Case Study of Developing and Designing to Cost - Solar Energy Industrial Engineering. - Planned cost reduction Solar Power Plants.
Cap Gemini
Our vision of the ‘Design to Cost’ concept within the range of approaches to optimize competitiveness is: a set of principles, methods and tools, which help embed Customer Value on one hand and Cost Drivers on the other hand in design decisions.
The ‘Design to Cost’ method shortens the “design / development /test” loop, which makes it possible to simultaneously examine several alternative solutions to meet a requirement, while maintaining or decreasing the level of resources consumed or even fewer number of resources. It thus considerably improves the effectiveness and efficiency of development and, in this sense, is close to the “Set Based Design” approach promoted by Toyota for nearly a decade.
The ‘Design to Cost’ method activates the offer design lever (of products and / or services) for improving all the segments of the company’s value chain.
https://www.capgemini.com/consulting-fr/wp-content/uploads/sites/31/2017/08/design_to_cost.pdf
Understanding about Cost drivers
A quick estimate of the cost of a new technical solution supports the spirit of the ‘Design to Cost’ approach. ‘Design to Cost’ approach requires the exploration of several alternatives in parallel, but only up to a point where they can be economically compared with each other.
This difficulty can be handled by developing Costing, a function still new in many companies. It involves estimating the costs of components, subassemblies or products through analogic or parametric approaches, without going through the traditional analytical cost evaluation process which will come when the study is almost finalized. Structured databases around Cost Drivers (number of inputs/outputs for an automaton, the power for an engine, etc.) will be established based on the lessons learnt.
If companies – particularly in the B to B sectors, which often face the issue of providing a quote while the specifications are still vague – possess true know-how in this area, it is often a skill inherent and restricted to a few experts. The challenge is to have collective awareness of the Cost Drivers within the technical teams; this transformation, far from being natural, will depend on tools and methods, and will require sustained attention from the management.
It is a tricky issue, which can easily be over complex and for which universal solutions do not exist. If the creation of databases, which are based on the lessons learnt, provide significant support in case of relatively repetitive projects, how do we assess the cost for projects with only a single example or in case of new technologies which have not been mastered yet or which are even unfamiliar? In this case, a provision for the risks will be attached to the cost estimate, and the client and the partners can be involved through a risk-sharing model. When the portfolio of ideas is relatively large, it is possible to apply the laws of statistics: the estimate of the overall gain will be more reliable than the individual valuations.
Design to Cost - Webinar
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https://www.youtube.com/watch?v=LEwjIx2-5As
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Book
Design to Cost - Jack V. Michaels and William P. Wood - Book Information
Google Book Link
http://books.google.co.in/books?id=XXIJTb7P2koC&printsec=frontcover#v=onepage&q&f=false
1989 John Wiley & Sons
Table of Contents
Getting Started.
Defining Activities and Responsibilities.
Designing for Inherently Low Cost.
Choosing Business Strategies.
Estimating and Controlling Costs.
Remembering History.
Appendices.
Index.
Design-for-Cost – An Approach for Distributed Manufacturing Cost Estimation
August 2019
DOI:10.1007/978-3-030-29996-5_53
In book: Advances in Production Management Systems. Towards Smart Production Management Systems (pp.457-465)
DOD Glossary of Terms for Design to Cost
1. Baseline Cost Estimate (BCE). Detailed estimate of acquisition and ownership costs normally required for high-level decisions; provides the basis for subsequent tracking and auditing.
2.Contractor Work Breakdown Structure (CWBS). The complete WBS covering a particular contractor procurement. The CWBS is a breakdown and identification, for a particular procurement, of all of the acquisition tasks required during the development and production of a system or other equipment. The CWBS closely follows the guidelines of MIL-STD-881A and DODI 5000.33 in identifying the hardware, services, and data required by a particular program or project throughout its planned life cycle. Many of the elements of the CWBS can be found in the Cost Estimate Structure (CES), and are closely related to the WBS of the major equipment.
3. Cost. In this document, cost is defined as Life Cycle Cost (LCC) or a portion thereof.
4. Cost Avoidance. Cost reductions that are reasonably measurable through the cost reduction program. They are reductions that prevent increases in cost or requirements for funds or have produced an increase in readiness at no additional cost. Cost effective design choices based on
timely, concise (tailored for each user) cost information.
