unit cost modelforproduct costmanagementThere is an increasing demand in aero-engine products for betterefficiency and environmental performance while maintaining low productcost. Unlike performance, the theory behind cost effectiveness is not wellunderstood.Sreekanth D NQuEST GlobalLokesh PQuEST Global

contents1.0Abstract032.0Introduction033.0Cost Modeling044.0Why Unit Cost Models?045.0Costing Methodologies Used Parametric Modeling046.0Activity Based Costing (ABC) Also Known As Bottom-up Costing047.0Unit Cost Estimation058.0Case Study05-069.0Benefits of Unit Cost Models06-0710Conclusion0711References0812Author Profile13About QuEST Global08-0909 2014, QuEST Global Services

Product Cost ManagementAbstractThere is an increasing demand in aero-engine productsfor better efficiency and environmental performancewhile maintaining low product cost. Unlike performance,the theory behind cost effectiveness is not wellunderstood. This white paper proposes a unit costmodeling methodology applied to an aero-engine part.An objective of the cost model is to allow engineers tounderstand the breakdown of product cost, identify “keycost drivers” and hence manage the product cost. Avalue driven design concept is outlined to understandcost impact of design decisions at the early design stagethrough Unit Cost Model.IntroductionBusinesses in current scenario are influenced by manyfactors; a major factor being “cost effectiveness”.Engineering usually makes design decisions withoutunderstanding their true cost impact. This can beovercome by adopting Product Cost Management(PCM) approach, which involves creating internalsoftware for predicting, controlling, minimizing,recording, and sharing product costs. PCM approachalso shortens lead time, which reduces the cost withoutcompromising on quality by eliminating non-value-addedobjects.PCM through Unit Cost Models may include one or moreof the following processes:improve the speed, consistency and accuracy of theestimates at the planning (concept /early design) stageas cost of changes is minimal at this stage. These unitcost models permit designers to play around with thedesign options and envisage the cost impact of aparticular design, thereby empowering the designer tomake decision on the right design by evaluating its costimpact.3 Evaluate unit cost of product / Should cost Analyze cost effectiveness of design alternatives Analyze cost effectiveness of manufacturingalternativesThe cost of change graph shown below explains theimportance of unit cost model at the beginning of aproject/product lifecycle, as these models dramatically 2014, QuEST Global Services

Product Cost ManagementCost ModelingCost modeling is a process of evaluating the cost of aproduct/activity through interpreting the historical data orknowledge by creating/using a cost model. Costestimation as seen is largely based on experience. It’soften difficult to get the standard information on costingas it requires the knowledge of various ,commercial drivers, etc,. Cost modeling uses historicalknowledge base to store data of similar products in eachmodel, making it readily available for estimating the costof a new product, which in turn, eliminates factual errorswhile estimating.Why Unit Cost Models?Unit cost model adopts many costing methods asdetailed below and would result in the benefits indicated.The model can be built using commercially availablesoftware such as Excel, VanguardTM, etc.Activity Based Costing (ABC) : Breaks-up the totalcost into estimates of (for) individual processes,activities, and resources.Parametric Estimating: Uses historical data to identifystatistical relationships between cost and designparameters through relevant equations.Tree Layout Structure: Vanguard's user interfaceovercomes the limitations of a typical spreadsheet inrepresenting complex models by using a hierarchicaltree layout. It allows one to work with meaningful cellnames, plain-English formulae, and equation in standardmath form.Collaborative Modeling: Using component-basedmodeling technology, many individuals in anorganization can work concurrently to build largemodels.Custom Methods: Create new or hybrid costingmethods.Other Benefits: Data analysis using various chartsPrimitives and library modelsSensitivity analysis and Monte-Carlo simulationWeb publishingCosting Methodologies Used Parametric ModelingThis technique involves developing cost estimatesbased upon the examination and validation of therelationships that exist between a products’s technical,programmatic, and cost characteristics as well as theresources consumed during its development,manufacture, maintenance and/or modification.Parametric cost estimation establishes a relationshipbetween cost and input parameters that affect cost andthis relationship can also be used to estimate the cost ofnew product for the same family of component where thedesign is not well defined. This can be done by adjustingthe values of input parameters; however the modelshould be revisited to make sure that they are to thecurrent standards and the input parameters still holdgood for the new program.Activity Based Costing (ABC) Also Known As Bottom-up CostingABC is a methodology that identifies activities in anorganization/process and assigns the cost of eachactivity with resources to all products and servicesaccording to the actual consumption. Methodology ofABC focuses on cost allocation in operational4management and can account for indirect costs morerealistically by costing the time and resources spent oneach activity. This type of costing provides more detailedand accurate estimates and in addition it also helps inunderstanding and categorizing the value and non valueitems. 2014, QuEST Global Services

