Every business seeks to deploy its limited capital with the objective of maximizing its profits. The life sciences industry is not an exception. Though in many cases the potential return from its investments can be extraordinary, a life sciences business must control its capital investment carefully if it is to provide an acceptable reward for its shareholders, customers, and employees.
Historically, the need to forecast and control the cost of a capital project created a substantial challenge. But the pressure to control the cost of these investments has increased at a dizzying pace. A wide array of business pressures, including tougher regulations, low-cost global competition, and increasingly sophisticated generics, have made capital project cost control more important than ever.
In response to these pressures, capital project managers have developed and implemented numerous forecasting and cost control techniques. But are these cost control techniques enough? In fact, in seeking to “control cost,” are we pursuing the correct objective at all? We have all worked on conceptual studies and engineering projects that culminate in the delivery of an estimate, and we have all experienced that moment when we receive the estimate and it is substantially higher than we expected, and it is substantially higher than our business can afford. Cost control is an important practice, but we need a process that shapes a project’s design content and execution strategy so that the project’s cost meets our expectations, not after several “value engineering” exercises, but early in the conceptual phase.
Shortly after its inception in 1989, IPS pioneered the concept of “target costing” as a response to this issue. The purpose of target costing is to help the project team focus design, engineering, and overall project execution planning activities on the achievement of a predetermined budget.
Target costing begins with the establishment of a performance requirement and a cost objective driven by the customer’s business needs. Drawing on its extensive experience delivering capital projects for the life sciences industry, IPS works with the owner’s stakeholders to document the high-level performance requirements for the project. These requirements may include production capacity of one or more products, regulatory bodies having jurisdiction over the project, utilities available to feed the project, reliability requirements, and execution issues such as a constrained schedule from conceptual through qualification and possibly stability batches that will drive a product launch date.
After the performance requirements have been developed, the IPS team relies on its experience and extensive set of experience-based techniques to quickly evaluate the feasibility of achieving the performance requirements within the cost objective. For most organizations, this task would be extremely daunting and would add weeks to a project’s schedule. However, because of IPS’ specialization in the life sciences industries and deep experience constructing and qualifying the projects we design, within 24 hours we can determine the feasibility of meeting the project’s stated performance requirements within the cost objective.
Once we have determined that the project is feasible within the owner’s cost objectives and performance requirements, target costing can begin. Again, it is the depth of IPS’ experience in the life sciences industries that makes the target costing process possible.
Under target costing, our integrated design, construction, and compliance team evaluates the many decisions that are made during the design and planning processes and ensures that each decision is aligned with the project’s target cost. Our project managers, highly experienced with target costing, challenge the project team to consider alternatives and to develop innovative solutions to design problems to meet the budget.
IPS architects apply their industry experience to select the appropriate finishes, size process and support spaces, and specify materials to meet budget and quality objectives. Our mechanical engineers specify building systems that meet the project’s cost objectives while delivering the required functionality, including redundancy. Our process engineers apply their subject matter expertise to select materials, devices, and equipment that fit within the project budget. In addition, recent technological developments have made it possible to apply single-use systems and to modularize equipment to contain cost; these techniques are applied in IPS’ target costing model.