Step-Down Functions

A step-down function is a method of estimating first unit production costs from prototype or development cost data. First, a cost estimator accounts for the number of equivalent prototype units, based on both partial and complete units. This allows the estimator to capture the effects of units that are not representative of a complete unit on the improvement curve. For example, if the development program includes a static article that represents 85 percent of a full aircraft, a fatigue article that represents 50 percent of a full aircraft, and three full aircraft, the development program would have 4.35 equivalent units. If the program is being credited with learning in development, the first production unit would then be unit 5.35 - the first unit produced after the equivalent units were produced.

After equivalent units have been calculated, the analyst must determine if the cost improvement achieved during development on these prototype units applies to the production phase. The following factors should be considered when analyzing the amount of credit to take in production for cost improvement incurred in development:

  • the break between the last prototype unit and the start of production units;

  • how similar the prototype units are to the production units;

  • the production rate; and

  • the extent to which the same facilities, processes, and people are being used in production as in development.

By addressing these factors, the analyst can determine proper placement on the curve for the first production unit. For example, analysis might indicate that cost improvement is continuous, and therefore, the first production unit is the number of equivalent development units plus one. If it is further determined that the development slope should be the same as the production slope, the production estimate can be calculated by continuing down the curve for the desired quantity. This is referred to as the continuous approach.

Analysis of the four factors often leads the analyst to conclude that entirely continuous improvement is not appropriate and that some adjustment is required. This could be because prototype manufacturing was accomplished in a development laboratory rather than in a normal production environment, or because engineering personnel were used rather than production personnel. Numerous reasons are possible for less than totally continuous cost improvement; the analyst must thoroughly evaluate each program’s particularities.