The Role of Value Engineering in Affordability Analysis · Understand system requirements vs. ......

© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 1 © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence

Quentin Redman Independent Consultant as QR Solutions for PRICE Systems L.L.C. [email protected]

310.692.5926

Co-Authors Bob Koury, Joseph Bobinis, Paul Tuttle,

Kevin Woodward, Hein B.A. de Jong INCOSE Affordability Working Group

The Role of Value Engineering in Affordability Analysis

ICEAA Conference New Orleans, LA 18-21 June 2013

mailto:[email protected]


Affordability…

Procure it when they need it

Use it to meet their performance requirements at a level of quality that they demand

Use it whenever they need it over the expected life span of the product or service

Procure it for a reasonable cost that falls within their budget for all needed products or services

The characteristic of a product/service that enables consumers to:


Department of Defense Definition

Affordability is the degree to which the life-cycle cost of an acquisition program is in consonance with the long-range investment and force structure plans of the Department of Defense or individual DoD Components.

Affordability procedures establish the basis for fostering greater program stability through the assessment of program affordability and the determination of affordability constraints.

Components shall plan programs consistent with the DoD Strategic Plan, and based on realistic projections of likely funding available in the Future Years


Department of Defense Definition

Affordability shall be assessed at each milestone decision point beginning with program initiation – usually- MILESTONE 1.

Cost Analysis Improvement Group (CAIG) reviews shall be used to ensure cost data of sufficient accuracy is available to support reasonable judgments on affordability for ACAT 1 programs.

DoD Component Heads shall consult with the USD (A&T) or the ASD(C3I), as appropriate, on program objective memoranda (POM) and budget estimate submissions (BES) that contain a significant change in funding for, or reflect a significant funding change in, any program subject to review by the DAB or the DoD Chief Information Officer.


Why Affordability is an SE Process

These techniques enable analysts to forecast expected affordability of alternative technologies and systems

They allow the measurement of improvement in affordability of a given system

The affordability trade space is composed of a relational set of attributes that are contextually sensitive

Once this set is bounded, the need arises for an implicit comparison to other systems, sub-systems and components.

The problem may be embedded in how systems are designed, how they are governed, and how they are evolved. ( See Next slide )

Affordability can be improved, measured and predicted


Affordability Trade Space

Affordability Hierarchy of Alternatives


Some Current Industry Positions on Affordability In discussions at the recent MORS Special Meeting on

Affordability Analysis - How do we do it? (Oct.2012), the Development Planning Working Group discovered that affordability analysis was contextually-sensitive, often leading to misunderstanding and fragmented perspectives.

Various industry working groups have recommended developing and formalizing affordability analysis processes, including recognizing the difference between cost and affordability analyses...


Some Current Industry Positions on Affordability

Affordability context, system(s) and portfolios(of systems capabilities) need to be consistently defined and included in any understanding of what an affordable system is;

An affordability process / framework needs to be established and documented, and

Accountability (system governance) for affordability needs to be assigned across the life cycle, which includes stakeholders from the various contextual domains.

There is a fundamental difference between Cost and Affordability Analysis; as cost analysis is a subset of the broader analytic framework to determine “System Affordability”, which must include the analysis of comparative system capabilities.

Key insights:


Affordability as a Science within the SE Domain

Provides a structures analytical path from determining requirements to fielding affordable systems.

Conducting research into the concepts of affordability and methods to implement the approach.

Establishes a foundation for creating Affordability Systems Engineering Science.


Why Affordability is an SE Process

Studying Complexity Sciences helps explain relationships between fitness and affordability.

Investigation of game theoretical modeling and other advanced Systems Engineering concepts to focus on System thrusts that will leverage significant downstream system affordability.

Initiate research


How Affordability is Utilized

Determine the customer concerns and understand those concerns

Explicit – States cost goals or operating budgets

Implicit – Inherent Relationship between performance and Cost

Next Phase – Contract contains a limited budget/funding

Unit Production – Average Unit Production Cost (AUPC) goals

Total Ownership Costs (TOC)-Reduced Total Ownership Costs (RTOC)- Life Cycle Costs (LCC) must be some determine percent (normally 30%) less than the replaced system



Determine competition impact on affordability

Marketing determines cost limit to WIN the contract

Existing inventory items with potential modification costs

Set design goals (Including system cost Goals and Targets)

Top level system or architecture

Subsystems All phases



Understand system requirements vs. system affordability

Perform the economic analysis

Establish a Cost As Independent Variable, Design To Life Cycle Cost or Design To Cost program

Systems Engineering Owns all requirements including the cost goals and targets.

