Setup Accounting Definition

Expenses incurred each time a batch is produced. It consists of engineering cost of setting up the production runs or machines, paperwork cost of processing the work order, and ordering cost to provide raw materials for the batch. 

Production Setup

Production setup activities support an operation’s need to manufacture a diversity of products on the same equipment. Since setups are non value added, firms should seek to minimize their impact on manufacturing capacity and flexibility. World class manufacturing calls for heavy focus on setup reduction activities to support inventory reduction, capacity debottlenecking, and manufacturing flexibility. One-time portion of a production cycle in which a specific machine, work center, or assembly line is ‘made ready’ to switch from production of the last good piece of the last lot to the first good piece of the new lot, also known as change over.

 Manufacturing Definition

Setup Cost

Setup costs include the labor and material to ready a machine for production. They may include the processing of work orders or a first-article inspection. Gathering of all required equipment hand and automated, tools, work orders, materials etc. which are needed to perform the manufacturing process.

 Setup Cost Calculation

Setup costs are treated as a one time occurrence and that cost is divided or amortized over the batch size to be produced during the batch cycle. Each unit of the batch carries an equal share of the set up time and materials cost which are added to each unit run time and materials to calculate a total per unit cost. This cost curve on the part cost figure is high when batches are small and rapidly decreases with increasing batch quantity.

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 CMMI  is a model that can be applied to effect a change in the way an organization (or company) performs on specific projects.   The Levels of CMMI:

1. Process unpredictable, poorly controlled and reactive
2. Process characterized for projects and is often reactive
3.  Process characterized for the organization.
4.   Process measured and statistically controlled
5.  Emphasis on continuous improvement in the process with a goal of more fully meeting the cost/performance objectives of the organization.

Key activities for CMMI Level 4 include:

1. Set the organizational Process Performance goals and establish a Quantitative Project Management methods to ensure processes are measured and statistically controlled.
2. Select processes that support the organizational goals.   If as in most companies goals include developing products on time and on budget in order to increase customer satisfaction and improve profits
   1. You need a valid estimating process that provides a confidence based project plan
   2. You need to measure cost and schedule at team task level
   3. Predict future project performance (actual estimate based on past performance not a belief that the project performance will improve with no external action)
   4. Take “optimal” corrective actions early
3. Develop organizational baselines that can be used to monitor project predictions based on past performance and enforce corrective action when baselines are breached, ie establish the upper and lower control limits that force project corrective action.
4. Use a predictive model such as a Performance Based Earned Value Model to predict the project future performance
5. Take corrective action to mitigate risks, improve performance, prevent issues, and optimize project performance.

 The question regarding level 4 and the application of SEER models for Process Performance Modeling has been addressed in the SEER for Software suite with the addition of Project Monitoring & Control (PMC) option.   PMC is a primary tool in support of step 2, 3, and 4 above.   In  a paper presented at the June 2009 ISPA conference, “Optimized Project Management of Systems and Software Projects”  we discussed the concepts of developing an estimate using a parametric model such as SEER SEM so that the project has a confidence based project plan that can be executed.     We demonstrated the use of the PMC option to SEER SEM as a tool to analyze project metrics indicating performance against project plan.   PMC is a key tool for the Key Process Area “Quantitive Project Management (QPM) providing a method to support statistically controlling  the project by using the process metrics to analyze and predict future project performance as a function of past project performance.   When the predicted performance is not within an acceptable tolerance, process modifications should be made.   

At that point we then  use SEER-SEM to provide a quantitative assessment of the process alternatives possible to improve project performance.    We have used the SEER-SEM tool in that mode for more than 5 years in support of a major DoD program providing on going assessment of project performance and recommendations of “best” process improvements from among the alternatives considered.

Applying a parametric model, reflecting the organization’s processes,  you can  develop an executable project plan to a defined confidence level .    Continued use of the SEER parametric model’s PMC capability will provide a basis for an Organizational Process Performance (OPP) analysis process and the Quantitative Project Management QPM) approach to provide the statistical control of the project.

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Hired only the best and the brightest: They hired MIT students (could increase productivity by a factor of 10 even with Brooks Law)

Implemented only loosely coupled projects, and small ones at that:  They chose projects that “lie around the edges of our core technology.”  Congratulations to them.  Remember Brooks Law is applicable primarily on individual programs by an individual team. 

Specified completely before bringing in the interns: So the project(s) were well started when the 20 interns appeared.  They don’t say how much time or staff it took to do the specification.  A small team working early to define and a larger staff for construction is within Brooks Law.

A very short duration:  Unclear whether they could keep up such a pace over a longer project.

Bottom line: This was quite an accomplishment.  Hats off to this team.  But while this is of great interest, I don’t believe Brooks Law is busted.

PS I wish I watched Mythbusters on TV more often.  I could then have used their terminology.

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Of course there is a point where the ineffeciencies of elongated schedule cause people to gold plate, etc.  And SEER for Software does start increasing costs when that point is reached.

