Total Cost in a Product and Production Development Context

In product and production development projects, companies often make decisions based on simplified economic models. In practice this facilitates decision making in the projects, and thereby speed and progress on the project level. However, the consequences are often that the decisions made with respect to an individual project are less than optimal for the overall financial performance of the company at large. In connection with decisions pertaining mainly to internal projects and projects of limited scope, companies have defended the existing practice by underscoring that it enabled them to make fast, though approximate calculations. But as the scopes of many projects are becoming broader and broader, this practice has come under fire and, in general, is now considered inadequate. This is particularly true of projects addressing the development of modular product families as well as projects concerning the insourcing and outsourcing of both production and product development. This project aims to develop financial evaluation models that facilitate the decision making process, providing decision makers with a range of additional dimensions to apply in projects such as those mentioned above. From factors to timelines, these models will incorporate a total cost perspective. Furthermore, the project group will seek to establish a national network of companies working within the field of total cost. Project contact persons: Poul H.K. Hansen, CIP; Poul Israelsen, University of Southern Denmark. Participating institutions/organizations: Center for Industrial Production, Aalborg University; Department of Mechanical Engineering, Technical University of Denmark; Department of Accounting, University of Southern Denmark; Confederation of Danish Industries. Project duration: 2003 to 2006.