Consumer product development uses a technique called 'designing to target cost' to systematically improve product profitability. In brief, a manufacturer sets a cost for a product to be developed that will allow an acceptable profit given the price that product is expected to fetch in the market. That target cost for the product is then split into target costs for each functional system within the product. In effect, the 'buyer' is setting the price he is willing to pay for each system. This can be extended to subsystems and components, and even to parts of components where the relevant buyer is able to impose on or negotiate prices with their suppliers. Target costing is used in the initial development of a product, in subsequent product modifications, and in the manufacturing of the product throughout its life, where the focus shifts to the production processes themselves. Designing to target cost is very likely done in some form in construction, but is not well documented and could potentially benefit from a more systematic approach. The Boldt Company very successfully introduced a form of target costing at the facility system level on a design-build project, the St. Olaf Fieldhouse project. This paper presents a study of the Fieldhouse project intended to reveal the potential for positive impact on project performance of designing to target cost, and to support the need for further research into target costing. It concludes with recommendations for next steps in developing a methodology for designing to target cost in the construction industry.
Contingency, cost, cost control, cost management, design, designing to target cost, lean enterprise, project financial management, target cost, target costing