Cost – Performance Trade Studies During Product Development

Take Corrective Action To Improve The Development Process

The Solution:

– Weave Best Practices of cost management into the development process

– Implement Critical Parameter Management (CPM) techniques
– Merge cost management with CPM throughout development
– Share cost and performance information in a near real time environment

Merging cost and performance information with near real time

feedback results in improved performance, reduced (or at least better
understood cost), better adherence to schedule, fewer failures, and
reduced total ownership cost.

© 2008 Cognition Corporation and David M Cronin 1 of 33

 Cost – Performance Trade Studies During Product Development

What We Want To See During Development

Example Of Using CAIV* & CPM** On A Program To Improve Affordability

35
Planned Cost Reduction
Actual Cost Reduction
Project Cost Goal
Project Cost Stretch Goal

30
Cost

25 Critical Design
GNG Make / Start
Buy Design Review (Gate)

20

System Development Time

*CAIV = Cost As Independent Variable
**CPM=Critical Parameter Management

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 Cost – Performance Trade Studies During Product Development

We Need To Impact Cost During Early Program Phases

70

60

50

40

%
30

20

10

0
Concept Full Dev Production O& S
TOC Spent $ 3 12 20 65
Impact on O&S Costs 70 15 10 5

The Majority of the Customer’s Cost is in the “O&S Phase” but

that cost is mainly defined in the “Concept Phase”.

© 2008 Cognition Corporation and David M Cronin 3 of 33

 Cost – Performance Trade Studies During Product Development

Start By Weaving Cost Management Into The

Product Development Process

© 2008 Cognition Corporation and David M Cronin 4 of 33

 Cost – Performance Trade Studies During Product Development

Implement Best Practices Of Cost Management

$ Manage WBS Structure With Multiple Configurations “On The Fly”

₪ Estimate Costs With Multiple Methods And Fidelities

₫ Manage Multiple Cost Estimates Over Time For Each Element

£ Roll Up Multiple Cost-Configuration Scenarios

¥ Flag And Trace Cost Drivers With Detailed Reports

¢ Define Cost Estimating Relationships At All System Levels

€ Identify, Implement, And Track Cost Reduction Initiatives

© 2008 Cognition Corporation and David M Cronin 5 of 33

 Cost – Performance Trade Studies During Product Development

First Create and Manage The WBS/BOM

Import WBS/BOM From Various Sources (Spreadsheet, Corporate
Database, PLM), Or Create Structures On The Fly

Import and manipulate existing structures

Trace History Of Configuration Changes With Variants

© 2008 Cognition Corporation and David M Cronin 6 of 33

 Cost – Performance Trade Studies During Product Development

There Are Many Methods For Successful Cost Modeling In

A Near Real Time Environment
€ AdHoc
€ Rough Order of Magnitude (ROM)
€ Cost by Analogy, with complexity (“similar to”)
€ Individual spreadsheets
€ Parametric - based on industry standards (“out of the box”)
€ Parametric - with product line
calibration
€ Historical Data
€ Engineering Buildup-Actuals
€ Cost Factors and Rates
€ Supplier Quotes: Materials
€ COTS detailed and budget estimating tools

© 2008 Cognition Corporation and David M Cronin 7 of 33

 Cost – Performance Trade Studies During Product Development

Over Time We Will Reduce The Cost Model Uncertainty

Estimated Cost
Actual cost of
New Technology
Cost Uncertainty

Uncertainty Range

Very Good Estimating Tools

(Based on Some System
Design)

TECHNOLOGY
DESIGN REVIEWS POST RELEASE
EVALUATION
Actual Costs
No System
Make up
Design To
Majority of
Base Estimate
Estimates

