Non-recurring engineering (NRE) cost refers to the one-time cost to

research Research is "creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization and analysis of evidence to increase understanding of a topic, characterized by a particular attentiveness ...

design A design is a plan or specification for the construction of an object or system or for the implementation of an activity or process or the result of that plan or specification in the form of a prototype, product, or process. The verb ''to design' ...

, develop and

test Test(s), testing, or TEST may refer to: * Test (assessment), an educational assessment intended to measure the respondents' knowledge or other abilities Arts and entertainment * ''Test'' (2013 film), an American film * ''Test'' (2014 film), ...

a new product or product enhancement. When

budget A budget is a calculation play, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environme ...

ing for a new product, NRE must be considered to analyze if a new product will be profitable. Even though a company will pay for NRE on a project only once, NRE costs can be prohibitively high and the product will need to sell well enough to produce a return on the initial investment. NRE is unlike

production costs Cost of goods sold (COGS) is the carrying value of goods sold during a particular period. Costs are associated with particular goods using one of the several formulas, including specific identification, first-in first-out (FIFO), or average cost ...

, which must be paid constantly to maintain production of a product. It is a form of

fixed cost In accounting and economics, 'fixed costs', also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be recurring, such as interest or r ...

economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...

terms. Once a system is designed any number of units can be manufactured without increasing NRE cost. NRE can be also formulated and paid via another commercial term called Royalty Fee. The Royalty Fee could be a percentage of sales revenue or profit or combination of these two, which have to be incorporated in a mid to long term agreement between technology supplier and the OEM. In a project-type (manufacturing) company, large parts (possibly all) of the project represent NRE. In this case the NRE costs are likely to be included in the first project's costs, this can also be called

research and development Research and development (R&D or R+D), known in Europe as research and technological development (RTD), is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existi ...

(R&D). If the firm cannot recover these costs, it must consider funding part of these from reserves, possibly take a project loss, in the hope that the investment can be recovered from further profit on future projects. The concept of full product NRE as described above may lead readers to believe that NRE expenses are unnecessarily high. However, focused NRE wherein small amounts of NRE money can yield large returns by making existing product changes is an option to consider as well. A small adjustment to an existing assembly may be considered, in order to use a less expensive or improved subcomponent or to replace a subcomponent which is no longer available. In the world of embedded firmware, NRE may be invested in code development to fix problems or to add features where the costs to implement are a very small percentages of an immediate return. Chrysler found such a way to repair a transmission problem by investing trivial NRE dollars into computer firmware to fix a mechanical problem to save some tens of millions of dollars in mechanical repairs to transmissions in the field. NRE-concepts-as-financial-investments are loss control tools considered part of manufacturing profit enhancement.

References

External links

costs
by Daniel Shefer - a short explanation of NRE Product lifecycle management Engineering concepts {{engineering-stub