Target Costing Best Practices and Implications for CAIV Implementation

1
Target Costing Best Practices and Implications
for CAIV Implementation

• Peter J. Braxton, Richard L. Coleman, Northrop
  Grumman IT TASC
• Tami L. Capperauld, The Boeing Company
• Dan W. Swenson, Arizona State University (ASU)
  West
• Cari L. Pullen, Tecolote Research, Inc.
• CAM-I Cost Management Systems (CMS) Target
  Costing Interest Group
• DoN Acquisition Reform Office (ARO)

http//www.cam-i.org/cms_groups/tc.htm
http//www.tasc.com/areas/space/mc/ce.html
http//www.ar.navy.mil
2
Outline

• CAIV Implementation Framework
• Review of 1998 TCBP Study
• Diagnostic Tool Overview
• TCBP Implementation Survey Results
• Diagnostic Tool Refinements
• Current State of CAIV in DoD
• Next Steps

3
CAIV Principles and Tenets
who does CAIV and how do they operate?
what are the key inputs to the CAIV process?
what drives the CAIV process?
process
how does CAIV work?
when is the influence of CAIV felt?
where does CAIV happen?
4
CAIV Culture and Infrastructure
who provides the vision?
who and where is the team?
how is triumph sought and disaster avoided?
where and how is work accomplished?
process
how is the team motivated?
how is the team bound together?
how is the team supported?
how is progress measured?
5
CAIV Tools and Processes
expand cost reduction opportunities
reduce problem to manageable level
adjust balance
balance cost and performance
quantify performance
quantify cost
reduce problem to manageable level
identify cost reduction opportunities
expand cost reduction opportunities
realize cost reduction opportunities
6
Target Cost Best Practices Study (1998)

• Phase I

7
Target Cost Best Practices (TCBP) Study (1998)
AKA Phase I

• Co-sponsored by
• American Institute of Certified Public
  Accountants (AICPA)
• The University of Akron, Ohio
• Researchers
• Dr. Shahid Ansari, California State University
  Northridge
• Dr. Jan Bell, California State University
  Northridge
• Dr. Il-Woon Kim, University of Akron
• Dr. Dan Swenson, Idaho State University
• Statisticians
• Peter Braxton, Richard Coleman
• Final Report published March, 1999

8
TCBP Study (1998)

• Components
• TCBP Survey
• American Site Visits
• Boeing, Caterpillar, Chrysler, Continental Teves
  (formerly ITT Automotive)
• Japanese Site Visits
• Literature Survey
• Purpose
• Identify practices of U.S. Target Costing
  companies
• Compare to Japanese practices
• Reasons for not adopting and barriers to
  improvement

9
TCBP Survey (1998)

• 120 Respondents
• 48 Adopters
• 72 Non-Adopters
• Company information (confidential)
• 34 multi-part questions
• Many one through five type (Likert scale)
• Not Important, , Very Important
• Strongly Agree, , Strongly Disagree
• Two sections
• Questions 1-18 answered by all respondents
• Questions 19-34 answered by Target Cost
  practitioners (Adopters) only

10
Survey Statistical Analysis

• Statistical tests conducted
• t test for difference of means
• chi square test for difference of profiles
• sign test for significance of trends
• Spearman and Kendall tests for correlation
• alpha 0.05
• Results legend
• Statistically Significant
• Correlation
• No Correlation

SS
N
11
Target Costing Tools

• Cross-functional teams (IPTs) for problem solving
• Single most used tool
• Correlated with all other tools
• Multi-year product profit planning
• DTC (cost objectives, goals, and thresholds
  throughout)
• DFMA (optimize interactions)
• Continuous Improvement activities (Kaizen)
• TQM
• Benchmarking
• Value Engineering (includes performance trades)
• Competitor cost analysis
• QFD (document and understand requirements)

SS
Listed from most used to least used
SS
SS
SS
SS
SS
Trend of Adopters using all 13 tools more!
SS
SS
SS
SS
SS
12
Tools Negative Results

• Certain tools did not show significant
  differences between Adopters and Non-Adopters,
  nor were they correlated strongly with other
  tools
• Activity-Based Costing/Management (ABC/ABM)
• Cost tables
• Tear down analysis/Reverse engineering
• Integrated Data Environment (IDE) was not asked
  on the survey
• No correlation between tools and maturity

