Cost and Value Management Case Study Example | Topics and Well Written Essays - 2000 words

Cost and Value Management - Case Study Example This certainly shows the pragmatism of the firm with regards to its products in the sense that none of the products are rushed into production whatever the results these said products show on the testing phase. That is directly linked to the cost management practices of the firm i.e. the firm is willing to bear some short-term costs given that these cost can initiate the birth of products that are successful and long-lasting in the long run. In addition, the entire case of the Boeing 7X7 shows the commitment and drive of Boeing towards research and development. It says in the case study before the name was changed to 767, approximately $100 million had been spent on this project which were demarcated as costs for the on-going research and development. Therefore, we can see that the costs management practices of Boeing had a significant place in them for large scale research and development projects. Suffice to say, the cost management practices of Boeing are pragmatic yet expansive a nd directed towards the long run. [1] [2] [3] Now, after determining these facts, we will now look at the strengths and weaknesses of these practices of Boeing in light of the concept of earned value management. Before, I delve much deeper into this topic, it is critical to explain that contrary to popular belief, there is a world of difference between the factors that determine earned value and earned value management systems (EVMS). ... ts importance vis--vis the mechanism can be gauged by the fact that large adapt ably priced military defense contracts have required the presence of these prerequisites in order to ascertain the reliability of the results given by the earned value metric as far back as 1967. It is important to note that despite the great important of these prerequisites, they are not essential for the workability of the earned value method. However, the presence of a management control system that fulfills at least part of the standards that have been demarcated by the prerequisites is extremely essential in this case. From here on, the term "earned value management process" will include the pre-requisites for both the earned value and the EVMS criteria. [4] [5] [6] I will first look at the strengths of these practices at Boeing. The earned value approach of Boeing is directly in line with the cost management practices that we have seen in the case study. Despite the very large initial expenditure that is related to the product, the project only went into productions when commitments to purchase were received from one foreign and two domestic airlines, and preproduction orders totaled at least 100 planes. This showed the risk management abilities of the company in the sense that they wanted to ascertain to the minimum a certain number of prospective clients which would be interested in their products. This also showed the strengths of the earned value management process of the business as they want to determine a flexible budget of costs which they would need to undertake in order to complete a theoretical number of orders. Now, this theoretical number would be based on the pre-posed number of prospective clients who had guaranteed their intere st to purchase. Therefore, the entire