Target Costing
editFactors affecting Target Costing
editThe factors influencing the target costing process is broadly categorized based on how a company's strategy for a product's quality, functionality and price change over time. However, some factors play a specific role based on what drives a company's approach to Target Costing.
Intensity of competition and nature of the customer affect Market-driven costing.[2] Competitors introducing similar products has been shown to drive rival companies to expend energy on implementing target costing systems such as in the case of Toyota and Nissan or Apple and Google.
The costing process is also affected by the level of customer sophistication, changing requirements and the degree to which their future requirements are known. The automotive and camera industry are prime examples for how customers affect target costing based on their exact requirements.
Product strategy and Product characteristics affect product level target costing.
Characteristics of product strategy such as number of products in line, rate of redesign operations and level of innovation are shown to have an effect. Higher number of products has a direct correlation with the benefits of target costing. Frequent redesigns lead to the introduction of new products that have create better benefits to target costing. It has to be noted that the value of historical information reduces with greater innovation, thereby reducing the benefits of product level target costing.
The degree of complexity of the product, level of investments required and the duration of product development process make up the factors that affect the target costing process based on product characteristics. Product viability is determined by the aforementioned factors. In turn, the target costing process is also modified to suit the different degrees of complexity required.
Supplier-Base strategy is the main factor that determines component-level target costing because it is known to play a key role in the details a firm has about its supplier capabilities.
There are three characteristics that make up the supplier-base strategy including the degree of horizontal integration, power over suppliers and nature of supplier relations.
Horizontal integration captures the fraction of product costs sourced externally. Cost pressures on suppliers can drive target costing if the buying power of firms is high enough. In turn, this may lead to better benefits. More cooperative supplier relations have been shown to increase mutual benefits in terms of target costs particularly at a component level.
Applications
editAn Energy Retrofit Loan Analysis Model has been developed using a Monte Carlo Simulation(MCS) method for target costing in Energy Efficient buildings and construction. MCS has been shown to be effective in determining the impact of financial uncertainties in project performance.
Target Value Design Decision Making Process (TVD-DMP) groups a set of Energy Efficiency Methods at different optimization levels to evaluate costs and uncertainties involved in the energy efficiency process. Some major design parameters are specified using this methods including Facility Operation Schedule, Orientation, Plug load, HVAC and lighting systems.
The entire process consists of 3 phases - Initiation, Definition and Alignment.
Initiation
editThis stage involves developing a business case for energy efficiency using TVD training, organization and compensation.
Definition
editThis process involves defining and validating the case by tools such as values analysis and bench marking processes to determine the allowable costs.
Alignment
editBy setting targets and designing the design process to align with those targets, TVD-DMP has been shown to achieve a high level of collaboration needed for Energy Efficiency investments. This is done by using risk analysis tools, pull planning and rapid estimating processes.
Target Costing and Target Value Design have applications in building Healthcare facilities including critical components such as Neonatal Intensive Care Units (NICUs). The process is influenced by unit locations, degree of comfort, number of patients per room, type of supply location and access to nature.
According to National Vital Statistics Reports, 12.18% of 2009 births were premature and the cost per infant was $51,600. This led to opportunities for NICUs to implement target value design for deciding whether to build a single-family room or more open-bay NICUs. This was achieved using set-based design analysis which challenges the designer to generate multiple alternatives for the same functionality. Designs are evaluated keeping in mind the requirements of the various stakeholders in the NICU including nurses, doctors, family members and administrators. Unlike Linear point-based design, set-based design narrows options to the most optimal one by eliminating alternatives simultaneously defined by user constraints.
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- ^ a b c Cooper, Slagmulder, Robin, Regine (1997). Target Costing and Value Engineering. Portland, OR, USA: Productivity Press.
{{cite book}}: CS1 maint: multiple names: authors list (link) - ^ Khandwalla, P. N., (Autumn 1972). ""The Effect of Different Types of Competition on the Use of Management Controls"". Journal of Accounting Research,.
{{cite journal}}: CS1 maint: extra punctuation (link) CS1 maint: multiple names: authors list (link) - ^ Lee, Hyun Woo (Spring 2012). "Application of Target Value Design to Energy Efficiency Investments" (PDF).
- ^ Rybkowski, Shepley; et al. (Summer 2012). "Target Value Design: Applications to Newborn Intensive Care Units". Health Environments Research & Design Journal.
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