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A mARKET REquiREmEnTs’ PERsPECTivE on PRoduCT And sERviCE dEvEloPmEnT 297
Cost of product and service development

The cost of developing products and services is conventionally analysed in a similar way
to the ongoing cost of producing the goods and services. In other words, cost factors
are split up into three categories: the cost of buying the inputs to the process, the cost
of providing the labour in the process and the other general overhead costs of running
the process. In most in-house development processes the latter two costs outweigh the
former. As with day-to-day production of products and services, however, it is perhaps
more revealing to consider how the other performance objectives drive cost:
● Quality – ‘Error-free’ processes reduce reworking concepts and designs.
● Speed – Fast development can use resources for shorter periods.
● Dependability – On-time development provides process stability, allows efficient
resource planning and prevents expensive launch date slippage.
● Flexibility – The ability to delay design decisions can ensure the most appropri-
ate options being chosen, preventing the costs of changing direction in the
development.

One way of thinking about the effect of the other development performance objec-
tives on cost is shown in Figure 8.11. Whether through quality errors, intrinsically slow
development processes, a lack of project dependability, or delays caused through inflex-
ible development processes, the end result is that the development is late. Delayed
completion of the development results in both more expenditure on the development
and delayed (and probably reduced) revenue. The combination of both these effects

Figure 8.11 slow or delayed development times, which can be the result of quality
or flexibility failures, will increase costs and can reduce revenue

Cumulative
Sales revenue cash flow

Sales revenue
(delayed launch)

+ve
Cumulative cash flow
(delayed launch)
Time
–ve
Delay in
launch

Delay in break-even is
greater than the launch delay

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