Chapter:-11Fast Diagramming, Life Cycle Cost
Cost: -The basic anatomy of cost consists of three elements. They are:
1. Direct material cost
2. Direct labor cost
3. Overhead cost
Direct material cost: -
It is the material which goes into the product, process, service or system. The method of identification of this element of cost is that it should have a direct relation with the unit. If for one unit it requires ‘x’ quantity, for two units it should take ‘2x’ quantity.
It may so happen that a material which is not a direct material in one item may be a direct material in another item. It is wise to find as much direct material as possible, but in actual situation, it may not be feasible.
Direct labor cost: -
Based on the mentioned logic, direct labour cost is that cost which can be directly attributed to the item, that is, if one unit requires ‘1 hour’ then two units should take ‘2 hours’.
Overhead cost: -
While the first two costs are easily comprehensible, the third requires more elaboration. The cost elements which cannot be directly associated with a product, process, service or system are considered as overhead. In the absorption costing method, the overhead is divided into:
1. Production overhead
2. Administrative overhead
3. Selling and distribution overhead
Managements are interested to use the past cost to take future action. But this absorption method may not be so helpful for doing that. In order to use the cost for future decision making, ‘marginal cost’ came into being. Marginal cost is not a method of costing; it is a technique. As per this technique, overhead costs are divided into:
1. Variable overhead
2. Semi-variable overhead
3. Fixed overhead
Those overheads which have direct relation with the volume of production are variable and those which are not are called ‘fixed’. It analyzes the effect of fixed cost on the product, which will help in decision making.
To elaborate, let us take an example.
The fixed cost is Rs 10,000.
The variable cost is Rs 10.00 per unit.
At the production level of 10,000, the fixed cost per unit is Re1 and the product cost will be Rs 11. If the production increases to 20,000 units, while the variable cost remains at Rs 10, the fixed cost per unit will be Rs 0.50 and the product cost will reduce to Rs 10.50.
Life cycle costs: -The Life cycle cost, which is also known as ‘cradle to grave cost’, is the total cost from acquisition of an item to the final disposal of the same after the life of the item. The elements of Life cycle cost can be narrated as:
i. Acquisition cost
ii. Operational cost
iii. Maintenance cost
iv. Repair and replacement cost
v. Salvage cost
These costs arise at different times of the product cycle and need some explanation.
i. Acquisition cost
It is not only the raw material cost for manufacturing of the item. It also includes the drawing and design cost as well as development cost.
ii. Operational cost
Customer, after purchasing the item, may have to spend a certain amount of money to use the item. It is like petrol/diesel cost for running a car. Such type of costs will fall in this category.
iii. Maintenance cost
There is always a cost of involvement for the maintenance of the item. This is because there may be some need to keep the item in good condition. It is like the change of engine oil for the engine of a car.
iv. Repair and replacement cost
The item may have wear and tear, and may need repair after certain period of time. There may be some components in the item which have a limited life and need to be replaced. These costs will come under this category. Retreading a car tyre is a repair cost and providing a new tyre is a replacement cost.
v. Salvage cost
The customer may sell the product and receive some amount in return. This amount is called the salvage cost.
There are two methods of calculating the Life cycle cost. These are: -
1. Present worth Method
2. Annualized Method
Assumptions: -
The calculation of Life cycle cost needs the following assumptions:
i. The alternatives which will be compared through Life cycle cost should be equivalent to each other. In other words, comparison with an apple to apple only.
ii. The acquisition cost is in the first day of the calendar year.
iii. All other costs are presumed to happen in the last day of the calendar year.
iv. Discounted rate is valid throughout the Life cycle. The cardinal rule is to use the same life span for all the alternatives.
