T-802-G Early State Design Cost Estimating Methodology

Mark Oaks
Alion Science and Technology

Russell Peters
Alion Canada

Biography
Mark Oakes is the Chief Technical Officer for the Engineering and Integration Solutions Sector (EISS) of Alion
Science and Technology. EISS was formed from Alions acquisition of John J. McMullen Associates (JJMA) in
2005 and acquisition of Anteons Engineering Technology Center in 2006.
Mark joined JJMA in 1977. Prior to joining JJMA, Mark worked for Newport News Shipbuilding in the Main
Propulsion and Deck Machinery Section of the Engineering Technical Department. Prior to becoming the Chief
Technical Officer for Alion EISS he was responsible for all ship design engineering at JJMA. He was
responsible for creating Alions Alion Canada operation in the National Capital Region.
He has over 35 years experience in all areas of ship design including surface combatants, auxiliary and UNREP
ships, oceanographic and survey ships, surface effect ships and high speed catamarans. He has managed
several major design programs including the Saar 5 corvette, T-AGS 45 oceanographic survey ship, Littoral
Combat Ship preliminary design, and Joint Support Ship project definition design. Mark has been involved in
many international ship projects including Canada (JSS and CPF), Israel (Saar 5, Multipurpose Corvette and
Alligator), and Korea (ULSAN Class, KDX II, KDX III, LPX and KFX). He spent several months on-site at
Hyundai Heavy Industries providing early stage design assistance for surface combatants.
And
Russell Peters is the Manager of Canadian Maritime Programs at Alion Canada and is responsible for all
operations for Alion Canada and was recently the Project Manager for CCGs OFSV design. He retired from
the Royal Canadian Navy in 2009 after serving for 20 years as a Naval Architect. Significant posts held were
the Naval Architecture Officer in FMF Cape Breton, the Project Naval Architect in JSS, and the DPM for CSC.
He also did an exchange tour with the USN at the Naval Surface Warfare Centre Carderock Division.
Description
One of the biggest challenges facing government procurement is that the budget is often fixed prior to the cost
of the requirements being estimated. Ship owners need cost estimates early in the design process to
understand if they can afford their requirements. This paper discusses a ship cost estimating method
compatible with early stage ship design when limited information is available. The methodology uses a weight
based methodology combined with other key attributes of the design. The paper recommends that the Crown
collect return cost and labour hour data from the NSPS projects so that it can develop a robust early stage cost
estimating capability.
Mari-Tech 2012 Exhibition and Conference Re-birth of the Marine Technical Community

T-802
Early State Design Cost
Estimating Methodology

Early Stage Design Cost

Estimating Methodology
Russell Peters Alion Canada
Mark Oakes - Alion

OUTLINE
Challenge of estimating cost with limited
information
Available Cost estimating methods
Weight Based models
Example use of a Weight Based model
Need for returned cost data from ship
construction programs
Recommendations

Challenge of Estimating Cost With

Limited Information

How do you respond when an owner calls and

asks for the price of a new ship?
For example, government SOWs have been
known to have words similar to the following
regarding cost estimates:
The cost estimate is fundamental to the evolution of the design and could result in
reconsideration of the vessels capabilities. As a result, there may be a
requirement for more than one costing iteration or a partial costing iteration (to
assess a specific change to the design) during the Concept Design Phase.

Challenge of Estimating Cost With

Limited Information

Very early in the design phase you would likely

have the following based on the owners
defined requirements:
Notional size: length, displacement
Mission: what does it do/carry?
Operational Profile: How fast/far does it go?

What do you do when the answers dont

provide much to go on and they want it
tomorrow for decision making purposes?

Challenges in Early Stage Design

Early Stage Design provides additional
estimating challenges even if you can answer
the Owners initial question
Requirements change/or what if questions
(particularly in a design to cost exercise)
Increase/decrease speed
Increase/decrease mission payload or carrying capacity

Challenges in Early Stage Design

This is prior to having completed the first
design cycle
Requires variations in weight, machinery
ratings, equipment costs, etc.
For example, a maximum speed change will
impact main machinery and possibly hull
form, and thus the weight, maybe the length
and beam of the vessel as well how much
does that cost??

