All projects have a financial constraint as to whether a facility can be built that is based on the value the owner determines that the facility will bring the end user and/or what the end user is willing to pay for use of the facility.
Target costing is a method of controlling the cost such that extensive human resources, time and money are not wasted on improbable designs that the owner is unwilling to pay for. Target costing provides the ability for the entire team to fully understand the financial impact during the project development stage as it relates to value for the customer. This process relies on a nontraditional hierarchy environment that promotes free exchange of information from the entire team such that it drives value and cost together.
The success of this process is critically tied to understanding what the customer considers as valuable to their needs and what they are willing to pay for those needs. The facility is to be planned and managed according to the customer's determined value. The acceptable cost will be based on the required return on investment or available funds allowed by the customer.
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