5 Cost Categories. The major divisions of weapon/support system costs which apply to DTC from inception to retirement of the system. These are:
a. Research and Development: All RDT&E funded costs associated with the development of the materiel system, including development costs for system armament, training devices, ammunition, missiles and modifications.
b. Production: The term Production Cost is defined to be the sum of those procurement appropriation funded costs resulting from the production and introduction of the materiel system into the Army's operational inventory. This includes:
" All costs to the Government, defined as contractor costs plus in house costs, of products and services necessary to transform the results of development into a fully operational system consisting of
the hardware, training, and support activities necessary to initiate operations.
* Costs of both a nonrecurring nature, i.e., costs which are required to establish a production capability. and a recurring nature, i.e., costs which occur repeatedly during production and delivery to user
organizations.
" All costs resulting from production and introduction into inventory irrespective of how allocated, eg., Unit Equipment (UE), Maintenance Fkat (MF) and Training Usage classification.
c. Deployment: The continuing recurring process of operating and maintaining
force structure and materiel systems to perform assigned tests and
missions. The level of sustainment is a function of force allocation and
training objectives, as well as the operating tempo assigned to individual
materiel systems. Deployment generally begins when the materiel system
is fielded and ends when the materiel system is disposed of.
6. Cost Element Structure (CES). A breakdown of life cycle cost elements that can be summarized under the major cost categories of research and development, production and sustainment. Each major cost category is further broken down into a hierarchy of lower level cost elements. Each of the Military Services uses a total CES which is very similar among the major sub-elements but does differ in the arrangement of definitions of lower level cost elements. In addition, each Service can present a simplified CES as a contractual requirement for a contractor's work. A CES may be different
for each phase of the life cycle, but must be consistent with the Work
Breakdown Structure (WBS). For these reasons, this document does not
include any standardized CES.
7. Cost Estimating Relationship (CER). A mathematical expression relating cost as the dependent variable, to one or more independent cost-driving variables. The expression may be represented by any of several functions (e.g., linear, power, exponential, hyperbolic). These cost-driving variables usually
represent characteristics of system/product performance, physical features, effectiveness factors, or even other cost elements.
8. Cost Initiatives. A cost initiative must be identified by the cost trend analysis. Each initiative must include background, action taken to date, action planned, and the current assessment at successful completion. Periodic progress on efforts to rectify a cost threshold breach as identified in a DTC Action
Plan, should be reported immediately.
9. Cost Reduction. Formal activity employed to reduce cost. A cost reduction effort has a specified quantitative target, and a threshold somewhat higher or lower as the case may be.
10. Cost Risk. A qualitative assessment of the chances of failing to achieve
a design which is (a) affordable to procure, operate, and support; and (b)
acceptable in terms of performance readiness, supportability, and schedule.
Cost risk is directly proportional to technical risk and estimating uncertainty.
11. Design to Cost (DTC). An acquisition management technique used to
achieve defense system designs that meet stated cost requirements. Cost
is addressed on a continuing basis as part of a system's development and
production process. The technique embodies early establishment of realistic
but rigorous cost objectives, goals and thresholds, and a determined effort
to achieve them. DTC is a concept that established cost elements as
management goals to achieve the best balance between life cycle cost,
acceptable performance, and schedules. With this concept, cost is a design
constraint during the design and development phases and a management
discipline throughout the acquisition and operation of the system of
equipment. DTC is a cost control technique developed to achieve defense
system designs that meet stated cost requirements. Cost is addressed on
a continuing basis as a part of a system's design process
1 2. Cost Trend Analysis. The evaluation of cost tracking information to identify adverse trends in terms of Life Cycle Cost (LCC), cost targets, and/or the individual allocated cost subtargets. Identified problem areas shall be analyzed for interim action. When implemented these interim actions
become cost initiatives.
1 3. DTC Action Plan. A part of the DTC implementation plan applies when cost
targets are about to be or have been breached. As a revision to the DTC
Plan, the contractor shall prepare and submit a DTC Action Plan for each
instance where the projected cost of the current design is above a cost
threshold. This plan shall identify the specific effort necessary to control
costs and to get the projected cost back to an acceptable level. This cost
reduction effort shall be discussed in terms of the cost to implement,
schedule, risk, and benefits.
