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Cost Estimating ComparativeCost Estimating Comparative StudyStudyThe UK MoD PerspectiveThe UK MoD Perspective

Defence Procurement Agency (DPA)Defence Procurement Agency (DPA)U.K. Ministry of Defence (MoD)U.K. Ministry of Defence (MoD)

Pricing & Forecasting GroupPricing & Forecasting Group

Cost as a Business Driver -ACostE EMC Learning EventCost as a Business Driver -ACostE EMC Learning Event

Cost as a Business DriverCost as a Business Driver

Cost as a Business Driver - ACostE EMC Learning Event

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Tim BroganTim Brogan

Cost EngineerCost Engineer

PFG BirminghamPFG Birmingham

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Who We AreWho We Are::

Professionally qualified multi-disciplined Professionally qualified multi-disciplined Task-ForceTask-Force

Knowledge of UK Defence IndustryKnowledge of UK Defence Industry Contract Pricing Audit Contract Pricing Audit Acquisition Cost Forecasts & ModelsAcquisition Cost Forecasts & Models ConsultancyConsultancy Risk AssessmentRisk Assessment Help & Advice to obtain Value for MoneyHelp & Advice to obtain Value for Money

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Where We WorkWhere We Work

Officers based throughout the country Officers based throughout the country from Rosyth in the North to Devonport in from Rosyth in the North to Devonport in the Souththe South

Offices at major defence contractorsOffices at major defence contractors Birmingham Office covers the MidlandsBirmingham Office covers the Midlands

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What We DoWhat We Do Pricing Services:Pricing Services:

– Independent, risk based assessment of non-Independent, risk based assessment of non-competitive quotationscompetitive quotations

– Assessment of contractors charging rates and Assessment of contractors charging rates and financial viabilityfinancial viability

– Post costing investigations and verification of costsPost costing investigations and verification of costs– Support to and, where delegated, negotiation of Support to and, where delegated, negotiation of

contract pricecontract price– Support and development of pricing/costing policiesSupport and development of pricing/costing policies– Consulting for Cost Engineering and Accounting issuesConsulting for Cost Engineering and Accounting issues– Cost Forecasting ServicesCost Forecasting Services– Asset Accounting CentreAsset Accounting Centre– Risk Analysis teamRisk Analysis team– EVMEVM

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Our Main CustomersOur Main Customers

MoD Commercial OfficersMoD Commercial Officers MoD Integrated Project Teams MoD Integrated Project Teams

(IPTs)(IPTs) Overseas Governments (Reciprocal Overseas Governments (Reciprocal

MOU) MOU) Multi-National Co-operative Projects Multi-National Co-operative Projects NATO AgenciesNATO Agencies Other U.K. Govt DepartmentsOther U.K. Govt Departments

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Pricing: Business Pricing: Business RulesRules

Any non competitive contract above Any non competitive contract above £1M/$0.5M.£1M/$0.5M. UK Review Board for Government Contracts - UK Review Board for Government Contracts - Standard UK Govt Contract Conditions.Standard UK Govt Contract Conditions. Contract / Request For Proposal (RFP) Contract / Request For Proposal (RFP) Conditions.Conditions. UK Standard Accounting Practices.UK Standard Accounting Practices. MoUs.MoUs. US Federal Acquisition Regulations. US Federal Acquisition Regulations. NATO Contract Audit Guidelines.NATO Contract Audit Guidelines.

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Pricing: ProcessPricing: Process

Customer Request

PFG/ Customer Agreement

Carry out our investigation

Produce report providing our recommendations and/or our agreements

Cost as a Business Driver - ACostE EMC Learning Event

9PFG Pricing TeamDirect Materials

Sub - Contract

Direct Labour

Other Direct charges

Prime cost

Factory Overhead

Factory cost

G&A expenses

Production cost

Total Contract Cost

Profit

Contract Price

Direct costs

Cost Engineer

Indirect costs

Accountant

Commercial Officer /

PFG

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The QMACThe QMAC QQuestionnaire on the uestionnaire on the MMethod of ethod of AAllocation of llocation of CCostsosts

Cost AllocationCost Allocation

Needed by the Cost Engineer in order to:Needed by the Cost Engineer in order to: Identify those elements that need to be Identify those elements that need to be

estimated.estimated.

(i.e.... - The(i.e.... - The DIRECTDIRECT Charges)Charges) And those that have already been And those that have already been

included in the Overheads.included in the Overheads.

