Which term refers to the systematic identification and reduction of costs?

The term that refers to the systematic identification and reduction of costs is value engineering. This concept involves a qualitative analysis of the functions of a project or product with the aim of improving value by either enhancing its functionality or reducing its cost without affecting quality. Value engineering typically focuses on the design and operational stages, seeking to eliminate unnecessary costs while maintaining the core functionality that meets users’ needs.

In contrast, cost markup generally refers to the practice of adding a certain percentage to the cost of goods or services to ensure a profit, which does not imply a systematic approach to cost reduction. Budget estimation relates to predicting the costs associated with a project or program but does not inherently involve actively reducing those costs. Resource allocation involves distributing available resources among various projects or departments, and while it can influence cost management, it is not specifically about systematically identifying costs for reduction purposes. Hence, value engineering is the correct choice as it clearly defines a proactive method aimed at cost reduction and enhancing value.