Cost and Value Management: A Comparative Analysis


Cost and value management plays a crucial role in organizational performance and successful market operations determining the allocation of financial resources and controlling spending. Cost management allows companies to control and report their earnings and provides them with continuous control of costs. To ensure proper utilization of accounting information, the first subsection of long-range plans centers on accounting questions that are oriented toward the future. When the time frame is shortened, questions relating to short- or medium-range accounting plans are asked. For the most part, this refers to the adequacy of such accounting items as flexible budgets and cost accounting to meet current managerial needs.

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Strengths and Weaknesses of Cost and Value Management

The case of Boeing 747 shows that cost and value management should be well designed to meet the company’s goals and objectives. Business activities at other stages of the value creation process besides manufacturing can also benefit from more intense dependencies. (Owens and Wilson, 1996). Boeing 747 uses (CAD/CAM) approach to manage productive resources and design new models. The degree of emphasis on measuring satisfactory results for accountability purposes may be different for a building project than the emphasis on improving the process of constructing a building. In other words, an instructional program evaluation effort may be directed primarily at program improvement, while in some management efforts, such as a building project, an effort to demonstrate accountability may receive more emphasis. There are, however, noninstructional plans in which management processes are involved that can also draw heavily upon formative measures to improve an effort. For example, as new computer capabilities are introduced and upgraded in management systems, a considerable amount of attention should be directed toward how the staff is adapting, what works smoothly, where the bugs are, and what time and cost factors are visible (Burkun, 2005).

The uniqueness of the Boeing approach was that it was continuous to use a parametric estimating technique. “This method, adapted by Boeing, had been developed by the New Airplane Program study group from comparisons of the 707, 727, 737, and 747.” (Case study). Also, reference is made to supplying needed information to control the operating environment (Owens and Wilson, 1996). Supplementary to this subsection is one on communication, whose focus is on the communication of accounting information to management and operating personnel. The last subsection (accounting control questions) examines how meaningful the various accounting management reports are to their recipients. Overall, the accounting section of the management audit questionnaire aids in evaluating how well this functional area meets the managerial demands placed upon it.

The main weakness is the lack of cost control and additional human resources needed for checking procedures. One approach to planning or measuring costs is simply to list the direct resources needed for a particular program. Until overhead and indirect costs are considered, however, the list of needed resources may provide only a partial picture. When various alternatives are considered in the operational planning stage of a program, it may be necessary for the planners to list the costs associated with each option considered so comparisons can be made (Frame, 2002). The process of making comparisons between options or alternatives becomes more complex if the “potential value to be derived” is taken into consideration. There are no simple answers or mathematical formulas to take into account all the variables and value considerations that may come into play when comparing costs associated with various alternatives. Values associated with various alternatives may involve, in addition to actual costs, identifiable advantages as well as limitations that will call for judgments. There are procedures for weighing and comparing each advantage and disadvantage proposed for a project; however, at some point, a chief executive officer may be called upon to make a judgment. To determine all project costs or benefits in advance is not always possible. Due to the uncertainties that may accompany a project, the chief executive officer may be placed in the position of making a decision based on limited or sparse information (Drucker, 2004).

Comparison and Contrast of Boeing 474 and The Belt Group

In contrast to Boeing, the organization I am working with does not have such an effective approach to cost and value management. Belt Group is one of the leading construction and building companies, thus it does not have good project management in all of its divisions. The main problem is that in operational planning, human factors that are not easily predicted or weighed can enter into cost considerations. The impact of innovation upon staff morale can be measured speculatively, but not always determined with precision in advance. Questions about relocating or assigning staff, working climate, job security, and self-esteem may be major considerations when planning some management projects; however, such considerations do not yield to precise pre-measured (Frame, 2002).

Boeing 747 bases its projects on CAD/CAM model while the belt group uses the PERT model. Cost considerations, while constituting a major factor concerning implementation, have not typically been a major influence in evaluation efforts. While an exhaustive and precise analysis of costs may not be possible, nor always practical, such a limitation cannot be used as a rationale for avoiding making any cost analysis. As is true in the case of assessing educational programs, management efforts need to be evaluated in terms of costs. Prime resources that go into a noncurricular program need to be determined and estimates made for planning and developmental costs, implementation costs, and ongoing operational costs. In Boeing, the flow of information is controlled by managers and accountants, while at the Belt Group the flow of information is controlled by middle-level employees. The general means of determining personnel costs, time, information, use of space and facilities, and overhead costs should be analyzed. Cost effectiveness measures are initiated at the time the project budget is developed (Frame, 2002).

