Tar­get Cos­ting

Why this matters

Increasing competition in many industries is putting pressure on companies’ cost structures. While traditional cost-cutting programmes are becoming less effective at producing the desired results, it is becoming ever more important to choose a new perspective aimed at defining the cost structures “permitted” by the market ahead of time. This is where target costing comes into play: its objective is to design cost structures at the outset of the development process in such a way that the product under development will meet its profitability targets.

Challenges

When implementing target costing, both identifying the target cost (“What is the maximum allowable product cost?”) and its breakdown (“What is the maximum allowable cost of each component?”) represent challenges. Methodological challenges and multiple implementation issues have to be resolved when setting target costs for a product and its components, without losing sight of the customer benefit.

Key questions

Introducing target costing means comprehensively changing the product development management approach. The following key questions arise:

  •  Methodological approach: which procedures should be used to identify, break down and achieve the target costs?
  • Reporting concept: which metrics are relevant for managing the development project and have to be tracked to identify target/plan/actual deviations?
  • Systems: how can the target costing approach be integrated with existing tools and systems used for investment budgeting, cost accounting, planning and reporting?
  • Organisation: how should the roles and responsibilities of the units involved in target costing – controlling, product development, procurement, production, distribution, corporate planning etc. – be defined?
  • Change management: how should the change process and its communication, training and further education activities be managed to ensure that target costing will sustainably reinforce a focus on costs?

When introducing target costing, care has to be taken to harmonise it with the existing management concept.

Our offering

CTcon will assist you in the customised implementation of target costing: using the CTcon management framework as our tried-and-tested consulting approach and taking a holistic view, we will work with you to successfully introduce target costing and anchor it using a change programme.

Your contact person

Sjard Hammer
Associate Partner | Munich | Germany
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