Indirect Cost Model (ICM) (a Contributing Model of CAICAT)

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Indirect Cost Model (ICM)(a Contributing Model
of CAICAT)

• 13 June, 2002
• 2002 SCEA National Conference
• Phoenix, AZ

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Agenda

• CAICAT Overview Soumen Saha Northrop Grumman
• ICM Development Bernard Fox RAND former
  MCR
• ICM Demonstration Debra Lehman MCR Inc.
• ICM Application Soumen Saha Northrop
  Grumman
• Summary Soumen Saha Northrop Grumman

3

CAICAT Objective

• Develop a Credible Rapid Cost Evaluation System
  for an Airframe Which Can Address
  State-of-Practice, State-of-the-Art, and Emerging
  Design and Manufacturing Technologies. The Tool
  Should Address All Elements of Direct and
  Indirect Costs

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Composites Affordability Initiative Cost Analysis
Tool (CAICAT)
AutoMod
Indirect Cost Model
CAI Automod Plugin
Galorath SEER-DFM
CAICAT User Interface
RDTE
CAI SEER-DFM Plugin
OS
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CAICAT Status

• Individual Modules Version 1.0 Complete
• Direct (SEER DFM-w-CAI Plug-In)
• Indirect (MCR Developed)
• RDTE
• Simulation (Automod)
• OS
• Validation
• Functional Validation Completed
• Some Modules Validated at All Companies
• Integration
• Systems Requirements Document Completed
• Systems Requirement Specification Completed
• Prototype Integration Done

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Agenda

• CAICAT Overview Soumen Saha Northrop Grumman
• ICM Development Bernard Fox RAND former MCR
  
• ICM Demonstration Debra Lehman MCR Inc.
• ICM Application Soumen Saha Northrop
  Grumman
• Summary Soumen Saha Northrop Grumman

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ICM Development Team

• MCR Inc. Bernard Fox
• Debra Lehman
• Jeff Johnson
• Boeing Joseph Falque
• Lockheed Martin Bryan Tom
• General Electric Steve Mitchell
• Mark Cook
• Northrop Grumman Soumen Saha
• USAF Alan Herner
• NAVAIR Raj Raman

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Background

• Direct Costs
• Resources Consumed in Development, Production,
  and Delivery of Identifiable Product, e.g.
  Fab/Assy. Labor, Direct Material
• Normally Tracked and Assigned to Specific
  Products
• Indirect Costs
• Supporting Resources Which Cannot Be Easily
  Identified With a Specific Product, e.g.
  Facilities, Services, Support Labor
• Normally Tracked As a Pool and Allocated to
  Direct Costs on the Basis of Direct Labor Hours,
  Direct Material , Floor Space, Etc.

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Background (Contd)

• lt30 of Product Cost Is Touch Labor or Direct
  Material
• Indirect Cost Effects of Design/ Process
  Decisions Are Not Explicitly Addressed by Current
  Cost Models
• Traditional Approach Is To Estimate Direct Costs
  and Apply a Wrap Rate
• Wrap Rates Vary Across Companies and Within
  Companies Over Time
• Approach Is Not Sensitive To Alternatives Which
  May Change Wrap Rates
• Need Capability to Do Total Cost Tradeoffs

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Background
Indirect 53

• Indirect Costs (Overhead, GA and COM) Are
  Generally Largest Component of Cost
• Average 53 Across Defense Industry
• Share Is Growing

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ICM Objectives

• Capture Effects of Various Airframe Production
  Alternatives on Indirect Costs
• Evaluate Indirect Cost Impacts as Part of Design
  Trades
• Focus on Relative Costs Among Alternatives
• Demonstrate Ability to Model Relevant Indirect
  Costs Using Available Data Sources
• Current Practices
• Future Directions

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ICM Approach

• Review Each Members Account Structure and Data
  Availability
• Ensure Model Will Be Usable, Credible
• Use MCR Cost Estimating Generic Structure
  (CEGS)
• Map Cost Accounts Into Standardized Cost Element
  Structure
• Focus on Most Relevant Cost Elements
• High Value
• High Variability
• Address Total Cost Impacts
• Assume Greenfield Site for Initial Model
  Development
• New, Dedicated Facility
• Industry Average Cost Relationships Developed
  by Member Consensus
• Extendable to Handle Existing Facilities and
  Actual Data of Each Member Company

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ICM Features

• Works in Windows 95/98/2000 Environment
• Cost Elements Can Be Easily Restructured to Meet
  Company Needs Accounting Systems
• Estimating Relationships Can Be Developed for Any
  Meaningful Parameter Using Linear, Quadratic
  Iterative Relationships With up to Three
  Variables
• ICM Has Been Designed to Work in Stand-Alone Mode
  or in an Automated Manner With Other Contributing
  Models of CAICAT

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Agenda

• CAICAT Overview Soumen Saha Northrop Grumman
• ICM Development Bernard Fox RAND former MCR
  
• ICM Demonstration Debra Lehman MCR Inc.
• ICM Application Soumen Saha Northrop
  Grumman
• Summary Soumen Saha Northrop Grumman

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Indirect Cost Model
Developed by MCR Advanced Technologies for CAI
Demo
Flexible Adaptable to Different Companies
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Agenda

• CAICAT Overview Soumen Saha Northrop Grumman
• ICM Development Bernard Fox RAND former MCR
  
• ICM Demonstration Debra Lehman MCR Inc.
• ICM Application Soumen Saha Northrop
  Grumman
• Summary Soumen Saha Northrop Grumman

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ICM Application

• ICM May Be Used in Different Ways to Meet
  Specific Company Objectives
• ICM Is Not Intended to Replace Accounting
  Structures
• ICM May Be Used for Evaluation of Program
  Alternates at Greenfield Sites Based on Product
  Configuration and Program Parametrics
• ICM May Be Used for Trade Studies and What-ifs
  for Configuration/Process/Schedule/Make-Buy
  Decisions in Existing Business Environment
• ICM Is Effective at Program Levels and Not at the
  Detail Part Level
• ICM Takes into Account All Cost Elements of
  Product Cost

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An Application Approach

• Populate ICM With Actual Program Data
• Schedule
• Labor Rates
• Facilities Required
• Touch Labor Hours
• Direct Material
• CERs for Cost Elements
• Other
• Match Bottom Line to Traditional Cost Sheet
• Review CERs of Support Elements and Adjust for
  Meaningful Relationship Matching Bottom Line
• Run Model for Different Scenarios to Reflect
  Changed Cost at Program Level

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Agenda

• CAICAT Overview Soumen Saha Northrop Grumman
• ICM Development Bernard Fox RAND former MCR
  
• ICM Demonstration Debra Lehman MCR Inc.
• ICM Application Soumen Saha Northrop
  Grumman
• Summary Soumen Saha Northrop Grumman

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Summary

• ICM Is an Unique Cost Model Developed to Address
  the Effects on Non-touch Labor Non-direct
  Material Cost Elements
• ICM Is Flexible to Accommodate the Accounting
  Structure of Different Companies
• ICM Can Evaluate the Cost Effects of Changing
  Configuration, Process, Schedule Make-buy
  Decisions
• ICM Identifies for Management the Key Cost
  Drivers of Product Cost