The act of decreasing an on-going cost (usually a baseline cost). In the Engineering context, this is sometimes referred to as “value engineering”.
Cost reduction is usually encountered during a production phase, with the objective of reducing the unit cost of a production item. It is typically associated with re-development: the design can change in order to reduce the cost, but the qualification requirements must remain satisfied.
Contrast with cost avoidance, the key difference being once of tense.