Controlling uncertainty with cost engineering tools
Submitting InstitutionCranfield University
Unit of AssessmentAeronautical, Mechanical, Chemical and Manufacturing Engineering
Summary Impact TypeTechnological
Research Subject Area(s)
Information and Computing Sciences: Artificial Intelligence and Image Processing, Information Systems
Engineering: Manufacturing Engineering
Summary of the impact
Substantial savings have been made using Cranfield's Cost Engineering
software tools and techniques. These are used in BAE Systems, Airbus,
Rolls-Royce, GE Aviation, Ford Motor Company and increasingly in the UK
defence industry through the MoD. DTZ (Debenham Tie Leung Ltd) estimates
£213 million per annum financial benefit for BAE Systems and MoD alone,
with an additional £200 million per annum for other companies.
Cranfield's team has significantly influenced the national and
international policy of The Association of Cost Engineers and
manufacturing companies in methods and procedures. Cranfield has trained
over 700 engineers from over 50 companies in cost engineering based on our
Cranfield University started research on cost engineering to understand
the extant basis of cost prediction in the design, manufacture and service
of components and industry's understanding of affordability, in the late
1990s. The goal was to understand the science and engineering behind
current industrial practice so that cost engineering could become more
scientific and systematic in the future. Our studies established the best
practice in true cost prediction, and have developed software tools and
training, which have improved the competitiveness of UK manufacturing
companies. We studied how cost engineers think, and modelled the cognitive
processes behind the engineering judgement necessary for the cost
prediction [G1, 3, P1]. The study involved analysing the reasoning process
followed during cost estimating by both experts and novices. Research into
this cognitive process became the foundation for our cost engineering
training, which has been developed for industry since 2003.
The Cranfield team progressed to research best practice in predicting the
cost of new technologies, based on analogy, in collaboration with the
automotive industry [P2]. Then the team focused on predicting cost of
design, manufacturing and assembly at the conceptual design stage for
complex engineering systems, e.g. for aircraft wings and hydraulic
systems. The scope of this prediction covered the design effort, including
both the thinking time and the Computer Aided Design model development
time, based on the complexity of the product [G2-4, P3]. The research
included both mechanical and electronic components design and testing.
Novel techniques (e.g. function based cost estimating for automotive
components) were developed which can predict more realistic cost at the
conceptual design stage, in the absence of data of good quality and
Our research focused on predicting the cost of in-service issues,
especially within performance based contracts. The key challenges
addressed in the research are:
— predicting the cost of the resolution of component and material
obsolescence, based on a probabilistic approach [G5, P5];
— modelling service uncertainty within the cost estimates using an analogy
based approach [G5, P6].
The probabilistic cost estimation approach identified the relationships
between component complexity and obsolescence resolution profile. We
identified that the cost efficiency achieved by organisations in relation
to obsolescence correlates with how proactive they are in managing the
problem. Understanding of this has informed the design of new tools for
predicting the non-recurring engineering effort/cost for obsolescence
The analogy and uncertainty based cost estimating technique identifies the
new challenges related to availability contracts, and enables a systematic
approach that reflects the impact of uncertainties on the cost drivers [P6].
The research identifies a cost distribution for the service provision using
a stochastic simulation. The research also allows us to understand the
enduring cost profile across a product/system/service life cycle and is
fundamental to improving UK capability in cost modelling for large and
complex projects in industry and the public sector.
|Dr. P Baguley
|2006 – to date
||Artificial intelligence application for cost
estimation, parametric cost estimating
|Dr. Y Xu
||2008 – to date
||Design for cost, detailed cost estimation
|Dr. E Shehab
||2004 – to date
||Cost of obsolescence, Cost of information
|Dr. C Wainwright
|2001 – 2008
||Parametric cost estimation, CADCO project
|Prof R Roy
||1997 – to date
||All the above, plus uncertainty- and
analogy-based service and qualitative cost
* highest grade in period given
References to the research
Evidence of quality — peer-reviewed journal papers
P1* Rush, C and Roy, R, "Expert judgement in cost estimating: modelling
the reasoning process", Concurrent Engineering: Research and
Applications (CERA), 9, (4), pp. 271-284, 2001. DOI:
P2 Roy, R., Colmer, S.a and Griggs, T.a,
"Estimating cost of a new technology intensive product: a case study
approach", International Journal of Production Economics, 97,
pp. 210-226, 2005. DOI: http://dx.doi.org/10.1016/j.ijpe.2004.08.003.
