Creating Value
Through Integration
Valuation Techniques
for Commercial Aircraft
Program Design
January 31, 2002
Presented By:
Jacob Markish
PD Team/LAI
Research Sponsored By LAI/NSF
Lean
Aerospace
Initiative
Introduction
Ø Adding value to the design process
Ø Motivation of this research
Ø Traditional conceptual design methods
Ø Several insulated groups involved
Ø Engineering, cost estimating, marketing, etc.
Ø Analyses are typically uncoupled, serial
Ø Result: sub-optimization
Ø Proposed improvement
Ø A common representation of the system
Ø Bringing together the stakeholders
Ø Analyses are coupled, simultaneous
PD/J. Markish - 2 © 2002 Massachusetts Institute of Technology
Lean
Aerospace
Initiative
Outline
Ø Objective: Design for Value
Ø Approach: Build & Link 3 Models
✑
✎ Performance Model
✒
✎ Cost Model
✓✎ Revenue Model
Ø Example 1: BWB
Ø Future work: Flexibility & Uncertainty
Ø Example 2: UCAV
Ø Summary
PD/J. Markish - 3 © 2002 Massachusetts Institute of Technology
Lean
Aerospace
Initiative
Objective: Design for Value
Ø Create a quantitative analysis tool
Ø Capabilities:
Ø Technical trade studies
Ø Program trade studies
Ø Results:
Ø Measure program value
Ø Measure effects of flexibility & uncertainty
Ø Motivate a systems view of design process
PD/J. Markish - 4 © 2002 Massachusetts Institute of Technology
Lean
Aerospace
Initiative
Approach (1 of 2):
Construct 3 Models
Ø Free-standing
Ø Capable of integration
✑
✎ Performance
Ø Product sizing and configuration
✒
✎ Cost
Ø Product creation effort by the producer
✓✎ Revenue
Ø Factors affecting customer demand
PD/J. Markish - 5 © 2002 Massachusetts Institute of Technology
Approach (2 of 2):
Link the Models
Lean
Aerospace
Initiative
Performance Model/
Configuration Optimizer
Product Configuration Database
Aircraft Types: a, b, c, …
Program Structure
• Decision tree
• Pricing strategy
Manufacturing/
Development
Cost Model
Demand
Model
Program Value
PD/J. Markish - 6 © 2002 Massachusetts Institute of Technology
Lean
Aerospace
Initiative
Performance Model:
WingMOD
Ø Multidisciplinary wing optimization code
Ø Developed at Stanford, Boeing Phantom Works
Ø Modified for application to Blended Wing Body aircraft
Ø Inputs:
Ø Mission constraints
Ø Design constraints
Ø Outputs:
Ø Minimum-weight airframe geometry
Ø Intermediate fidelity analyses
Upper Deck
Payload Area
Lower Deck
Payload Area
Ø Performance
Ø Weights & Balance
Ø Structural Loads
Ø Aerodynamics
Source: Boeing Co.