(i.e.. - The(i.e.. - The INDIRECTINDIRECT Charges)Charges)

NO DOUBLE RECOVERYNO DOUBLE RECOVERY

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Price Proposal AuditsPrice Proposal AuditsCost EngineeringCost Engineering

Price Proposal AuditsPrice Proposal AuditsCost EngineeringCost Engineering

Prime Cost Estimating.Prime Cost Estimating.– Labour, Material & ExpensesLabour, Material & Expenses

Select samples (Pareto or stratified Select samples (Pareto or stratified statistical).statistical).

Do independent estimates reflecting Do independent estimates reflecting quantities and efficient methods.quantities and efficient methods.

Estimating techniques:-Estimating techniques:-

Fully detailedFully detailed Selective detailSelective detail Single lineSingle line Broad appraisalBroad appraisal Time bandTime band ComparativeComparative ParametricParametric

Prime Cost Estimating.Prime Cost Estimating.– Labour, Material & ExpensesLabour, Material & Expenses

Select samples (Pareto or stratified Select samples (Pareto or stratified statistical).statistical).

Do independent estimates reflecting Do independent estimates reflecting quantities and efficient methods.quantities and efficient methods.

Estimating techniques:-Estimating techniques:-

Fully detailedFully detailed Selective detailSelective detail Single lineSingle line Broad appraisalBroad appraisal Time bandTime band ComparativeComparative ParametricParametric

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Typical Cost Engineering Typical Cost Engineering ProcessProcess

EstimatingEstimating Industry ExperienceIndustry Experience Apply allowances/learningApply allowances/learning Apply Direct labour rate (if applicable)Apply Direct labour rate (if applicable) Combine with charging rates to give cost/price Combine with charging rates to give cost/price

estimates.estimates.– Recovery base, technical review of Recovery base, technical review of

“indirect”“indirect”– capacity/manning evaluationcapacity/manning evaluation

Conduct pricing-risk analysis.Conduct pricing-risk analysis. Provide rationale for price-negotiations.Provide rationale for price-negotiations. Report to Customer and/or conduct Report to Customer and/or conduct

negotiation.negotiation.

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13Cost EngineerCost Engineer Typical Experience and Typical Experience and

ActivitiesActivities EstimatingEstimating Production Methods and SystemsProduction Methods and Systems Development Phase EstimatingDevelopment Phase Estimating Project ManagementProject Management Costing SystemsCosting Systems Risk AnalysisRisk Analysis

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Cost EngineerCost Engineer Tools and DatabasesTools and Databases

Cost EngineerCost Engineer LearnerLearner PredictPredict DatabaseDatabase ExcelExcel SamplerSampler SyntheticsSynthetics Risk ModellingRisk Modelling

Cost ForecasterCost Forecaster Price H & SPrice H & S OSCAMOSCAM Crystal BallCrystal Ball Optimism BiasOptimism Bias

Cost ForecasterCost Forecaster Price H & SPrice H & S OSCAMOSCAM Crystal BallCrystal Ball Optimism BiasOptimism Bias

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GOLDEN RULE GOLDEN RULE

It is the mark of the instructed mindIt is the mark of the instructed mind

to rest satisfied with a degree of to rest satisfied with a degree of

accuracy and not to seek accuracy and not to seek

exact precisionexact precision

Aristotle Aristotle

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PFG Prepared PFG Prepared Costing for Costing for Warrior AFV Warrior AFV

Wiring HarnessWiring Harness

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PFG Assumptions and Statements for Manufacture of qty 30

Cable Harness 2590-99-346-8876 by ACME Engineering Birmingham

Assumptions

1 ACME will be using their manual construction method.2 All 30 items will be manufactured in one batch3 All components have been purchased by the Company, there will be no GFS.4 Equality of Information between PFG and Company.5 The Nyvin cable for each branch is fed down the heatshrink sleeving all at one time

Statements

1 All in house manufacture2 ACME will be costing the IAW of these cables according to their agreed QMAC.3 Cost of cables will be Ex-Works to MoD4 We have examined the harness drawings to derive the best estimating technique for this item. Because the harness is very different to other harnesses

for this and other vehicles that we have costed and estimated previously, we will not be able to use comparative estimating techniques. 5 Because the harness is new to us we have decided to use a full detail 3point estimate.6 Cost of materials has been verified by examination of the invoices received by ACME for the materials ordered for this project7 PFG have used the Company Work breakdown Structure to generate the 3 point estimate model8 We have investigated the work breakdown structure to assess if there are any correlated variables9 Because the harness will be manufactured by a manual process we have assessed the value of the Learner Curve as being 85%

