A Japanese case study of functional cost analysis

Abstract

Functional cost analysis (FCA) is a cost management technique derived from value analysis or value engineering. It focuses on costing the components of service (known as functions) which products or services (including internal services) offer to customers. FCA involves a team approach allowing the organization to draw on the skills of a variety of business disciplines (including supplier and customer intelligence) to help meet the strictures of tightly set target costs. It therefore impounds the viewpoints of supply, process, process and market into the cost management system. This paper reports the results of a case study of a Japanese company which has been using FCA for 20 years and explores why and how it has adapted and increased its use of this technique. The development and mechanics of FCA are discussed before an illustrative example applying FCA to an overhead area is presented as a basis for analysis. The results of this case study show how Japanese companies have adopted and modified a cost control technique of Western origin, in a manner which has allowed it to become one of the most important technical aspects of the Japanese cost management effort.