How early is early enough? Systematically embedding cost decisions in the development process

In many industrial companies, serious consideration of product costs begins surprisingly late. Often, cost calculation only becomes a priority once design and development are already well advanced, initial prototypes exist, or investments in tools and equipment have even already been made. At first glance, this approach seems understandable. After all, in the early stages of a project, many technical details are still unclear, information is incomplete and decisions are provisional. So why should one concern oneself intensively with costs when not even the basic product design has been finalised? The answer is as simple as it is uncomfortable: because it is precisely in these early phases that the key cost drivers are determined. Choice of materials, manufacturing concept, design, number of components, tolerance specifications, assembly principles – all these decisions have long-term cost implications that can only be corrected later at considerable expense.

Against this backdrop, the following section presents an approach that systematically embeds cost considerations into the development process – specifically at the stage where they actually have an impact. The aim is not to overload the early stages with detailed calculations or to restrict scope for innovation through premature cost discipline. Rather, the focus is on how cost considerations can be integrated in such a way as to enable well-founded decisions, provided these can still be implemented at a reasonable cost.

Most product costs are not incurred when they are actually incurred, but long before, when fundamental decisions regarding product design, materials and manufacturing concepts are made. Whilst in series production invoices are paid, materials are purchased and manufacturing hours are billed, the structural foundations for these cost blocks have already been laid during the concept and design phase.

Studies from various industries show that between sixty and eighty per cent of the subsequent product lifecycle costs are already determined in the first twenty to thirty per cent of the development time. This discrepancy between the time of determination and the time when costs are actually incurred is often underestimated in practice. When a development team opts for a particular casting process, a specific alloy, or an assembly comprising twelve rather than eight individual parts, this does not merely define technical specifications. Rather, at that very moment, the product’s cost structure for the entire series production phase is also determined.

This early cost determination affects not only obvious decisions such as the choice between steel and aluminium. Even supposedly downstream cost aspects are significantly influenced at this stage. The decision in favour of a particular design logic determines, for example, how many inspection steps will be necessary in quality assurance, what assembly tools are required, and how complex the logistics processes will be. Even maintenance costs, recyclability, serviceability and sustainability parameters such as the carbon footprint are shaped by decisions made when the product does not even exist as a prototype.

Whilst there is still considerable scope for design flexibility in the concept phase, this scope narrows with every subsequent development step. Any cost optimisation that is not implemented in the early phases will later require a multiple of the effort to achieve, if it is even still possible. A material substitution that would have been a matter of days in the concept phase can, in the series preparation phase, entail months of qualification work, approval processes and supplier changes. A simplification of component geometry that would initially have been easy to implement may later require new tools costing in the mid six-figure range.

The concept phase is characterised by maximum creative freedom and a minimum of detailed information. At this stage, there are usually only rough sketches, functional requirements and initial considerations regarding possible technical solutions. Precise cost estimates are not possible under these conditions, yet they are frequently expected. This expectation regularly leads to a dilemma: on the one hand, now would be the ideal time for fundamental cost decisions; on the other hand, the data required for reliable calculations is lacking.

Cost estimates at this stage inevitably fall within a range. Instead of an exact target price, the aim should be to establish realistic cost corridors that reflect different technical approaches. However, such a range-based approach requires a fundamental shift in thinking: costs are not treated as fixed figures, but as the result of decisions that have yet to be made. The question is not “What will the product cost?”, but “What cost structures result from different technical concepts?”.

This scenario-based thinking is rarely consistently embedded in practice. Instead, attempts are often made to force a point-based calculation from incomplete information, which is then carried through the entire development process as a binding guideline. The result is a false sense of security that does not prevent later surprises, but merely delays them. An honest range estimate, on the other hand, which runs through various material alternatives, manufacturing scenarios and levels of complexity, creates transparency regarding the cost implications of decisions still to be made and enables conscious control rather than subsequent correction.

As the project moves into the design phase, the level of detail in the technical specifications increases significantly. CAD models are created, bills of materials take shape, and manufacturing processes are defined in greater detail. At the same time, the quality of cost estimates also improves. Where previously only broad estimates were possible, increasingly reliable calculations can now be produced. Material and manufacturing costs can be estimated on the basis of specific geometries and processes, suppliers can submit initial quotations, and the number of components is largely defined.

However, this phase carries a specific risk: the increasing level of detail in the cost assessment goes hand in hand with a decreasing flexibility of the technical solution. Every fully designed component, every coordinated interface and every manufacturing plan currently in progress increases the effort required to make changes. If a cost assessment at this stage reveals that the target costs are being significantly exceeded, those responsible face a dilemma: either they accept the cost overrun, or they intervene in a design that is already at an advanced stage, with all the associated schedule risks and additional effort.