Cost Modeling is only as good as the Technical Design Input

© 2008 Cognition Corporation and David M Cronin 8 of 33

 Cost – Performance Trade Studies During Product Development

Now Attach All Cost Information To The WBS/BOM Structures

Existing Estimates, New Estimates, Or Link To Data In Legacy Systems

M
A
Process Times Suppliers Rates
N P F
U U I
F R Cost, Qty N
C A Burdens
A
H N
C Raw Material Data Associated Cost
T A C
S I Exchange Rates
U Effectivity A
R I
I N L
N
Cost Centre Rates G Sub Con, Make/Buy, etc Foreign Overhead Factor
G
© 2008 Cognition Corporation and David M Cronin 9 of 33
 Cost – Performance Trade Studies During Product Development

Then Create And Manage Cost Reduction Initiatives

Initiatives Are Important: They Help Us

Keep Track Of Potential Cost Drivers
And Our Specific Future Actions To
Effect The System Cost
© 2008 Cognition Corporation and David M Cronin 10 of 33
 Cost – Performance Trade Studies During Product Development

It Is Critical That Cost Management Results Output

To Engineers As Well As To Cost Professionals
Navigate And Search
By Configuration, Estimate,
Initiative, Cost Drivers

Multiple Outputs
For Different
Users Of Cost
Data

© 2008 Cognition Corporation and David M Cronin 11 of 33

 Cost – Performance Trade Studies During Product Development

We Then Create Cost Management Trade Scenarios

B e lu g a

C o c k p it W in g ( P ) W in g ( S ) F u s e la g e L a n d in g G e a r

“Make v Buy”
B e lu g a

“What If” Target

C o c k p it W in g ( P ) W in g ( S ) F u s e la g e L a n d in g G e a r

B e lu g a

C o c k p it W in g ( P ) W in g ( S ) F u s e la g e L a n d in g G e a r

B e lu g a

C o c k p it W in g (P ) W in g (S ) F u s e la g e L a n d in g G e a r

I Would Love To Have Performance Related Input

To Help Drive These Scenarios !

© 2008 Cognition Corporation and David M Cronin 12 of 33

 Cost – Performance Trade Studies During Product Development

Now, Implement

Critical Parameter Management

Early In The Development Process

© 2008 Cognition Corporation and David M Cronin 13 of 33

 Cost – Performance Trade Studies During Product Development

What Is Critical Parameter Management (CPM)?

CPM Is A Disciplined Methodology Used To Capture
System Performance In A Structured Repository

Marketing MFG
Critical
Parameter
Systems
Engineering Management Suppliers
(CPM)

Subject
Matter Partners
Experts
Design Standards

© 2008 Cognition Corporation and David M Cronin 14 of 33

 Snapshot Process
Cost – Performance Trade Flow
Studies Of Critical
During ProductParameter
Development
Management

Voice of the 
Customer Needs

System Level  System Level 
Requirements Cp/Cpk CTQs…..
Flo

Subsystem Level  Subsystem Level 

y
Cp/Cpk
w

ilit
f(x)
Requirements CTQs…..
Do

ab
wn

ap
Subassembly 

&C
of

Subassembly 
Level  Cp/Cpk f(x)
Re

CTQs..…

l
Requirements 

na
qu

i
om
ire

Component ‘Critical  Component CTF 

N
me

to Function’ (CTF)  Cp/Cpk Specs….

f(x)

of
nts

Requirements

Up
w
Flo
© 2008 Cognition Corporation and David M Cronin 15 of 33
 Cost – Performance Trade Studies During Product Development

Critical Parameter Relationships

The System Functional Paths Determine The Critical Parameter Architecture

The Critical Parameter Architecture Crosses ALL Boundaries Of The Physical Architecture (WBS)

This Is The Primary Difference Between Systems Requirements Management And Critical Parameter Management

