of benchmarking. comparison of the costs of similar products. These are
material, shape, and
production similarities must • New parts: Use them economically, make called also search- or similarity calculation.
exist, which is usually the case new calculations, or estimate in a qualified way. Cased based reasoning represents a method
for systems in size ranges. • Simple parts (C-parts): Count and multiply by that takes advantage of the experience from
Search- or similarity price. completed projects so as to establish a meaningful
calculation: • Consultancy for production use: a estimate of the cost through the use of similarity
A relatively simple and rapid
means for determining the manufacturing specialist should advise relations.
costs of new products by developers on the designed parts. This would Decision supporting methods (decision
using search and adoption of reduce the change effort and the turnaround support techniques) help to evaluate different
the costs of similar products.
in R&D. design opportunities. The main objective of
• Effort reduction at the increase of accuracy: these is to support the cost estimator with stored
The cost estimates result are improved as more expert knowledge, so that the estimator can make
experience is gathered and practice repeated better decisions at every stage of the estimation
over several own projects. process.
Fuzzy logic is a theory that was developed
3.6 Methods for cost estimation for the modeling of uncertainty. For this reason,
There is a vast number of quick calculation fuzzy logic is considered suitable in early design
procedures that can be carried out by hand or stages where information is still sparse, and of
assisted/supported by computer. Some of these lower accuracy, for cost estimation. Because
are simple formulas or software tools that can this method requires a methodically oriented
be purchased. Apart from the cost estimation process flow, fuzzy logic takes more effort to
approach outlined in Section 3.4, some easily apply.
adaptable quick calculation procedures will be Expert systems are also applied for cost
explained in the following (Sirel 2015), where he estimation. These are computer systems that use
proposes a classification/explanation on basis of knowledge and inference methods to represent
comparison of method classifications in German- extensive human expert knowledge for solving
speaking and international literature: problems. However, they require high one-time
Analytical methods have many synonyms effort to build.
that can be seen in various literature sources. Heuristic rules (rule-based systems) provide,
‘Causal processes’ is applied also as a synonym usually, cross-industry guidance on factors or
for this term; ‘causal’ means that there is always a especially costly parts and production methods.
causality in these methods with which the amount The objective of these rules is to support the
designer to select the cheapest design alternative of known products/parts, it is now possible, with
while adhering to the quality objectives. these formulas and the data of the new product/
Neural networks determine desired output parts, to forecast new costs. Simple calculation
data with a given number of input data. Several methods are indeed faster to create, but usually
authors have tested this procedure for cost are of limited scope and lower estimation accuracy.
estimation, with promising results. For their application, boundary conditions need
Regression analysis is a method for cost to be considered as well. More extensive methods
modelling that is used very often in practice. provide higher accuracy but also require bigger
Using regression analysis, it is possible to find data base, which increases effort to create and
correlations between the explanatory variables apply them. Also, more data/properties must be
and the parameter of interest. The explanatory known about the new part/product.
variables are the characteristics of the product to
be identified. The parameter of interest represents 4 Review of Recent Directions
the costs or at least a size which can be assessed in Research
with a corresponding price factor. For structuring the influences that interact in the
Design equations are a combination of area of design for cost, we need to consider three
different cost growth laws in a cost estimating important aspects:
relationship. The VDI-Guideline 2225-4 (1997)
describes in detail the method of design equations • Cost types (e.g. manufacturing cost, total cost
with examples of its application. and life cycle cost)
Activity based costing represents no new cost • Design-related (e.g. mechanical design, Activity based costing:
accounting system that would be comparable to the electrical design, software design and also Accounting method that
allocates costs to activities and
traditionally distinct systems of total cost design methods) their corresponding resources
accounting, or the various forms of marginal • Cost analysis (e.g. cost estimation methods, in the company. Compared to
costing. cost information systems, cost reduction traditional costing methods,