13
Benefits of TC

• Increased overall profitability
• Reduced manufacturing costs
• Reduced the costs of new products before
  manufacturing
• Met or exceeded customer expectations for our
  products
• Reduced the cost of purchased materials
• Resulted in product features and functions that
  customers value
• Developed a more profitable product mix
• Decreased the number of design changes after
  production begins
• Reduced the time required for new product
  introduction

Listed from most achieved to least achieved
Even with imperfect implementation, Target
Costing has yielded benefits to its practitioners!
14
Barriers to Improvement

• Adopters cited negative impact of missing targets
• Adopters also cited inverse problem of no rewards
  for achieving targets
• Buy-in by top management is crucial
• Lack of top management support
• Increased overall profitability main benefit

SS
15
Survey Key Results

• Clear delineation of TC Tools
• Convincing evidence of TC Benefits
• Unbalanced representation on cross functional
  teams a problem
• Improvement possible in supplier integration,
  performance measurement, rewards, training,
  information systems
• Handful of significant differences for Aerospace
  and Defense, small programs

16
Survey Expected Results

• Adopters had more demanding business environment,
  more discriminating customers
• Adopters had greater customer and supplier
  involvement
• Adopters estimated costs at both ends of the life
  cycle more often
• Non-Adopters perceived TC as irrelevant, or
  lacked the resources to implement in light of
  other initiatives

17
Survey Interesting Results

• Adopters had longer cycle times, and reduced
  cycle time was least often observed benefit
• For AD companies, more important to beat
  competitors price
• ABC not a hallmark tool of TC
• Adopters weakest in key principles of Price Led
  Costing, Life Cycle Costing (esp. Disposal)
• Bimodal maturity

18
Target Costing Diagnostic Tool

• Developed by TC Group under Dave Schwendeman, Gus
  Blazek, and Pete Zampino
• Tool focuses on readiness, capability, maturity
• TC should be an inextricable part of the new
  product development process, so focus not so much
  on process
• Intended to guide implementation strategy and
  toolbox development
• Points out weak areas

19
Diagnostic Tool Mechanics

• Diagnostic tool divided into three areas
• Cultural/Infrastructure 5 tenets, reflects
  corporate environment suitable for Target Costing
• Principles 6 tenets, key principles from TC book
• Processes/Tools 7 tenets, capturing key enablers
• Each tenet has several associated true-false
  statements
• Statements are designed to avoid gaming the
  question
• Average scores on each part are plotted to form a
  spider graph for each of the three sections

Tenets AKA Sub-Areas
Radar Chart in Excel
20
Sample Diagnostic Fledgling
sample diagnostics from Market Driven Target
Costing Diagnostic Tools, D.A. Schwendeman
21
Sample Diagnostic World-Class
sample diagnostics from Market Driven Target
Costing Diagnostic Tools, D.A. Schwendeman
22
Diagnostic Tool Development

• Benefit of multiple perspectives, functional
  expertise within group
• Zealots tended to produce overemphasis
• 99Q3 Seattle, joint meeting with SAVE
• Group English is painful
• Disagreement over grouping of tenets
• Inclusion of similar tenets under Principles and
  another area
• Disagreement over scoring of statements
• All or nothing vs. numerical scale (e.g., 1-5)

23
Target Cost Best Practices Implementation Survey
(2001)

• Phase II

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TCBP Implementation Survey (2001)

• German site visits proved infeasible
• Purpose Provide insight into
• Breadth of TC applications for a variety of
  industries
• Degree of success and measurable benefits
  achieved
• Characteristics of successful adopters
• Researchers
• Dr. Dan Swenson, Arizona State University West
• Dr. Il-Woon Kim, University of Akron
• Dr. Thomas E. Buttross, Pennsylvania State
  University - Harrisburg
• Statisticians Cari Pullen, Peter Braxton,
  Richard Coleman
• Project Director Pete Zampino
• Final Report issued March, 2002

AKA Phase II
25
TCBP Implementation Survey (2001)

