Explains how a complexity or similar-to factor can be used in labor estimating
Labor estimates are often created for a mixture of non-recurring or engineering labor and manufactured or in-house produced part labor. Ideally labor estimates are copied from a previous proposal or from prior performance history. The deliverable being estimated today is often different to the deliverable which is being referred to and copied, perhaps a new variant of it or incorporating some upgrade or unique customer requirement not considered originally. Complexity factors are used to adjust the new estimate vs. the old.
How does Complexity Factor Work
Complexity is simply the factor by which the historical or reference effort is multiplied to derive the new effort. It is set based on a subjective assessment of the "relative complexity" of the new vs. old deliverable. For example if the old deliverable was a login screen with single factor authentication and the new deliverable is the same login screen but with two factor authentication then the complexity factor might be 25% or 1.25.
Complexity factor is entered as the ratio of old vs. new e.g. 1.25 means "old effort plus 25%" or "old effort times 1.25". Complexity factors can be less than 1 but cannot be 0. If not input or set as 0 then the complexity factor is taken as 1
Examples of Complexity Factors
There are essentially three use-cases for complexity factor in this application:
- When copying an estimate from a previous estimate (copy plan) then the complexity is the factor applied to the historical estimate to derive the new effort. It is also called a "similar-to" factor
- When copying an estimate from performance history (copy actuals) then the complexity is the factor applied to the actual labor hours recorded to derive the new effort. It is again called a"similar-to" factor
- When estimating the cost of a make part the complexity factor is the factor applied to the routing standards for one unit to derive the unit time, by resource, for the new part. It is again called a "similar-to" factor and represents the extra effort or complexity to build the new part vs. the old one.
Complexity Factor vs. Similar-to Factor
It is possible to edit the similar-to factor in a proposal's indented product configuration when a part is added to the quotation bill of material (BOM) which is "similar to" another part. The complexity or similar-to factor is entered in the BOM and is applied to the quantity of parts required to arrive at a cost which is therefore factored accordingly. This is very similar in concept to labor complexity factors however one subtle difference is that a complexity or similar-to factor in the quotation BOM is applied to the quantity not directly to the hours. As a result price-breaks or higher quantity discounts could get applied which would not have otherwise been applied to the labor hours.
Complexity Factor vs. Learning-Curve Factor
Learning curves or realization factors are applied specifically to make-part labor estimates to reflect the experience your company has making that part as well as the efficiency of the intended site or workers building the part, as compared to how the routing standards were derived. For example if the routing standards were derived based on what it takes to make 10 items in the US, and the proposal calls for 500 items to be delivered out of Germany then it is safe to assume that the time to manufacture one unit 500 times is less than the time for the first ten units (even ignoring set-up vs. processing time), because of the greater experience, learning and time to improve processes. Equally, your plant in Germany might be more or less efficient than your US plant. These two aspects combine to make the learning curve or realization factor.
Complexity factor is not the same as learning curve factor, they represent two totally different concepts, even though they are both applied to make part labor hours estimates.