it is capable of better
The core ideas of activity-based costing can be tables, among others) factoring overhead/indirect
realised in all these cost accounting systems, but costs (e.g. administrative,
their application focus have so far been confined Cost research in engineering design is not supporting and controlling
activities) of a product.
within total costing. It is also known as process driven by areas that have been researched in the
costing. The terms ‘activity-based costing’ or ‘Cost field ‘design for cost’, but is mainly driven by new Marginal costing:
Driver Accounting’ are used in English. Gahr demands and possibilities. New demands can Costing method that is used
if we apply direct costing
(2006) developed a resource-based activity-based arise in the area of design. If new manufacturing with regard to earnings to
costing method, which is referred to as path cost methods, new technology, new materials or new the profit or loss account.
accounting. design methods are developed, unfamiliar and The margin is the difference
between the earnings and the
Hybrid methods are those that combine altered cost structures (e.g. proportions of material variable costs.
several methods in order to achieve better accuracy cost, manufacturing cost, total- or life cycle costs)
or to be able to calculate total costs or several cost with altered impact measures for cost reduction will
Path cost accounting:
categories by using the combination. result. Thus, research on specific cost behaviours
Cost accounting method
Computer-aided calculation is based on for the new situations would be required. The where the individual path
the use of software to reduce the effort of the same applies to cost analysis tools and methods. the product or alternative
preliminary cost estimate, or to master complexity If new possibilities arise, e.g. from new/advanced design solution goes in
company is the basis for
through the use of the software. mathematical modelling techniques, to increase the cost accounting.
For underlying literature on this classification, accuracy of cost estimates, as well as simplifications
refer to Sirel (2015). of methods for faster and better understanding
The review on product cost estimation from of design-cost behaviour, new research must be
Niazi et al. (2006) is one of the most comprehensive carried out to examine their impact. Successful
papers in the field of cost estimation and still research should bring benefits, especially in
remains relevant. the area of cost analysis methodologies, with
As introduced above, a variety of quick faster and more efficient access to cost reduction
calculation methods have been developed for cost opportunities for designers.
estimating. These procedures use the knowledge Design for cost operates in several research
of essential impact factors, known as cost drivers. areas. Aerospace is one of the largest areas.
Example, cost drivers have weight, material or The most recent review in this field is by Trivailo Cost drivers:
geometric similarity. To be able to apply these et al. 2012, which focusses on cost estimation Main influence increasing
costs.
methods, data of cost and design properties from of hardware. Another review addresses cost
former products are necessary. Based on the data modelling (Curran et al. 2004), while some basic
Figure 9: Design for cost sphere.
approaches of cost engineering are introduced by Käch (1928), Freund (1932), Ramsler (1948), Kruse
Greves & Joumier 2003. Software development is (1954), Peat (1968), Rondeau (1975) and more.
also quite important for design, and is addressed The most recent textbook on methods and tools for
in the review articles of (Keung 2009) and cost estimation is Mislick & Nussbaum (2015).
(Jorgensen & Shepperd 2007). Design for cost was Cost planning and cost estimation in the
also reviewed by Sheldon et al. 1991. aviation and aerospace industries began in the
Other issues in the area of design for cost are 1930s with parametric models. As computers
addressed by Asiedu & Gu 1998 for life cycle costs, became more powerful, it was possible to perform
Estimate at completion: Christensen et al. 1992 for research on estimate at faster calculations. Commercial tools developed in
Forecast of costs to completion, and Roda & Garetti 2014 examine the 70s and 80s were also used in other industrial
complete a project. Basis
for deciding to cancel or total cost of ownership. The topic ‘cost of quality’ sectors (see Figure 10). With greater amounts of
proceed with a project. is examined by Schiffauerova & Thomson 2006 data available and more powerful computers, cost
and Lavdas 2008. forecasts increased in precision.
To show how research on design for cost has In parallel to the computing models and tools,
Parametric models: generally evolved, we can look at the example of more and more publications emerged. Expanding
A fast method for cost carbon fibre reinforced plastic manufacturing on the work of Mörtl (2013), we have now collected
modelling. On basis of
historical product/program
technologies. When the technology appeared and over 1400 publications of more than 100,000 pages.