Review the present estimates against goals often and react appropriately and expediently


VE Relation To Systems Engineering Technical Reviews

IOC

Technology

Development

Engineering and

Manufacturing DevelopmentProduction &

Deployment

Operations &

Support

FRP DecisionReview

FOC

Post-CDR A

MaterielSolutionAnalysis

Materiel Development Decision

BA CProgramInitiation

ITR ASR

TRA

SRR SFR PDR CDR

TRA

TRR SVR (FCA)/

PRR

PCAISR

TRA

(Ships)

PostPDR A

PDR

or

Milestone Decision Authority (MDA)

Affordability Certification

Affordability Assessment to

Authorize Low Rate Production

Value Engineering – In Support Of Baseline Design

Value Engineering – On-going Assessment


Technical Reviews

Initial Technical Review (IT)

Alternative Systems Review (ASR)

Systems Requirements Review (SRR)

System Functional Review (SFR)

Preliminary Design Review (PDR)

Critical Design Review (CDR)

Post-PDR Assessment (Post-PDRA)

Post-CDR Assessment (PCDRA)

Test Readiness Review (TRR)

System Verification Review (SVR)

Functional Configuration Audit (FCA)

Production Readiness Review (PDR)

Operational Test Readiness Review (OTRR)

Physical Configuration Audit (PCA)

Technology Readiness Assessment (TRA)

In-Service Review (ISR)


Value Engineering Primer

The primary focus of Value Engineering is assuring that the greatest functionality is provided for the least cost or expense, to maximize value.

To attain the needed functions safely, reliably, efficiently, and at the lowest overall cost.

Improving the value and quality of the project

Reducing the time to complete the project.


Value Engineering Primer (cont.)

Pre-Study: collecting customer information, defining scope, and assembling a team and resources

Value Study: the problem solving step, including product design

Post-Study: the execution and post-implementation data review activities

Value Engineering is broken into 3 “studies” that organize the overall “job plan” or problem-solving approach.


Value Study – Job Plan Phases


Functional Analysis At the heart and soul of the Value Engineering methodology is

Function Analysis. Simply put, Function Analysis is a discipline of identifying the functions your product or solution needs to have in order to meet customer expectations.

The primary tool for mapping out the functions and understanding their importance is the FAST Diagram (Function Analysis System Technique)


Functional Analysis


Application of Value Engineering Value Engineering should be applied earlier than AoAs. The

Capabilities Based Assessment (CBA), can be viewed as a Value Study. The CBA consists of the following:

Identifying the mission or problem to be assessed;

Incorporate prior CBAs and studies;

Determine the level of analytical rigor required;

Perform an operational assessment to: identify capability requirements and any associated gaps and redundancies; and operational risks associated with each gap.

Determine if a non-material approach can wholly or partially mitigate the gaps;

Assess general approaches for materiel capability solutions.

Make recommendations.


System vs. Client Client determines a level of satisfaction.

Usefulness of a system only achieves meaning because the decision maker (client) views it as valuable.

Value Engineering allows an analyst to collect and quantify the decision maker’s (client) value system being applied to judgments regarding the functions, quality, effectiveness, and affordability of the system solution.

The methodical collection of decision maker values can be assisted by using decision support frameworks, such as the Analytical Hierarchy Process, Multi-criteria Fuzzy Decision-making, Multi-objective Mathematical Programming, and other techniques to collect and apply decision maker value weights to decision criteria.


Where VE and SE meet

Value Engineering methodically documents the decision process by which the design and evaluation of the system solution is executed.

Formally sets forth the functions and their relationship to cost. By allowing the engineer to determine how well and at what cost does a particular design alternative meets the requirements as set forth by the stakeholders.

It allows for a function-to-cost-to-affordability calculus to assist the decision maker in managing the development and ultimate performance of the system being developed.

VE maps costs to objects and functions, which is not general practice within SE.

VE is a short intervention in a longer lasting project processes. We can plot in the V-model, with short VE-interventions as VE provides the tools to do that; SE provides the tools and methods to secure the outcomes.


Where VE and SE Differ

Value Engineering does not cover topics like configuration management or requirement engineering.

SE provides systematic approaches to describe the design of a system, and keeps it consistent in time (years).

VE provides short interventions for valuation of the design and redesign.

SE does not ask: do we do the right investment while SE answers the question: what does meet the requirement (hoping that the specs meet the needs).

Some questions to the co-authors:

1. Does SE distinguish functions and its requirements (which can be looked at as 'metadata from functions')? Is there a way to model functions in SE?

2. VE does have the FAST-model to order functions (that's just a way to do it; are there more in SE?).

3 How do system engineers check the completeness of their specs, which logical methods are there? Take the lighter: how does a system engineer come the insight that the spark wheel might be replaced by a piezo button? Is he systematically triggered to think that over?


Value Engineering Affordability Summary To Determine Best Value

Step 1. Procure Key Performance

Parameters that are inviolate

Step 2. Identify Affordability

Goals & Figures of Merit

Step 3. Gather Requirements,

Features, Performance

Step 4. Define Baseline

Alternatives

Step 5. Perform Technical Design Analysis for Each

Alternative

Step 6. Perform Cost Schedule

Analysis of Each Alternative

Step 7. Assess Benefits Based on Figures of Merit

Step 8. Perform Probabilistic Risk

Analysis

Step 9. Assess Alternatives & Select Optimal

Alternative

Step 10. Document Analysis and

Lessons Learned

© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 28 © 2013 Financial Executives International

QUESTIONS?

Quentin Redman Independent Consultant as QR Solutions for PRICE Systems L.L.C. [email protected]

310.692.5926

mailto:[email protected]

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