© 2008 Cognition Corporation and David M Cronin 16 of 33

 Cost – Performance Trade Studies During Product Development

Establish The Critical Performance Parameters

Create System Performance Hierarchy & Relationships

Flow Down Critical Parameter Tree

There Are Many Ways To Create

This Tree Including QFD, Direct Radar Project

Flowdown, And Functional Path

© 2008 Cognition Corporation and David M Cronin 17 of 33

 Cost – Performance Trade Studies During Product Development

Transfer Functions Enable Feedback Throughout The System

σ Transfer Functions are Required for Predictive Engineering

 Calculates nominal output value given a set of inputs
y = f(x1, x2, … xn)
 Calculates variations of the output value & input sensitivities
σ y = sqrt(s1*σ 12+s2*σ 22 …. +sn*σ n2)

σ Popular Methods for Developing Transfer Functions

 Explicit Engineering Equations
 Experiments; DOE & Monte Carlo (Virtual & Physical)
 Testing: Regression Analysis (Physical Only)
 “Black Box” Application Software Tools
 Company “Tribal Knowledge”

© 2008 Cognition Corporation and David M Cronin 18 of 33

 Cost – Performance Trade Studies During Product Development

Transfer Functions Make The CPM Tree “Come Alive”

CTQ Design Intent “Flow Up” based

on Design Spec’s of Inputs (X’s)
Performance

De Post Analysis
s
ig Sigma Shift
n
In
te
nt

Producibility CTQ Process Capability

Pr

“Flow Up” based on

oc

Estimated/Actual Process
es
s

Capability (Short & Long Term)

Ca
pa
bi
lit
y

Static Shift Dynamic Drift

© 2008 Cognition Corporation and David M Cronin 19 of 33

 Cost – Performance Trade Studies During Product Development

We Can Now Predict System Performance

Roll Up The Tree With Sensitivities

For Each Critical Performance Parameter While
Tracking Sensitivity For Each Parameter And Notify
The Affected Owners Of the System
Radar Project

Performance
s
on
ti
ria

Producibility
Va

f(x) f(x) f(x) f(x)

l&
ina
om

f(x) f(x) f(x) f(x)

pN
wU
Flo

© 2008 Cognition Corporation and David M Cronin 20 of 33

 Cost – Performance Trade Studies During Product Development

Now Merge The Best Practices Of

Cost Management And

Critical Parameter Management

For Near Real Time Feedback Of

Cost And Performance

© 2008 Cognition Corporation and David M Cronin 21 of 33

 Cost – Performance Trade Studies During Product Development
The Goal Is To Have A Trade Space For Cost And Performance

Cost Management Critical Parameter Management

A New System Design Trade Space

Use Best Practices From Each Discipline To

Optimize System Cost And Performance
AT THE SAME TIME

© 2008 Cognition Corporation and David M Cronin 22 of 33

 Cost – Performance Trade Studies During Product Development

WBS/BOM Trees (Cost) And CPM Trees (Performance)

Can Now Work Together
Form Fit Function

Bill of Material Critical Parameter

Hierarchy Hierarchy

Defines: WBS….. Defines:

 Physical/Geometric Relationships Defines Fit  Functional Parameter Relationships
 Material Specifications Configuration  System Performance Capabilities
 Manufacturing Procedures  Direction/Focus for Engineering

Does NOT Define: CPM Tree… Does NOT Define:

 Functional Characteristics Analyzes Fit  Assembly Characteristics
 Performance Capabilities Capability  System “Packaging”

© 2008 Cognition Corporation and David M Cronin 23 of 33

 Cost – Performance Trade Studies During Product Development

WBS/BOM Elements Are Bi-Directionally Associated

With Critical Performance Parameters

We Can Also See What

Particular Performance Parameters
Are Driving My Cost As A Part Number
We Can See What Specific Part Numbers
Are Associated With My Critical
Performance Parameters

© 2008 Cognition Corporation and David M Cronin 24 of 33

 Cost – Performance Trade Studies During Product Development
Cost Roll Ups Become Transfer Functions In The
Performance (CPM) Structure

If Any Aspect Of A WBS/BOM Part Changes,

Flag The Effected Performance Parameter(s)
And Notify Appropriate Users Of The Change

