WHAT MAY IT COST?
Target Costing
A target is set from the price the market will pay, long before anyone knows what the design will cost. PLP decomposes it down the costing structure, measures the gap against the live estimate, and carries the measures that close it from idea to realized.
What is this allowed to cost, and how far off are we today?
Three challenges
The comparison is already out of date
The estimate in the review deck was true at the last structure revision, and the structure has moved three times since. The gap on the slide closed in March.
The measures live somewhere else
The actions meant to close the gap sit in a different file from the numbers they change, so nobody can say which ideas became commitments and which commitments became savings.
A target only at the top
One number for the whole product cannot be given to anyone. Without a target per assembly, every conversation about the gap is a conversation about somebody else's part of it.
How it works
Break the target down the structure
Price less required margin gives what the product may cost. PLP pushes that allowance down the costing structure so every assembly, component and process step carries a target of its own — the level at which it can be owned.
Measure the gap against the live estimate
Carry the measures to realized
A target line is drawn and the estimate sits well above it. Over four gates the estimate steps down as measures land, and once it steps the wrong way when a design change adds cost. At the last gate the remaining distance is still visible, and so is what is still open against it.
A target per level
Not one number at the root
The gap moves itself
When the structure moves, so does the distance
Realized, not planned
Target achievement counts only what has landed
Programmes do not improve monotonically. An asset that shows only progress is showing something else.
Push a target from the root down to the level where it can be owned.
The distance between target and estimate, per node, not only per product.
The gap recalculates when the structure or the costs change.
Owner, value and date, carried from idea through committed to realized.
What has actually been closed, counted from realized measures only.
What the target and the gap were at every previous gate, version against version.
What it needs
The shared line, plus: a target cost, or the market price and required margin to derive one from, and the gates the programme is run against.
