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Target Costing Analysis: Enhancing Profitability through Customer Focus and Cross-Functional Teams

In this session on Target Costing Analysis, Professor William F. O’Brien delves into key methodologies that integrate customer orientation with cost management. The analysis focuses on how to set costs during the commitment phase, engage in concurrent engineering, and leverage the keiretsu model within the value chain. Key processes include market research, competitor analysis, and design improvements aimed at reducing costs without compromising quality. Participants will explore the effects of cross-functional teamwork on lifecycle costing, while learning to support strategic objectives and enhance product value.

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Target Costing Analysis: Enhancing Profitability through Customer Focus and Cross-Functional Teams

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Presentation Transcript

  1. Managing Costs & Revenues Professor William F. O’Brien, MBA, CPA Spring 2010

  2. Session 4 Target Costing Analysis Mid-Term Review

  3. Target Costing Analysis • Customer Orientation • Sets costs in the commitment phase-concurrent engineering • Supports keiretsu model via the value chain • Price led costing • Cross functional product teams • Focuses on life cycle costing

  4. Target Costing Process • Establishment phase • Market research • Competitor analysis • Niche definition • Customer requirement definition • Product feature definition • Market price determination • Profit rate

  5. Target Costing Process • Attainment phase • Cost gap computation • Design costs out • Design release and continuous improvement

  6. Cost Reduction • Cost analysis • Components list • Functional analysis • Customer requirement ranking • QFD Matrix • Relative functional rankings • Value engineering • Identify components for cost reduction • Generate cost reduction ideas • Testing and implementation • Cost estimates required at each design iteration

  7. TC-Strategic Implications • Quality is improved through the customer focus of target costing • Cost reduction is the heart of target costing • Time reduction is a natural by-product due to concurrent engineering

  8. TC-Attribute Implications • Technical • Decision relevance improves (quality, cost and time issues are integrated) • Process understanding improves • Behavioral • Early finance involvement and teamwork are mandated • Undesirable attributes of longer development, burnout, feature creep & internal conflict can be managed

  9. TC-Attribute Implications, cont. • Cultural • Organizational culture must be prepared • Commitment to sustaining values must be established • Customer focus • Cross-functional cooperation • Open sharing of information

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