cost data, cost drivers are studies come out on its development, the need to A detailed analysis of these publications in terms
identified that are used in analyse changes in existing design for cost strategies of procedures and tools, phase of application,
equations and algorithms for
cost prediction when little
arose (Zaloom & Miller 1982). Once a technology industrial sector, accuracy and more is part of the
information exists, e.g. in gets established, research can be undertaken on cost ongoing research. The number of studies between
early design phase. drivers (Noton 1989). On this basis, guidelines and 1914 and 1970, as well as from later periods, may
measures for designers can be derived to better target be unrepresentative because they have not yet
cost reductions (Gutowski 1997, Kaufmann 2008). been unearthed. However, we can see a steady
development through the 1980s, with a peak at the
4.1 D evelopment of cost end of the 1990s; after a quiet period in the early
management—a history 2000s, the number of publications began to slowly
Evidence of cost management activities can be increase. In short, the demand for cost research
traced back to the 1880s (Fleischman & Parker shows no sign of declining (see Figure 11).
1991), where the activities of British entrepreneurs The distribution to industrial sectors of
were examined. Research activities since then can be collected literature can be seen in Figure 12, where
found in nearly every decade and every industrial mechanical engineering represents the main
sector, e.g. Burton (1900), Seidel (1914), Kresta & emphasis.
Figure 10: Commercial hardware parametric models (Shermon 2009).
Figure 11: Chronological history of publications on the subject of cost engineering.
Figure 12: Proportion of different disciplines to publications on the subject of cost engineering.
4.2 Cost research since Niazi et al. 2006 ‘design for manufacture and assembly’ (DFMA) in
Niazi et al. (2006) classify cost estimation methods detail with a major cost estimation emphasis.
and divide them. In the first-level, distinction Cost estimation tools for specific areas have
is made between qualitative and quantitative been developed to support the designer, such as
methods, in addition to intuitive, analogical, sheet metal design for SMEs. Gugel & Schrödel
parametric, and analytical procedures, see (2010) have developed special CAD tool for
Feature oriented costing: Figure 13. feature oriented costing.
Costing method where The advantages and disadvantages of Jochem (2010) emphasizes that a forward-
cost elements of concern
represents (design) features individual procedures are briefly described in looking, holistic quality management approach is
of the product rather than Figure 14. Disadvantages considered include required to reduce overhead costs. Not only must
parts of the product. time, complexity and lack of information (from the quality of production be improved, but the
previous products, cost drivers, etc.). early phases of product development also must
include measures for improving quality. To do this,
4.3 Recent research he describes several analysis and measurement
Recent research has focussed on reducing the methods, indicators and control factors for the
Cost accounting: complexity of cost estimation and cost accounting entire value chain that are important.
Cost accounting determines practices. Complexity, for example, has arisen due In the research project ‘Cost impact of
where costs originate.
to an apparently unmanageable amount of data, modularisation KosMo’ (Kersten et al. 2012), a
greater product variety because of mechatronic holistic approach has been developed for the
products or product-service systems. If a large systematization, structuring and analysis of
Cost effects: amount of data is available, advanced methods cost effects. Cost drivers can be identified, and
Outcome of costs. like big data tools are employed to make this cost thus cost comparisons be carried out on design
data more transparent. alternatives. The ‘Modularity Calculator’ tool
There are also new features that affect the allows such an analysis and comparison, mapping
calculation of life cycle costs: new products, new market and cost effects, making complexity
materials (Das 2011), product-service systems, as manageable and increasing transparency within a
well as cradle-to-grave considerations require new company. Accordingly, recommendations can be
Modularisation: approaches to cost estimation (Dhillon 2010). derived to control the level of modularisation.
Engineering technique to Foussier (2006a, 2006b) explores the field of Integrating new concept solutions from other
split products into more
independent modules to statistical cost modelling techniques. Boothroyd technical disciplines extends the functionality and
reduce complexity. et al. (2011) intensely examine the DfX category range of solutions. For the assessment of design
Cost modelling:
Using mathematical
relations to describe
cost behaviour.
Figure 13: Classification of product cost estimation (PCE) techniques (Niazi et al. 2006).
Design structure matrix

