Guidelines for target costing adoption in the development of products for the residential real estate market

Reymard Savio Sampaio De Melo,Ariovaldo Denis Granja

doi:10.1590/s1678-86212017000300168

Reymard Savio Sampaio De Melo, Ariovaldo Denis Granja

Open Access

https://doi.org/10.1590/s1678-86212017000300168

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Abstract

Abstract This study focuses on the problems associated with the traditional practice of reducing costs in construction and the need to increase business competitiveness in the residential real estate sector. In this context, target costing is a promising approach to improve the competitiveness of companies by ensuring that the products launched on the market do not jeopardize the company's results and value delivery to customers. However, far too little attention is paid to target costing implementation by companies that develop residential real state products for sale and face strong market competition. Thus, this paper seeks to investigate whether the standard framework of target costing in the literature applies - with or without adjustments - to real estate developers. Case study was the research strategy adopted. Guidelines are proposed for the introduction of target costing in the development process of residential real estate products. The proposed guidelines are related to the three main sections of the target costing process: market-driven costing, product-level target costing and component-level target costing.

Highlights

Real estate companies usually face intense competition and, in order to be competitive, privately-held real estate companies must seek market niches, or overcome large open-end companies in speed of operation, product quality, processes, and decision and management systems (LIMA JUNIOR; MONETTI; ALENCAR, 2011)
target costing (TC) implementation in the construction industry has been studied in several countries and projects
Far too little attention has been paid to TC implementation by companies that develop products for sale and face a strong competition in the real estate market

Summary

Introduction

Real estate companies usually face intense competition and, in order to be competitive, privately-held real estate companies must seek market niches, or overcome large open-end companies in speed of operation, product quality, processes, and decision and management systems (LIMA JUNIOR; MONETTI; ALENCAR, 2011). While TVD has mostly been implemented in the U.S construction industry, in healthcare (MELO et al, 2015, ALVES; LICHTIG; RYBKOWSKI, 2017) and in energy efficiency retrofit projects (LEE, 2012), the appropriateness of the current TVD benchmark to be adopted in the real estate market, such as residential developments with units for sale, is still poorly explored The distinctiveness of this context has encouraged recent studies about the opportunities for strengthening TVD’s current process benchmark, by first revisiting the roots of the TC framework (OLIVA et al, 2016; MORÊDA NETO; COSTA; THOMAS, 2016). The findings of the case study were later presented to one of the company's top managers, who decided to continue the effort to introduce TC principles in the company This real estate developer is seeking to enhance its competitive offerings in the real estate market by setting cost targets and considering the input of customers’ values in the product development process. This is a remarkable improvement in mindset, since the company used to “push value propositions” primarily on the basis of “sellable product attributes”

Findings

Introduction of Target Costing principles phase

Conclusion