The case of Boeing 747 shows that the issue of cost-effectiveness is a final consideration when viewing the comprehensive structure for educational program evaluation. The allocation of prime resources (time, staff, space, information, materials) may be viewed from several perspectives and with various levels of intensity. Both Boeing and the Belt group pay attention to the time and schedule of the projects. Actually, in many situations, little or no consideration is given to the determination of the cost-effectiveness of a class, course, or educational program. There are ways, just as in budget allocation procedures in planning, to consider the cost of a program. One approach to determine cost-effectiveness is the use of a discrepancy model. Overhead costs, however, are real costs, and evaluators are well-advised to take them into account when considering cost-effectiveness questions. For Boeing, staffing costs generally are not too difficult to identify. A complex issue frequently surfaces when a staff member spends only a part of his or her time in a given effort. A determination must then be made concerning what percentage of a full-time equivalent is involved. Based on that estimate of the percentage involved, a figure for salary and benefits can be determined. Organizational considerations can enter into costing out a program. If an existing organizational structure will suffice and no changes are required, an assumption may be made that no added cost is involved. The determination can, however, be made in rather general and direct or immediate costs without including sophisticated overhead computations designed to count every paper clip and the cost of turning on every light switch (Gardiner, 2008).

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The Belt Group division in Arizona the entire procedure of collecting data in an evaluation effort provides the grist for the mill–the numbers to be computed and the observations to be synthesized, that is, the data to be analyzed. It is important to have a definite plan for analysis before the data are collected. Evaluation reports can become bulky documents in many instances (A Guide to the Project Management 2000). When an evaluation report becomes too long, an abstract should be prepared. The final report, like any form of communication, should be prepared in such a way that the intended audience is given full consideration. If the needed information has been communicated in a way that the intended audience read and understood, the final report has been well prepared (Laudon & Laudon, 2005).

The Belt Group uses the PERT/COST system which helps it in developing realistic cost estimates in the planning stage, make forecasts of cost estimates, and compare estimated and actual costs throughout the implementation of the program. Cost estimates inputted into a PERT system follow the breakdown of the total project into mission functions, functions and subfunctions, and tasks (Schermerhorn 2007). Where appropriate, cost estimates for prime resources are determined for each activity listed on a PERT network. Judgment calls are essential in this process. Although board meetings have associated costs, a determination may be made that there would not need to be a cost factor attached to the activity involving approval from the board of education in the project budget (Saaty, 1999).


In this case study, the management audit has been used to uncover an important problem. This can be expected to happen when a management audit is undertaken because the questionnaire is very comprehensive. The Boeing 747 and the Belt Group should pay special attention to value creation, The value construction phase (often the domain of production and production-related functions such as machine operation, material handling, shop floor supervision, and maintenance) has typically been expected to aspire to one overriding objective, cost minimization. Though perhaps unintended by Taylor, one of the enduring results of adopting the efficiency philosophy of Scientific Management has been a preoccupation with costs. No doubt the initial and primary thrust of Scientific Management was to increase productivity. But, since productivity is usually reckoned as Output divided by Input, attempts to raise productivity levels tended to gravitate toward maximizing outputs at a given input or minimizing inputs to achieve a certain output. Surely people in production cannot be expected to get excited over meeting quantity and cost targets? We consider it imperative that value construction be seen to encompass not just cost and quantity, but also criteria essential to value such as quality and response time. Making quality and time-related performance an integral part of operations not only imbues the latter with a (hitherto absent) external vision, it also provides an effective way to bind value conceptualization to value construction. In other words, the rationale for value delivery articulated by R&D/Design is picked up on and given expression to by Production/ Operations, without necessarily getting caught up in frenzied efforts to maximize volumes or minimize costs.


  1. Burkun, S. 2005, The Art of Project Management. O’Reilly Media; 1 ed.
  2. Drucker, P. F. 2004, Management Challenges for the 21st Century. Collins.
  3. Frame, J.D. 2002, The New Project Management: Tools for an Age of Rapid  Change, Complexity, and Other Business Realities. Jossey-Bass.
  4. Gardiner, P. A. 2008, Project Management a Strategic Planning Approach. Wiley.
  5. Laudon, K. C. & Laudon, J. P. 2005, Management Information Systems: Managing the Digital Firm, 9th Edition.
  6. Owens, I. Wilson, T. 1996, Information and Business Performance: A Study of Information Systems and Services in High Performing Companies. Bowker- Saur.
  7. A Guide to the Project Management: Body of knowledge PMBOK Guide 2000 edition. Project management Institute.
  8. Saaty, T. L. 1999, Decision Making for Leaders: The Analytical Hierarchy Process  for Decisions in a Complex World. (3rd rev. ed.) San Francisco: RWS.
  9. Schermerhorn, J.2007, Management. Wiley.
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