(DSM): A matrix-based tool/
method to structure and
analyse complex systems/
products. The DSM is
able to model and analyse
dependencies of one single
type within one single
domain.
Figure 14: The PCE techniques: key advantages and limitations (Niazi et al. 2006).
Domain mapping matrix
(DMM): Represents an
advancement of DSMs
variants, the costs must be estimated, and the product components by means of several to allow for the mapping
balance between acceptable and optimal solutions calculations. between two domains.
for all domains must be found. Sandborn (2013) analyses in great detail
Cost of resources:
Zirkler (2010) develops a guide for a trans- various cost accounting procedures related to Resources are, e.g., material,
domain target costing management. A design electronic systems. He examines production costs labour, capital, external
structure matrix (DSM) is used to represent the as well as more comprehensive topics like total work, societal aspects.
product functions. Using the domain mapping cost of ownership (TCO). At the same time he Total cost of ownership
matrix (DMM), partial functions or partial describes cost estimation, activity-based costing (TCO): Represents total
processes are connected with individual (ABC) and parametric cost modelling costs for the buyer/owner
of a product, including
components. Similarly, resources and process approaches. procurement and operating
building blocks can be connected with a DMM. Trendowicz (2013) developed a new integrative costs.
Different product concepts and structures require approach to estimate software costs. He describes
different partial processes and resources for how to use CoBRA (an abbreviation of cost CoBRA:
Method for Cost Estimation,
product realization. The cost of resources can be estimation, benchmarking, and risk management) Benchmarking, and Risk
classified from process building blocks to by exploring several real-world cases. Assessment.
New products, such as offshore wind turbines matrices (MDM). Gleich and Marfleet (2012) have
and electric vehicles, need novel approaches to cost also evaluated the cost caused by variants. They
estimation. While expenses can be estimated more describe, providing several examples, as to the
or less accurately, they must, however, be validated types of overhead costs that can occur, and how
later, sometimes after several years of experience. these costs can be impacted. Another study by
Offshore equipment has changed the cost structure Wildemann (2012) shows the consequences of
of life cycle costs: e.g. helicopter use for changes, their causes, and provides average cost
maintenance support, environmental influences values for changes: in a literature review, he found
(e.g. salt water), assessment of business interruption that costs of almost EUR 1,000 to about EUR 7,000
Product architecture:
Describes how parts/ risk and ship collisions (Kaiser & Snyder 2012). or even up to $10,000 per change are incurred.
elements of a product are Gorbea & Fricke (2009) derived strategic Browning (2015) presents an overview on DSM
composed and interrelated
approaches to product architecture based on life literature where also cost aspects are addressed.
to each other.
cycle costs of (electric) vehicles. The experiences
Systems engineering: come from, among others, large-scale field trials. 4.3.3 Cost dependency models for product
An interdisciplinary
approach and means to Besides all research in the design for cost configuration: Highly customizable products like
enable the realisation sphere aspects on cost types, design related and cars, are typically directly configured by customers
of successful systems/ cost analysis methods one should be aware that themselves, by means of product configurators
products.
cost estimating is also affected by basic human offering a set of possible options to choose from.
System-of-systems (SoS): psychology aspects (Prince 2015). The composition of options is constrained by
Applies to a system-of-interest feasibility rules which arise, e.g., from technical
whose system elements are
themselves systems; typically 4.3.1 Systems engineering: Modern design feasibility as well as from marketing strategies.
these entail large scale inter- methodologies, e.g. systems engineering, While calculating the final price for the
disciplinary problems with contribute to the advancement of design for cost. customer is a fairly simple summation of the
multiple, heterogeneous,
distributed systems (INCOSE Blanchard (2009) offers the most extensive general options’ individual prices, the calculation of
2012). summary within the area of cost management, in manufacturing costs and contribution margins
the context of systems engineering. Valerdi (2005) has to account for dependencies between options.
Cost analysis:
Analysis of costs related
presents the tool COSYSMO for estimating cost of For example, adding a television option might be
to a system (e.g. product systems engineering activities in engineering associated with lower costs if a high-end navigation
or project). design, which had not previously been addressed, system is already chosen. Since these constraints
Variants: and examines advanced cost estimation methods need to be considered in a configuration space
Alternative product and suggests improvements in this field using containing an astronomically large number
or design versions. heuristics (Valerdi 2011). Extensions to the area of possible configurations, efficient means are
Complexity cost: of systems–of–systems (SoS) can be found (Lane & required for representing, analysing and designing
Costs caused by higher Valerdi 2005), (Lane 2009), and transfers to the such cost dependency models.
product complexity compared area of human systems integration (Valerdi & Liu Based on the software technology of Soley,1 a
to standard products (e.g.
additional design, test, 2010). Theoretical basics of systems engineering graph-based approach was developed, which
