Cost-down Activity: Portfolio or Project Management?

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Categories: Portfolio Management


Every project management office (PMO) should perform organizational cost-down activities, whether it's the overall business running cost-down by reducing inefficiencies or the cost reduction of projects or productions.

Some organizations think cost-down should be included as a part of portfolio management, while others regard it as just another part of project management. The answer depends on whether cost-down is executed to help realize the organization's objectives.

For example, let's take a look at Foxconn Technology Group, a manufacturing giant in Taiwan that manufactures several Apple products.

During the bidding process to manufacture the iPad, for example, Foxconn provides a quote to Apple that Foxconn's competitors are unable to match or undercut. Foxconn evaluates different efficiency plans in an effort to cut the price of iPad production as much as possible.

The design and specifications of the iPad are fixed. Choice of materials and manufacturing methods, however, can be managed in the way that Foxconn feels is most efficient. Foxconn can research less costly materials, more efficient production methods, and new vendors for less expensive services or components. Foxconn will also look to vertically acquire its competitors or vendors.

All of these factors allow Foxconn to calculate from quotes how it must manage production so that manufacturing matches the quote. This is Foxconn's organizational strategy: offering the lowest price to its buyer and attaining the most competitive cost.

This example shows how a cost-down activity meets the organization's business strategy of offering the lowest price. In this situation, the cost-down activity is absolutely part of portfolio management.

Projects, programs and portfolios are all about executive power. The appropriate use of a project, program or portfolio depends on its function. When a project, operation or task can be performed to further the organization's business strategy, it should definitely be regarded as a part of portfolio management, and not a part of project management.

Does your organization treat cost-down activity as a portfolio management activity?
Posted by Lung-Hung Chou on: March 22, 2011 12:28 PM | Permalink

Comments

Gary Williams
What exactly is a "Cost-Down Activity?" The implication is that it is some kind of cost reduction activity, but I'm not familiar with the term.

Sachin
Portfolio Management is different from project management. But if planning the project cost-down activity should be a part of project management than how come we can say that portfolio is different from project management?

Eddie Tsai
"Cost down" is a commonly used term in Asian countries, it literally means cost reduction.

Cost reduction activities are what most ODM/OEM companies excel at. This is all due to the low profit margin, and almost in all cases "fixed" profit margin given by the brand names. So the ODMs need to perform cost reduction activities to squeeze every little bit of dollar out of the product.

Cheaper material/components also means lower reliability and shorter life time of the product. You get for what you pay.

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