Purpose

• To outline the changes that must have their total cost calculated, the responsibility for calculating the cost, to indicate those costs that must be included, specify the form used, furnish form instructions and additional change approvals required based upon the cost.

Applicability

• Certain design changes to be processed by this CM function.
• Changes which must have their total cost calculated prior to approval or release are those made to “reduce costs” and to “improve performance” and others as directed by the Request Review Team or the Change Team.
• Changes that are totally or partly “to meet specification” need not have the cost calculated unless the team requests it or unless the cognizant design engineer has alternative designs to cost.
• Document Only changes shall not be cost calculated.

Policy/Practice

• The team can decide not to approve a change until the cost has been calculated. The team may also decide to approve a change subject to completion of the cost calculation / payback prior to release.
• Cost calculating will be done by CM (Industrial Engineering/Cost Accounting are alternates – see the EDC Handbook for a discussion of alternatives).
• All the cost directly associated with a given change shall be included in the cost — by Activity Based Cost (ABC). Costs/savings to be included (but not necessarily limited to):

Unit Costs:

• • Old part/new part standard material and labor cost/savings – at IE/Accounting standard cost.
  • Assembly/test labor cost/savings – at IE/Accounting standard cost.
  • Production material/labor burden (overhead) ABC factors applied.
  • Unit costs above will be annualized by the expected annual production quantity of the product(s) affected.

Startup Costs:

• • Supplier rework, tooling, premiums and cancellation charges.
  • Manufacturing scrap, rework, tooling, fixtures, test equipment, documentation and inspection equipment costs.
  • Field Change Order kits, service labor, returns repair labor, spares crib scrap/rework.
  • Design Engineering, CM, Design/Drafting labor.
  • Engineering labor burden (overhead) ABC factors applied.

• Changes called “cost reductions” must pay back one-time costs within ____ months or they will be canceled/rejected. (See the EDC Handbook for guidance.)
• If “improvements over/above specifications” add more than $ ____ per unit (applicable to the products listed in Product Improvements Standard) they must be approved by the chief engineer.
• Product improvements must have management approval based on the one-time startup costs as follows (pick you own $):
  1. Up to $5,000 may be approved by the first level Engineering Manager.
  2. From $5,001 to $10,000 may be approved by a second level Engineering Manager.
  3. Changes exceeding $10,000 must be approved by the VP of Engineering.
• The Production Control Planner will furnish the estimated planned effectivity and part disposition to CM for cost basis (in this sense, this will be an estimate, not a calculation.)

Procedure

• See work flow diagram on page 3.
• Accounting must furnish up-to-date ABC factors.
• Cost Calculation Form and Form Instructions are on page 4 and 5 of this standard.

Primary Responsibility

• The CM function will have responsibility for keeping this standard current.
• Exceptions to this standard may be taken by the change request or change team by stating in the applicable change order form why it was necessary.

Authorization