What does design cost?

cost optimization
Design to Cost – what it is and how it works

Updated on 09/05/2022

By Hermann Schlichting*

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Cost optimization plays a significant role in product development. With Design to Cost you can plan and reduce all incurred costs – but the right methods must be used for this, such as value analysis or target calculation.

When it comes to new product ideas, cost plays a key role. Design-to-cost methods can be used to plan exactly how costs can best be saved.

Product development is under increasing pressure to develop cost-effective products. With the usual procedures used so far, the costs at the start of series production are often higher than expected. However, at this point, it is too late to save costs without extensive design changes. Design-to-cost methods used up front can help.

Design to Cost – what is it?

The term “Design to Cost” (abbreviated DTC) is used today in an inflationary way, and research often fails to find an understandable description. It is therefore important to understand that Design to Cost is not a described method, but an undefined collective term.

The DTC approach consists of many different, well-documented methods and cannot be described uniformly. The use of the right methods in a design-to-cost project fundamentally depends on the objectives, which can be very different. Possible targets are:

  • Life cycle cost optimization
  • Optimization of Total Cost of Ownership (TCO)

Methods and techniques in a design-to-cost project

Various methods and techniques are used to achieve the objectives of a design-to-cost project (development project). However, the terms methods and techniques are not always clearly separated from each other.

Possible DTC methods are:

  • Target price: The target costs for the product and its components are determined here systematically
  • Reverse engineering: Reverse engineering provides detailed information on cost differences compared to competing products
  • Analysis of experience curve: The analysis shows possible cost reduction potentials and the cost gap to the competitor
  • Implementation of quality functions: The focus here is on customer requirements and competitive comparisons. Over-engineering should be avoided here.
  • Value Analysis: By analyzing functions and function costs in an interdisciplinary team, new solutions are created with high cost reductions.

Through the combined use of several methods, cost reductions of 15 to 60 percent can be achieved in a design-to-cost project.

Techniques used to optimize development projects include:

  • Interdisciplinary teamwork

Seminar: DTC for product developers

If you are interested in design-to-cost methods in detail and want to learn more about the specific application, we recommend the “Design-to-Cost methods” seminar. Here, users learn

  • how the different DTC methods are used,
  • what positive influence the application of the DTC methods has on the analytical ability and creativity of the product developer and
  • how the methods are integrated into the product development process (PEP).

This is how Design to Cost works in the development process

In most cases, a DTC project involves the development of a product. This can be a successor product or a fundamentally new product. The procedures are then partly different.

Due to the continuously intensified competition, it is no longer sufficient to use only one method, such as value analysis. This always achieves a cost reduction, but further cost reduction potentials remain unrecognized.

It is therefore important from the customer’s goals, choose and combine different methods. This is basically part of the preparation of a DTC project.

The critical success factors

The following factors contribute to the success of a DTC project:

  • Clear goals and requirements

goals and requirements focus the DTC work. If the requirements are incomplete and cannot be clarified with specialist consultants, then work is continued with prerequisites.

thorough analyses create a detailed understanding of the competing products, complexity cost drivers, cost of features, technology trends and more. Solutions for the product to be developed are sometimes presented on a silver platter.

creativity develops from the working methods of an interdisciplinary team and above all from new information from the important analysis results.

Seminar: Design-to-Cost methods

At the seminar, Hermann Schlichting, who has been leading DTC projects for over 30 years, brings the design-to-cost methods and techniques closer to the participants. It finds as Online seminar from 5 to 6 October 2022 and can also be used as a own internal seminar get booked.
More info

This is how a design-to-cost project succeeds

A DTC project is described below as an example to illustrate a possible process.

The DTC project starts with a five-day workshop. The goals were defined in advance with the client. The product is new, there is no previous product. About 80 percent of the requirements are in place. The company and the employees involved have no previous experience with DTC methods.

A team of five employees is formed. This includes developers from construction, electrical engineering and software, as well as a cost manager. The team is managed by a consulting firm.

After the presentation of the system and method, the process follows:

  • The team develops a shared understanding of goals
  • The requirements have been thoroughly worked out and partially supplemented with prerequisites
  • A function analysis is performed with around 40 functions
  • Solution ideas are being sought for handling the function
  • Solution ideas are checked for feasibility
  • Solution ideas are technically prepared and evaluated with manufacturing costs, development efforts, investments, etc.
  • A morphological matrix is ​​created with the evaluated solution ideas
  • Four solution concepts with different production costs and development efforts are defined, evaluated and compared
  • This is followed by the final presentation with the client and decision on a solution concept
  • Then the further DTC development work starts with step-by-step technical preparation of the selected solution concept

With normal meeting techniques or small workshops, it would have taken several months to reach at least a roughly comparable result.

Summary: What Design to Cost is and what it brings

  • Design to Cost is a collective term for various methods and techniques.
  • The combined use of different methods leads to higher cost reductions than with only one method.
  • Goals, creativity and the ability to analyze are the critical success factors.
  • The possible cost reductions are between 15 and 60 percent.

* Hermann Schlichting, management consultant and managing director at Schlichting-Consulting


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