1 4 . DTC Implementation Plan. This plan is a document which provides the
integrated program plan for the time-phased activities required to accomplish
a specific set of DTC objectives. It is a dynamic document subject to revision
and change as the system evolves. The purchasing activity approves the
initial plan which was required by the contract. The contractor shall be
required, either before (in his proposal) or after contract award, to submit
the DTC implementation plan which may include recommendations for
changes to the Government's. This plan describes the key elements required
for implementing a DTC program.
1 5. DTC Objectives. Tentative values subject to revision and tradeoff until DTC goals and thresholds are established.
16. DTC Parameter. Approved measurable values for selected cost elements
established during system development as design considerations and
management objectives for subsequent life cycle phase. A DTC parameter
may be an objective, goals, or threshold. Values will be expressed in
constant dollars, resources required, as other measurable factors that
influence cost.
1 7. DTC Plan. The information generated by the contractor's DTC program
planning effort shall be summarized in the form of a DTC Plan and submitted
in accordance with the DD Form 1423. The DTC Plan shall be sufficiently
comprehensive to enable the procuring activity to: (1) ascertain with a high
degree of confidence that the contractor has adequately evaluated and
planned for an active engineering cost control effort; and (2) monitor the
contractual effort to ensure timely and effective execution of the DTC
program. This plan shall also (in appendix B of DOD DTC MIL STD) provide
for an action plan which will be submitted whenever a potential breach of
a cost threshold is imminent.
18. DTC Status Report. In accordance with the DD Form 1423, the contractor
shall periodically (usually quarterly) report progress in meeting the cost
targets or, if targets have not yet been established, report the status of
the present estimates compared to the baseline estimates until the DTC
Status Report is automated in late 1988. Electronic mail should be
considered as a timely means of submitting the DTC Status Report for
programs where the risk of meeting cost targets is high. The final periodic
report shall contain, with supporting rationale, the contractor's proposed
cost targets for the next phase.
19. DTC Targets. Approved DTC parameters divided into smaller, identifiable
tasks or areas of responsibilities that serve as requisites for contractors
or Government activities. Cost estimates approved by the purchasing activity
which are translated into design requirements by the contractor for the
purpose of controlling and balancing production and O&S costs. A cost
target is different from a cost baseline in that a contractual target is a
reference point for measuring cost growth. For effective management, cost
targets are usually subdivided and allocated as sub-targets to the responsible
managers and designers. Contractual cost targets should be maintained
as rigorous and realistic to sustain a viable DTC program.
20. DTC Tradeoff Studies. The tradeoffs should be developed as necessary to
address major cost drivers not covered in other formal engineering tradeoff
studies. These studies should include a discussion of the schedule, level
of efforts, and means and depth of detail of reporting the results. These
studies should be updated as new tradeoffs are developed and as the
results of the trade studies are completed. A rewrite of the plan is not
necessary for these updates; for example, ("change 1 to Trade Study Section
follows:").
21. Integrated Logistics Support (ILS). A disciplined, unified, and interactive
approach to the management and technical activities necessary to (a)
integrate support considerations into system and equipment design (b)
develop support requirements that are related consistently to readiness
objectives to design and to each other; (c) acquire the required support:
and (d) provide the required support during the operational phase at
minimum cost.
22. Integrated Logistics Support Plan (ILSP).A document which provides a
comprehensive and detailed plan for implementing concepts, techniques,
and policies necessary to achieve the ILS objectives of assuring the
effective and economical support of a system or equipment for its life cycle.
The program sponsor shall develop an ILS plan by Milestone 1 and keep
it current throughout acquisition. The ILS Plan shall integrate logistics
aspects of the program. Positive controls shall be established to integrate
schedules and to identify interdependencies among ILS elements, design
activities, and deployment plans. The ILS Plan shall document readiness
and support objectives, achievements to be demonstrated, operating
concepts, deployment requirements (including transportability), support
concepts, plans, ILS element requirements, schedule, funding requirements,
and responsibilities for ILS activity planned for each program phase. For multi DOD component program, the ILS Plan shall address the support
requirements for all participating DOD components. The program manager
shall furnish contractors with appropriate Government data such as baseline
operating scenario and maintenance concepts, such as baseline operating
scenario and maintenance concepts, systems readiness objectives, and
support costs on current systems to use as a basis for contractor ILS
planning and analysis. The program sponsor shall maintain current ILS
management information (including detail of schedule, resource requirement
and funding, LSA documentation, and status of progress toward support
related thresholds) to support ILS planning and management decisions.
