Marginal Column

Photo | Prof. Wildemann

Prof. Dr. Dr. h. c. mult. Horst Wildemann, is the initiator and organizer of the Munich Management Colloquium. Cost Engineering was the major topic at the event held in the spring of 2013

Photo: Prof. Wildemann

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The five phases of cost engineering require the application of different methods and instruments.
Illustration: Bosch Rexroth AG, Source: TCW Transfer-Centrum GmbH & Co. KG

Interview with Prof. Wildemann on cost engineering

Content

July 2013

 

“Cost engineering is not a terribly popular activity.”

Professor Wildemann, cost engineering is a familiar concept. What are the latest insights, and which approaches, methods and techniques are especially effective?

Completely new approaches can be found tucked away in cost engineering, in the spirit of holistic cost planning and cost estimates. In the past, the focus was purely on cost reduction. Customer needs were ignored. Although this did lead to short-term savings, it was in fact detrimental to product quality over the long term. It has been found that defects due to skimping result in customer churning. The lesson learned from this experience was that cost-cutting does not necessarily equal to saving. This is why we concentrated on customer value design at this year’s Munich Management Colloquium (MMK).

The benchmark now: fulfill customer requirements at the lowest possible cost. To achieve this requires new methods such as conjoint analysis [ed.: a holistic consideration of customer needs], a product clinic, calculating the costs of certain functions or applying distance analysis to product placement, and determining the higher prices that alternate product configurations could possibly make possible.

What practical factors should companies be looking at when implementing cost engineering? What in your experience are the most important factors for success in implementation?

Cost engineering is not a terribly popular activity. That is why it must have support from the executive level. Additionally, the framework conditions must be just right, if cost engineering measures are to be successful. Even today, many a cost engineering project fails. The reasons are similar in most cases. The project costs and time parameters are not clearly defined. Ambiguous responsibilities and dissociation from routine work limit the availability of resources to be provided by the people involved. Unit boundaries and thinking only in terms of one’s own department will prevent trans-functional cooperation. Experience and knowledge on how to apply methods and concepts are missing. Good results can be achieved if cost engineering is firmly anchored in the organizational structure and in the minds of the employees, beyond the scope of individual projects.

Is cost engineering scalable? Can small and medium-sized companies that might only be active in local markets also profit from cost engineering?

Our analyses show that even today 40 percent of those products that fail do so because customer demands have not been taken into consideration. Small, medium and large companies alike need basic approaches on how to identify customer requirements and turn these into products. Cost engineering supports this task, irrespective of the size of the company involved. Where corporations are active around the world, the demands and complexity of this task change due to local customer requirements in terms of price, function and, not least importantly, product quality.

What did you personally gain from attending the last MMK colloquium on this subject? Were there any surprises or new findings?

First of all, I was impressed by the response to this event. The interest shown by companies and the media before and after the colloquium demonstrates that the cost engineering approach has caught the spirit of the times. If you want to stay competitive, you will need products that are of benefit to the customer. To make a profit when doing so naturally requires that you keep an eye on whether or not the technical features of the project justify a higher price. As self-evident as this may sound, at the end of the day these are the essential elements in maintaining a competitive position.

For further information on the MMK colloquium go to www.management-kolloquium.de