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• Acquisition Reform (WSARA) Webinar Discusses Lessons Learned and Way Forward

When I first started with Galorath, I used to wonder about the usefulness of having parameter inputs like “Developer Experience” or “Development Tools and Practices” within our electronic models.  Like many engineers, I didn’t like these types of qualitative inputs, preferring to use more concrete entries like “frequency of board,” “number of ICs/IO” and others. However, as the years have progressed, I am amazed at how critical these qualitative parameters continue to be. Like I heard mentioned in one of my SEER H classes, “There are A teams, B teams and believe it or not even D teams.” More importantly, the impact of these variations can cause dramatic differences in a project’s level of effort.

Common reasons for poor team efficiency could be longevity of the individuals in the given technologies, recent mergers, bad chemistry, poor communication practices and others. It’s important to note that we look at this parameter as an overall assessment of the team.

To help reduce confusion with this input, SEER-IC looks at the following criteria: Accomplishment Metric, Configuration Control, Communications, Adv Skills and Tool Experience. Specific measures within these major sections help users to come up with a reasonable range input. Also, this is definitely one parameter that should have a different entry for “least,”, “likely” or “most.”  In other words, there is always some level of risk here.

In SEER-H, swings in Development Experience individually can swing costs by as much as 30%. Development  Tools and Practices by as much as 50%. We tend to look at “common” variations. In reality, at times, the variations may be orders of magnitude.

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Acquisition Reform (WSARA) And How It Impacts Your Estimations: Looking Forward And Lessons Learned

Weapons systems acquisition reform has been a recurring topic within the Department of Defense for many years. 

Mr. Bob Hunt, Galorath’s V.P. of Professional Services, was a Senior Pentagon official during the previous Acquisition Reform  initiatives.  He has since been active in the contractor community.  Mr. Hunt will offer a unique perspective on how these acquisition reforms will impact both the Government and the contractor estimating communities.

This WebEx will discuss the unique implications of the latest reform on the cost and schedule estimating process, including:

•          Cost Assessment & Program Evaluation

•          Directors of DT&E and Systems Engineering Performance Assessments & Root Cause Analysis

•          Assessment of Technology Maturity

•          Trade-Offs in Cost, Schedule and Performance

•          Critical Cost Growth in MDAPs

•          Earned Value Management

•          Required Reports

•          Cost Assessment & Program Evaluation

•        How some of the SEER applications can be advantageously applied for Pre-milestone A estimates 

•          And much more!

Much (or some) of this has been tried before, e.g. Goldwater-Nichols Department of Defense Reorganization Act of 1986; also discussed in “The Cost Analysis Improvement Group: A History”  by Srull, Margolis, and McNicol.  WSARA is being driven by the continued and “sometimes surprising growth” in the cost and schedule of Major Defense Acquisition Programs (MDAPs).
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Date and Time
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March 9, 2010
8:30 am, Pacific Standard Time (GMT -07:00, San Francisco)
11:30 am, Eastern Standard Time (GMT -05:00, New York)
4:30 pm, London, England 

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Presenter
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Bob HuntVP of Services, Galorath Incorporated

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To register for the online event
——————————————————-

This complimentary event requires registration with a corporate email address.

1. Go to https://galorathevents.webex.com/galorathevents/onstage/g.php?t=a&d=669660618
2. Click “Register”.
3. On the registration form, enter your information and then click “Submit”.

Once the host approves your enrollment, you will receive a confirmation email message with instructions on how to join the event 

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“I am delighted to confirm your election as an INCOSE Fellow, effective immediately. You join a distinguished group of, now, 62 individuals whose contributions to the art and practice of Systems Engineering are recognised and respected worldwide.

By providing intellectual leadership to the discipline as a whole and enhancing the INCOSE organisation through your support to the Board of Directors and other leaders, INCOSE Fellows have the ability and opportunity to contribute significantly to the INCOSE mission to “Share, promote and advance the best of systems engineering from across the globe for the benefit of humanity and the planet”. I hope that as a new INCOSE Fellow you will both benefit from this honour and embrace the responsibilities that it brings, continuing to engage in the advancement of INCOSE and the discipline, and leading by example to improve the professional standing of all those who practise systems engineering.”

I have known Dr. Min for a number of years and have seen, first hand, his contributions to the industry.  Again, congratulations, Luke.

“Though many are jumping on the on-demand bandwagon, many are also jumping off.  Churn rates for on-demand are as high as 30 percent while renewal rates with on-premise software stand in the 80 percent range. There must be a reason an increasing number of organizations that tried on-demand applications have returned to an on-premise solution.  For reasons such as:

•  total cost of ownership
• ease of customization
• control of data
• process automation options
• user-interface
• disaster recovery

What this doesn’t seem to show is whether those who drop out of SaaS go to an internal solution or just stop doing that SaaS function.  This needs more study.

After the recent disaster where the building where we host our mission critical applications (with its backup generators, etc)  was without electricity for two days, we are actually investigating getting our email and other functions out onto a data center ourselves.  It is more expensive since we have already invested in infrastructure and IT services.  But it may be worthwhile for disaster recovery.  Of course the questions of what if the data center has a disaster itself, how do we keep long term backups, etc. are still unanswered.

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For more complete discussion see my book on Software Sizing, Estimation and Risk Management.

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