material cost, logistic, are employed by Schmied et al. (2015) to provide builds on multi-valued decision diagram (MDD)
variants). extended cost analysis options on specific cost (Berndt et al. 2012) and allows to efficiently
Multiple domain matrix behaviour and measures for cost reduction in the represent huge configuration spaces in a
(MDM): A meta model early stages of product design. manageable model, see Figure 15. This graph is
matrix representation for
modelling whole systems constructed considering the constraints between
consisting of multiple 4.3.2 Complexity management: Complexity available options and the cost dependencies among
domains, each having cost considerations for mechatronic products them: Every path from top to bottom through the
multiple elements, connected
by various relationship types. started with the study of Braun et al. 2007. graph corresponds to one valid configuration.
A MDM is built up on DSMs Overhead costs of a company accrue many cost Along this path, cost dependencies are considered
and DMMs. elements for variants that are not yet explicitly such that for every configuration, manufacturing
Multi-valued decision calculated and analysed. Various studies argue that costs and contribution margins can be calculated.
diagram (MDD): mastering of variants has a high impact on the Based on this representation, systematic studies of
Decision diagram where
reduction of overhead costs. Bauer et al. (2015) cost dependencies are possible, as are sensitivity
every decision node can
represent the number of provide an approach to estimate the complexity studies if cost changes are to be analysed.
possible values. cost caused by changes and variants. They consider
1) changes to existing variants, 2) variants that are 4.3.4 Integrated value engineering: Integrated
substituted by others, and 3) additionally created value engineering (IVE) is an approach for the
variants. Their method connects change causes
with product architecture, and an impact analysis
including complexity cost using multiple domain 1
Software available at: www.soley-technology.com.
analysis and optimization of the product cost- activity-based costing are costly, and the cost can
value-ratio through the evaluation and design be estimated only at a great expense of time (Friedl
of product structures. The approach combines et al. 2013).
target costing and value engineering to identify In the research project AIDA (Schmied et al.
cost reduction and value enhancement potentials 2015), cost drivers, activities and roles are being
in early development phases for mechatronic linked. A change process model (Figure 17) is Change process model:
products. These potentials are derived on the developed to quantify the indirect cost of design Model for structured analysis
of change processes that
level of requirements, functions and components changes, and heuristic approaches are examined describe systems behaviour
(see Figure 16) to enable practitioners to for cost estimation. Figure 17 shows how cost of the three domains: cost
focus their initiatives to improve the cost- drivers are used to describe the use case of change drivers, change process
activities and involved
value-ratio of their products (Maisenbacher or change situation. These weighted cost drivers company departments.
et al. 2013; Behncke et al. 2014). represent inputs for the process model shown in
middle of the figure, where a three domain model
4.3.5 Indirect costs of engineering changes: incorporates the system cost behaviour. The
Customers require more and more individualised output is a more quantitative distribution of
solutions. This leads to more and more engineering involved activities (partial change processes) and
change projects. Therefore companies, in addition roles (e.g. company departments). With this
assessing to technical options, must assess all costs approach, systematic measures for cost reduction
resulting from a design change and try to quantify can be applied to the domains cost drivers,
resulting costs. direct costs (material, production) activities and roles. For engineering changes the Direct costs:
can be estimated quite easily, but indirect costs of cost drivers are determined by design All costs that can be directly
assigned to an allocation
design change are not efficient to quantify. characteristics, hence be directly influenced by object or are assigned in
A calculation by overhead rates is very expensive, the designer. a specific application case
and is therefore only rarely done. Moreover, Therefore, companies are supported to (e.g. material direct costs).
literature confirms that calculation of overhead determine indirect cost of changes more easily.
Indirect costs:
rates leads to results of low quality (Coenenberg et In addition, companies are enabled to select the Synonym for overhead costs.
al. 2012). In addition, more suited approaches like most cost efficient alternative among various
Overhead rates:
Accounting method where
value of indirect costs is
approximated by using a
company specific percentage
of direct costs.
Figure 15: Representation of huge configuration spaces (Soley).
Figure 16: Integrated model for value engineering (Maisenbacher et al. 2013).
design change options and to reduce their own at universities (e.g. XKIS, KosKA, CoCoS), and
costs. Heuristics are rules of thumb in terms are used occasionally, or not yet, in companies.
of simple decision rules, using which a still Shermon (2009) shows the origination of the
sufficiently satisfactory solution can be achieved tools (PRICE, SEER, ACES), which began in the
with low effort. This is advantageous for SMEs, 60s, and their subsequent development.
which have fewer resources, such as personnel
capacity and established methods, than large 4.3.7 Conclusion and outlook: Service costs
Product service systems: companies have. have rarely been addressed in literature. product
Business strategy for service systems and upgrading approaches in
companies to offer a mix of