10 We will apply Predict at 50% Project Beta Distribution to the Price Build

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No. Price (£) Total (£) Total (£) Total (£)

Item Name and Description Off each

After PFG Estimates

30

. . . WIRING HARNESS REF

1 . . . . CONNECTOR, ELECTRICAL 1 £50.20 £50.20 £50.20 £1,506.00

2 . . . . GROMMET, BLANK, nylon; 0.140in. 1 £1.02 £1.02 £1.02 £30.60dia by 0.410in. lg

3 . . . . CAP-PLUG, PROTECTIVE, DUST 3 £5.23 £15.69 £15.69 £470.70AND MOISTURE SEAL, nylon;0.110in. od by 0.410in. lg

4 . . . . WIRE, ELECTRICAL A/R £4.36 #VALUE! £238.51 £7,155.415 . . . . SLEEVE IDENTIFICATION, CABLE,A 1 £0.50 £0.50 £0.50 £15.006 . . . . SLEEVE IDENTIFICATION, CABLE,B 1 £0.50 £0.50 £0.50 £15.007 . . . . SLEEVE IDENTIFICATION, CABLE,E 1 £0.50 £0.50 £0.50 £15.008 . . . . SLEEVE IDENTIFICATION, CABLE,F 1 £0.50 £0.50 £0.50 £15.009 . . . . SLEEVE IDENTIFICATION, CABLE,G 1 £0.50 £0.50 £0.50 £15.00

10 . . . . CONNECTOR 3 £20.63 £61.89 £61.89 £1,856.7011 . . . . HEAT SHRINK SLEEVE 3 £1.67 £5.01 £5.01 £150.3012 . . . . SLEEVE, INSULATION, A/R £1.68 #VALUE! £30.87 £926.10

ELECTRICAL13 . . . . SLEEVE IDENTIFICATION, marked 1 £0.50 £0.50 £0.50 £15.00

'HDB-35-IL1-IL4-FL1'14 . . . . SLEEVE IDENTIFICATION, marked 1 £0.50 £0.50 £0.50 £15.00

'IL4-HDB35'15 . . . . SLEEVE IDENTIFICATION, marked 'C' 1 £0.50 £0.50 £0.50 £15.0016 . . . . SLEEVE IDENTIFICATION, marked'A' 1 £0.50 £0.50 £0.50 £15.0017 . . . . SLEEVE IDENTIFICATION, marked'B' 1 £0.50 £0.50 £0.50 £15.0018 . . . . CONNECTOR, ELECTRICAL 1 £100.67 £100.67 £100.67 £3,020.1019 . . . . SLEEVE IDENTIFICATION, marked 1 £0.50 £0.50 £0.50 £15.00

'IL1-HDB35'20 . . . . SLEEVE IDENTIFICATION, marked'A' 1 £0.50 £0.50 £0.50 £15.0021 . . . . SLEEVE IDENTIFICATION, marked'B' 1 £0.50 £0.50 £0.50 £15.0022 . . . . SLEEVE IDENTIFICATION, marked'C' 1 £0.50 £0.50 £0.50 £15.0023 . . . . CONNECTOR ELECTRICAL 1 £100.67 £100.67 £100.67 £3,020.1024 . . . . SLEEVE IDENTIFICATION, marked 1 £0.50 £0.50 £0.50 £15.00

'FL1-HDB35'25 . . . . SLEEVE IDENTIFICATION, marked'A' 1 £0.50 £0.50 £0.50 £15.0026 . . . . SLEEVE IDENTIFICATION, marked'B' 1 £0.50 £0.50 £0.50 £15.0027 . . . . CONNECTOR ELECTRICAL 1 £100.67 £100.67 £100.67 £3,020.10

Total= #VALUE! £713.70 £21,411.11

Bill Of Materials for Cable Harness 2590-99-346-8876

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PFG Estimates of Materials Requirements for Cable Harness 2590-99-346-8876

UNINYVIN Part No.6145-99-901-2998

Quantity of separate cables = 9 ( Information taken from Harness Engineering Drawings)

Length (Metres) Quantity Total5.8 1 5.85.6 5 286.1 3 18.3

Total 52.1

Scrap Allowance 5.00% 2.605

Grand Total 54.71

MEGAMIDE Part No. 5975-99-926-3075

Quantity of separate pieces of Sleeving = 3 ( Information taken from Harness Engineering Drawings)

Length (Metres) Quantity Total5.8 1 5.85.6 1 5.66.1 1 6.1

Total 17.5

Scrap Allowance 5.00% 0.875

Grand Total 18.38

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PFG Estimates of Labour Estimate for Cable Harness 2590-99-346-8876

