Can Target Costing and Whole Life Costing Be Applied In the Construction Industry by Nicolini - Article Example

Student’s Name Professor’s Name Course Date Article Analysis Assignment Introduction The article is focused on identifying ways of employing target as well as whole life cycle costing to the UK construction industry. The authors argue that the success of this model costing in other industries like the commodity manufacturing should be replicated in the aforementioned sector to prompt quality of service generated and, also ensure imminent reduction in the level of costs incurred in the entire construction processess (Nicolini et al 304). The authors suggest that the adoption of this model of costing within the UK construction sector will results to significant level of benefits and such competitive advantage implication as sustaining a cost leadership strategy. The article further argues that even though the applicability of the model within the sector is somehow certain, still, there lie enough challenges that fairly results from the principles and considerations of target costing model itself (Nicolini et al 304-305). Summary The article indicates that the UK construction industry plays a significant role in the growth of the economy’s overall GDP as it contributes to at least 10 per cent of the GDP and employs at least 1.4 million personnel across the country, which prompts an imminent effort to reduce the constructions costs (Nicolini et al 304). Research comparison with other large economies like the USA and Japan suggests that the UK construction model; although operates under a low-labour mechanism, is marred with low output per each number of inputs implemented. It is also indicated that the relatively higher construction costs relate to the fact that UK-based buildings are mostly highly specified in comparison to competitive countries while at the same time fail to utilise advanced construction techniques like the use of standardised components. As a result of poor design and construction techniques, it is postulated that many resources are commonly wasted to rectify these designs in the course of repairing defective structures immediately after the completion of initial construction process. The article further notes that the existing tight product-market situations have also resulted to a lag in making efforts needed for improving the processess and construction techniques within the UK industry as a whole. A poor model of communication in the construction industry is argued to have resulted to poor service quality, low-level efficiency and incurrence of widened adversarial attitudes amongst construction personnel that prompted a need for changing the way management of construction process should be conducted in order to ensure substantial cost and price reductions (Nicolini et al 304). The authors suggest that for a high-performing UK construction industry both in terms of profitability levels as well as cost-to-quality ratio aspect, there needs to be introduction of distinctive innovation in relation to the perception, setting and management of the entire relationships that exists within entire parties of a single construction supply-chain. Assessment The authors have made lots of significant contributions towards the development of a workable and innovative work culture within the construction industry as a way of reducing costs while at the same time ensure profitability and quality service. However, strong points made in regards to target costing approach is still followed by a set of limitations as identified in the discussion below; First, the article postulates that value engineering is a significant model that can be used in the overall supply chain management processes to trigger early design values at diminished costs. Enough evidence is provided towards the adoption of this approach in target costing as opposed to such others as function deployment or even soft system methodology (Nicolini et al 309). In fact, intensive evidence is given towards the choice of this model over others. It is said that value engineering avails a distinctive cross-disciplinary as well as a cross-organisational design decisions and discussions whenever they are supported by a substantive cluster arrangement. Consequently, research evidence suggests that it facilitates lots of savings since it allows for a systematic and collaborative search for intensive technical solutions that are deemed crucial for the overall reduction or even elimination of unnecessary costs without really affecting the imminent level of functionality as a whole (Nicolini et al 312). As much as value engineering can be seen to promote a spirit of cohesion amongst the different parties of the projects, it can however; be noted that value engineering process was so rigid in a manner that could not allow for open discussion and consideration for some other most-likely alternatives(Nicolini et al 309-311). Subsequently, the improvements in the level of cohesion amongst the different parties is still considered unstable given that not enough attributes have been involved to stop possible reversal of the entire working process to old and conventional model. Following this line of argument, it can be said that even though research findings indicate the importance of value engineering in supporting active involvement of the numerous parties involved in the working process, a strategic perception would stipulate that the entire target costing technique was indeed flawed more specifically within the earlier and crucial phases of design as it failed to take into consideration problems related to aspects of functionality and imminent costs incurred. Secondly, the article notes that there was adoption of target setting process, which in fact is a crucial step in determining costs that would be incurred for completing a product or service. Research evidence suggests that the activity fully-examines what the existing market structure would be while still allowing the allocation of targets to specific elements of functionality as desired by the end user (Nicolini et al 314). It also allows the connection of aspects related to functionality to efficient sub-systems levels. Contrary to this fundamental aspect, it is argued that the entire activity is not as straightforward as it can be since the processess involved with setting targets at two different levels of the project proved to be a significant challenge altogether. In fact, at the project level, issues were identified in the course of carrying a benchmarking that could then be utilised in evaluation of the overall progress of the project in realising a 30% cost reduction objective (Nicolini et al 313-316). Notwithstanding, the use of historical data as opposed to current market reference as a way of coming up with a solution to the issues mentioned above resulted to ineffectiveness. Consequently, the article notes that the effective and beneficial target costing technique vehemently requires a much more advanced cost-estimation systems and, also a fairly laid-out market orientation frameworks. The structure has been supported by the numerous discussion set out in different application phases of the overall target costing approach like setting targets and managing costs, utilisation of a multi-party value engineering processess over other viable but less efficient alternatives like soft-system methodology as well as in the course of modelling life cycle costs. On the contrary, the adoption of the target costing approach is also marred by a subsequent presence of incompatible frameworks like intrinsic commercial assumptions in place as well as some of the operating frameworks in existence. The article indicates that there have been intensive objections made to adoption of this technique by some of the parties especially the workforce who feel that a traditional model design would work fairly better. Notably, the research findings indicate that the UK construction industry has continued to lack a formidable quorum to allow quality service provision through enhancing an effective cost-estimate system as opposed to over relying on exploitation of commercial conditions in place. Evidence suggests that the industry has continued to put much emphasis on information provided by quantity surveyors as opposed to adopting a cost management system practices and market orientation policies (Nicolini et al 316-319). Conclusion From this article, it can be noted that the notion of adopting a target costing in any sector of an economy provides imminent support to current challenges being faced through the overly rated commercial and procurement processess. It also suggests that action research should be strongly emphasised since it provides effective solution that are based on a consensual and value-led technique to allow for paradigm shift in the way cost-estimation should be handled. Through the research findings of this article, academics would also note of a limitation that exists in the application of target costing in commodity manufacturing sector whereby the pricing process for goods is entirely focused on supply and demand curves as opposed to a reliable and workable bottom-up cost function. Practitioners are informed to focus their practices into development of prototypes that are meant to satisfy needs of individual users as opposed to relying solely on production of commodities. Furthermore, those working in the construction industry sector are encouraged to do away with bidding process, which facilitates re-introduction of artificial breaks in the supply chain management. Works Cited Nicolini, Davide, et al. “Can Target Costing and Whole Life Costing Be Applied In the Construction Industry?” Evidence from Two Case Studies, British Journal of Management, 11 (2000):303-324. Read More