Difference between Project Cost and Product Cost?
Nowadays, all companies work on projects, and for many of these companies, the project's outcome is a product. However, the project and the product have different meanings and costs. What is the difference between the two?
We are Fourteen TEC, the most qualified SAP partner in Italy for SAP Portfolio and Project Management implementation.
We have implemented SAP PPM in New Product Development processes, IT Governance, Commercial Portfolio Management, Facility Management, and Maintenance.
In the years 2021-2022, we collaborated with SAP Italy to implement the PPM solution for managing the funds derived from the National Recovery and Resilience Plan (PNRR) for the Ministry of Finance.
Product cost
The cost of the product represents the final cost of the materials used in the construction.
In Discrete Manufacturing it concerns the costs of the individual components that are assembled to create a single product.
In Process Industry, on the other hand, it refers to the costs of ingredients that, when combined, create the final product.
For example, if I produce pens in series, my product will be composed of:
ink
ball
cap
cylinder
Each of these components will have its individual price, which together will determine the cost of the product, understood as the cost of raw materials or semi-finished products.
Project cost
Unlike the cost of the product,project costs do not refer to individual units but represent the total expenses of all phases, including ideation, design, production, and market launch (or installation at the customer's site), including marketing costs.
In summary, it involves cost estimation for all the activities and resources required to turn an idea into a commercial product.
Project costs encompass the expenses related to purchased and utilized assets for production, consulting services, personnel costs, laboratory and research and development expenses, and all other costs incurred during production.
In the case of a PLM Engineering-to-Order process, project costs may coincide with the cost of the product, as purchases, investments, and design/production costs are specific to a single product created exclusively for one customer.
Product VS Project
In an R&D process, if the selling price of a product is €10, the product cost could be €2, while the cost of the development and market launch project for the product could amount to €300,000.
It is essential to carefully monitor and define the project cost so that the investments made in development can be amortized over the years through the proper definition of the selling price.
In SAP, you can define the project cost using SAP PPM , which allows creating an NPD (New Product Development) Portfolio as we discussed here “Business scenario to implement SAP PPM”), and the product cost can be managed through Mars PLM or SAP Product Lifecycle Costing, two SAP solutions that enable distinct work on project cost and product cost.
Fourteen TEC is a specialized SAP Supply Chain consulting company focused on PPM and PLM processes and products, operating in Europe and worldwide.
For over 10 years, Fourteen TEC has been dedicated to improving efficiency, innovation, and productivity for companies and multinational corporations, offering tailor-made solutions for clients across all industries.
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