• 27 Respondents, all Adopters
• 38 multi-part questions
• Many one through five type (Likert Scale)
• Not Important, , Very Important
• Strongly Agree, , Strongly Disagree
• Six sections
• Company Information (confidential) 1-11
• Site Information 12-16
• Business Strategy 17-20
• Management Support 21-26
• Enablers/Tools 27-34
• Implementation Results 35-39
• Same statistical tests as references for Phase I
  survey

Questions numbers in gray throughout for reference
26
Middle Management is Key,So Communication is
Needed

• Many benefits of Target Costing (about a third)
  arent achieved until communication reaches
  middle management
• So, communication must proceed through the chain
  of command
• the following slides show this graphically

27
Benefits Correlated with Upper Management
Fewer production problems
Fewer product design changes
Better Cost Control over purchased materials and
parts
More meaningful cost information
Faster time to market
Fewer quality problems
Better control over product life cycle costs
Better cost control over internal processes
Upper Management
Improved product/service profitability
Dropping failing products to meet cost targets
Better matching to customer needs and wants
Greater market share
More Satisfied Customers
Not all benefits come from Upper Management
Attention
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Benefits Correlated with Middle Management
Fewer production problems
Fewer product design changes
Better Cost Control over purchased materials and
parts
More meaningful cost information
Faster time to market
Fewer quality problems
Better control over product life cycle costs
Better cost control over internal processes
Middle Management
Improved product/service profitability
Dropping failing products to meet cost targets
Better matching to customer needs and wants
Greater market share
More Satisfied Customers
All benefits come with Middle Management Attention
29
CommunicationsChain of Command
Upper Mgt support correlated with benefits
Upper Management
Upper Middle Management
Middle Mgt. support correlated with all benefits
Middle Management
Correlation
Lower Middle Management
Lower Management
Upper Management Attention achieves results by
communication to Middle Management Attention to
this communication is crucial
30
CommunicationsChain of Command

• Does Middle Management Program / Project
  Manager?
• May depend on organization
• No definition given in survey
• Does Upper Middle Management feed Upper
  Management?
• Correlation may be bottom-up as well as top-down
• Middle Management can serve as blockers
• Lack of Middle Management support correlates to
  low benefits

31
Other Management Results

• Upper management correlated with
• encouraging innovation
• empowerment
• Middle management correlated with
• encouraging innovation
• empowerment
• continuous improvement mindset
• effective team work
• Lower Middle management correlated with
• high morale
• empowerment
• continuous improvement mindset
• effective team work
• Lower management correlated with team members
  empowerment

Note how the list grows longer as you go down the
chain
32
Formalized Decision Analysiswith Risk Assessment

• Mature and Full Implementers both use formalized
  decision analysis with risk reduction to a
  greater extent
• Formalized decision analysis with risk assessment
  is correlated with all benefits
• It has much more impact on benefits than any
  other tool
• Other tools/initiatives with some impact include
• Voice of the customer
• Continuous improvement (Kaizen)
• Concurrent engineering
• Life-cycle costing
• Not asked on Phase I Survey

No definition was provided in the survey
33
Benefits Correlated with Formalized Decision
Analysis with Risk Assessment
Better Cost Control over purchased materials and
parts
More meaningful cost information
Faster time to market
Fewer quality problems
Better cost control over internal processes
Better control over product life cycle costs
Decision Analysis with Risk Assessment
Better matching to customer needs and wants
Improved product/service profitability
Fewer product design changes
More Satisfied Customers
Fewer production problems
34
Other Survey Results

• Consistent with 1998 Survey
• Bimodal maturity
• Reverse Engineering, ABC/M, Cost Tables still
  little used
• Benefits correlated with time (maturity)
• Time to market least among benefits
• Interesting results
• Use of Project Management, Decision Analysis
  correlated with time (maturity)
• Functional group representation correlated with
  the benefits of TC only with design engineers

35
Dichotomy Mature Implementers
13
Chi Square tests showed a different maturity
profile for the full implementers vs. other.
This question was used to determine the mature
implementer group. Mature implementers are those
that have used TC more than 3 years.
36
Mature Implementers Differences

• Adoption of TC driven by customer recommendation
  to a greater extent 18b
• More extensive communication of TC objectives and
  status/progress 19a,d
• Design engineering groups have a greater
  representation on the TC team 25b
• Use VOC, decision analysis, and DTC to a greater
  extent 34c,d,i
• TC considered more successful by design
  engineering 38b
• Fewer production problems, fewer quality
  problems, better cost control over internal
  processes, and more satisfied customers
  39c,d,g,k

