Non-recurring engineering
Encyclopedia
Non-recurring engineering (NRE) refers to the one-time cost to research
, develop
, design
and test
a new product. When budget
ing for a project, 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
, which must be paid constantly to maintain production of a product. It is a form of fixed cost
in economics
terms.
In a project-type 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. If the firm cannot recover these costs, it must consider funding part of these from reserves
, possibly make a project loss, in the hope that the investment can be recovered from further profit on future projects.
Research
Research can be defined as the scientific search for knowledge, or as any systematic investigation, to establish novel facts, solve new or existing problems, prove new ideas, or develop new theories, usually using a scientific method...
, develop
Research and development
The phrase research and development , according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of...
, design
Design
Design as a noun informally refers to a plan or convention for the construction of an object or a system while “to design” refers to making this plan...
and test
Physical test
A physical test is a qualitative or quantitative procedure that consists of determination of one or more characteristics of a given product, process or service according to a specified procedure...
a new product. When budget
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...
ing for a project, NRE must be considered to analyze if a new product will be profitable
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
. 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-production theory of value
In economics, the cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it...
, which must be paid constantly to maintain production of a product. It is a form of fixed cost
Fixed cost
In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs...
in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
terms.
In a project-type 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. If the firm cannot recover these costs, it must consider funding part of these from reserves
Reserve (Accounting)
In financial accounting, the term reserve is most commonly used to describe any part of shareholders' equity, except for basic share capital. Sometimes, the term is used instead of the term provision; such a use, however, is inconsistent with the terminology suggested by International Accounting...
, possibly make a project loss, in the hope that the investment can be recovered from further profit on future projects.
External links
- Non-Recurring Engineering by Daniel Shefer - a short explanation of NRE