MSE406 – Engineering Cost Analysis

ESTIMATING WITH A LEARNING CURVE

The Learning Curve
Sources for Learning Improvements
Learning slope is usually:
◦ Estimated from historical data
◦ Imposed by Customer (commonly U.S. Government)
Requires specific efforts (Continuous Improvement)
Contributions to improvements:
◦ Operator (15%)
◦ Design (50%)
◦ Manufacturing Engineering (35%)
Best Candidate Products
◦ High Cost; Large; Low Volume
Learning estimating model: y = axb
Learning Theory
Time/Cost Decreases by a Constant percent each Time Quantity Doubles

80% Learning Curve

120

100

80
Hours

60

40

20

0
1 2 4 8 16 32
Number of Units

Cartesian Graph Log-Log Graph

Learning Theory

Time/Cost Decreases by a Constant percent each Time Quantity Doubles

◦ If 20% rate of improvement each time Quantity doubles then an 80% Learning Curve (0.80T)

UNIT # TIME
1 x
2 0.80x
4 0.80 (0.80x)
8 0.80 (0.80 x 0.80x)
Learning Theory Formula
Restate y = axb as Tu = KNs
◦ Tu = Man-hours or Cost for the Nth unit
◦ K = Estimate for unit #1 in Man-hours or Cost
◦ N = Unit number
◦ s = Slope or function of improvement

log Tu = log K + s log N which is form y = a + bx

◦ “s” is the slope of the line when plotted on Log-Log scales
◦ log K is the intercept on the T-axis for N=1
Solving for “s” Mathematically
Consider special case for Unit #1 (K) to Unit #2
◦ General Learning Curve: Tu = KNs then Tu / K = Ns
◦ For special case for unit #2 with an 80% learning curve:
◦ Tu will be 0.80 of K so T2 / K = 0.80
◦ For unit #2 with an 80% learning curve: 0.80 = 2s

Φ = reduction in Cost/Time when quantity doubles

◦ if Φ = Tu / K then Φ = 2s (using Φ simplifies the calculations)
𝑙𝑜𝑔
◦ log Φ = s log 2 and 𝑠 =
𝑙𝑜𝑔2
𝑙𝑜𝑔0.80 −.322
𝑠= 𝑙𝑜𝑔2
= 1
= −.322
Φ 1.00 .95 .90 .85 .80 .75 .70 .65
s No -0.074 -0.152 -0.234 -0.322 -0.415 -0.515 -0.621
Learning
Estimating with Learning Theory
Project estimating requires you to know Average and Cumulative Time/Cost
◦ Cumulative Time for N units
Tc = T1 + T2 + … + TN = ƩTu
◦ Average Time per Unit for N units
σ 𝑻𝒖 𝑲𝑵𝒔
𝑻𝒂𝒗𝒈 = or 𝑻𝒂𝒗𝒈 ≅
𝑵 𝟏+𝒔

Pre-calculated 80% and 90% Learning Curve tables for Tu , Tc and Ta can be
found in Appendix 5 (pg. 553)
Example – Estimating with Learning Curves
1. The prototype (actual data) for a Welding Assembly takes 1826 DL-hrs
2. From experience has found a 80% Learning Curve for similar products
3. The Engineer prepares these Estimates:
Remember: Tu = KNs 𝑻𝒖 = 𝑲𝑵𝒔 = 𝟏𝟖𝟐𝟔𝑵−𝟎.𝟑𝟐𝟐
N Tu Tc Tavg
1 1826 1826 1826
2 1461 3287 1643
3 1282 4569 1523
4 1169 5738 1434
Solving for “s” Graphically
Measuring the actual Learning Curve
1.Take two units: Ni and 2Ni
2.On Log-Log paper plot the slope “s” between two actual measurements
Log