Common with Full Implementers
37
Dichotomy Full Implementers
7
Chi Square tests showed a different
implementation profile for the mature
implementers vs. other.
This question was used to determine the full
implementer group. Full implementers are those
that have fully implemented TC at their site.
38
Full Implementers Differences

• Adoption of TC driven by market concerns to a
  greater extent 18g
• More extensive communication of TC objectives,
  status/progress, and target costing
  accomplishments 19a,d,e
• Use executive mandates to achieve TC buy-in more
  extensively 21b
• More extensive support from middle and
  middle-upper management 24c,d
• Purchasing and distribution/logistics groups have
  greater representation on the TC team 25d,h
• TC team members are encouraged to innovate to a
  greater extent 26c

39
Full Implementers Differences

• Rely on new, on-line integrated system more
  extensively to meet TC data requirements 29d
• Financial cost systems allow cost estimates at
  various levels to a greater extent 30e
• VOC, decision analysis, and DFMA to a greater
  extent 34c,d,j
• Satisfied with direct labor costs to a greater
  extent 35d
• Management used TC results to measure employee
  performance to a greater extent 37d
• TC considered more successful by service
  engineering 38c
• Faster time to market and more satisfied
  customers 39a,k

40
Dichotomy Large Companies
15
Chi Square tests showed a different profile for
the mature implementers.
This question was used to determine the large
company group. Large Companies are those that
have greater than 500 Million in costs. (Used
rather than heads.)
16
41
Large Companies Differences

• TC better aligned with strategic objectives 17
• Adoption of TC driven by product design concerns
  to a greater extent 18i
• Process and cost information is shared with
  suppliers to a greater extent 20b,c
• Use grass roots acceptance to achieve TC buy-in
  to a greater extent 21c
• Management support for financial resources is
  more extensive 22a
• Accounting/finance groups have greater
  representation on the TC team 25a
• Use PM, benchmarking, VE, DTC, and ABC to a
  greater extent 34e,f,h,i,p

42
Large Companies Differences

• Gather relevant data, evaluate decision
  alternatives, make timely decisions and act upon
  decisions to a greater extent 36a,c,d,e
• Management used TC results to measure
  organizational and employee performance, and used
  team participation in annual performance
  evaluations to a greater extent 37c,d,g
• TC considered more successful by accounting/
  finance 38a
• Faster time to market, better cost control over
  purchased materials and parts, and improved
  product/service profitability 39a,f,l

43
Dichotomy TC Practitioners
8
This question was used to determine the TC
practitioner group. TC practitioners are those
that use the TC terminology.
44
TC Practitioners Differences

• Used TC more predominantly on commercial
  (non-government products) 14
• Adoption of TC driven by customer recommendation
  to a greater extent 18b
• Management Support for training and education
  more extensive 22e
• Management stayed actively involved and responded
  to feedback to a greater extent 23a,c
• More support and supplier training, but less
  customer training 27d,e,f
• TC considered more successful by purchasing and
  product planning 38d,e
• Better cost control over purchased materials and
  parts 39f

45
Items for Future Discussion

• Value Engineering/Value Analysis
• While used a lot, no connection to benefits
• Cross Functional Teams (CFTs)
• CFTs are incompletely staffed
• In-plant-oriented disciplines are fairly well
  represented
• Accounting/Finance - Production Planning
• Design Engineering - Operations/Manufacturing
• Purchasing
• Customer-oriented disciplines are slighted
• Service Engineering - Distribution/Logistics
• Quality Assurance - Sales/Marketing
• We conclude that the tenets of Customer Focus and
  Life Cycle Orientation are not yet fully
  entrenched

46
Diagnostic Tool and Survey

• For both Phase I and Phase II Surveys, questions
  were selected that represented each diagnostic
  tenet, either directly or by affinity
• Averages were computed for each tenet on a 1-5
  scale
• Raw correlations between these averages and an
  aggregate measure of success were computed
• Spearman and Kendall rank correlation tests
  performed to determine statistical significance
• Phase II results shown on next slide

