8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 1/13

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 2/13

15 November 2010 2

Outline

Hypothesis Sample Problem

Results

Recommendations

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 3/13

15 November 2010 3

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 4/13

15 November 2010 4

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 5/13

15 November 2010 5

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 6/13

15 November 2010 6

Sample Problem (continued)

Now normalize data to DoD inflation indices Constant inflation case is trivial exponential issue

Will definitely show learning

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 7/13

15 November 2010 7

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 8/13

15 November 2010 8

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 9/13

15 November 2010 9

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%

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 10/13

15 November 2010 10

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 

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 11/13

15 November 2010 11

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 

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 12/13

15 November 2010 12

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

8/8/2019 False Learning

http://slidepdf.com/reader/full/false-learning 13/13

15 November 2010 13

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´