Design-to-Cost: Definition, Process and Worked Examples

Cost Engineering · Reading time: about 12 minutes

Design-to-cost (DTC) is an engineering approach where a cost target is set before design starts, then treated like any other requirement, alongside weight, strength or performance. Engineers design to hit that target instead of finding out the cost afterwards and trying to cut it.

This guide covers what design to cost means, why it works, the six-step process, a worked bracket redesign with numbers, and how it differs from target costing and value engineering.

What Is Design-to-Cost

Design-to-cost is a method for managing product cost during design. The team:

1. Sets a cost target for the product, based on what the market or customer will pay.
2. Allocates that target to subsystems, parts and processes.
3. Estimates the cost of each design decision against its allocation.
4. Changes the design when it overruns, and tracks the result through every design gate.

The idea started in US defence acquisition, where programmes began treating unit cost as a requirement, not an outcome. It’s now used in aerospace, automotive, industrial equipment and consumer hardware.

The key principle: cost is a design parameter, not an after-the-fact measurement.

Why Cost Is Locked In at the Design Stage

Most of a product’s cost is decided by early design choices: material, geometry, tolerances, the number of parts, and the processes needed to make them. Once drawings are released and tooling is built, changes are slow and expensive.

Industry sources commonly estimate that a large majority of a product’s cost is committed during design, even though design itself consumes only a small share of the budget.

The practical consequence is that the cheapest time to reduce cost is before the design is frozen. Negotiating with suppliers later can trim a few percent, while a design change can remove a third of the cost. That’s why design-to-cost sits upstream of purchasing tools like should-cost analysis.

The Design-to-Cost Process in 6 Steps

Step 1: Set the product cost target. Start from the market. Work back from the selling price: target cost = selling price − required profit. The formula and examples are in our cost modeling guide, which covers target costing alongside other methods.

Step 2: Allocate the target. Break the product target down to subsystems, then parts. Common methods are by function (what the part is worth to the customer), by share of the previous product’s cost, or by a mix of both.

Step 3: Baseline the current design. Estimate what the present or concept design costs, using analogous data or a bottom-up cost model. This gives you the gap between current cost and target cost.

Step 4: Find the cost drivers. Identify which features, materials, tolerances and processes drive the gap. A sensitivity view shows where a small design change moves cost most.

Step 5: Redesign and trade off. Generate options: fewer parts, simpler geometry, standard materials, relaxed tolerances, a different process. Re-estimate each. Check that each option still meets performance, quality and safety requirements.

Step 6: Track and control. Report cost against target at every design review. Treat a cost overrun like a missed weight or performance requirement. It needs an action, an owner and a date.

Setting and Allocating Cost Targets

A good target is specific, tied to a volume and a date, and owned. “Reduce cost” isn’t a target. “Unit cost of $30 at 5,000 units a year, by design freeze” is.

Allocation is where most programmes struggle. Three methods work well in practice:

Keep a small reserve, typically 3 to 5 percent, unallocated at the top level so one overrun doesn’t force a full re-allocation. For a deeper treatment of setting and tracking targets, see our guide to cost modeling in manufacturing.

Worked Example: Bracket Redesign

The situation: a machined aluminium bracket costs more than the $30.00 target allocated to it. The assumptions are illustrative: batch of 100, 6061 aluminium at $5.00/kg, machining at $60/hour ($1.00/min), overhead at 12 percent of direct cost.

• Baseline design: machined from a solid billet of 120 × 80 × 40 mm, with deep pockets, four setups and tight tolerances on most dimensions.
• Redesign: use a 120 × 80 × 25 mm extruded blank, remove the deep pockets, standardise radii so one tool covers them, cut setups from four to two, and relax non-critical tolerances.

Result:

• The baseline misses the target by $11.87, which is about 40 percent over target.
• The redesign comes in at $25.80, $4.20 under the target, and 38 percent below the baseline.
• Nearly 70 percent of the saving came from machining time, which is why cost-driver analysis comes before redesign.

Notice what did not work: switching the finish gave nothing. Without a cost model, a team might have spent weeks negotiating the anodising price for no gain.

DTC vs Target Costing vs Value Engineering

These terms are often mixed up. They overlap, but each answers a different question.

In short: target costing sets the number, design-to-cost engineers to the number, and value engineering reduces cost while protecting function. They work well together. For the first comparison, see our cost modeling guide, and for the value-based view, our guide to value analysis and value engineering.

Data and Tools Needed

You don’t need heavy software to start, but you do need four things:

• A cost model that estimates part cost from design inputs (material, geometry, process, volume).
• Machine and labour rates for your shop or suppliers. See how to calculate machine hour rate.
• Material prices and scrap assumptions.
• A tracking view that shows cost against target at each design review.

Spreadsheets work for single parts, but they stop scaling when you have many parts, many design variants and many reviews. A dedicated tool keeps the cost model linked to the design so the estimate updates when the design does. See how this works in practice on our should-cost analysis platform.

FAQ

What is design to cost?

Design-to-cost is a method where a cost target is set before design begins and treated as a design requirement. Engineers allocate the target to parts and processes, estimate cost as they design, and change the design until it meets the target.

What are the steps in the design-to-cost process?

Set the product target, allocate it to subsystems and parts, baseline the current design, find the cost drivers, redesign and trade off options, then track cost against target at every design review.

What’s the difference between design-to-cost and target costing?

Target costing sets the cost target from market price and required profit. Design-to-cost is the engineering process of designing a product to meet that target. They’re usually used together.

How is design-to-cost different from value engineering?

Design-to-cost starts with a target and shapes the design to meet it. Value engineering takes an existing design or function and looks for ways to deliver the same function at lower cost.

Is design-to-cost used in aerospace?

Yes. It began in defence acquisition, and aerospace and defence programmes still use it to manage unit cost, often alongside should-cost reviews and learning-curve forecasts.

How much can design-to-cost save?

It depends on how early it’s applied and how far the starting design is from the target. In the bracket example above, the redesign cut cost by 38 percent. Savings are usually largest when cost is considered before the design is released.

Apply It to Your Own Product

Related reading: Should-cost analysis guide · Cost modeling in manufacturing · Value analysis and value engineering · Machine hour rate