VAVEhub · Toolkit 11
Target-Cost Cascade
Start from what the market will pay and work down: the allowable cost for the product, then each system, then each part.
Step 1 · The allowable cost
| Shop or list price | |
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| − VAT | |
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| − Dealer or retailer margin | |
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| Net selling price (what the business actually receives) | |
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| Required margin (% and £) | |
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| Allowable cost = net selling price − margin | |
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Step 2 · Split the allowable cost across systems
| System | Share % | Why this share (function worth, benchmark) | Target £ | Current cost £ | Value gap £ | Gap % of current | Owner (named engineer) |
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| Total and reserve | | | | | | | |
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Keep a small reserve that isn't given to anyone, because designs change. Every target has a named engineer as owner, not a department.
Step 3 · Split one system into parts
| Part or subsystem | Share % | Why this share | Target £ | Current cost £ | Value gap £ | Gap % of current | Owner |
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| Total | | | | | | | |
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Step 4 · Close the gap
| Change | Lever (design, material, process, sourcing…) | Saving £ | Status | Owner |
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| Total saving · gap remaining | | | | |
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The one rule: the target cost is never exceeded. If a feature has to be added, its cost is saved somewhere else.
Worked example (Module 13): an EV with a net selling price of £29,900 and a 22% margin has an allowable cost of £23,322. The drive unit gets 9.8% (£2,286), and the motor 46% of that: a target of £1,052. The motor currently costs £1,214, a value gap of £162 (13%). Hairpin winding −£38, one housing casting instead of three −£61, magnet grade −£43, supplier gain-share on machining −£26: −£168 in total, with £6 going back to the reserve.