Tradeoffs within costing systems between incentives and measurement objectives

In this paper we examine the increasingly important behavior influencing role of cost systems: specifically, we look at how to ensure that product designers and process engineers understand the cost implications of their design choices. The fundamental concern in a decentralized product design and engineering setting is guiding the behavior of better-informed but self-interested designers and engineers. When the reasons underlying the choices made by the product designer cannot be assessed to the extent of being dictated by management, then altering the cost of a driver like the number of parts to reflect incentive problems or non-cost benefits to the firm can serve as a means of indirectly influencing the behavior of the designer. Total costs are partially controlled, while still giving the designer the flexibility to determine the best trade-off across design alternatives.