Product life cycle cost analysis, role of budget, and the performance of manufacturing and marketing departments

Technological change, competing product introductions, and shorter product life cycles are often regarded as having made product life cycle cost analysis a significant factor contributing to the performance of manufacturing and marketing departments. Research consensus indicates that the ability of managers to influence life cycle costs is greatest during the product design phase, as it defines and establishes the fundamental characteristics of a product. However, a review of the literature suggests that the role of budget as a planning or control mechanism influences the relation between product life cycle cost analysis and performance. Specifically, when budgets are used primarily as a planning mechanism, product life cycle cost analysis is expected to have a positive impact on departmental performance. In contrast, when budgets are used predominantly as a control mechanism, life cycle cost analysis is unlikely to contribute to performance. The results of an empirical study provide support for this expectation. The findings therefore show that role of budget is critical to the extent to which life cycle cost analysis contributes to positive performance outcomes. Consequently, organisations need to ensure that budgets are used primarily as a planning rather than as a control mechanism to facilitate life cycle cost analysis enhancing departmental performance.