Cost Model Definition.pdf

7/25/2019 Cost Model Definition.pdf

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COST MODEL DEFINITION BY MEANS OF COST STRUCTURES

E. ten Brinke, D. Lutters, A.H. Streppel, H.J.J. KalsLaboratory of Design, Production and Management; University of Twente, P.O. Box 217,

7500 AE Enschede, The Netherlands

Abstract

In a cost estimation system, the definition of cost models is the most important aspect. The

way in which cost models are defined determines the possible extent of control of all aspects

of cost modelling. A generic template for the definition of cost models, i.e. the cost structure,

is proposed. This structure incorporates cost types, cost functions and cost parameters. Since

the cost structure is based on an information structure, it can be applied with the concept of

information management based on the Manufacturing Engineering Reference Model.

Therefore, it is possible to construct a cost model view. The consistency and completeness of

the cost structures and the cost models can be monitored through this cost model view.

Keywords:cost estimation, cost control, information structures.

1 Introduction

The possible extent of control of cost modelling and the control and comparison of cost

models is determined by the definition of cost models. In addition, the possibility to analyse

the results and the possibility to create reports is largely determined by the definition of the

cost model as well. It is preferable to have a generic tool for the definition of cost models,

which incorporates the aforementioned characteristics. This tool should be flexible enough to

allow any cost model to be defined.

Lately it has been recognised that information management is a very important aspect in

the control of the product development process. Since cost estimation requires informationabout every aspect of the product life cycle, adequate information management is of great

importance. The Manufacturing Engineering Reference Model and the related information

structures offer the desired information management system.

2

Information Management

Control of the manufacturing cycle in a concurrent engineering environment depends on the

control of the interaction and communication between diverse disciplines. The availability

and accessibility of coherent information makes good communication possible. Access to

meaningful representations of existing and up to date information is more desirable than the

exchange of information [1]. These considerations stress the need for overall informationstructures.


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2.1 The Manufacturing Engineering Reference Model

Because different views on a manufacturing systemexist, the system is described by a reference model.

Such a reference model represents a system as an

organisation in terms of its structure of relatively

independent, interacting components, and in terms

of the globally defined tasks of these components

[2]. The Manufacturing Engineering Reference

Model (fig. 1) emphasises the equivalent

importance of products, resources and orders in the

manufacturing cycle [1].

The model includes the next functions.

Company Management determines the companystrategy; it determines the range of products and the

required processes and resources. The development

of a product and its variants, starting from

functional requirements up to final recycling or

disposal is dealt with by Product Engineering.

Resource Engineeringrefers to all life cycle aspects

of the resources of a company (specification,

design, development, acquisition, preparation, use

and maintenance). The in-time execution of

production orders is settled by Order Engineering.

The actual execution of the generated productionplans is carried out by Production. The kernel of the

model isInformation Management; it deals with the

access of meaningful representations of

information.

In conformance with the reference model,

three information structures are distinguished (fig.

2). The three structures reflect respectively product-

families, resources and orders by means of the

elements and relationships they consists of. The

information structures can also, implicitly, be

related to each other. So any information structure

can principally be represented with the model

shown in fig. 3. An element can be part of any

aspect system, here referred to as domains. An

important aspect of the fundamental structure is that it has no predefined hierarchy. Besides

the information structures, an ontology can be distinguished. It represents the types of objects

and the relations of the objects in the information structures. The ontology can be described

with the fundamental structure as well.

The domains are sovereign, but different interpretations of one domain are possible. For

example, a process planner could interpret product geometry differently as a designer. The

designer uses design features whereas a process planner uses manufacturing features, they arebased on the same geometry but they are arranged differently. To be able to deal with such

Fig. 1:The Manufacturing

Engineering Reference Model

Fig. 2: The three information

structures

Fig. 3: The fundamental structure


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different interpretations, a view is used. A view furnishes a focussed, partial representation

and specification of the information in a certain domain. With the help of a filter a partial

representation and specification of the information in a certain domain can be created. Forexample, it can be practical only to look at a component instead of the complete assembly.

In order to support the interaction and communication of different engineering

processes through the information kernel, the kernel has to be kernel for those processes as

well [3]. In terms of architectures, the engineering processes are functional modules arranged

around the information kernel. A cost estimation architecture based on this principle was

proposed in [4]. In this architecture, the definition of costs is distinguished as a functional

module.

