Designing to Targets in a Target Costing Process

Ari Pennanen1, Glenn Ballard2 & Yrjänä Haahtela3

1Adjunct Professor, Tampere University of Technology, Finland and Research Director, Haahtela Research and Project Management Group, Helsinki, ari.pennanen@haahtela.fi
2 Associate Adjunct Professor and Director of the Project Production Systems Laboratory, University of California, Berkeley, Director, Lean Construction Institute. ballard@ce.berkeley.edu
3Professor and Managing Director of Haahtela Group, Helsinki, yrjana.haahtela@haahtela.fi

Abstract

Traditional cost management determines the cost of the product based on its design and the estimated cost of realizing the design. Target costing acts upside down compared to traditional cost management: (1) The cost of the product is determined before design, (2) The cost of the product is based on the customer‘s requirements on the product‘s performance and the customer‘s willingness and ability to pay for such performance. Willingness is based on the customer‘s business plan; i.e., on what the prospective product is worth to them. The target costing process is focused in project definition (when target cost is determined) and design (when the functional targets and cost target will be achieved). This paper describes design steering, a methodology for managing design process to achieve target cost and purposed value for the customer. Design steering understands the nature of design in various stages and manages by knowledge and rapid feedback loops. Cost feedback is essential especially in the very early stages of design. Feedback can be generated by engaging multifunctional teams to support design. Rapid estimating and value monitoring can also be supported in the early stages by component level target costing produced by information modelling before design.

Keywords

Target costing, Design, Cost modelling, BIM, Project management

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Reference

Pennanen, A. , Ballard, G. & Haahtela, Y. 2010, 'Designing to Targets in a Target Costing Process' In:, Walsh, K. & Alves, T., 18th Annual Conference of the International Group for Lean Construction. Haifa, Israel, 14-16 Jul 2010. pp 161-170

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