PLM, ECO and Cost of Change

Cost is an important topic. Period. Everybody agrees with this statement. I can even say many companies investing a lot in their ability to calculate and predict the cost of product. Compared to that, cost of change is much less exposed. However, cost of change can be even more destructive for the overall cost of the product you manufacturing and the business. Recently, I’ve been spending some time analyzing how companies are managing changes and how PLM systems are supporting them. I decided to put some thoughts about change management and cost calculation.

Cost Standard and processes

There are several policies or standards you want to have in your company when it comes to cost management and change processes. Change cost policy – usually specify the changes that required cost calculation (or not) and company payback period. Cost calculation document. You want to have it in the way that allows you to follow up it from the historical perspective as well as an instruction how to do so. The important question of every PLM implementation is how you are able to automate cost of change calculation and embed it in the overall change process.

Is there something you can call “average cost of change”?

The perception of people in any company is that cost is expensive thing to have. At the same time, it is hard to come with a range of how much an average change cost. $1K-5K is a range you might be hearing. But it is too broad.  Another point of confusion is to conclusion out  is included in this cost – engineering services, labor, equipment, etc.

Cost Calculation Classification

I can classify all changes into four groups: cost reduction, product maturity, product development, others. Depends on what type of change you are estimating, actually change cost calculation can be different. If you estimating change that marked to save cost or time, you absolutely need to calculate the cost. However, if you making a change that related to product maturity, you probably can skip some cost of change calculation. Taking right assumption can significantly improve the speed of change processes, which is an essential part of every manufacturing organization.

What is my conclusion? Change management is one of the most complicated discipline in product development lifecycle. To measure it right and tack the history and metrics of changes together with cost calculation is tricky and very important. I haven’t seen ready out of the box implementations that can do so. Main reason – system customization is complicated to have all information in PLM system. Sometime, if cost calculation is complicated, you can calculate profit erosion. What is your practice and experience? Speak your mind, please. Do you have any examples you can share?

Best, Oleg

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