cost@cranfield.ac.uk acoste seminar, 17th february 2004 data and information in cost engineering dr....

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Data and Information in Cost Engineering

Dr. Rajkumar Roy

Cranfield UniversityDecision Engineering Solutions Limited

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

I want 5% Cost Reduction this year!

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Time is changing ...

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Fact based Negotiation !

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Cost Data and Information: Challenges !

We have plenty of data!

Lacks right structure!

Not enough!

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Cost Data and Information: Challenges !

Many OEM’s are losing product realisation knowledge !

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Opportunities !

Collaboration!

Structured Cost Data Collection!

Benchmark Database!

Enterprise Resource Planning (ERP) software

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Types of cost estimates vs Product Realisation

20

40

60

80

100

0

-20

-40

-60

Class 1 Class 2 Class 3 Class 4 Class 5

Rough Order of Magnitude

Feasibility studies Preliminary estimate Definitive estimate Detailed Estimates

Worst range of expected accuracy

Best range of expected accuracy

Project Phases

Per

cen

tag

e ex

pec

ted

err

or

Calendar Time (No Scale)

A B C D E F

Product Realisation

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Cost Engineering Techniques

– Parametric estimating

– Bottom up Detailed estimating

– Activity Based approach

– Expert judgement/rule of thumb (subjectivity),

used within all approaches

– Analogy

– Cost risk analysis

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Each Cost Engineering Technique requires different type of data and

information...

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

– Engineering Drawings– Bills of Materials– Process/Routing Sheets– Master Production Schedules– Accounting Records– Supplier and Catalogue information– Labour Rates and Standard time Data– Repair and Maintenance Schedules– ERP Systems

Sources of Cost Engineering Data

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Team Members

• Need experience

• Should be carefully selected to ensure reliable cost data is obtained

• Design and technical experts can provide:– Design and Development costs/estimates

• Manufacturing and Assembly experts can provide:– Equipment, tooling, material, production, and in-

process handling costs/estimates

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Team Members cont.

• Industrial Engineers can provide:– Quality control, reliability, and production volume

based on standard times

• Shipping and Warehouse experts can provide:– Material handling, storage policies, packaging,

receiving and shipping costs

• Accountants can provide– Overhead, administrative, and related cost figures

• Marketing can provide– Distribution and Marketing costs

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Capturing Cost Data and Information:The Cranfield Approach !

• Questionnaire

• Interviews

• Activity Capture & Categorisation– XPat– IDEF3– UML

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

eXpert Process Knowledge Analysis Tool (Xpat)

• Knowledge elicitation

• Based on IDEF modelling techniques

• Process driven methodology

• Easy to use

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

INPUT PROCESS OUTPUT

INTERNAL EXTERNAL

TOP LEVEL VIEW

WEEKLY PLANNING

DAILY SCHEDULING

Xpat - Process Knowledge Capture Framework

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

OUTPUT

TOP LEVEL VIEW

WEEKLY PLANNING

DAILY SCHEDULING

1.3Physical OutputsResultsInformationDeliverablesProducts, StatesNon-PhysicalOutputsPhone calls

Destination ofOutputsPersonEquipment

Frequencyof Outputs Hourly Daily, WeeklyMonthlyYearlyAs and When

1.1 1.2 1.3

Xpat - Process Knowledge Capture Framework

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Xpat - Output Probe Questions

ProbeIdentity

Probe Questions Rationale for a probe question

O1 List all output from theprocess?

To identify specific outputs from the processin terms of information deliverables statesproduct and results. To define types ofoutput. To provide support for constructingIDEF0 process model.

O2 Why would you need thatoutput?

To generate rules for output information.IF <condition> THEN <action>

O3 How would you get thatoutput?

To determine acquisition or reuse process.

O4 How would you use thatoutput?

To generate detail level rules.IF <condition> THEN <action>

O5 What is the source ofoutput?

To identify sources of output and interactions

O6 When would yougenerate this output?

To reveal specific or generic frequency ofoutputsTo generate a detail level rule specific orgeneric output. IF <condition> THEN<action>

O7 What is the frequency ofoutput?

To determine the dynamic nature of output(e.g. time relative to output – Hourly, Daily,Weekly, as and when required)

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

INPUT

INTERNAL EXTERNAL

TOP LEVEL VIEW

WEEKLY PLANNING

DAILY SCHEDULING

Physical andNeeds, StatesInformationProblemMaterialNon-PhysicalInputsPhone calls

Source ofInputsPersonEquipment

Frequencyof inputs Hourly, Daily, WeeklyAs and When

1.1 1.2 1.3

Knowledge Capture Framework

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

PROCESS INTERNAL EXTERNAL

TOP LEVEL VIEW

WEEKLY PLANNING

DAILY SCHEDULING

1.1 1.71.61.51.41.31.2 1.8

ActivitiesDescriptionof one stepof the problemsolvingprocesslinkinginput(s)and output(s)

Tasks What to do?

MethodsHowto do it?

EnablersHRToolsEquipmentSystemsFacilities

MetricsHow do you knowyou haveachievedthe task?

