The construction budget is often considered a touchstone of a project; yet, the cost of a project has traditionally been the output of the design process. Design first and then determine costs. In some cases, the design of large-scale healthcare facilities in particular has involved a good amount of rework, because the first design did not meet the necessary budget requirements of the owner. Target costing reverses that relationship, making cost a primary criterion for design.

The cardinal rule of target costing is that the “target cost of the facility can never be exceeded.” Starting very early in the schematic phase, an all-inclusive target cost for the project is established, and a conceptual design budget is created that splits major building systems into “large and small buckets” of target costs. The budget is reviewed and agreed upon by all major project stakeholders (owner, architect, builder, key subcontractors) and becomes an influence on design and decision-making throughout all phases of project delivery.

Whenever there is an increase in one area of the project, costs must be reduced elsewhere by an equivalent amount without compromising the overall program and quality. For example, the overall requirement for medical gas expanded during the design process of a recent medical office building project. The increased cost was offset by adding more verticality to the plumbing waste system, minimizing coordination issues with other trades and providing savings in the form of plumbing installation labor.

The target costing approach also changes the working relationships between team members, requiring more interaction early on and throughout the project. “Over-theshoulder” estimating occurs as the design develops to proactively understand cost implications of various design alternatives before they are fully developed and drawn. Teams also conduct extensive cost modeling to create a basis for target costs and often use virtual building technologies like threedimensional computer-aided design to coordinate the installation of systems virtually in an effort to minimize changes in the field.

Pursuing target costs in this manner has proven to yield better results than pursuing the indefinite goal of cost minimization or value engineering. It also clearly defines and provides a distinction between expected cost and target cost. The key ingredient in target costing, however, is the entire project team’s commitment to the cardinal rule. They must all be aligned and refuse to add scope to the project that could potentially overrun the initial target cost.