Procedures for Calculating the Life Cycle Cost
Present worth Method: -
- Acquisition cost: Since the acquisition cost is in the first day of the calendar year, it is the present worth and its Present worth factor is ‘1’.
ii. Operation and maintenance cost: These costs take place every year. Using the discount rate and the year when operation and maintenance cost recur, find out the Present worth factor. Multiply the costs with those factors to achieve the present worth of the individual item.
iii. Repair and replacement cost: These are single payments which may happen at any time of the life cycle. Using the discount rate and the year when repair and replacement cost recur, find out the Present worth factor. Multiply the costs with those factors to achieve the present worth of the individual item.
iv. Salvage value: This will happen at the end of the life cycle. This is the only item which is an income, when all others are expenses. Using the discount rate and the year when it is being salvaged, find out the Present worth factor. Multiply the salvage value with that factor to achieve the present worth of the item.
- Life cycle cost: To arrive at the Life cycle cost, add all the items from serial number 1 to 3, then deduct item 4 from that total.
Annualized Method: -
i. Acquisition cost: Since the acquisition cost is in the first day of the calendar year, it is the present worth. To get the annualized cost, it has to be multiplied by the Capital recovery factor based on discount rate and the life of the items.
- Operation and maintenance cost: These costs happen every year. Hence, they do not require any further treatment.
iii. Repair and replacement cost: These are single payments which may happen at any time of the life cycle. Using the discount rate and the year when repair and replacement cost recur, find out the Present worth factor. Multiply the costs with those factors to achieve the present worth of the individual item. To get the annualized cost, it has to be multiplied by the Capital recovery factor based on discount rate and the life of the items.
iv. Salvage value: This item will happen at the end of the life cycle. This is the only item which is an income, when all others are expenses. Using the discount rate and the year when it is being salvaged, find out the present worth factor. Multiply the salvage value with that factor to achieve the Present worth of the item. To get the annualized cost, it has to be multiplied by the capital recovery factor based on discount rate and the life of the items.
- Life cycle cost: To arrive at the Life cycle cost, add all the items from serial number 1 to 3, then deduct item 4 from that total.
Limitations of Life cycle cost: -
- Life of the item: Determining the life of an item is difficult.
ii. Interest rate: The interest rate may not be same every year.
- Annual expenses: Annually operation and maintenance costs are assumed as the expenses occurring at the end of the year while calculating the LCC. Intermediate expenses are not taken into consideration.
- Quality/reliability: Not considering the quality and reliability of the item, since the focus is only on costs. The lowest LCC item may not be a good quality item.
- Aesthetic: Not focusing on the esteem value of the item. Hence, the lowest LCC item may fail to add to the esteem of the owner even though it provides the use value.
- Comfort and safety: The comfort and safety of the customer are not considered while determining the LCC. Hence, there is a chance that the lowest LCC item may not provide sufficient comfort/safety resulting in poor value to the customer.
Function Analysis System Technique (FAST): -History of FAST: -
Charles Bytheway, of Sperry–Rand’s UNIVAC division, was not satisfied with the way the basic function was identified. It was that constructive dissatisfaction and the subsequent endeavor which created this powerful technique. He presented his new technique at the SAVE Conference in 1965.
Any new concept always goes through evolution. The FAST diagram, started by Charles Bytheway, also encounters various changes in order to make it more user-friendly and understandable to all. Wayne Ruggles made a format in the year 1967, applying various aspects of FAST diagramming. This was subsequently known as the Technical FAST Diagram. The aspects included by Ruggles were:
i. Scope lines added
ii. Two basic questions: how and why
iii. ‘Required’ and ‘unrequired’ functions separated
iv. Functions entered in the columnar fashion
R.J. Park in 1968, incorporated the ‘when’ logic to the Technical FAST Diagram.
Subsequently, Thomas J. Snodgrass and Theodore Fowler drew the FAST diagram using the customers’ point of view in the year 1969. This diagram is now known as the Customer Oriented
FAST. It has only the left scope line and customers’ requirement is mentioned as ‘task’. It can be narrated as:
i. ‘Task’ defined
ii. ‘Supporting functions’ established
iii. Supporting functions contribute to ‘selling’ and ‘acceptance’
Definition of FAST: -
The FAST is a Systematic Diagramming Technique that logically identifies and visually displays the necessary function to accommodate a design purpose.
