Cost Modelling Linda Newnes, Head of Costing Research University of Bath L.B.Newnes@bath.ac.uk

1. Cost ModellingLinda Newnes, Head of Costing ResearchUniversity of BathL.B.Newnes@bath.ac.uk

2. Presentation Outline • Overview of the work undertaken at Bath in cost modelling • Cost Estimating for availability • Product Costing • Availability Contracting • Service Costing • Cost estimating for Availability

3. Through Life Costing - IdMRC • Our focus is on concept design through to disposal • Emphasis on information and knowledge management for cost estimation • Importance of ‘servitisation’ in cost estimating (PSS) • Current collaborating with e.g.; Ministry of Defence,BAE Systems, GE Aviation, Airbus UK, Spirax Sarco The overall aim is to provide methods and tools for managing TLC from concept design to in-service/disposal

4. Current Research M A N U F A C T U R E D E V E L O P M E N T A S S E S S M E N T I N S E R V I C E C O N C E P T D I S P O S A L CADCAM Models for costing data reuse Price Bid Plug & Play Costing Non-recurring cost for aerospace tooling Cost of Service Trade-off between specification and cost PBC Electronic recycling Through-life cost estimating for low volume long-life electronic products Modelling uncertainty in cost data and cost models Cost of Avionic Through-Life Availability (CATA) Feedback to inform future design/refresh

5. Cost Estimating for Availability • Some different options: • Sell the product and spares • Lease the product • Availability contracting • Future contracting of some aerospace/defence products – availability contracts How do you cost for through life availability?

6. Costing for Availability – current modelling • Cost modellers are experienced in costing products • Commercial systems are in general still product based • Little evidence of in-service/utilisation modelling • Products have been defined and understood since Smith* 1776 provided a definition • Understanding of service is still being developed • Availability contracts already in place • Rigour in cost estimating has lagged behind implementation *Smith, Adam. (1776). The Wealth of Nations, Books I-III, Chichester: Wiley.

7. Current State Product Costing Service Cost Based on Product Availability As well as Product Costing • Selling the product • Cost plus • Profit on maintenance/repair • design refresh etc. To user Performance Based Contracts Availability Contracts Maintenance Contracts This is still a challenge

8. Challenge How do you cost for through life availability or capability? • How can industry estimate the Through Life Costs for their products? In particular, • How can you predict the in-service (utilization/operations support) costs for the products at the concept design stage to enable informed decision making? • Model the cost of decisions e.g. last time buys. • Uncertainty modelling to aid decision making

9. Costing for Avionic Through-life Availability (CATA) Aims to provide novel approaches to predict the manufacture and repair costs through life for in-service avionic systems • How can we predict ‘should costs’ for through life manufacturing and service at the early design stage? • How do we manage the uncertainty within such long-life products? • How does the supplier performance impact the cost of providing availability?

10. Team required to achieve this? MoD DE&S BAE Systems MAI GE Aviation CATA Prof. Sandborn CALCE, Univ of Maryland Prof. Paredis SRL Georgia Tech Dr Newnes* University of Bath Dr Parry University West of England Dr Goh Loughborough University • *Please contact Linda Newnes with any queries L.B.Newnes@bath.ac.uk

11. Work Packages (1) • Identify and classify the current and future manufacturing techniques used for the repair and maintenance of avionic systems • Create new cost estimating relationships (CER), based on industrial data and knowledge, for predicting the cost of maintaining availability • Research and evaluate novel approaches for assessing supplier performance and manufacturing capability to meet availability contracting • Identify the impact of evolving supply changes (e.g. mergers, closure of key supplier etc.) on through life availability and propose new techniques for assessing the sustainability and responsiveness of supply chains

12. Work Packages (2) • Create a novel manufacture, repair and maintenance cost model to predict the costs of providing availability • Validate the manufacture, repair and maintenance cost model for use in the early design stage of new products i.e. design for availability and cost • Propose and develop novel methods for modelling the uncertainty for future manufacturing and repair requirements based on manufacturing history to predict in-service repair costs • Assess and define new engineering service metrics for evaluating the engineering behavior of the value enterprise to enable analysis of quantified performance data and partners’ ability to co-create value

13. CATA RQ1: Prediction of Through-life cost at early design stages Pilot Study – data analysis and availability • Identify and classify current and future manufacturing techniques used for the repair and maintenance of avionic systems • Cost estimating relationships, based on industrial data and knowledge, for predicting the cost of maintaining availability Utilised Current Aircraft Data

14. Initial Pilot • Data collection; • Identify cost estimating relationships; • Develop a proof of concept model Utilised actual data from manufacture, assembly, integration, test and initial service The final outcome being to identify data requirements for future modelling

15. Data Collection • Lots of data (e.g. serial number, type of failure, mode of failure, origin etc.) • Spreadsheet based • Open comments (e.g. environment when failed, root cause, corrective action) • Elapsed time indicator • Repairs undertaken • Should cost and actual cost

16. Cost Estimating Relationships (CERs) • CER1 – Indicative failure rate – 23% • CER2 – Probability of 2nd fail • CER3 – Identified probability of failure in lifecycle phase (majority in build and test) • CER4 – probability of a particular fault code • CER5 – failure rate for particular nations Limited detailed trace back to manufacturing history • Not yet known • MTBF • Flying hours • Select fault code – avoid selection of ‘other’ • Time to failure • 665 units with 154 fails

17. Excel Model Typical output – failure type and cost per failure Eight year estimate in £

18. Current State - CATA • This was one subsystem • Challenges in terms of quality data for Through Life costing. • Based on failure rate to estimate the costs • Useful work which will cover interim phase • Companies at this stage are not realising their expected profits. So, • We need to do more to model the change in business processes required for delivering an availability. What would I do differently now when designing for service?

19. What is required Product Cost Estimating Service Cost based on Product Availability Transition Holistic Product Service System Cost Estimating Outcome Based Contracting Cost for Capability Change in Business Process

20. What are the challenges Manufacturing Services Manufacturing Services Service(Outcome based, manufacturing and service; SD-Logic) How do we assess the appropriate approach for managing manufacturing and service provision from the supplier of the service Currently industry is absorbing the cost of repair within their manufacturing operations

21. Required: available system: • Anticipated operational • requirements • Prime mission equipment • and Support system Required capability Our view is an operations based approach Interdependences between physical and service flows delivered (red: cross organizational) Transferred-in costs demand propagation Black box External transactions (estimate costs/ forecast prices) Time lags and inventories Internal transactions (calculate costs/estim. tech. param.) Extended enterprise boundaries A (user) C (subsystem supplier) B (IPS2 provider) Service Oper. Manuf. Oper. Manuf. Oper. Missions profiles Black box Black box Functional Analysis Time lags and inventories Time lags and inventories Time lags Uncertainty

22. How do we propose to model this • Transparent approach. • Operations based approach - map the required activities. • Predict the cost of these activities for different scenarios. • Utilise uncertainty modelling techniques such as subjective probability, p-box – show impact via cost. • Build in the complexity of designing, manufacturing and maintaining the asset to meet availability.

23. Any Questions

24. Trade-off Between Specification and Cost • Uses Delphi approach to identify requirements. • Requirements into specification and rated with QFD with key metrics. • Manufacturing cost estimated. • Taguchi approach used to rate the metrics in terms of their impact on cost. • Output –cost variance reduced and specification finalised.

25. Price Bid Modelling Research outcome matrix with probability of winning the bid and probability of making a profit