2.2 The cost view

The least requirements for cost control areknowledge of the costs, based on cost

estimates and a generic method to store the

cost information. In addition, it is

advantageous to have a highly differentiated

view of the production costs [5]. Knowledge

of the costs can be obtained through the cost

drivers, i.e. the cost driving product

characteristics. In general, four cost drivers

can be identified: geometry, material,

production process and production planning.

These cost drivers can be related to thefundamental structure (fig. 4). In this way,

the costs can be stored in a generic way and

a differentiated view of the costs is possible

because the costs can be related to any product element and to any cost driver. Because costs

can be related to any element, it is also possible to calculate the costs of separate elements

with different cost estimation methods. The value of the costs can also be attached to the

product information structure.

Fig. 5:A global product information structure with cost drivers and cost values

Fig. 4: Thecost drivers in the fundamental

structure


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Now, a cost view in the context of the Manufacturing Engineering Reference Model can

be constructed. In fig. 5, a fictive and rough cost view is visualised. The cost view can be used

to find irrational designs [6], i.e. relatively expensive (parts of) designs. Fig. 5 reveals thatone component constitutes more than 60 % of the overall costs. Zooming in on that

component makes clear that the production costs of one of the features is relatively high.

Based on this knowledge, the cause of the relatively high costs is known and a redesign of the

component or feature may be justified.

3 Cost model definition

The previous sections have described the information structures and how cost information can

be related to these information structures. Now, we need to define the cost models that

calculate the costs. In order to have full control over all aspects of cost modelling, a generic

template for the definition of cost models in a cost estimation system is preferable.

3.1 The cost structure

In a cost estimation system based on the Manufacturing Engineering Reference Model and the

related information structures, it is obvious to record a cost model template in an information

structure. The proposed cost structure and its relation to cost models, cost actuators and cost

drivers is depicted in fig. 6.

Fig. 6: The cost structure and its relation to cost models, cost actuators and cost drivers

The cost structure is a generic template for the definition of costs for any object. It

consists of cost types, cost functions, cost parameters and their relations. The attributes (not

shown in fig. 6) of a cost structure are:

- Name: a unique identifier, e.g. generative machine cost structure;- Type: the type of cost calculation, e.g. generative cost estimation;- Method: the method of cost calculation, e.g. Activity Based Cost estimation;- Accuracy: the achievable accuracy of the result of the cost structure;- Description: a short description of the cost structure;- Value: the costs represented by the cost structure (if all cost parameters are known).

A cost typeis a subdivision of the costs. A subdivision of the costs is usually made for the


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purpose of cost analysis. The attributes of a cost type are:

- Name: a unique identifier, e.g. material costs;

- Type: the type of costs, e.g. direct costs;- Description: a short description of the cost type;- Value: the costs represented by the cost type (if all cost parameters are known).

The cost functionis the actual function used to calculate the costs of a certain cost type. The

attributes of a cost function are:

- Name: a unique identifier, e.g. cmat;- Description: a short description of the cost function, e.g. material costs;- Value: the costs calculated by the cost function (if all cost parameters are known).

A cost parameter is a parameter of a cost function, which is usually a characteristic of an

object influencing the costs. The attributes of a cost parameter are:

- Name: a unique identifier, e.g. tsetup;

- Type: variable (dependent on the cost-carrier, e.g. a dimension), pseudo-constant (fixedfor a certain time period, e.g. overhead factor), constant (fixed, e.g. initial costs of a

machine)

- Description: a short description of the cost parameter, e.g. set-up time;- Value: the value of the parameter (if determined).

The cost parameters are not directly assigned to the cost function because they can be used in

more than one cost function at the same time. In this way, they only have to be specified once.

In addition, the cost parameters can easily be used to govern the cost calculation of a cost

structure. When the value of a cost parameter is required for a cost calculation but it is not

known yet, a value can be obtained through the cost drivers. The cost parameter can be

classified by a cost driver and the cost drivers can be related to an engineering process. For

example, if the process time of an operation, belonging to the cost driver 'process(es)', is not

yet determined, process planning can be activated to generate the required process time.

The cost actuatorcan refer to any object that causes costs. The objects must be stored in

an information structure. In the case of the Manufacturing Engineering Reference Model, this

structure can be the Product Information Structure, Resource Information Structure, Order

Information Structure or the Ontology.