AssumptionsWhat are believesideaproof thatthe processis true/falsereasoning?

FAQ’s

GuidesStandardsPoliciesRulesEvents

Knowledge Capture Framework

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Cost Estimating Model

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Capturing Cost Data and Information for Detailed Estimating ...

cost@cranfield.ac.uk

ACostE Seminar, 17th February 2004

Work Breakdown Structure (WBS)

Product Management

Tooling and Equipment

Components and Parts

Inspection and Test

Fabrication

Packaging and Shipping

cost@cranfield.ac.uk

ACostE Seminar, 17th February 2004

Different projects use different WBS!

Organising data into a common structure for similar products can be very helpful in cost

engineering!

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Total Part Cost

Materials Factory Value-Added General

Overheads

Direct Labour Indirect Labour

Level

Machine Cost Tooling Cost

+ Tool Lifetime

+ Tool Purchasing Cost

+ Tool Specifications

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Raw Materials

+ Raw Material

Specification

Bough Out Parts

+ Standard Bought

Out Part Specification

+ Subcontract Item

Specification

Raw Material Scrap

+ Raw Material Scrap

Resale Value

Raw Material Rate

+ Volatility of the Raw

Material

Bough Out Part Rate

+ Standard Bought Out Part

Rate

+ Subcontract Item Rate

Bough Out Part Scrap

Material Overhead

Cost

+ Bought Out Material

Inventory Cost

+ Raw Material

Inventory Cost

Material Usage

+ Part Dimensions

+ Raw Materials Usage

+ Standard Bought Out Part

Quantity

+ Subcontract Item Quantity

+ Weigh of the Part

Materials

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

ERP: A source of Cost Data and Information

HUMAN HUMAN RESOURCERESOURCE SALES/ MARKETINGSALES/ MARKETING

FINANCEFINANCE

ERPERP

MANUFACTURINGMANUFACTURING

Production planning/control

Pricing and BillingPersonnel Administration

General ledgers

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Cost Estimating using SAP

Quantity structure

BOM RoutingPrices for: •Material•Activities•Overhead•Processes

Value structure

++

AnalysisPricingValuationPAControlling

Costing

Ana

lysi

sItemizationMaterial £Material £Activity £Overhead £Processes £

Cost elements

£,£,£

Results

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Few Observations:

Always check data for relevance and physical significance of Data and Information

Benchmark databases are necessary for different industries

Use structured templates to collect data

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Collecting Cost Data and Information for Parametric Estimating

ACostE Seminar, 17th February 2004

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CASE STUDYMetallic Parts

LONGERON

RADAR FRAME

SPIGOT FRAMES

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

40% OF COSTS

3D Model3D ModelIndependent Independent

VariableVariable

Independent Independent VariableVariable

Independent Independent VariableVariable

Conceptual Conceptual StageStage

‘‘A’ SchemesA’ Schemes

DECOMPOSEDECOMPOSE

3D Model3D Model

File SizeFile Size

CSG TreeCSG Tree

GeometryGeometry LinesArcsCurvesPointsShapes

Primitives Nodes

Data tableIndex

Est. Direct Cost

Quantitative Cost Drivers

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

•Old Customer•Existing Aircraft

•Futuristic Aircraft•New Customer

•Project Size•Experience of design domain

CATIA CompetencyDesign Experience

New MaterialsNew TechnologyNew Processes

Totally New DesignSimple Modifications

Estimated Indirect Cost

60% OF COSTS

•Simplicity of Requirements

•Ease of Customer Req. Capture

•Likelihood of Eng. Changes

•Ease of interface

•Intricacy of parts design

•Designer’s experience / skill level

•% of new design / modification

Categories for Rating

Qualitative Cost Drivers

Expertise

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Sample Data - Frames

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Cost Estimating Relationships (CER)

Total Time = QN Time + QL Time + Allocations

Feature Approach

Total Time = C11 + C12(Mass) + C13(Surface Related) + Allocations

CATIA Approach

Total Time = C14 + C15(Mass) + C16(Surface Related) + Allocations

C11 … C16 are constants

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

QUALTITATIVE DATA: Problem!

For a less experienced designer :

High Complex Part

Low Complex Part

+ 50 %

+ 30 %

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Learning Outcomes!

• Understand the design process

• Do not mix too dissimilar products

• Collect as much data as possible

• Verify the quantitative data for physical significance

• Cross check the qualitative data, take more opinions

• Educate designers about quantitative and qualitative cost

drivers

• Do not depend entirely on statistical analysis to develop the

relationships, use common sense and experience too

• Identify Risk

• Do not use too many variables within the CERs

• Do not mix the quantitative and qualitative cost drivers

• Always validate the CERs for physical significance

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Concluding Remarks

Cost Estimating with good quality Data and Information is becoming very important

Benchmark Databases are required

A structured approach to Data Collection and Analysis is the key to success

ERP systems could provide good quality Data and Information for Cost Engineering.

ACostE Seminar, 17th February 2004

cost@cranfield.ac.uk

Thank You!

www.cranfield.ac.uk/sims/cost