Function Cost Analysis

from the Perspective of Competitive Advantage

by
Edwin B. Dean

Function cost analysis is used by value engineers to determine the cost of each product function. In the USA this is typically determined by a bottom up analysis of the cost of all items, components, labor, etc., necessary for the product to perform each function. In Japan, cost tables are often used (Yoshikawa, Innes, and Mitchell, 1990).

If a function is not essential, then it may be removed from the product and the associated cost may also be removed. If a function is essential, then alternate methods of performing the function are determined. Cost may be saved by choosing the lowest cost method of performing the function. In this manner, value engineering attains it's goal of providing a product with minimum essential function at lowest cost.

Function cost analysis, as defined by value engineering, is an accounting allocation of cost and importance to product function. It does not consider the fact that cost is generated by the work required to genopersist the product. Thus, function cost analysis, as typically used within value engineering, does not address the even greater opportunities for cost reduction through engineering process improvement. Activity based costing deals with those costs. Activities are implementations of the functions of the system to bring forth, sustain, and retire a product. Yoshikawa, T., J. Innes, and F. Mitchell (1989) integrate the concepts of activity based cost and function analysis.

I prefer to view function cost analysis as the general case which contains both value engineering costing and activity based costing as the respective processes which deal with the cost of the functions of the product and the cost of the functions of the system to genopersist the product. Even more generally, function cost analysis can be defined as the determination and prediction of the cost and importance of the functions of the genopersistation recursion.

References

Yoshikawa, T., J. Innes, and F. Mitchell (1989). "Cost Management Through Functional Analysis," Journal of Cost Management, Spring, pp. 14-19.
Yoshikawa, T., J. Innes, and F. Mitchell (1990). "Cost Tables: A Foundation of Japanese Cost Management," Journal of Cost Management, Fall, pp. 30-36.

Bibliographies

Function Cost Analysis Bibliography
Value Engineering Bibliography

Societies

Society of American Value Engineers

Table of Contents | Cost Technologies | Use