47
Diagnostic Tool and Survey
SS
48
Diagnostic Tool Refinements

• Incorporating Survey Results

49
Diagnostic Tool Refinements

• Three new tenets added under Culture /
  Infrastructure
• Communication
• Resources
• Change Management
• Does order matter around the spider chart?
• Relative importance / ranking of tenets?
• Remove Supplier Partnerships from Tools, combine
  with Principles Value Chain

50
Culture / InfrastructureCommunication

• Upper Management has communicated their
  objectives expectations of the CAIV initiative
  to all levels of the organization
• A formal mandate for action such as command media
  or policy manual is in place to facilitate the
  CAIV process
• A published plan to convey the CAIV objectives
  expectations and engage all participants down the
  line is in place and being followed
• Systems are in place to facilitate the flow of
  information related to the CAIV process
• A non-threat communication plan with suppliers
  has been developed for data sharing
• Documented processes are in place to protect
  supplier information
• A standard metric reporting package is being used
  by the cross-functional teams to track status to
  the target in program reviews

51
Culture / InfrastructureResources

• An appropriate level of resources has been
  planned, budgeted, and assigned to the
  cross-functional teams
• A CAIV Lead has been assigned and has timely and
  unrestricted access to the Program Management
• Qualified people have been assigned to support
  the CAIV process
• People have been adequately trained to implement
  CAIV
• Adequate resources have been provided to develop
  and maintain CAIV core tools and supporting
  processes
• Lead time staffing levels have been provided to
  implement CAIV properly

52
Culture / InfrastructureChange Management

• A formal organizational readiness assessment /
  maturity diagnostic has been performed and
  documented
• Corrective actions are taken to meet CAIV
  objectives
• An Executive Steering Committee is in place to
  oversee change
• Upper Management requires progress reports on the
  CAIV process from their direct reports at all
  organizational reviews
• Active support from Top Functional Managers has
  been obtained
• CAIV has been integrated with other processes
  initiatives

Tentative pending output of CAM-I Change Mgt group
53
Cultural/Infrastructure
Final Diagnostic with new tenets incorporated
SS
SS
SS
SS
SS
SS
54
Principles
SS
SS
SS
55
Processes/Tools
SS
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SS
SS
SS
56
Current State of CAIV in DoD

• Renewed policy mandate
• DoD 5000 series
• Aldridge memo
• Separation of Acquisition and Logistics
  initiatives
• CAIV affinity with Program Management, Systems
  Engineering, Cost Estimating
• TOC affinity with Performance-Based Logistics
  (PBL), Total Life Cycle Systems Management
  (TLCSM)
• Renewed emphasis on Affordability
• Application of Nunn-McCurdy Amendment

57
USD(ATL) CAIV Memo 19 Jan 02

• Memo from USD(ATL) E.C. Pete Aldridge
• Subj Cost-as-an-Independent Variable (CAIV) and
  Spiral Development Implementation Plans
• dtd 19 Jan 2002
• Two plans required by end FY02 for 100 of
  defense programs
• Supports Goal 1 of 5 Achieve credibility and
  effectiveness in the acquisition and logistics
  support process
• Progress reports on 1 Mar and 3 Jun
• POC Dr. Spiros Pallas (PD, STS), (703)
  695-7417
• RTOC Working Group to provide templates by 31 Mar

58
Next Steps

• Target Costing Implementation Guide (TCIG)

59
Implementation Guide Development

• Target Costing book rules of baseball
• Implementation Guide how to manage a baseball
  team
• Working outline
• Build Support Base
• Establish Charter for Target Costing
• Develop Implementation Plan
• Build Teams for Target Costing
• Provide Training
• Acquire Tools
• Develop Action Plan to Achieve Goals
• Institutionalize the Target Costing Process

60
IG Development Process

• Outline drafted by working group chair
• Outline developed, supporting materials
  brainstormed at 01Q4
• Core materials and outline posted to QuickPlace
• Secure customizable project website
• Supporting materials and text posted by group
  members
• Outline refined 02Q1
• Interim meetings of chair, academic team, and
  lead authors