The balancing act between level of detail and flexibility is particularly pronounced at this stage. Ideally, cost analyses should be carried out continuously. An iterative cost assessment, running in parallel with the design and flagging deviations at an early stage, allows adjustments to be made whilst they are still feasible with reasonable effort. In reality, however, a comprehensive cost review is often only carried out at the end of the design phase. At a point in time when fundamental changes are already associated with significant project risks. This delayed cost assessment regularly leads to a situation where technically mature solutions have to be simplified or modified retrospectively for cost reasons. Such interventions under time pressure carry the risk of quality compromises, unexpected interactions or inadequately validated changes. What was intended as cost optimisation can thus lead to problems later on in series production.

Just before the start of series production, cost transparency reaches its peak. Supplier contracts have been negotiated, tools have been manufactured, and production processes have been defined and validated. Costing is no longer based on assumptions or analogies, but on concrete quotations, actual tooling costs and measured process times. At the same time, the scope for design changes has been almost entirely exhausted. Changes to the product structure are extremely costly and risky at this stage.

If it is determined during this phase that the target costs will not be met, only limited options for action remain. Renegotiations with suppliers may close part of the gap, but their impact is limited. This is particularly true as the client’s negotiating position is weakened if suppliers have already invested in tools and pre-series parts. Process optimisations in production can shorten cycle times or reduce scrap, but they require stable and mature manufacturing processes. Changes to the product itself, such as material substitutions or simplified components, can only be implemented without delaying the start of series production in exceptional cases. These measures can certainly be effective, but they do not compensate for the missed optimisation potential in the early development phases.

The need for early cost decisions appears to conflict with the limited availability of information in the early stages of development. However, this contradiction can be resolved if companies have a robust database drawn from previous projects. Historical cost data, systematically recorded and presented in a structured format, forms the foundation for realistic cost estimates even when the current product has not yet been defined in full detail.

The value of such reference projects lies less in the exact transferability of individual cost items and more in the availability of cost structures and interrelationships. If it is known how costs are distributed between materials, manufacturing, assembly and logistics for comparable products, and if it is documented what cost implications certain material alternatives or manufacturing processes have had in the past, then reliable guidelines for new developments can be derived from this. Systematic cost documentation of past projects is therefore not merely an administrative formality, but a strategic investment in the quality of future cost decisions.

Benchmarks supplement the internal database with an external perspective. Comparison with competitor products, industry standards or technologically similar solutions from other markets provides a realistic picture of which cost structures are achievable under given technical constraints. Such benchmarks must, however, be interpreted with caution, as differing production volumes, quality standards or market requirements can account for significant cost variations. Nevertheless, they provide a valuable framework that prevents cost estimates in early phases from being completely unrealistic.

Finally, empirical data, drawn from employees with many years of project and product experience, represent an often underestimated source of knowledge. This implicit expertise can be made explicit by systematically involving experienced staff in early cost estimates and documenting their assessments in a structured manner. The combination of quantitative data, external benchmarks and qualified expert estimates creates a data foundation that enables sound decisions to be made despite limited information.

If detailed design data is not yet available, cost estimates must be based on more abstract product characteristics. This is where parametric costing methods come into play, which estimate costs on the basis of a few characteristic parameters. Such parameters may be physical quantities such as weight, volume or surface area, but also functional characteristics such as power, torque or load-bearing capacity. The underlying assumption is that there are statistically verifiable correlations between these parameters and the resulting costs, which can be derived from extensive market data and technological principles.

Particularly valuable in this context are universal cost models that are not based on a company’s own historical data, but rather on cross-industry empirical values, the physical fundamentals of manufacturing and standard market cost structures. Such models offer a decisive advantage, particularly for companies with a limited data base or for entirely new product concepts: they enable reliable cost estimates even when no comparable reference projects exist in-house. The models draw on generalised relationships that apply to specific manufacturing processes, material groups or product categories largely independently of the specific company.

A universal parametric model for a die-cast part, for example, would be based on universally applicable cost drivers: the volume of the component, the complexity of the geometry, the alloy used, the required surface quality and the target batch size. These parameters can be narrowed down in the early stages of development without the need for a complete design. The model then illustrates how these parameters relate to tooling costs, cycle times, material consumption and post-processing effort.

The key advantage of such universal models lies in their immediate availability and applicability. Whilst building an in-house cost database can take years and only delivers reliable results after several completed projects, universal models can be used immediately. They enable even smaller companies or organisational units without extensive cost data history to make informed cost decisions in early development phases. Furthermore, they are less susceptible to systematic distortions that may result from company-specific factors.