Available Cost Estimating Methods

Analogous Estimating Approach

Look up award prices from public data

Doesnt necessarily provide the whole cost

Example:
June 2011, France sells Russia two Mistral, built in
France, outfitted in Russia, for 1.12B ($750M CAD
each)
What we dont know though:
GFE (particularly relevant for combat systems)
PMO costs
Other agreements (an option for 2 more may be
a factor), offsets, NRE
Production schedule and learning curves

Available Cost Estimating Methods

With a number of assumptions, you can then
estimate the cost of a very similar ship
What do you do though, when the owner wants
this vessel, only 10% smaller, or 5% faster, etc?

Available Cost Estimating Methods

Ask the owner for data on previous ship buys
In a similar manner, the owner may be able to
provide data for previous buys, that give some frame
of reference
But as soon as the requirements change, it is difficult
to draw conclusions

Available Cost Estimating Methods

Create your own cost estimating tool

Typically this is based on your previous knowledge and

experience, and works well for a well established type of
vessel

Use a commercial cost estimating tool

There are several on the market
Typically spreadsheet/data base type tools
Require ship data (weights, equipment data, etc.)

These tools are often going to be weight based for

early stage design, but can also be hardware based
(bottoms up based on known components of the ship)

Weight Based Cost Models

Weight Based models have evolved because

that is almost all that you know early:
Develop Cost Estimating Relationships (CERs)
Cost/Lightship weight = $$/tonne
In its simplest form, you could look again at the Mistral sale:
$750M CAD for ship construction costs for a 21,000 tonne vessel, or
the CER is $35,000 per tonne
If you thought your new design would be 15,000 tonnes, you could
make an assumption that the vessel would be $525M for ship
construction costs all other things being equal which they arent
If you wanted to build that ship in Canada, then it gets more
complicated

Weight Based Cost Models

Develop Cost Estimating Relationships (CERs)

Typically, you try to get more fidelity and use specific
weight groups, and use 4 different variables:

Wgt = the weight of any weight group of the ship

$$/tonne = based on material/equipment prices
Hrs/tonne = hours to install it or build it (the CER)
$$/hr = an average shipyard labor rate

Then
You can often estimate major equipment (prime
movers) using market data at this stage too given
an estimate of power required

Weight Based Cost Models

Example:

If you thought that :

Group 100 (hull) would weigh 5,000 tonnes on your design

Steel is $1000/tonne
It takes 100 hrs/tonne to fabricate and install it
Shipyard labour rate was $50/hr

Then

Note that typically you would include a

wastage factor the shipyard buys more
material than goes into the ship

Weight Based Cost Models

Obviously the more information you have, the better

your estimate will be
The CERs (hrs/tonne) usually come from experience, and
will vary depending on construction location (shipyard
labour force skills, efficiency, overhead, etc. are part of
this)
The labour rates ($$/hr) come from what you know about
where it will be built and should be agreed to up front with
the owner
The weights come from wherever you are in the design
cycle, in the first iteration likely from a parent design

Improving the Cost Estimate

As you start to receive vendor data, this

process changes and becomes more accurate,
as you replace material cost weight based
estimates with actual estimates
However, you are still applying a weight based
estimate to the labour cost associate with it

Improving the Cost Estimate

In addition, as the early stage design
progresses and more data becomes known,
$$/kW data can replace $$/tonne for
machinery

Improving the Cost Estimate

An example of how early stage cost estimates
can improve over the early stage design
process:

Indication of where the cost estimating information originated

What If Scenarios
Typically, a customer does not have more money
than they need, and they usually ask many questions
such as what if I go 2 knots slower, how much will I
save
This is hard to do without a complete design cycle,
but estimates can be made to changes in propulsion
power, and resulting weight groups
This type of what if scenario is best done as a relative
measure, and describing it as a percentage change
up or down from the baseline