61
A Word From Our Sponsor

• Program Management Community of Practice (PM CoP)
  http//www.pmcop.dau.mil
• Total Ownership Cost (TOC) CoP
• Multi-disciplinary CoP focused on issues
  surrounding TOC and Reduction of TOC
• Including CAIV (Target Costing), ABC/M, EVM, Cost
  Estimating
• Navy ARO POCs [phone]
• Rob Houser RHouser_at_ar.navy.mil x149
• Peter Braxton PBraxton_at_ar.navy.mil x162
• Also CoPs for Risk Management,Systems
  Engineering, and Contract Management
• Interest areas for Software, PBL, HSI, ESOH

62
CAIV Diagnostic Tool (CDT)

• Guiding implementation

63
Cultural/InfrastructureLeadership
AKA Top Down Leadership

• Embracing CAIV adherence is a factor in executive
  management performance
• Executive managers evaluate project managers
  based on their use of CAIV tenets
• All management levels embrace the strategic
  philosophy of CAIV
• Those who don't support the philosophy are
  removed or reassigned
• Management demonstrates its commitment to the
  process by providing resources, facilities, etc
• A high level multifunctional core organization is
  established to integrate all processes

64
Cultural/InfrastructurePerformance Metrics

• Performance metrics encourage CAIV
• Compensation and benefits are linked to
  performance metrics
• Risk taking and innovation, essential to CAIV,
  are included in performance metrics
• Metrics are in place to encourage and enable
  team, as well as program, target achievement
• Cross-functional teams have substantial input in
  individuals' career path

65
Cultural/InfrastructureEmpowerment and Innovation

• Individuals and teams make all decisions within
  contractually defined boundaries
• Processes exist for individuals and teams to
  pursue innovative ideas
• The team environment encourages decision making
• Roles and responsibilities of management and
  teams are clearly understood and documented
• Decisions are made at the lowest appropriate level

AKA Empowerment, Empowerment / Amnesty
66
Cultural/InfrastructureProject Management

• Cost, schedule, and product are related and
  managed interdependently
• All scope is documented and linked to customer
  expectations
• Scope is formally defined in a work breakdown
  structure
• Product metrics are meaningful, timely, and
  deployed utilizing a structured methodology
• There is a functioning risk management process in
  place
• Project management has a life cycle orientation
• Project management has formal job descriptions
  and compensation rules and is perceived as a
  career path

67
Cultural/InfrastructureTraining

• Training cultivates knowledge, ability, awareness
  and behavior
• Training is not a discipline unto itself both
  thinkers and doers are engaged as trainers
• Regular participation in training, as trainer or
  trainee, is required of all members of the
  enterprise
• The quality of training is evaluated by trainers,
  trainees and project managers
• Courses of training constantly evolve based on
  trainers, trainees, and consumers requirements
• Training encompasses the full spectrum of
  teaming, functional area disciplines, and CAIV
  tools

68
PrinciplesCustomer Focus

• Tools and processes are in place to incorporate
  customer requirements for quality, cost and time,
  and are used for appropriate product/process
  decisions
• A systematic method for capturing and ranking
  customer value based requirements is in place
  and used by you, your suppliers, and customers
• The customer is an interactive part of the design
  activity and accessible on a daily basis
• Reaching the cost target requires the voice of
  the customer for changes in functionality or
  quality
• Product feature and function enhancements only
  take place if they meet customer expectations and
  customers are willing to pay for them

customer warfighter
69
PrinciplesLife Cycle Cost Reduction
AKA Life Cycle Cost

• Decisions are made based on ownership costs over
  the product life including purchasing price,
  operating costs, maintenance and repair, and
  disposition costs
• A system is in place to recognize the correct
  valuation of life cycle costs
• Suppliers recognize their role in life cycle cost
  contributions
• There is a common understanding of the definition
  of life cycle cost at the enterprise (product)
  level

70
PrinciplesPrice-Led Costing

• Cost targets flow from a rigorous affordability
  determination process
• Analysis of Alternatives (AoA) is rigorously
  documented and applied to establishing thresholds
  and objectives
• The relationship between product feature and
  function and product cost is communicated to
  affected stakeholders in the value chain
• Programs are not launched unless it has been
  demonstrated that affordability constraints will
  be satisfied
• Resources are available to those products that
  meet cost and performance targets

