Savio Melo


Using Target Costing as a Competitive Advantage

The use of target costing can be a promising approach to achieving a more proactive cost management. Developed over the past 40 years by a number of Japanese companies, Target Costing differs from the cost-plus approach traditionally used in the construction industry. The cost-plus approach starts by estimating the costs of production, adds a profit margin and then derives a market price. If the client is unwilling to pay the price, then some activities are put in place, such as lowering specifications, reducing quality, and trimming profit. On the other hand, the target costing approach implies that an allowable cost is determined by a target price less an appropriate profit margin.

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