Ti = Log 700
s = y ÷ x

Tj = Log 635

Ni = Log 20 Nj = Log 40
Log
 Solving for “s” Graphically
Remember: Tu =KNs ; and log Tu = log K + s log N which is form y = a + bx
And “s” is the slope of the learning curve on a Log-Log graph
∆𝑻 𝒍𝒐𝒈𝑻𝒊 − 𝒍𝒐𝒈𝑻𝒋
𝒔= =
∆𝑵 𝒍𝒐𝒈𝑵𝒊 − 𝒍𝒐𝒈𝑵𝒋

Given: unit 20 = 700 DL-hr; and unit 40 = 635 DL-hr

log10 700 – log10 635
s= = - 0.1406
log10 20 – log10 40
To calculate Φ
log10 Φ
Remember: s = ; log10 Φ = s log10 2 = (-0.1406)(0.3010) = -.04232
log10 2
Taking antilog of -.04232: Φ = 0.907 (Note: the antilog10 is the same as 10−0.04232 = 0.907)
Therefore: Learning Curve = 90.7%
Notes on Learning Curves

Not for Small Items or High-Volume Production Jobs

Learning requires cost reduction activities from Engineering and Manufacturing
◦ Wishing does not make it happen
◦ There is a higher cost for a lower Φ

Practitioners will have general knowledge of slope “s” and Learning Curve Φ
Learning Curve Guidelines
The following typical values assume repetitive operations. They are not valid
if operations are sporadic, as in a job shop environment
Representative Learning Rates
Aerospace 15%
Shipbuilding 15%-20%
Machine Tools (New Models) 15%-25%
Electronics (Repetitive) 5%-10%
Electrical Wiring (Repetitive) 15%-25%
Machining 5%-10%

Manual Assembly+25% Machining 20%

Manual Assembly+50% Machining 15%

Manual Assembly+75% Machining 10%

Punch Press 5%-10%

Raw Materials 5%-7%
Purchased Parts 12%-15%
Welding (Repetitive) 10%
Design Changes and Learning Curves
Learning Curve Formulas for Estimating

Formula for the time for any single unit

◦ 𝑻𝒏 = 𝑲𝑵𝒔 𝒂𝒏𝒅 𝑻𝒄𝒖𝒎𝒖𝒍𝒂𝒕𝒊𝒗𝒆 = σ 𝑲𝑵𝒔
Estimate for the AVERAGE time for N units
𝑲𝑵𝒔
◦ 𝑻𝒂𝒗𝒆𝒓𝒂𝒈𝒆 = 𝒘𝒉𝒆𝒓𝒆 𝑵 = 𝒕𝒐𝒕𝒂𝒍 𝒏𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒖𝒏𝒊𝒕𝒔
𝟏+𝒔

Formula to calculate the learning curve exponent

𝒍𝒐𝒈𝟎.𝟗𝟑
◦ 𝑰𝒇  = 𝟗𝟑% 𝒍𝒆𝒂𝒓𝒏𝒊𝒏𝒈 𝒄𝒖𝒓𝒗𝒆, 𝒔 =
𝒍𝒐𝒈𝟐
Order Uncertainty
Consider an order of 100 units with the first 20 confirmed and the remaining
dependent on a second order
Most likely you will amortize Engineer, tooling and other Fixed Costs in first 20
units
Therefore units 20 thru 100 will consider only:
T20 thru 100 = T1 thru 100 – T1 thru 20
This assumes:
◦ Continuous Improvement efforts are ongoing
◦ No new Fixed Costs
𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝑻𝒐𝒕𝒂𝒍 𝑪𝒐𝒔𝒕 = 𝑪𝒇𝒊𝒙𝒆𝒅 + 𝑪𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒙 𝑻𝒄𝒖𝒎𝒖𝒍𝒂𝒕𝒊𝒗𝒆 𝒂𝒏𝒅 𝑻𝒄𝒖𝒎𝒖𝒍𝒂𝒕𝒊𝒗𝒆 = σ 𝑲𝑵𝒔
Example: Order Uncertainty
Airline seats:
◦ Firm order for 20 and possible increase to 100
◦ Cost of first seat = $8,000
◦ NRE = $3,000
◦ Learning curve = 80% (reference pg 553)