These parametric cost models bridge the gap between the conceptual idea and detailed design, thereby creating the conditions for well-founded cost decisions at a stage when they can still have maximum impact. They make it possible to compare different technical approaches in terms of their cost implications at an early stage, without having to rely on an extensive internal database.

Early-stage cost decisions require the integration of different specialist perspectives. Developers possess the technical understanding of product functions and implementation options, but are often unable to fully grasp the cost implications of their decisions. Purchasers are familiar with market prices, supplier capacities and procurement risks, but may have limited insight into technical interdependencies and the scope for changes. Controllers are responsible for commercial evaluation and target cost targets, but are not always familiar with technical constraints and development uncertainties. Finally, cost engineers contribute methodological expertise in cost analysis and forecasting, but require input from all other areas to deliver reliable results.

These different perspectives must be brought together in the early stages of development so that cost decisions can be made on a holistic basis. In many companies, however, this only happens late in the process – or not at all. Developers initially work largely in isolation on technical solutions; buyers are only involved when supplier enquiries are being prepared; and controllers only review costs as part of approval processes. This sequential approach means that cost considerations are taken into account too late and changes are costly.

Genuine interdisciplinary collaboration, on the other hand, begins as early as the concept phase. Developers, procurement staff and cost engineers work together to develop alternative solutions and evaluate them simultaneously in terms of technical feasibility, deliverability and cost implications. This parallel approach prevents the development of technically optimised solutions that must later be discarded for cost reasons or due to procurement risks. Instead, a shared understanding emerges of the conflicting objectives between functionality, costs, deadlines and risks, on the basis of which balanced decisions can be made.

The organisational embedding of this collaboration is crucial to its success. Informal coordination is insufficient when different sets of objectives and priorities come into conflict. What is required are defined processes, clear roles and regular interdisciplinary reviews in which cost considerations are treated on an equal footing with technical and scheduling requirements. Only in this way can we prevent costs from being relegated to a secondary evaluation criterion, rather than being understood as an integral part of product development.

The optimal time for cost decisions is not a single point in the project’s timeline, but rather a sequence of structured review points aligned with the natural phases of the development process. Binding milestones, at which defined cost criteria must be met before the project can move on to the next phase, are helpful in this regard. This systematic approach prevents cost considerations from lagging behind project progress or only being addressed once room for manoeuvre has already been exhausted.

A typical milestone at the end of the concept phase could, for example, involve the requirement that a robust cost range is available for the preferred technical solution and that this is compatible with the strategic target cost targets. At this stage, it is not yet necessary for every detail to be calculated, but it is essential that the key cost drivers are identified and that the chosen solution does not entail any fundamental cost risks.

As the project progresses, the requirements for milestones become increasingly specific. Following the design phase, it may be required that a detailed preliminary cost estimate at component level is available, initial supplier quotations have been obtained, and any deviation from the target costs is documented and accompanied by remedial measures. Finally, prior to the start of series production, a final cost estimate based on binding supplier contracts and validated manufacturing processes should be available, confirming that the project’s economic objectives are achievable.

The effectiveness of such milestones depends crucially on their consistent enforcement. If projects are allowed to move on to the next phase despite unmet cost criteria because deadlines take priority or technical challenges demand all attention, the milestones lose their steering effect. They then remain formal checkpoints with no real consequences. What is therefore required is a clear commitment from management that cost criteria are on a par with technical and scheduling requirements, and that deviations are not routinely tolerated but constitute exceptions that must be justified.

The notion that costs can be definitively determined by a one-off calculation at a specific point in time does not reflect the reality of the development process. Development is an iterative process in which insights are gained, assumptions are revised and solutions are refined. Accordingly, cost assessment must also be understood as a continuous process that accompanies the progress of development and responds to new insights.

Iterative cost validation means that cost estimates are not only produced at defined milestones, but are continuously updated whenever key parameters change. The decision to use an alternative material, the adjustment of a component’s geometry, the change to a tolerance specification – each of these modifications has potential cost implications that should be made immediately transparent. Only in this way can a realistic picture of the current cost situation be obtained, which can serve as a basis for further decisions.

However, this continuity in cost assessment requires suitable methods and tools. Manual calculations, which take several days or weeks, are not practical for ongoing updates. This is where parametric costing systems come into play, which can automatically generate cost estimates based on current design data or defined parameters. Such systems make it possible to visualise the cost implications of changes virtually in real time, thereby creating the basis for cost-oriented development decisions.