products and services. 4.3.6 Software tools: In the field of cost product design have also not yet been fully
estimation and analysis, a variety of software tools examined (e.g. Akiyama 1994; Mörtl 2002,
have already been developed. A portion of these Erkoyuncu et al. 2009, Wildemann 2013). New
Open innovation: were introduced only in individual companies design methodologies or strategies like open
A new design paradigm or in specific industries. Such software tools innovation reveal the need for cost research.
that incorporates company
external ideas into the can be applied in different phases of product Initial studies have addressed topics like cost/risk
innovation process. development, depending on what information evaluations (Gürtler 2015), but there is scope for
about the product already exists. much more work.
A recent research found over 100 tools New fields of research are arising and existing
3D-printing:
Manufacturing method (Ehrlenspiel et al. 2014, Mörtl 2013). Some of these ones are expanding. The fast emerging
to build (print) a three- are commercial tools and are used in industry manufacturing technology ‘3D-printing’, also
dimensional object (e.g. ARIS, Facton, 4cost, KingCost, Mirakon known as ‘additive manufacturing’, show the typical
with successive layers of
material based on a 3D among others). Other tools have been developed pattern for cost research when new technology
computer model.
Figure 17: Approach to the derivation of cost reduction measures (Schmied et al. 2015).
becomes available for designers. Accordingly, 3. Y. Asiedu and P. Gu, Product Life cycle cost analysis—state
traditional cost models and cost estimation of the art, Review. Int. Journal of Production Research,
techniques need to be updated and cost research 36(4), 883–908 (1998).
initiated (Bauer & Malone 2015, Thompson 2015). 4. J.A. Barton, D.M. Love and G.D. Taylor, Design determines
Similarly, big data applications are also emerging 70% of Cost? a review of implications for design
to support design for cost decisions (www.soley- evaluation, J. Eng. Design, 12(1), 47–58 (2001).
technology.com) and could be a future research 5. J. Bauer and P. Malone, Cost estimating challenges in
focus. The aerospace industry will continue to have additive manufacturing, ICEAA (2015).
a strong need for new cost estimation tools, 6. W. Bauer, P. Bosch, N. Chucholowski, F. Elezi,
especially for larger projects (e.g. Kazanowski 1983; S. Maisenbacher, U. Lindemann and M. Maurer,
Isaksson 2002; Erkoyuncu et al. 2011; Gorbea Complexity costs evaluation in product families by
2011). incorporating change propagation, IEEE, (2015).
In summary, design for cost research will continue 7. F.G.H. Behncke, S. Maisenbacher and M. Maurer,
as new design methods, tools and possibilities are Extended model for integrated value engineering,
created and new uses are recognised with regard conference on systems engineering research (CSER 2014),
to changes in cost structures/types (e.g. new item Procedia Computer Science, 28, 781–788 (2014).
in product design: service costs), design related 8. R. Berndt, P. Bazan, K.S. Hielscher, R. German and
aspects (e.g. new design methodologies: open M. Lukasiewycz, Multi-valued decision diagrams for the
innovation; new technologies: 3D-printing) and verification of consistency in automotive product data.
cost analysis methods (e.g. systems engineering as In: Proc. International Conference on Quality Software,
a design method applied to cost analysis) as well 189–192 (2012).
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design for cost. systems engineering and management, A.P. Sage and
W.B. Rouse (Eds.), Hoboken: Wiley, (2009).
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design for manufacture and assembly, New York: Taylor &
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Markus Mörtl received his Ph.D. in mechanical Christian Schmied studied mechanical
engineering from the Technical University of engineering and astronautics at Technical
Munich (TUM), Germany, in 2002. For several University of Munich. He is research assistant
years then he worked at Robert Bosch GmbH. at TUM Institute of Product Development,
He is senior lecturer, chief engineer and where he specializes in cost estimation and
member of the management in the TUM Institute of systems engineering. Previously he was responsible for the
Product Development. Along with Professors Ehrlenspiel cost estimation research database at the institute. He has
and Lindemann and Dr. Kiewert he is co-author of the worked on cost projects for the European aerospace industry
7th edition of the German standard work on cost efficient (EADS, ESA).
design. Dr. Mörtl’s research focuses are cost management
in early phases of product development and product-
service systems. A project manager for German Research
Foundation (DFG) and Drive Research Association (FVA),
he lectures on cost management in product design and gives
seminars on the subject at TUM and in industry. From
2011–2015 he was visiting professor at Free University of
Bozen (Italy).

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Journal of the Indian Institute of Science

A Multidisciplinary Reviews Journal

© Indian Institute of Science

Markus Mörtl and Christian Schmied

Abstract | Whether they know it or not, everything designers do influences

Content product quality, number of pieces, design concept

Figure 2: Composition of lifecycle costs (Hundal et al. 2007).

Figure 4: Possibilities of influencing and establishing costs—know how-transfer to future projects

Figure 5: Examples of parameters affecting manufacturing costs (Hundal et al. 2007).

• Electromechanical switches consist of five to 2.4 Quantity

Figure 9: Design for cost sphere.

Figure 10: Commercial hardware parametric models (Shermon 2009).

Figure 11: Chronological history of publications on the subject of cost engineering.

Design structure matrix

Figure 15: Representation of huge configuration spaces (Soley).

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