© 2008 Cognition Corporation and David M Cronin 25 of 33

 Cost – Performance Trade Studies During Product Development

Performance Parameter Interactions Trigger Cost Studies

If Any Aspect Of A Performance Parameter Changes,

Flag The Associated WBS/BOM Part And Notify Appropriate
Users Of The Change

© 2008 Cognition Corporation and David M Cronin 26 of 33

 Cost – Performance Trade Studies During Product Development
Trace History Of Performance Changes And Their Cost Impact
On Each Part Number

Of Course, If I Have Defined A

Wow, I Was Just Informed That Transfer Function For Cost, The
A Performance Specification System Will Update The Cost
Changed; Better Check This Part For Me Automatically And Keep
Number’s Current Estimate And A History Of The Changes
Update If Necessary

© 2008 Cognition Corporation and David M Cronin 27 of 33

 Cost – Performance Trade Studies During Product Development

Design Trade Space For Balancing Cost And Performance

We can now do real trades with rapid feedback
Target:
Unaffordable “Best
Value”
Performance
The Objective
Knee
Cost /
Performance (y)

Performance /
Schedule
Trade Space

Performance
Threshold
Unacceptable
Cost Performance
Cost Threshold
dy/dx Objective
Cost

Cost (x)
© 2008 Cognition Corporation and David M Cronin 28 of 33
 Cost – Performance Trade Studies During Product Development

An Ideal Cost And Performance Optimization Cycle

Metrics: Unit Cost, Score Card, CRI Status, Watch List, Mitigation Plan

Identity Risk & Prioritize Optimize

Opportunity
Performance Model Risk & Opportunity Design For Six Sigma
Critical Parameter Management

System Performance
Customer System Cost
Requirements
& Concerns

Trade Studies
Affordability Model Optimize Cost vs.
Cost as An Independent Variable
Performance
•Assess and Prioritize
Unaffordable

Performance
Optimal
Business •Develop and Implement Mitigation Area Objective

Performance (y)
Cost /
Strategy & Performance /

Goals •Track and Report Risks Schedule

Trade Space

Performance
Unacceptable
Threshold Cost Performance
Cost Threshold
dy/dx
Cost Objective

Cost (x)

Tools: QFD, CAIV, CPM, DOE R&O, FMEA, PCAT, SDM, DFMA, and MSA

© 2008 Cognition Corporation and David M Cronin 29 of 33

 Cost – Performance Trade Studies During Product Development

The Call To Action

Implement An Effective Cost Management Process
– We All Have Some Process For This Now: Good
– Must Formalize The Data Structures For Cost Management
– You Need A Flexible Open System To Manage The Cost Information
– Begin Creating Cost Relationship Equations Based On Performance
– Improve The Process For Sharing Cost Information Across Departments

Implement Critical Parameter Management (CPM)

– Start In Small Steps: One Part Of One Program At A Time
– Weave CPM Into Your Development Process
– Just In Time Training To Engineers
– Start CPM As A Separate “Silo” From Cost Management
– As You Progress With CPM, Add The Cost Connections
– You Need a Flexible Open System To Manage CPM Information
– Feedback The CPM Information To The Cost Management System
Combine The Two Processes After You Have Experience With Each
© 2008 Cognition Corporation and David M Cronin 30 of 33
 Cost – Performance Trade Studies During Product Development

How Can You Get Started Doing This?

– Many Companies In Multiple Industries Are Active In This Effort

– There Is Not Currently One Venue For Bringing Together Both Processes

– Attend Conferences: Cost Management And Critical Parameter

Management

– Create An Informal Multi-Industry Consortium To Share Best Practices

– I Can Put You In Touch With People Doing This Work

– I Can Visit You And Provide An Assessment Of Your Processes

– I Can Provide You With Lists Of Appropriate Conferences, Papers, And

Suppliers Who Can Help You With This Process Improvement Work

© 2008 Cognition Corporation and David M Cronin 31 of 33