Introduction to Project

Management
Rohit Kapoor
 Test Your Understanding
• Consider a process with a unit cost of $40 for
the first unit
– i.e., c(1) = 40 and a learning rate of LR = 0.9
– What will be unit cost for the 16th unit?
– What will be the unit cost for the 19th unit?
 Slope b
•  ?
 Basic Equation
•  

𝑆𝑙𝑜𝑝𝑒
𝐿𝑅=2
Practical Example Cumulative Output
Year [MW] Cost [$/MW]
1976 1.88 97.28
1977 3.76 78.02
1978 6.10 57.61

• Data from Real World!

1979 8.27 39.16
1980 12.25 29.31
1981 18.98 24.17
1982 26.08 18.34
• Consider the cost of 1983
1984
38.59
57.12
16.66
14.31

development of 1985
1986
1987
82.04
104.42
137.03
12.47
11.80
9.08
Photovoltaic panels 1988
1989
169.05
205.45
7.00
6.18
1990 245.97 6.70
– Data from Paul Maycock, 1991
1992
285.78
342.14
7.37
7.26
Bloomberg New Energy 1993
1994
409.62
461.84
6.59
6.59
Finance 1995
1996
1997
528.60
596.00
713.54
5.82
5.29
5.58
1998 829.02 5.97
1999 963.19 5.96
2000 1188.28 4.92
2001 1465.97 4.72
2002 1891.79 4.97
2003 2404.96 4.39
2004 3150.44 3.89
 Observation?
• Clearly, the cost per watt is going down!
• But at what learning rate?
• How?
– Calculate the slope of log-log transformations
– Estimate the learning rate from the Table!
 Calculations
•  ?
 Illustration 1
• The first plane in the category of Boeing 767 takes 1
million hours of direct labour input for its
manufacturing. If 95% learning curve applies,
compute
– The average direct labour hours per plane needed, if
• 3 units are produced
• 5 units are produced
• 7 units are produced
• 31 units are produced
– The actual direct labour hours needed to manufacture the
3rd, 5th, 7th and 31st plane.
 Illustration 2 (Price Negotiation)
• Rafalle has agreed to supply Indian Air Force its 10 latest designed planes. The
Rafalle’s cost break-up for a plane is:

Items Cost (in Billion

INR)
Material 0.55
Labour 0.2
Overheads 0.25

• Rafalle has a policy of 15% mark-up on its cost. Indian Air Force has already paid for
the first 5 planes. It was discovered by Indian Air Force that there is a learning effect
concept. Can you advise Indian Air Force on the future payment for next 5 planes?
 Case – Boeing 767
• Terms of competition?
– Schedule
– Cost
– Performance
 Case – Boeing 767
• If you need to design this product
– Concept of family of planes
 Case – Boeing 767
• If you have to make this product
– Concept of core focus

• What other things you require

– Culture?
• Discipline
• Dedication
• Detailed planning
• Schedule adherence
• Constant communication and feedback
 Case – Boeing 767
• What are the risks?
– Financial risk
– Market risk
– Technological risk
– Production risk
 Central Issue
• Inline vs. Offline conversion?