Estimated Time (Minutes)

Taskoperative

description

Lower Run

minimum Mid RunUpper Run

Collation of Parts Kit Storeman 8 12 158 12 15

Measure and Cut Nyvin to Length (qty 9) Elec Fitter 9 11 13Feed Nyvin cables into heatshrink sleeving (Qty 9)Elec Fitter 20 25 35Use heat gun to shrink heatshrink sleeving onto Nyvin CableElec Fitter 15 20 25Feed into Megamyde Sheathing Elec Fitter 10 15 20Fit identification sleeves to outside of megamide(qty4)Elec Fitter 4 6 8Use heatgun to shrink cable identification sleeves (qty 4)Elec Fitter 1.5 2.5 4Fit sleeve identification (qty 13) Elec Fitter 4.5 5.5 8Bare cable ends (qty 17) Elec Fitter 3 4 5Tin cable ends with solder (qty 17) Elec Fitter 4 5 7Tin solder cups on connectors items 18,23,27 Elec Fitter 3 4 5Assemble connectors (items 18,23,27) onto connectors (item 10)Elec Fitter 3 5 7Solder connections on connectors Elec Fitter 8 10 12Assemble connectors Elec Fitter 4 5 6Fit grommet (item2) into connector item 1 Elec Fitter 1 1.5 2Assemble connector item 1 onto cable harness Elec Fitter 8 10 15Fit cap plug protective item no3 onto cable harness (qty3)Elec Fitter 2 3 4

100 132.5 176

Visually Inspect cable harness for defects Snr Examiner 5 7 9Fit harness to automatic harness test machine Snr Examiner 1 1.5 2Run automatic cable test Snr Examiner 0.5 0.7 1Remove harness from harness test machine Snr Examiner 0.2 0.3 0.4Move harness to stores Snr Examiner 3 5 8

9.7 14.5 20.4

From QMAC Storeman and Snr Examiner are in-direct workers

Electrical Fitter is a direct workerTherefore PFG will only estimate for the direct portion of the process

Elec Fitter 100 132.5 176

Personnal Allowance 15% 15 19.875 26.4Total Time= 115 152.38 202.4

Apply Predict to Electrical Fitter estimatePredict Output = 127.883 Minutes Converting to hrs = 2.13 Hours

Apply Learner Model to Predict OutputApplication of learner model to asembly time gives an aveage batch value of 2.08 Hrs per harness

Total time required to complete quantity 30 harnesses =62.46 Hours

Allowances

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Cost as a Business Driver - ACostE EMC Learning Event

24"LEARNER"

SIZE OF BATCH = 5,000 MAX

FOR LARGER BATCHES, EXTEND COLUMNS 'C', 'D', & 'E' BY COPYING FORMULAE.ALSO AMEND CELL 'G35' TO INCLUDE LAST CELL IN COLUMN 'D'.ANY QUERIES - CONTACT R G ELLIS.

PART NUMBER COMPONENT DESCRIPTION

LEARNER PARAMETERS (Input):-

LEARNER CURVE = 85.00%

BATCH START UNIT No. = 1

BATCH END UNIT No. = 30

ESTIMATED TIME (Hrs) = 2.13

PITCH POINT (N'th UNIT) = 10

LEARNER RESULTS (Output):-

VALUE (Hrs) of 1st = 3.65

VALUE (Hrs) of 1 th = 3.65

VALUE (Hrs) of 30 th = 1.65

BATCH QUANTITY = 30

BATCH TOTAL (Hrs) = 62.46

BATCH AVERAGE (Hrs) = 2.08

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Price Build for Warrior Cable Harness NSN 2590-99-346-8876

Bill of Materials

Cost of materials for qty 1 cable harness = £713.70

Cost of materials for qty 30 cable harnesses = £21,411.11

Labour Estimate

Time to manufacture harness = 2.08 Hours

Time to manufacture qty 30 harnesses = 62.46 Hours

MoD Agreed Rate for ACME Engineering = £43.56 per Hour

Therefore labour cost for harness = £90.69 per harness

Total labour cost for qty 30 harnesses = £2,720.77

Sub total= £804.40 per harnessG&A Rate 5% £40.22 per harness

Profit rate 9.23% £77.96 per harness

Total Cost for qty 1 harness = £922.57

Total Cost for qty 30 harnesses = £27,677.22

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Thank you for Thank you for listening.listening.

Any Questions?Any Questions?

Cost as a Business Driver - ACostE EMC Learning Event