A Lifecycle-Cost Model of Concept Testing

Abstract

This paper presents a lifecycle-cost model of concept testing, with and without learning. In the lifecycle-cost model, product lifecycle is divided into four stages: marketing, concept generation, prototyping, and product lifecycle after prototyping. Engineers minimize the expected lifecycle cost to find the optimum number of prototypes that engineers develop to test concepts. The optimum number of prototypes is a function of unit costs in these stages. The optimum number of prototypes depends not on the absolute cost of prototyping one concept, but on prototyping cost relative to the other stage costs. In the lifecycle-cost model with learning, engineers can more accurately choose good concepts that they test as prototypes once they gain experience in developing similar products or as they learn more effectively from their experiences. As engineers gain more experience or improve their learning capability, the optimum number of prototypes decreases.