Product Cost ManagementUnit Cost EstimationA parameterized geometry unit cost model involvescreation of feature based part geometry andmanufacturing information that is scalable with thedesign definition. The main purpose of the flexibility andscalability in the cost model is to estimate the timerequired to manufacture a component based on designparameters that drives the manufacturing operation timeand hence the cost. The flexibility and scalability willprovide a robust unit cost solution at various levels oftopology to be integrated as part of design iterations.The same has been illustrated with a generic case studyin next section.Case StudyTurbine Disc-Aero Engine PartThe case study was developed for “IP turbine disc”, oneof the high impact Aero-engine components. Thefunction of the component is the same for all variantslisted in the table below. These components arecharacterized by commercial features such as low tomedium volume, high manufacturing cost and long leadtime. The implementation of design change is too costlybecause of the nature of the component.The designer had a tough time when making a designdecision as there is no tool available, which captures thehistorical cost and manufacturing data typical for thiscomponent and there is no mechanism available for thedesigner to know how the design change will impact thecost.During this case study, a flexible – parametric unit costmodel was prepared, which calculated the unit cost of5component and had all the flexibility to accommodatethe design changes as required by the designer.The illustration below shows a conceptual baselinedesign along with three design alternatives and costdelta for alternative designs. The alternative designs arederived by varying the type of material, criticaldimensions like outer diameter, bore diameter, webthickness, drive arm length, number of flange holes,number of fir-tree grooves, etc, from baseline concept.The table contains major cost breakup andmanufacturing process cost details. Negative valueindicates cost savings over baseline design.The administrative burdens and non recurring costs arenot included in this analysis. (All values are in GBP) 2014, QuEST Global Services

Product Cost ManagementA parameterized geometry unit cost model involvescreation of feature based part geometry andmanufacturing information that is scalable with thedesign definition. The main purpose of the flexibility andscalability in the cost model is to estimate the timerequired to manufacture a component based on designparameters that drives the manufacturing operation timeand hence the cost. The flexibility and scalability willprovide a robust unit cost solution at various levels oftopology to be integrated as part of design iterations.The same has been illustrated with a generic case studyin next section.Benefits of Unit Cost ModelsCustomized reports with each model6 2014, QuEST Global Services

Product Cost ManagementGraphs: Standard charts (Bar /Pie /Line) available forreport generation and further analysis. These charts helpto find the area to focus for further evolutions.Sensitivity Analysis: Sensitivity analysis examines theeffect of changes on individual inputs to cost outputs.This allows you to emphasize on the factors that have asignificant impact on the overall cost estimate and pointsout which factors needs to be refined. As shown in graphtwo inputs are analyzed for their cost sensitivity withrespect to “Total cost” and feature dimension. Graphshows how inputs are sensitive to total cost output.Collaboration: Many individuals simultaneously cancontribute to a modeling effort by building blocks, easilycombine their knowledge, assumptions, and historicaldata into one complete model.model for greater detail and understanding.Reusable model library: One doesn’t have to re-inventthe wheel with each new costing effort. Simply searchthe model library to find similar or related models thatcan be updated or linked, in real time.Roll up / Drill down: Roll-up the analysis to seehigh-level views, or drill down into specific areas of theInstant web reports: Models are equipped to generateinteractive Web reports and can be accessed fromanywhere, fully exercise the models in real time, anddistribute the results to everyone who needs them.Easy integration: Cost models can be easily integrateddirectly with existing business systems such asdatabases, enterprise applications, and evenspreadsheets.ConclusionThis paper has discussed the importance ofunderstanding cost drivers for a component at the earlydesign stage, which helps in designcurrently. Once cost ownership is established at theearly life cycle of the component, it will result in betterproduct cost management.decision making. This in turn reduces the life cycle costof component and lead time as the design process willbecome more robust with respect to cost effectiveness.Overall this methodology has many advantages (aslisted in benefits section above) over traditional costingmethodology as these individual models will be a livedocument of cost and can be used throughout thelifecycle of the product.This will also drive a sense of cost ownership in theDesign and Manufacturing community, which is lacking7 2014, QuEST Global Services

Product Cost ManagementReferences A Hybrid Knowledge Based System for Cost Modelingapplied to Aircraft Gas Turbine Design. By TammineniSV, Rao AR, Scanlan JP, Keane AJ & Reed PAS,2007, University of Southampton An Aerospace Component Cost Modelling Study forValue Driven Design by J.M.W Cheung, J.P Scanlan,S.S Wiseall Estimating And Costing For The Metal ManufacturingIndustries, 1992 Cost Estimating, 2nd Edition, Prentice Hall, 1984 byOstwald, P. F, tions/aerospace/hrsa/pages/turbine-disc.aspx cost-modeling.htmAuthor ProfileSreekanth D NSreekanth D N is the Project Lead for ME Cost Engineering (RollsRoyce Centre) at QuEST. He has been with QuEST since April2008, and his total experience spans over a decade and half inManufacturing Engineering ranging from Process Planning to CostEstimating8 2014, QuEST Global Services

Product Cost ManagementAuthor ProfileLokesh. PLokesh.P has rich Manufacturing Engineering knowledge rangingfrom process planning, costing and estimations of auto and aeroengine components to assembly of special purpose machineries. Histotal experience spans over a decade and touched variousmechanical industry verticals. He has been part of the team and laterled the team to develop the methodology for ProductCost ManagementAbout QuEST GlobalQuEST Global is a focused global engineering solutionsprovider with a proven track record of over 17 yearsserving the product development & productionengineering needs of high technology companies. Apioneer in global engineering services, QuEST is atrusted, strategic and long term partner for many Fortune500 companies in the Aero Engines, Aerospace &Defence, Transportation, Oil & Gas, Power, Healthcareand other high tech industries. The company sacrossthecompleteengineering lifecycle.QuEST partners with customers to continuously createvalue through customer-centric culture, continuousimprovement mind-set, as well as domain specificengineering capability. Through its local-global model,QuEST provides maximum value engineeringinteractions locally, along with high quality deliveries atoptimal cost from global locations. The companycomprises of more than 7,000 passionate engineers ofnine different nationalities intent on making a positiveimpact to the business of world class customers,transforming the way they do engineering. 2014, QuEST Global Services