Iterative cost validation also changes the role of those responsible for costs within the project. Instead of acting as an external auditing body that provides assessments at specific milestones, they become continuous companions throughout the development process. They provide ongoing feedback on the cost implications of technical decisions, assist in the evaluation of alternatives and help to identify cost-driven optimisations whilst these can still be implemented at a reasonable cost. This changed role requires closer integration into the development team and a shared understanding that cost transparency is not a control mechanism, but a management tool.

Requirements for cost transparency and cost certainty must be tailored to the current maturity level of the development project. In early phases, when fundamental design decisions are still open, it would be unrealistic to demand the same level of cost accuracy as just before the start of series production. At the same time, the low maturity level must not be used as an excuse to completely neglect cost considerations. The trick lies in defining the appropriate form of cost assessment for each maturity level and establishing clear criteria for the level of cost transparency required before the next maturity level can be reached.

This relationship can be structured using a maturity model that maps technical and cost maturity in parallel. In an early concept phase with a low level of technical maturity, cost ranges of twenty or thirty per cent are acceptable. What matters is not precision, but that the range realistically reflects the actual uncertainties and that different solution scenarios can be compared in terms of cost. As technical maturity increases, the acceptable cost range then narrows successively. Once the design phase is complete, the uncertainty should be reduced to a few percentage points, and by the time series production begins, cost accuracy in the single-digit percentage range should be achieved.

As the cost range narrows, the requirements for validating the cost estimate also increase. Whilst parametric models and analogies are sufficient in early phases, in later phases the calculation must increasingly be underpinned by concrete supplier quotations, measured production times and verified process parameters. These phased requirements for cost validation take account of the rising investment volume and the decreasing scope for correction.

The project’s risk profile also influences the requirements for cost transparency. A project with a high degree of technical innovation and correspondingly greater uncertainties requires more rigorous cost validation and larger risk premiums than a project based on proven technologies and established supply chains. The link between target costs and technical maturity must therefore be calibrated on a project-specific basis in order, on the one hand, to avoid unrealistic expectations of accuracy and, on the other hand, to ensure that cost risks are adequately taken into account.

One of the most valuable features of professional costing software is its ability to systematically compare different technical scenarios and product variants in terms of their cost implications. In the early stages of development, several potential solutions are typically under consideration, such as different materials, alternative manufacturing processes, and various design concepts. The question of which of these alternatives is not only technically feasible but also economically optimal often cannot be answered intuitively, because the cost implications are complex and non-linear.

Costing software makes it possible to model such scenarios in parallel and compare them transparently. A variant using die-cast aluminium can be compared with the alternative using sheet steel construction without both variants having to be fully designed first. The software takes into account not only the obvious material costs, but also the varying manufacturing costs, tooling investments, batch size dependencies and post-processing requirements. The comparison then shows, for example, that the aluminium variant is more economical for small batch sizes, whilst the sheet steel solution offers cost advantages above a certain volume threshold.

This ability to carry out structured variant comparisons is particularly valuable for design decisions whose cost implications are not immediately apparent. The decision between a modular design with a higher number of parts and an integral design with more complex individual components can only be properly assessed in terms of cost if both approaches are fully costed. Modern software enables such fundamentally different concepts to be modelled and their cost profiles analysed across various production volume scenarios. The results then show not only which variant is cheaper in absolute terms, but also how sensitive the cost ratios are to changes in the operating environment.

The scenario comparison also extends to strategic issues such as make-or-buy decisions or the choice of manufacturing locations. When different levels of vertical integration or procurement strategies are under discussion, professional costing software can make their respective cost structures transparent across the entire supply chain, thereby creating a rational basis for decision-making. This takes into account not only direct manufacturing and material costs, but also indirect effects such as capital tied up, logistics costs or quality risks. This holistic approach prevents decisions from being made on the basis of incomplete cost comparisons, which could later result in unexpected additional costs.

The question of how early in the development process cost decisions should be made cannot be answered with a specific date or a single milestone. Rather, the key insight is that effective cost management requires a systematically embedded, continuous process that runs throughout the entire development cycle. It is not a matter of finding the one optimal point in time, but of establishing a sequence of structured decision points, each adapted to the project’s stage of maturity and consistently utilising the remaining scope for design.

In concrete terms, this means for companies that embedding early-stage cost decisions cannot be achieved through individual measures or tools, but requires a comprehensive process overhaul. Development processes must be designed in such a way that cost considerations are an integral part from the outset, rather than a downstream review stage. Calculation methods must be available that can handle the volume of information in early phases. And the organisational culture must view cost responsibility as a shared task for all those involved, not as the exclusive remit of individual functions. Those who implement this consistently create the conditions for cost decisions to be made when they can still have an impact, rather than only when damage limitation is the only option left.