Ø Stability & Control
PD/J. Markish - 7 © 2002 Massachusetts Institute of Technology
Lean
Aerospace
Initiative
Ø
Cost Model:
Focus on Parts
Aircraft is broken down into modules
Ø
Inner wing, outer wing, …
Ø
Modules are classified by type
Ø Wing, Empennage, Fuselage, …
Ø
Cost per pound specified for each module type
Ø
Calibrated from existing cost models
Ø
Modified by other factors
Ø Learning effects
Ø Commonality effects
Ø
Assembly & Integration: a separate “module”
Ø
2 cost categories: development & manufacturing
Production run: a collection of modules
PD/J. Markish - 8 © 2002 Massachusetts Institute of Technology
Cost Model:
Development
Lean
Aerospace
Initiative
Ø Cashflow profiles based on beta curve:
c(t ) = Kt
−1
(1 − t )
−1
Ø Learning effects modeled
0.06
Support
0.05
Tool Fab
0.04
Tool Design
0.03
ME
0.02
Engineering
0.01
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53
normalized time
PD/J. Markish - 9 © 2002 Massachusetts Institute of Technology
Cost Model:
Manufacturing
Lean
Aerospace
Initiative
Ø
Aircraft built
Ø
Modules database
modules required
Ø
Records quantities, marginal costs
Ø
Applies learning curve effect by module, not by aircraft
Labor
Materials
Support
85%
95%
95%
time
PD/J. Markish - 10 © 2002 Massachusetts Institute of Technology
Revenue Model:
Price
Lean
Aerospace
Initiative
Ø Assumption: market price based on
Range
Payload
Cash-related airplane operating cost (CAROC)
80
160
70
140
Estimated price ($M)
Estimated price ($M)
Ø Regression model: P = k1 ( Seats) + k 2 ( Range) − f (CAROC )
60
50
40
30
y=x
Airbus
Boeing
20
10
0
120
100
80
60
y=x
Airbus
Boeing
40
20
0
0
10
20
30
40
50
Actual price ($M)
Narrow bodies
60
70
80
0
20
40
60
80
100
120
140
160
Actual price ($M)
Wide bodies
PD/J. Markish - 11 © 2002 Massachusetts Institute of Technology
Revenue Model:
Quantity
Lean
Aerospace
Initiative
Ø Demand forecasts
Ø
Ø
Ø
3 sources: Airbus; Boeing; Airline Monitor
Expected deliveries over 20 years
Arranged by airplane seat category
Ø Given a new aircraft design:
Ø
Ø
Assign to a
seat category
Assume a
market share
Demand forecast
20-year production
potential
4000
Airbus
3500
Airline Monitor
3000
Quantity
Ø
Boeing
2500
2000
1500
1000
500
0
100
125
150
175+
200
250
300
350
400
500+
Seat Category
PD/J. Markish - 12 © 2002 Massachusetts Institute of Technology
Example 1: BWB
Background
Lean
Aerospace
Initiative
Ø
Blended Wing Body (BWB):
Ø
Ø
Design and build 2 BWB variants:
Ø
Ø
Proposed new jet transport concept
450-seat, 250-seat
Consider 2 scenarios
Source: http://www.geocities.com/witewings/bwb/index.html
“C o m m o” n
Ø
BWB-250 variant shares fuselage bays; inner wings
Ø
Reduced design time/cost
Ø
Manufacturing cost savings (learning curve effect)
“P o i n t
D” e s i g n
Ø
BWB-250 variant is designed as all-new
Ø
Reduced gross weight & fuel burn
effects on cost & price
PD/J. Markish - 13 © 2002 Massachusetts Institute of Technology
Example 1: BWB
Setup
Lean
Aerospace
Initiative
Ø
Analysis time horizon
20 years
Ø
Discount rate
9% per annum
Ø
Aircraft price inflation
2% per annum
Ø
Market share
50%
Ø
Demand growth
0% per annum
BWB-250 assumptions:
Common P o i n t
F u s e l a g e
I n n e r
w i n g
F u s e l a g e
I n n e r
w e i g h t
d e s i g n
w i n g
T a k e o f f
CAROC
w e i g h t
-15%
-
-25%
t i m e-90%
/ c o s t
d e s i g n
g r o s s
-
D e s i g n
-
t i m
-90%
e / c o s t
-
w e i g h t -
-4.6%
-
-7.5%
PD/J. Markish - 14 © 2002 Massachusetts Institute of Technology
Example 1: BWB
Results—Cost Analysis
Lean
Aerospace
Initiative
900000
Non-recurring Cost
Recurring Cost
Revenue
800000
700000
Cashflow ($k)
600000
500000