Cost(20) = $3,000 + ($8,000 x 10.4849)

= $86,879 (or $4,344/seat)
Cost(21-100) = $8,000(32.6508 - 10.4849)
= $177,327 (or $2,217/seat)
 Design Changes with Learning
Considerations when Design Change(s) to Existing Product require a new estimate
or update to contract
Design Change (ECO) may impact:
1. Retrofit of already completed units
2.Costs for remaining units (with new Learning Curve and Retrofit costs)
Example:
Your company is building a new military system. The original quote:
◦ Order for 500 units
◦ 90% Learning Curve imposed by customer
◦ Time for Unit #1 = 1066 hours

Design change required at Unit #100 (100 of 500 units built; design change begins unit 101)
◦ Time to retrofit Unit#1 = 75 hours and retrofit Learning Curve = 95%
◦ Additional time for Unit #101 thru 500 = 75 hours and new Learning Curve = 93%

1. What is the time you will quote to retrofit the first 100 units
2. What is the revised quote for Units #101 thru #500
Design Changes with Learning

Part 1: Retrofit first 100 (completed units)

Given: estimated 95% Retrofit Learning Curve (s = -0.074)

estimated K = 75 hours to Retrofit

75 x 100-0.074
Tavg = = 57.60 hr (pg 260)
1-0.074

and Tcum = 100 x 57.60 = 5760 hours to Retrofit 100 units

Design Changes with Learning
Part 2: Build remaining units 101 thru 500 with NEW Learning Curve

Sequence of calculations:
1.Calculate the new total time for unit #101 (original plus new additional hours)
2.Calculate a new K value given the newly calculated unit #101 (with new learning curve)
3.Calculate the time for 100 units and 500 units with the new learning curve
4.Calculate the difference between total costs for making 100 units and 500 units
 Design Changes with Learning
Part 2: Build remaining units 101 thru 500 with NEW Learning Curve
Given: original estimated 90% Learning Curve (s = -0.152)
estimated T100 = 75 hours to Retrofit with 95% learning curve
estimated new 93% Learning Curve

Step 1: New time to producing unit #101

T100 = Original Time + new additional Time

Original time: T101 = 1066(101)-0.152 = 529 hours

New additional time: 75 hours (given)

Therefore: T100 = 529 + 75 = 604 hrs

Design Changes and Learning
Therefore: T100 = 604 hrs (calculated)

Step 2: Calculate a new K value

For new Learning Curve Φ = 93%,

s = log 0.93/log 2 = -0.1047

If T101 = 604 hr then 604 = K(101-0.1047) and

K = 979.2 hours
Design Changes and Learning
Therefore: s = -0.1047 and K = 979.2
Step 3: Calculate totals for units 1-100 and 1-500

For 100 units: Tavg = KNs ÷ (1+s) = [(979.2 x 100-0.1047)÷(1-0.1047)] = 675.31 hr

Total = 675.31 hr/unit x 100 units = 67,531 hours

For 500 units: Tavg = KNs ÷ (1+s) = [(979.2 x 500-0.1047)÷(1-0.1047)] = 570.59 hr.
Total = 511 hr/unit x 500 units = 285,293 hours

Step 4: Calculate the difference

T = 285,293 – 67,531 = 217,762 hours total;

Tavg = 217,762 hr / 400 units = 544.4 hours/unit

Design Changes with Learning
(alternate perspective per book)
Part 1: Retrofit units 1 thru 100 (completed units)

Given: estimated 95% Retrofit Learning Curve (s = -0.074)

estimated T100 = 75 hours to Retrofit

For the 100th unit:

if T100= 75 hours then 75 = K(100)-0.074 and K=105.45 hr

Tavg = (105.45 x 100-0.074)÷(1-0.074) = 80.99hr (pg 260)

and Tcum = 100 x 80.99 = 8099 hours to Retrofit 100 units

Questions??