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8/8/2019 False Learning
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15 November 2010 1
³False Learning´ Effects Due toImproper Inflation Normalization
Raymond P. Covert
The Aerospace Corporation15049 Conference Center Drive, CH1-410
Suite 600Chantilly, VA 20151
E-mail: raymond.p.covert@aero.org
© 2002 The Aerospace Corporation
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Outline
Hypothesis Sample Problem
Results
Recommendations
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Hypothesis
Actual cost data from programs with multiple SV buys normalizedto BY$ using DoD Inflation may produce false inflation DoD Inflation indices do not exactly mirror actual rate inflation
Compounding of constant errors produces exponential differences withtime
These exponential differences may be falsely interpreted as learning or acost improvement effect
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Sample Problem
Assume sample program of 4SVs built (in the past) from 1980-1984 All BY80$250M
60/40 phasing
Assumed ³true´ inflation of 6% per year
BY1980 1980 1981 1982 1983 1984
Vehicle $M 1.000 1.050 1.103 1.158 1.216
SV1 250 0.6 0.4 PHASING
SV2 250 0.6 0.4 PROFILE
SV3 250 0.6 0.4
SV4 250 0.6 0.4
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Sample Problem (continued)
Results in these TY ³actual´ costs May be in the form of cost reports
Vehi le TY$M 1980 1981 1982 1983 1984
SV1 294 172 123 0 0 0
SV2 275 0 161 114 0 0
SV3 294 0 0 172 123 0
SV4 315 0 0 0 184 131
TOTAL 1178 172 283 286 306 131
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Sample Problem (continued)
Now normalize data to DoD inflation indices Constant inflation case is trivial exponential issue
Will definitely show learning
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Results
Learning ³produced´ Also SV$ ³tip-up´ effect
Year 1980 1981 1982 1983 1984 1985
DoD 3600 0.503 0.563 0.614 0.644 0.669 0.692
BY02$M 1.988951 1.777436 1.627689 1.551657 1.494853 1.445699
SV1 532.94 335.2178 197.7231 0 0 0 0
SV2 479.47 0 296.5847 182.8871 0 0 0
SV3 459.14 0 0 274.3306 184.8049 0 0
SV4 465.93 0 0 0 277.2073 188.7217 0
Signs of learning in BY02$M
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93% Induced Learning
Induced Lear ning
y = 525.71x-0.1053
R2 = 0.8839
0
200
400
600
0 2 4 6
Vehicle Number
$ M
BY90
Norm. to BY 02
Real TY$
Actual inflation 6.0%
Tip-up effect
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90% Induced Learning
Induced Lear ning
y = 484.99x-0.1502
R2 = 0.9981
0
200
400
600
0 2 4 6
Vehicle Number
$ M
BY90
Norm. to BY 02
Real TY$
Actual Inflation 1.0%
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Induced Increase in T1 Cost
False Inflation Effect on T1
480.0
490.0
500.0
510.0
520.0
530.0
540.0
0% 1% 2% 3% 4% 5% 6% 7% 8%
True Inflation
N o r m a l i z e d B Y 0 0 T 1 Linear error
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Induced Learning
False Learning
0.90
0.90
0.91
0.91
0.92
0.92
0.93
0.93
0.94
0.94
0% 1% 2% 3% 4% 5% 6% 7% 8%
True Inflation
L e a r n i n g C u r v e S l o p e Linear error
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Effect of Inflation on Learning and T1
Bigger difference in learning causes Steeper LCS
Larger T1
Tip-up Effect
Inflation 1% 2% 3% 5% 6% 7%
Veh1 485.3 494.6 504.0 523.2 532.9 542.8
Veh2 437.5 445.7 454.0 470.9 479.5 488.2
Veh3 408.9 418.7 428.6 448.8 459.1 469.6
Veh4 395.4 408.8 422.6 451.1 465.9 481.1
T1 485.0 493.0 501.1 517.4 525.7 534.1
lcs 0.90 0.91 0.91 0.92 0.93 0.94
b -0.1502 -0.141 -0.1319 -0.1141 -0.1053 -0.0966
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Recommendations
Cost data archives should contain relevant information tocalculate true inflation Material costs by year
Labor costs by year
Labor hours by year
Compute ³true inflation indices´ by WBS
Re-regress actual costs to counter effects of false learning / T1 /Tip-up
Experiment with 100% LCS to calculate an estimated ³trueinflation index´
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