In terms of cost structures, a cost modelis the collection of cost structures for one cost

estimation method. Multiple cost models can be created by defining multiple cost structures

for one cost actuator. Besides that, different levels of cost structures can be defined, i.e. less

accurate cost structures based on less detailed information and more accurate cost structures

based on more detailed information. In this way, cost models for various stages of the productdevelopment cycle can be defined. The choice on which cost model to use, can be based on

the required accuracy of the required cost estimate or on the available information.

Because more cost functions can be defined for one cost type, one cost function has to

be indicated as the active cost function through the Option point.

3.2 Examples of cost structures

The concept of a cost structure will be clarified with some examples of possible cost

structures. Because any object in an information structure can be a cost actuator, it is

impossible to discuss all possible cost structures. The definition of cost structures will totally

depend on the cost estimation philosophy of a company, i.e. the used cost estimation methods.First of all, fig. 6 shows that a cost actuator can consist of more than one cost actuator.


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This is clarified in fig. 7 for the production method laser cutting. When only the production

method is determined, the cost structure for the method is used to generate a cost estimate.

Because production method information is less detailed, such a cost structure will probablygenerate a less accurate cost estimate. When also the machine and operator are known, the

corresponding cost structures are used. Since these cost structures use more detailed

information, a more accurate cost estimate will be generated.

Fig. 7:Example of a cost actuator consisting of more cost actuators

It is possible to define a cost structure for any class of objects, identified as the type of

an object. In fig. 8 an example for a production machine is given. This cost structure is may

be part of a generative cost calculation and it contains general machine characteristics to

calculate the costs. Whenever a new production machine is bought, the same cost structure

can immediately be used to calculate the costs. If the machine has some specific features thatrequire specific cost functions, a cost structure for that particular machine, e.g. the laser

machine in fig. 9, can be defined. When both cost structures are defined, the more specific

cost structure will be used because it uses more detailed information in contrast to the general

cost structure.

Fig. 8:Example of a cost structure for a machine


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Fig. 9:Example of a cost structure for a specific laser

In order to use variant based cost estimation, a cost structure related to the product

information structure has to be defined. Fig. 10 depicts an example of such a cost structure. A

dedicated variant cost estimation program calculates the actual costs. It calculates the total

costs of an assembly or component. In this case, the cost parameters are the parameters of thefunction call to the program. In this way, other external programs, e.g. a neural network, can

be integrated in the cost estimation system.

Fig. 10:Example of a cost structure for assemblies and components

Another important cost structure related to the product information structure is a cost structure

for the material costs as depicted in fig. 11.


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Fig. 11:Example of a cost structure for the material costs

In an Activity Based Costing method, overhead costs are related to cost drivers. For example,

the design costs can be related to the number of orders that the design department deals with

in a given year. This leads to a cost structure of an order as depicted in fig. 12.

Fig. 12:Example of a cost structure for an order

3.3 The cost structure view

The cost structures can be monitored through the cost structure view on all information

structures. The cost models can be monitored through filtering the cost structure view for a

specific cost model. By applying other filters, the cost types, cost functions and costparameters can be focussed on. In this way, the completeness and consistency of the cost

structures and cost models can be monitored.

4

Example of the use of cost structures

This fictive example demonstrates the use of cost structures in an integrated cost estimation

system. The design, process planning and production planning of the computer power unit

depicted in fig. 13 are considered. The example assumes that the cost model and the

accompanying cost structures are completely determined.

A small engineering-to-order sheet metal company had to develop the computer power

unit. The most important available production methods and resources are listed in table 1. Thecompany makes use of the Manufacturing Engineering Reference Model and for cost


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estimation both variant based cost estimation and

generative cost estimation are used. For the cost

calculations cost structures for the productionmethods, resources, components and assemblies

are defined in accordance with the cost structures

depicted in fig. 7 through 12.

Fig. 13:A computer power unit

As soon as a designer creates a component e.g. the cap, it automatically inherits the cost

structure(s) defined for the component in the ontology (e.g. fig. 10 and 11). Because only

geometrical information is available at this stage, a cost estimate can only be generated with

variant cost estimation. The variant cost program and its settings, the variant cost structure(fig. 10) and the product information structure are used to generate a cost estimate. If a

designer wants to make a decision based on costs he can alter the design and refresh the cost

estimate or he can create two variants of his design and do a cost calculation of both variants.

