Target Cost Management

Author: Wu Xuelin
Publisher:
Publish Date: 2006-01-01
Features: Target cost management is not merely a cost estimation and control system, but rather a comprehensive strategic planning process for costs and profits. Target cost management begins before product production starts, planning costs early in the product development cycle, unlike traditional cost management methods that control costs only after they have actually occurred. The implementation of target cost management is divided into two stages: the establishment stage and the achievement stage. Target costs are driven by the market, so establishing target costs requires a comprehensive consideration of customer needs, competitor situations, and industry-standard rates of return, among other factors. Achieving target costs, however, requires analyzing cost targets and breaking them down into product components and corresponding teams or individuals. The implementation of target cost management requires the organization to integrate its internal and external relationships: internally, cross-functional teams must be established to oversee the product development cycle and be ultimately responsible for the final cost; externally, not only should customer feedback be focused on, but long-term partnerships should also be established with members of the value chain, such as suppliers, distributors, and recyclers, to jointly achieve cost goals. The implementation of target cost management also requires support from information and tools, and obtaining information and related tools requires investment. Finally, target cost management should be deployed and institutionalized throughout the organization, and this process must be achieved through coordinated efforts in four aspects: technology, behavior, culture, and politics.