P3 Oduguwa, P., Roy, R. and Sackett, P. J., "Cost impact analysis of
requirement changes in the automotive industry: a case study", Journal
of Engineering Manufacture, Part B, 220, Number B9, pp.
1509-25, 2006. DOI: 10.1243/09544054JEM275.
P4* Roy, R., Souchoroukov, P. and Griggs, T.a, "Function-based
cost estimating", International Journal of Production Research, 46,
(10), pp. 2621-50, 2008. DOI: 10.1080/00207540601094440.
P5* Romero, Rojo F.J., Roy, R., Shehab, E., Cheruvu, K. and Mason, P.b,
"A cost estimating framework for electronic, electrical and
electromechanical (EEE) components obsolescence within the use oriented
product-service systems contracts", Journal of Engineering
Manufacture, Part B, 226, (1), pp. 154-166, 2012.
P6 Erkoyuncu, J. A., Durugbo, C., Shehab, E., Roy, R., Parkerb,
R., Gath, A.b and Howell, D.c, "Uncertainty driven
service cost estimation for decision support at the bidding stage", International
Journal of Production Research, 51, pp. 5771-5788, 2013.
* 3 identified references that best indicate the quality of the research.
a Ford Motor Company, UK
b BAE Systems, UK
c GE Aviation, UK
Further evidence of quality — underpinning research grants
G1 EPSRC (GR/N21321). Developing an Integrated Costing Approach for
Conceptual Design Evaluation (ICOST), £275,000 (total: £575,000 including
cash and kind contribution from industry partners), 2000-2003, PI Roy.
Partners: BAe, MA&A, Ford and XR Associates..
G2 Cranfield IMRC (EPSRC) sub project. Integrated Requirements Management
for Digital Product Development (e-RM), £317,000 (total: £907,000
including contribution from industry partners), 2002-2005. Industry
Partners: Nissan Technology Centre Europe, JCA, EDS and SMMT. PI Roy.
G3 Cranfield IMRC (EPSRC) sub project + Four TSB/KTP with Airbus.
Formalisation of Expert Judgement in Cost Engineering and Integration
(CostExpert), £621,700 (total: £1,205,000 including cash and kind
contribution from industry), 2002-2006, PI Roy (CI on the KTPs) and CI
Wainwright (PI on the KTPs). Industry Partners: Airbus UK, Galorath UK and
G4 EU FP6 SSA, Virtual Cost Engineering Studio, £304,500, 2004-2006, PI
Roy. Partners: Centro Ricerche FIAT, PRICE Systems, DAS and IZET.
G5 Cranfield IMRC (EPSRC) sub project: Whole Life Cost Modelling for
Product-Service Systems (PSS-Cost), £380,000 (total: £630,000 including
cash and kind contribution from industry partners), 2007-2010. Industry
partners: BAE Systems, GE Aviation, Lockheed Martin (Insys), MoD, Rolls
Royce, Galorath, APMP, SBAC. PI Roy and CI Shehab.
Details of the impact
Cranfield developed a best practice process and software tool to predict
the obsolescence resolution cost for electronic components and materials
(figure 1). The tool helps to reduce the UK defence costs in two ways:
— the contingency sums that defence contractors would have incorporated
into availability contracts to resolve obsolescence issues will be lower
because the tool enables the costs to be predicted with greater accuracy
— defence contractors will have a greater incentive to design equipment
with a view to minimising obsolescence issues.