Use of a Weight Based Model

Alion uses a weight based cost model for early
stage design
For smaller vessels, design projects, we would
typically use a spreadsheet
For larger projects we would use a commercial
tool called ACEIT
Developed by DOD and used for 21 years
Mandated by DOD other US Government
organizations
Very powerful for what-ifs including
escalation changes

Spreadsheet Model
COST MODEL INPUTS - OPERATOR
Rounding Value
Design & Build Margin
Learning Curve, Labour
Learning Curve, Material
Overhead Rate
Supplementary Labour Income
Contractor's Profit
Contractor's Contingency
Owner's Contingency for Change
Escalation Rate (%)
Labour Escalation Rate (%)
Financial Security Escalation (%)
Shipyard Material Negotiation Discount
Base Labour Rates
Basic Work Year [manhours]
Default Values
Unburdened
Waterfront Blended

Ship Particulars
Length OA [m]
LWL [m]
LBP [m]
B [m]
T [m]
D [m]
Cb
Materials Data
100 Hull Structure
Steel [$/t]
Wheel Abrading and Priming [$/t]
Steel Grinding & Abrading
Scrap Rate
Burdened

Spreadsheet Model
4.0%
15.0%
12.0%

1 Hull Structures
Group Totals =

Group
Code
10
1000
11
1110
1130
1140
1150
1160
1170
12
1210
1220
1230
13
1310
1320
1360
14
1490
15
1510
1520
1530
1540
1550
1560
16
1610
1620
1630
1650
1670
1680
1690
17
1710
18
1820
1830
1840
1850
1860
1870
19
1980

Description
Equations

Qty

Design & Build Margin

Scrap Rate
AH36 Premium
143.00
13.5%
0.00
Unit
Weight
[tonnes]

Net Weight
w/o Margins
[tonnes]

Wt of AH36
% AH36
0.00
Net Weight
w/Margins
[tonnes]

Current Steel Cost ($/t)

751.00
Wheel Abrading and Priming ($/t)
220.00
G&A (%)
0.15
1116.65
Effective Steel Cost/t
0.00
0.00
0.00
General Weight and Cost Information
LCG
[m]

VCG
[m]

TCG
[m]

Carryette Algorithm(Not Used)

$
Material CER
#DIV/0!
Quoted
Country
Cost
of Origin [Original Currency]

Hull Structure, General

Hull Structure - General
Shell and Supporting Structure
Shell Plating, Surface Ship And Submarine Pressure Hull
Inner Bottom
Shell Appendages
Stanchions
Longit. Framing, Surface Ship And Submarine Pressure Hull
Transv. Framing, Surface Ship And Submarine Pressure Hull
Hull Structural Bulkheads
Longitudinal Structural Bulkheads
Transverse Structural Bulkheads
Trunks and Enclosures
Hull Decks
Main Deck
2nd Deck
01 Hull Deck (Forecastle And Poop Decks)
Hull Platforms and Flats
Flats
Deck House Structure
Deckhouse Structure To First Level
1st Deckhouse Level
2nd Deckhouse Level
3rd Deckhouse Level
4th Deckhouse Level
5th Deckhouse Level (Gallows 12m ABL)
Special Structures
Structural Castings, Forgings, And Equiv. Weldments
Stacks and Macks
Sea Chests
Sonar Domes
Hull Structural Closures
Deckhouse Structural Closures
Special Purpose Closures And Structures
Masts, Kingposts, and Service Platforms
Masts, Towers, Tetrapods
Foundations
Propulsion Plant Foundations
Electric Plant Foundations
Command And Surveillance Foundations
Auxiliary Systems Foundations
Outfit And Furnishings Foundations
Armament Foundations
Special Purpose Systems
Free Flooding Liquids