400000
common
300000
200000
100000
0
0
50
100
150
200
time (months)
PD/J. Markish - 15 © 2002 Massachusetts Institute of Technology
Example 1: BWB
Results—Cost Analysis
Lean
Aerospace
Initiative
900000
Non-recurring Cost
Recurring Cost
Revenue
Non-recurring Cost
Recurring Cost
Revenue
800000
700000
Cashflow ($k)
600000
500000
common
400000
300000
200000
point design
100000
0
0
50
100
150
200
time (months)
PD/J. Markish - 16 © 2002 Massachusetts Institute of Technology
Example 1: BWB
Results—NPV Analysis
Lean
Aerospace
Initiative
8000000
6000000
Cumulative P.V. ($k)
4000000
2000000
0
0
50
100
150
200
-2000000
common
-4000000
-6000000
-8000000
-10000000
time (months)
PD/J. Markish - 17 © 2002 Massachusetts Institute of Technology
Example 1: BWB
Results—NPV Analysis
Lean
Aerospace
Initiative
8000000
6000000
Cumulative P.V. ($k)
4000000
2000000
0
0
50
100
150
200
-2000000
common
point design
-4000000
-6000000
-8000000
-10000000
time (months)
PD/J. Markish - 18 © 2002 Massachusetts Institute of Technology
Future Work:
Uncertainty & Flexibility
Lean
Aerospace
Initiative
Ø Uncertainty: “forecasts are always wrong”
Ø D e m a n d
f o r
a i r p l a n e s
a s
a
s t o c h a s t i c
p
Ø Flexibility: ability to adjust to evolving conditions
Ø N o t
a d d r e s s e d
i n
B W B
e x a m p l e
a b o v e
Ø Traditional NPV analysis is insufficient
Ø A s s u m e s a l l d e c i s i o n s a r e m a d e
Ø D e c i s i o n s c a n b e d e f e r r e d
u p - f r o n
Ø Analysis options:
Ø “W h a t” - isf c e n a r i o s
Ø M o n t e C a r l o s i m u l a t i o n :
n e e d d e c i s i o n
Ø D y n a m i c p r o g r a m m i n g :
a p p l i c a t i o n t o R
PD/J. Markish - 19 © 2002 Massachusetts Institute of Technology
Example 2: UCAV
Background
Lean
Aerospace
Initiative
Ø Uninhabited Combat Air Vehicle
Ø E m e r g i n g
w e a p o n s
Ø N u m e r o u s
s y s t e m
p o t e n t i a l
u s e s
Ø Design problem
Ø C r e a t e
a
m a x i m u m - v a l u e
Ø U n c e r t a i n
f u t u r e
p r o d u c t
r e q u i r e m e n t s
Source: Boeing
Ø Need to address system flexibility
Ø H o w
t o
d e s i g n
Ø H o w
t o
v a l u e
Ø H o w
m u c h
f l e x i b i l i t y
i n t o
t h e
f l e x i b i l i t y ?
f l e x i b i l i t y
i s
o p t i m a l ?
PD/J. Markish - 20 © 2002 Massachusetts Institute of Technology
s y s
Example 2: UCAV
Setup
Lean
Aerospace
Initiative
Ø
Drivers of system value
W h a t
i s
t h e
l i f e c y c l e
W h a t
i s
t h e
t a c t i c a l
Ø
Ø
m i s s i o n s
c a n
b e
p e r f o r m e d ?
Program design
H o w
Ø
e f f e c t i v e n e s s ?
Technical design
W h a t
Ø
c o s t ?
i m p o r t a n t
i s
t h e
m i s s i o n ?
Threat environment as a stochastic process
Design to maximize value
Ø
C o n s i d e r
Ø
C o n s t r u c t
Ø
Examples
p o s s i b l e
f u t u r e
f r a m e w o r k
Ø
Modular design, LRUs
Ø
Extra payload capacity / Extra endurance
Ø
Family of aircraft
t o
s c e n a r i o s
t r a d e
o f f
c o s t
PD/J. Markish - 21 © 2002 Massachusetts Institute of Technology
Lean
Aerospace
Initiative
Summary
Ø Design for value (not weight, or cost, or revenue)
Ø H o w
t o
i m p l e m e n t ?
Ø Quantitative analysis approach
Ø Qualitative design philosophy
Ø BWB example
Ø N o n - o b v i o u s
Ø N o
p r o g r a m
a n a l y s i s
o f
d e s i g n
u n c e r t a i n t y
d y n a m i c s
&
f l e x i b i l
Ø Future work
Ø D e c i s i o n
t r e e
Ø D e s i g n i n g
f o r
a n a l y s i s / d y n a m i c
a n
u n c e r t a i n
p r o g r a m
f u t u r e
Ø UCAV example
Ø A p p r o a c h
a p p l i e s
t o
m i l i t a r y
p r o j e c t s
PD/J. Markish - 22 © 2002 Massachusetts Institute of Technology