Because the design department was involved, the overhead costs for design are related to the

order by means of the cost structure depicted in fig. 12. The used design overhead rate was

determined by the cost estimator based on historical information and predictions of company

management. Therefore, the value is pseudo-constant because it can change when the

predictions are adjusted.

During macro process planning technical suitable production methods are selected and

attached to the product structure, the accompanying cost structures are automatically attached

as well. Based on the required accuracy of a cost estimate either the variant cost structure or

the method cost structures will be used to generate a cost estimate. When macro process

planning is only carried out for the cap, the cost estimate for the cap can be calculated with

the method cost structures. The cost estimates for the base and strip still can be generated with

the variant cost structure. The suitable production methods selected from table 1 for the

connection holes (base component, fig. 13) are laser cutting and punching. By activating both

methods one by one, cost estimates for both variants can be generated and based on these

estimates a choice between both methods can be made.

During micro process planning more detailed information about the production is added

to the product structure. The resources are determined and with the cost structures defined for

the several resources (e.g. fig. 8 and 9), a cost estimate can be generated. When moreresources from table 1 are suitable for an operation, again a choice based on cost estimates

production methods resources

laser cutting 1 laser

punching 1 punch machine

nibbling 1 laser-punch machine

bending 1 nibble machine

welding 1 press brake

Table 1: The most important available

production methods and resources


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can be made here. When for instance the cap component requires both laser cutting and

punching, the choice for the laser-punch machine could be made because of less set-up costs.

Process planning determines the actual used resources and the time aspects of all orders.At this point, it could be noticed that the laser-punch machine is already fully booked,

because the process-planner assigns all products requiring laser cutting and punching to this

machine. Through the product information structure, the process planner can track down the

reason why the process planner has selected the laser-punch machine. If this was done based

on costs and not based on technical feasibility he could reactivate the other technical suitable

resources. Next, he can make a selection between the resources based on process planning

aspects.

During the engineering cycle, cost reports can be made at any moment. When the

product is finished, it is stored in the order information structure, including the used cost

structures. This enables the recalculation of the costs at any time, even when the used cost

models have changed.

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Conclusions

The proposed cost structure enables the control of all aspects of cost modelling. It is possible

to compare cost models or to use multiple cost models at the same time. The cost calculation

can be governed by means of the cost parameters. The integrated use of cost types enables the

analysis of the costs and the possibility to create differentiated cost reports. Because the cost

structure is based on an information structure, it is easy to use in an information management

system such as the Manufacturing Engineering Reference Model. However, for a proper use

of the cost structure and the required cost information an information management system is

necessary. Furthermore, the control of the cost structures is relatively easy by means of a cost

model view. In summary, the cost structure enables the definition and control of any cost

model.

References

[1] Lutters, D.; Streppel, A.H.; Kals, H.J.J.: The use of Product Information Structures in

Design and Process planning. In: Proceedings of the Second World Congres on

Intelligent Manufacturing Processes & Systems (1997), Budapest, Hungary, 473-478

[2] Biemans, F.P.M.: A reference model for manufacturing planning and control. PhD.

Thesis, University of Twente, Enschede, The Netherlands, (1989)[3] Kals, H.J.J.; Lutters, D.: The role of Information management in intelligent

manufacturing. In: Proceedings of the CIRP International Conference on Intelligent

Computation in Manufacturing Engineering, (1998), Capri, Italy, 21-28

[4] Brinke, E. ten; Lutters, D.; Streppel, A.H.; Kals, H.J.J.: Integrated Cost Estimation

Based on Information Management. In: Production Engineering - research and

development in Germany, WGP-Annalen, (1999), in printing

[5] Weustink,I.F.; Brinke, E. ten; Streppel, A.H.; Kals, H.J.J.: A generic framework for cost

estimation and control in product design. In: Proceedings of the 6th International

Conference on Sheet Metal, (1998), Enschede, The Netherlands, Vol II, 231-242

[6] Ou-Yang, C.; Lin, T.S.: Developing an integrated framework for feature-based early

manufacturing cost estimation. In: International Journal of Advanced ManufacturingTechnology, 13 (9), (1997), 618-629

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