Tips from Jeo

My previous blog discussed a “Should Cost” methodology used by PRICE Systems to complete an analysis. In the article I included a chart depicting calibration results for manufacturing complexities for each weapon system (X-Axis). Manufacturing complexities are a major cost driver within the model. This parameter can be derived from model knowledge tables, generators or from calibration. Many times the calibrated results are simply averaged and used for predicting cost for the new system. This assumes that the new system is very similar in technology and performance as the systems used for calibration. In general this is not the case. Below I discuss how data driven cost estimating relationships (CER) can be developed between the calibration results and a selected independent variable. The CER will then be used to derive the manufacturing complexity, which then matches much closer to the new technology.

Figure 1. Calibration Results for each Weapon System

Since the data was already collected and calibrated within the model, the next step was to identify an independent variable. For manufacturing complexity for structure, thrust was selected. However, other variables could have been selected.  Maximum take-off weight, range, ceiling, empty weight, thrust per pound, or speed were all candidates for an independent variable. For manufacturing complexity for Electronics, frequency speed was selected as an independent variable. Again there are many potential candidates for an independent variable for electronics. 

The next step was to graph and complete regression analysis. Figure 2, depicts the results for manufacturing complexity for structure, and figure 3, depicts the results for manufacturing complexity for electronics.  I normally select a power function when regressing data. One could select any function except linear. Linear regression does not always work very well and as a practical matter technology advancements are rarely linear. 

Figure 2.  Manufacturing Complexity for Structure

Figure 3. Manufacturing Complexity for Electronics

Using the above equations now require information be collected on the aircraft thrust requirement for structure, and frequency speed for electronics. These requirements are then used to calculate the appropriate manufacturing complexity. This approach insures that the cost estimate now match up with the requirements. 

The next time you need to complete a cost analysis, talk to one of our expert PRICE Solutions consultants for help.

PRICE Systems recently accepted an assignment to complete a "Should Cost" estimate for a U.S. ally on a weapon system. The estimate included not only analysis on production costs, but also should cost on various operations and support costs. The only information provided by the client was quantity and time frame for production. A major ground rule for the estimate was that all data specific to the weapon system must come from publicly available information.  For example, mass, manufacturing process, and learning curve information must come from the public domain. 

After reviewing the scope for the estimate, we decided to also collect data on four similar weapon systems. This would allow us to provide not only a “Should Cost” estimate, but additional information to support the estimate. 

The initial task was to collect data on each weapon system. Pertinent model inputs were collected from various public sources. Flyaway costs were collected for each weapon system and used as the cost input for calibration. Manufacturing complexity for structure and electronics were the key input values solved for via calibration. The calibration results are displayed in a line graph, depicted in Figure One below.

Figure One. Calibration Results for each Weapon System

We then translated all calibration input data and calibration results into a predictive input file. Estimates were completed for each weapon system. All results were reported in the form of a graph depicting average amortized production costs, average flying hour cost, and average operations and support costs for each weapon system. 

The assignment could not have been completed without the capability of the PRICE Models. Model calibration was a critical task. Only a few pieces of data were required: quantity produced, production schedule, and mass. 

The model’s capability to solve for values for manufacturing complexity and a graphical depiction of the results enabled the client to quickly understand the results even though some of their personnel were not familiar with the PRICE models. Do you have a question about should cost?  Post it and we'll do our best to answer your question.  Need help? Contact one of our experts for assistance.