A DTZ estimate shows £213 million per annum financial benefit for the
sectors (BAE Systems and MoD only) [C1, 2]. Cranfield's software tool is
disseminated to other defence companies by MoD through a support contract
The research in cost engineering helped BAE Systems and MoD
systematically to identify uncertainties in cost estimation, and the tool
developed is used within BAE Systems to prepare bids [C4]. The research
has also significantly influenced the national and international policy of
the Association of Cost Engineers (ACostE), and promoted the need for a
scientific approach to cost engineering in industry and government
organisations [C5]. In addition, the Cranfield team developed cost models
that were used within Airbus as part of the "CADCO" project toolbox to
evaluate conceptual designs of new aircrafts [C6]. This enables Airbus to
understand better the costs in the early phases of new projects, with
calculated uncertainty. The team helped Airbus to implement the CADCO tool
set across Europe and provided extensive training.
Cost Engineering at Cranfield has developed novel approaches and tools
to predict the true whole life cost of complex engineering systems [C7,
C8]. Cranfield has provided cost engineering training for over 12 years
and has trained over 700 engineers in over 50 companies with an
indicative financial impact of £12 million per annum. Cranfield's effort
in improving the cost engineering practice across defence, aerospace,
automotive, railway, oil and gas companies has resulted in more
recognition of cost as a design driver and has helped in improving the
competitiveness. The indicative financial benefit from cost engineering
software developed at Cranfield (figure 1) is over £400 million per
annum [C2], and the UK MoD is disseminating the software to more
companies such that and the financial impact will be further increased
To estimate savings, we consider that the UK civil aerospace sector
alone has revenue of £12 billion per annum [C9]. The training delivered
by the Cranfield team is estimated to help British aerospace companies
to gain at least an additional 0.01% of this market, which is an
additional £12 million per annum new business.
Cranfield developed cost engineering training and education programmes,
based on this research, with BAE Systems, Airbus, Ford Motor Company,
Rolls-Royce, Bombardier Transportation and the Ministry of Defence (MoD)
since 2001 [G1]. The initial training programme at BAE Systems focused on
bridging the gap between the technical/ engineering functions and finance.
The training improved the communication between the two groups and
therefore improved the cost estimating practice and policy, encouraging
the company to establish "cost engineering" as a distinct function. Once
the cognitive model for the cost engineers was captured, the team
developed detailed cost engineering training for the automotive industry
with Ford Motor Company and for the MoD in 2003, which is used to reduce
the learning curve of the novice. The training also included a `cost
awareness development programme' across Airbus (within Europe) and BAE
Systems. The training supported design engineers, manufacturing engineers
and procurement team members to improve their cost awareness. Since 2006,
the Cranfield team has delivered an online cost engineering course on
`Principles of Cost Engineering'. UK and international manufacturing
(aerospace, automotive, railway, oil and gas) and defence companies use
the course regularly. The face-to-face and online training courses have
supported companies like Airbus, Rolls-Royce, and BAE Systems to become
more competitive and manage their costs better, [C3,4,5,6].
Sources to corroborate the impact
C1 Contact: Consultant Engineer, Ex BAE Systems, now AIG Synergies
C2 Contact: Consultant, DTZ.
C3 Contact: Obsolescence Management Lead, MoD.
C4 Contact: ILS Manager, BAE Systems.
C5 Contact: President of the Association of Cost Engineers
C6 Contact: Systems Engineer, Airbus.
C7 Services to Estimating Award from Industry. 2008. URL:
http://www.galorath.com/index.php/news/ukconference2008 (last accessed November 2013)
C8 Contact: Vice President — Europe and RoW, PRICE Systems Ltd.
C9 KPMG report on the future of UK civil aerospace industry. 2013. URL:
https://www.adsgroup.org.uk/articles/35553 (last accessed November 2013)