{"id":5884,"date":"2020-12-16T13:53:24","date_gmt":"2020-12-16T12:53:24","guid":{"rendered":"https:\/\/www.costperform.com\/?page_id=5884"},"modified":"2022-10-20T10:14:39","modified_gmt":"2022-10-20T08:14:39","slug":"product-cost-management","status":"publish","type":"page","link":"https:\/\/www.costperform.com\/product-cost-management\/","title":{"rendered":"Product cost management"},"content":{"rendered":"\t\t
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Product Cost Management: better information for better decisions<\/h1>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Product Cost Management is the art of reaching the highest product margin by producing with the lowest possible costs at the best possible quality. This article focuses on Product Cost Management (or Product Life Cycle Cost Management) and using CostPerform to manage product costs.<\/strong><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Product Cost Management example 1: do we need this refinery?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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A big oil and gas company asked us to demonstrate that we can calculate the expected unit costs of gas and oil over each installation\u2019s complete lifecycle (between 30 to 40 years) for all future investment projects\/plans. Each plan for a new refinery starts with calculating the cost of the design and construction phase, followed by the cost for the startup years, production costs, and finally, the costs of shutting down. CostPerform showed a very detailed and precise allocation of costs, materials, and activities of the refinery – for each phase and for the complete lifecycle. With this information and the predictions of future oil and gas prices, the oil company was able to make fact-based decisions on whether to start the project or invest in a project with a higher lifecycle profit.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Product Cost Management example 2: can we deliver this order and still make a profit?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Due to the lack of product cost management, manufacturing companies tend to accept any order they can get, even if they are running at full capacity. New orders can trigger capacity problems that – in most cases – are solved by hiring temporary workers or extra machine capacity at higher costs than usual. The big question \u2018Is this new order profitable?\u2019 can only be answered if the company has a trustworthy and true cause-and-effect based cost model, preferably modeled around resources and activities (Activity-Based Costing). This model must be capacity-aware, so the effect of an extra order on the needed capacity and its additional costs is known upfront. With this type of model, powered by CostPerform, and by performing product cost management, the company can make an educated decision whether to take or decline any new orders. <\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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