Parametric Cost Deployment

Parametric cost analysis is a mathematical approach to estimating cost. Parametric cost analysis uses non-cost parameters, such as quality characteristics, to estimate the cost to bring forth, sustain, and retire a product. This paper reviews parametric cost analysis and shows how it can be used within the cost deployment process. INTRODUCTION Cost is the measure in monetary units of the work associated with human endeavor (Putnam, 1978; Dean, 1995a). Current resource expenditure level is the measure in monetary units of the power associated with human endeavor. Value is an energy potential that drives consumer decisions (Shillito and De Marle; 1992) and value is the measure of consumer choice (Barnard and Wallace, 1994). The primary coordinates of value appear to be quality and cost (Dean, 1995b). Market timing is also important but can also be viewed as the dynamic nature of quality. Quality is defined by customer desires. Quality function deployment (QFD) is a process by which one can deploy quality into the product; into the system to bring forth, sustain, and retire the product; and into the enterprise as a whole (Dean, 1995c). Within QFD, we deploy quality to ensure that the customer gets what is desired. But what about cost? From physics, we know that work and energy have the same units. Thus, by analogy, cost, as measured by work, and value, as an energy potential, have the same units. From the perspective of an individual, cost is a measure of value in that a consumer is willing to trade money for value. From the perspective of a project, a project is driven by value, which is potential energy. As time proceeds, the cost of a project grows and the residual value to be realized decreases. This model is a direct analog of the law of conservation of energy in physics. This analogy equates value with potential energy and cost with kinetic energy. If too much cost is incurred relative to the initial value of the project, measured in terms of what the customer is willing to spend, then the residual value at the end of the project is negative. Both the individual and project models explain why it is so important to deploy cost while deploying quality. However, to deploy cost we must consciously design for cost (Dean and Unal, 1991; Dean and Unal, 1992). Simply put, cost deployment is a means of designing for cost. This paper assumes a basic understanding of QFD (Akao, 1990) and cost deployment (Maekawa, 1990). It describes parametric cost analysis (Dean, 1995d) and shows how parametric cost analysis fits within the cost deployment process.