Should-cost is defined as:

The correct response highlights the significance of "should-cost" in program management as a proactive approach to cost management. Should-cost refers to the estimation process aimed at determining the expected or target cost of a program or project based on what it should theoretically cost to produce a good or service, rather than what it currently costs or will cost.

This focuses on controlling actual costs and finding savings by encouraging program managers to analyze and compare planned expenditures against realistic benchmarks. By systematically assessing the costs involved and understanding where reductions can be made, program managers can implement strategies that promote efficiency and reduce waste. This process not only helps in staying within budget but also aims for continuous improvement in cost management practices.

In contrast, the other options do not accurately reflect the principles behind should-cost. Lowering funding estimates drastically may lead to unsustainable practices, and increasing funding based on historical data may not account for changes in market conditions or project requirements. Similarly, setting unrealistic cost estimates would undermine the effective management of resources and lead to potential project failures. Thus, focusing on controlling costs and identifying savings aligns perfectly with the essence of what should-cost analysis strives to achieve in project management.