This thesis concerns the highly complex relationship between cost and design decision-making. A theoretical cost function is described by examining the output requirements of the design activity, and the constraints placed on the input to the process by current cost generation procedure. The description takes the form of a set of preferred characteristics or alternatively, criteria on which the potential of a future costing process might best be judged. A particular interpretation of this set of characteristics is described, which produces the tentative specification for a new generation of cost models. An implementation of the specification resulted in the computer-based cost simulation model ACE (Analysis of Construction Economics). This interactive, knowledge-based cost model is used to investigate a series of cost relationships and cost thresholds, both to exemplify its possible applications, and to produce some means of determining the validity of both the general approach, and the particular interpretation which ACE represents.