Weight

CER

$
Unit
Cost
[CDN$]

Net Cost
Incl: Scrap
[CDN$]

0.00
Labour
CER
[Hours]

0
$
Labour Estimate
Labour
Labour
Estimate
Cost
[Manhours]
[$]

Commercial Model

Commercial Model

Use of a Weight Based Model

Initial weight estimates
The level of detail in the early stages depends on
the weight information/equipment information of
the parent compared to the new notional design
We will take whatever level of information from
the parent, and use an Alion tool called RATS (uses
algorithms to ratio weights (or powers) in specific
weight groups) to create new weight estimates for
each weight group/sub-group

Use of a Weight Based Model

Initial cost estimates
These weights are then input into the cost formula
using established CERs
Steel CERs are quite low (hrs/tonne)
Comms and electronics CERs are very high (e.g.,
the equipment is light but takes a significant
amount of labour to install and set to work)

Use of a Weight Based Model

Initial cost estimates
Of course, to that you need to apply all the other
costs:

Shipyard profit
Shipyard risk
Insurance
Contingencies
Escalation
Engineering
Etc.

Use of a Weight Based Model

Ideally, you can validate your model against a
known price
For a recent design, we were fortunate that we
could create our model and validate it against a
known contract price released for a similar size
and type of vessel
This allows you to validate your CERs and weight
estimates

Other Factors to Consider

Escalation
This can be a big ship cost driver, particularly if the
build is a number of years away (note a slow
production rate increases the cost of escalation)
Some vendors include escalation, but most wont
Escalation rate needs to be agreed to owners
tend to minimize the rate, which can hurt in the
long run
Cost estimates can be very sensitive to escalation,
and timing assumptions often are inaccurate

Other Factors to Consider

BRI, Bonding, Borrowing, Profit
This is easier when working with a shipyard
If not working with a shipyard, ensure that the
owner agrees to these estimates up front
These need to be to added to ship construction
cost

Currency fluctuation
As this is an always changing cost item, it is best to
agree to a process with the customer up front

Other Factors to Consider

Integrated Logistics Support
The owner needs to understand what they expect
Initial spares, training, manuals, drawings, etc.

Again it is best to agree with the owner up front

Learning Curve on Labour

This can have a big positive impact on price, but
has to be based on realistic assumptions
Quick delivery schedule and same workers

Agree with the owner/yard up front

Other Factors to Consider

Shipyard Savings
It is likely that the shipyard can negotiate savings
that are difficult to estimate in the early stage
This would come via negotiations and multiple
ship buys

Classification Costs and Detail Design

These are one time expenses and need to be
included as well

Need for Returned Data from

Construction Programs

In house or commercial cost models become more

valuable if they are based on returned data from
construction programs to permit more accurate
estimates for each ship in a class:

Construction hours by functional group (hrs/tonne)

Material costs by functional group ($$/tonne)
Final weight estimates by functional group
Other shipyard factors applied to construction hours and
material costs to get to total cost before profit

Permits derivation of CERs and learning curves

Recommendations

Under NSPS establish a permanent ship cost

estimating capability
Develop one group that does this all the time, for
all ships, in all departments
Always use the same factors and parameters
Develop a cost estimating model for use by
program offices designing and procuring ships
Would recommend use of a commercial tool such as
ACEIT that prevents development of individual
spreadsheets, and allows for numerous what-ifs

Recommendations

Under NSPS establish a permanent ship cost

estimating capability
Collect returned cost data and metrics from
each new construction program for each ship
Typically shipyards do not like to give up this data
Need to establish a relationship that allows the
shipyards to protect themselves while also contributing
to the development of more effective cost models

Derive CERs for each functional area for each ship

type

Recommendations

Under NSPS establish a permanent ship cost

estimating capability
Develop a standardized input data set for new
programs as the starting point for estimating costs
Everybody uses the same rates for the non-ship
construction cost estimates
Everybody uses the same labour rates

QUESTIONS?