23. Life Cycle Cost (LCC). Includes all WBS elements; all related appropriations;
and encompasses the costs, both contract and in-house for all cost
categories. It is the total cost to the Government for a system over its full
life and it includes the cost of development, procurement, operating and
support, and where applicable, disposal. For DTC tracking purposes, the
contractor should consider only these elements of LCC which can be
influenced by the contractor's design process.
24. LCC and Goal Tracking. A comparison of the current status versus target,
and current status versus the previously reported status. For LCC this
comparison shall be the current LCC estimate versus the baseline LCC
estimate and previous LCC estimate to illustrate LCC trends. For cost targets
this comparison shall be in terms of total targets and any allocated
sub-targets. Whenever the cost targets or the baseline LCC estimate is
changed to include an explanation and a quantitative substantiation for the
change.
25. Logistics Support Analysis (LSA). The selective application of scientific and
engineering process, to assist in: (a) causing support considerations to
influence design; (b) defining support requirements that are related to design
and to each other; (c) acquiring the required support; and (d) providing the
required support during the operational phase at minimum cost.
26. Milestones. A schedule for reviewing the status and effectiveness of the
DTC program. Formal DTC reviews shall be held periodically between the
procuring activity and contractor DTC personnel. Care should be taken in
spacing these reviews to ensure that enough new design information is
available to warrant the expense of preparing and attending these reviews.
Additionally, all formal project status reviews, preliminary design reviews,
and critical design reviews shall include a review of the DTC program and
an assessment of its effectiveness in controlling cost. These reviews provide
the best opportunity for the Government to ensure the continued
effectiveness of the contractor's engineering cost control effort.
27. Program Sponsor. A generic term which encompasses Program Manager, Project Manager, Product Manager, and Item Manager. Program Manager is specifically reserved for major program managers.
28. Operating and Support (O&S) DTC Parameters. Approved values for selected
O&S elements expressed either in dollars or by other measurable factors,
such as number of maintenance personnel, spares, fuel and other resource
consumption, reliability, and maintainability Design to Cost efforts that focus
on O&S costs of parameters (e.g., mean-time-between-failures, maintenance
hours per flying hour, mean-time-to-repair, etc.) are sometimes referred to
as Design to O&S Costs (DTOSC) (Army).
29. Organization. Organization for the DTC function does not imply new
organizational entities. For many companies with prior military contracting
experience, the functions contributing to the normal cost tracking effort are
already in place (e.g., systems engineering, logistics, production planning,
reliability, cost analysis and estimating, etc.). The contractor's organization
structure will be determined by the contractor's ability for executing the
cost control strategy in an effective and efficient manner. It will also include:
the management structure; contractor decision authority and approval
authority; policies and procedures; and functional relationships for making
cost a key decision and design parameter. Additionally, this includes
discussion of the functional responsibilities, analytical techniques, and data
processing capability for providing current, concise, and timely cost
feedback to the organization's decision makers. Justify organizational
elements which are uniquely DTC-related. If value engineering is contributing
to cost reductions, show how it relates to the DTC effort.
30. Supporting Rationale. Supporting rationale for the DTC and LCC baseline
shall include all guidelines, assumptions, and ground rules. Data sources
and cost prediction methodology shall be described in terms of applicability
to the stage of design maturity and the state-of-the-art. Alternate approaches
or sources considered for the analysis or used for cross-checking purposes,
and the associated risk or uncertainty shall also be described in exact terms.
Cost estimating expressions for each cost element shall be included with
a definition of variables and a substantiation of corresponding values. For
proprietary techniques where the contractor will not divulge the cost
estimating expression or for cases where the procuring activity has
prescribed a cost mode, include only the input data necessary to reproduce
the analysis plus the supporting rationale. For cost drivers, summarize the
sensitivity analysis or other techniques used to identify them.
31. Tradeoff Activity. Consists of formal tradeoff study activities (including any DTC tradeoff studies) and any significant informal tradeoff activities occurring or completed since the previous reporting period. When the DTC recommended alternative in formal trade studies or the low cost affordable
option in informal tradeoffs is not selected, include an explanation of why the cost-preferred alternative was not adopted.
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