71
PrinciplesFocus on Design

• Product features and cost targets are set during
  product planning and concept development stages
• Systematic methods are used to achieve target
  costs during the design development and
  production stages
• Designs are reviewed by stakeholders prior to
  release to reduce unwanted post design change
  activity
• Products and manufacturing processes are
  simultaneously engineered

72
PrinciplesValue Chain Involvement

• Producers, suppliers, and service providers are
  involved in value determinations
• Product decisions are influenced by supplier and
  service provider requirement inputs
• Operations and Support (OS) needs are involved
  in value determinations
• Voice of the customer is heard throughout the
  value chain

73
PrinciplesCross Functional Teams 1

• Product- and process- focused teams (i.e. cross
  functional teams) are utilized and include all
  stakeholders (e.g., design, manufacturing
  engineers, production, sales, marketing,
  material, finance, services and support)
• Team responsibility encompasses the product life
  cycle
• Suppliers, distributors, customers, and recyclers
  are directly involved in cross functional teams
• Cross functional teams have the responsibility,
  accountability and authority for all product work
  statement decisions

74
PrinciplesCross Functional Teams 2

• Stakeholders have responsibility, accountability
  and authority to represent and commit for their
  function
• The cross functional team has internal staffing
  authority
• The cross functional team leadership has
  performance evaluation input on all team members
• The cross functional team members are primarily
  evaluated by how they support overall product
  strategy, and secondarily by their functional
  organization strategy
• The roles and responsibilities of all team
  members are clearly defined and available

75
Processes/ToolsProduct-Focused Financial Systems

• Financial systems are designed to allow
  estimation of costs at the parts level, major
  assembly level, and product feature or function
• Financial systems are an integrated part of
  product development
• Financial systems are used for past reporting,
  future planning, benchmarking of potentials, and
  identifying opportunities
• Financial data systems are flexible, timely, and
  the access mechanisms are invisible to the user
• Business plans and resource requirements are
  based on the mission-driven detail statement of
  work

76
Processes/ToolsValue Engineering/Value Analysis

• Feature and function decisions are tied directly
  to customer value expectations
• A corps of experts in value engineering
  principles and methodology is involved in the
  team
• Value decisions are based on total life cycle
  cost
• Value decisions are supported by part cost detail
  and integration cost detail
• The Value Methodology is employed throughout the
  value chain

77
Processes/ToolsVoice of the Customer

• There is a rigorous tool for identifying and
  ranking product and process design
  characteristics based on customer requirements
  (e.g., QFD)
• Customer input is sought during the product
  design phase
• Customer and product data is collected using
  formal methods (e.g., surveys, focus groups,
  clinics, etc.)
• Customer needs analysis data is routinely
  disseminated throughout the organization

customer warfighter
78
Processes/ToolsDecision Analysis

• Formal decision support tools or processes are
  used in the formulation of program plans
• Business case analysis is used for product and
  process decisions
• Decision tools address the following six
  investment elements cost, schedule,
  performance, effectiveness/value, risk, and
  profit
• Decision analysis tools complement other target
  costing tools and processes (e.g., Value
  Engineering, Quality Function Deployment, etc)
• Decision making is information based

79
Processes/ToolsBenchmarking/Cost Driver Analysis

• Cost information categorized by part attributes
  and organized by part/process families is
  utilized
• Cost information is calibrated to regional
  performance and industrial engineering standards
• Cost information is readily accessible and easy
  to understand
• Cost information is utilized in conjunction with
  component actuals to identify opportunities
• Cost information guides the Design/Build effort

80
Processes/ToolsProduct Estimating

• Program lessons learned are folded into estimate
  tools and processes
• Estimating routines and manufacturing rules of
  thumb are integrated into design tools
• Program and component estimates are consistent
  with design and manufacturing schedules
• Appropriate tools to provide cost insight are
  used to make decisions during product definition
  and production
• Cost estimates delineate between cost risk and
  the core cost estimate

81
Processes/ToolsSupplier Partnerships

• Suppliers share in cost reduction opportunities
  and benefits
• Suppliers are involved in design and build
  decisions
• Partnerships maintain supplier profit margins
• Suppliers and producers have common measures of
  customer satisfaction and long term success
• Cooperation, performance to commitment, and
  communication are fundamental to the
  supplier-producer relationship