Use of the FAST diagram: -
i. Organize random listing of functions
ii. Helps check for and identify missing function
iii. Simplifies the list of functions first generated
iv. Aids in identification of basic function
v. Aids in setting scope of the study
vi. Deepens understanding of the problem
vii. Demonstrates that a thorough team analysis has been made
Different types of FAST: -
i. Classic FAST
ii. Technically Oriented FAST
iii. Customer Oriented FAST
How to draw a FAST diagram: -
FAST diagram (Classic): -
1. Prepare a list of all functions.
2. Use verb and noun to define a function.
3. Write each function in a small card.
4. Involve the whole team in the diagramming exercise.
5. Select the card which appears to be a basic function.
6. Apply logical question ‘how’ and ‘why’ on selected function to determine functions to right and left on this selected function.
7. Functions satisfying ‘how–why’ logic are ‘Major Critical Path’ functions to be put in line.
8. Draw scope line (dotted line) on left side of basic function.
9. Place higher order functions on the left side of scope line.
10. ‘Independent function’ can branch out from the function of the Major Critical Path.
11. ‘Dependent function’ may come from the independent function. This path is called Minor Critical Path.
12. ‘Design objectives’ is placed above the basic function.
13. Right scope line (dotted) to be drawn left of function that is suitable input to the system.
14. Function right to the right side of right scope line is lower order/causative function (see Figure 8.1).
FAST diagram (technically oriented): -
1. Prepare a list of all functions.
2. Use verb and noun to define a function.
3. Write each function in a small card.
4. Involve the whole team in the diagramming exercise.
5. Select the card which appears to be basic function.
6. Apply logical question ‘how’ and ‘why’ on selected function to determine functions to right and left on this selected function.
7. Functions satisfy ‘how–why’ logic are ‘required secondary’ functions to be put in line.
8. Draw scope line (dotted line) on left side of basic function.
9. Higher order functions on the left side of scope line.
10. ‘All time function’ to be placed in right hand top corner above critical path.
11. ‘Design objectives’ is placed above the basic function.
12. Functions that happen ‘at the same time’ placed below that function.
13. Right scope line (dotted) to be drawn left of function that is suitable input to the system.
14. Function right to the right side of right scope line is lower order/causative function (see Figure 8.2).
FAST diagram (customer oriented): -
1. Prepare a list of all functions.
2. Use verb and noun to define a function.
3. Write each function in a small card.
4. Involve the whole team in the diagramming exercise.
5. Select the card which appears to be basic function.
6. Apply logical question ‘how’ and ‘why’ on selected function to determine functions to right and left on this selected function.
7. The logical question ‘why’ to basic function will provide ‘task’.
8. Draw scope line (dotted line) on left side of basic function.
9. ‘Task’ will be on the left side of scope line.
10. Support functions should be placed below the basic function.
11. There are four supporting functions at the primary level.
12. They are: ‘assure convenience’; ‘assure dependability’; ‘satisfy user’; ‘attract user’.
13. Each supporting function will branch out to secondary level function.
14. Secondary level functions will branch out to third level functions (see Figure 8.3).
Diagramming perspectives: -
1. The FAST diagramming is just a tool, which can be used to clarify the project.
2. The process in making the diagram is important, not the perfection of the resulting diagram. As such there cannot be a unique FAST diagram.
3. The value engineering team can draw existing systems or existing designs, as well as propose system and propose design.
Caution: -
Do not include alternatives and choices not in the existing system.
If one wants to use the FAST in the design stage, he should:
1. Restrict the diagram to a specific concept.
2. The ‘method selected’ to perform a function brings many other functions into existence.
3. Use the future oriented questions.
Figure : Customer oriented FAST diagram
Good One....!!!!
ReplyDeletethanx... a lot who has uploaded this.....
ReplyDeleteme.......
Delete