The primary goal of procurement is to efficiently realize external business value creation, thereby generating added value for the company. to obtain detailed insight into product cost structures and manufacturing processes within the scope of a purchased part price analysis. Cost engineering methods are used to perform the purchased part price analysis, such as target costing or activity-based costing.
The ‘should cost’ of a software solution is heavily influenced by the a very few factors e.g. size, productivity, application. This makes estimation a relatively easy process although there are always concerns when is comes to establishing ‘size’. This short thought piece makes the case for the use of Function Points as the standard sizing mechanicals for Software Should Cost Analysis
Managing business transactions can be a challenging effort for Organizations. Making the right decision to provide the best value to your Customers, your own Stakeholders and protecting your Suppliers is part of the due diligence that sets excellent organizations apart.
Lowering the risk associated with these decisions can be significantly aided by applying the principals of robust “Should Cost Analysis”. Understanding what you are offering your Customers and what you expect from your Suppliers helps insure that the needs of your internal Stakeholders are met. Ideally, Should cost analysis becomes a tool to communicate to all involved and identify risks (and opportunities). Perhaps the worst case scenario for a contract is “Termination for Cause” that opens your organization to pay whatever it costs to fulfill. There are cases that have destroyed fairly large companies for this failure.
Organizations face growing pressure to control costs and enable effective financial management of their resources to deliver value. Business leaders need visibility into the cost of the products and services they provide to know if their business is profitable at a granular level. To get these insights, many implement a cost allocation methodology to make business units more accountable for the activities they perform and assigns the costs associated with these activities to the business units or cost centers based on their appropriate share of the cost.
For engineer-to-order businesses that manufacture products designed by their customers, the traditional CPQ process does not work. By its very nature, the CPQ process collects a set of pre-defined product options or features (Configure), then sums up the prices for each item selected (Price), and then presents the final pricing to the customer (Quote).
The Cost Estimator’s job is to cover all the company’s expenses, potentially including inefficiencies. His job is assisting the organization to get the best sales price he can and still win the business. Conversely, the Should Cost Engineer’s responsibility is the help his organization procure products at the best price possible, ensuring they get the product they requested, usually utilizing benchmark data.