Estimating the Value of Derating
This example is based on a real situation. After a class on design for reliability, a senior manager declared that every component would be fully derated in every product (electronic test & measurement devices). Within a year the design team redesigned all new and existing products, with strict adherence to the derating guidelines provided in the class. A year after the class the product line enjoyed a 50% reduction in warranty claims. They learned about derating and a manager saw the potential value.
We often do not have a manager with such foresight, so we need to provide justification for the investment. Here is a case that provides a way to view reliability investments and determine the return.
Derating and field failure rate
The specialized test and measurement industry creates very complex electronic equipment, expensive tools with total production of maybe 50 per year over a four year period. And, like other high cost/low volume products the cost of failure is very high.
Because the unit costs are very high, the ability to test sufficient numbers of units to failure is severely limited. It is not uncommon to have only one or two units for all qualification testing. Furthermore, the complexity of the units provides multiple possible failure mechanisms and only rarely does the design provide a clearly dominant failure mechanism to focus reliability evaluations.
Given the barriers to conducting physical testing, the reliability team recommends implementing detailed derating analysis for the selection of every electronic component. The design team does use some derating concepts, yet only based on a 50% guideline and without detailed analysis. Therefore, the project manager has requested more information about the process, costs, and value.
Derating and Field Failures Discussion
Derating is the selection of components that have ratings (power, voltage, etc) above the expected stress  . Selecting a capacitor that bridges a 5-volt potential that has a voltage rating of 10 volts would be considered a 50% derating. Selecting components that match the expected stress and rating generally lead to premature failure of the components. The ratings vendors provide only imply that the component can experience the stress at the rated value for a very short time. Derating provides a margin to minimize the accumulation of damage or the chance exposure of high enough stress to cause a failure. The same concept can be applied for mechanical designs, using safety margins.
At Hewlett-Packard, a study of the effects of various design for reliability tools found a very high correlation between well-executed derating programs and low field failure rates. This contributed to the 50% fewer field failures experienced . In one particular division where the design team embarked on a full implementation of derating on all products, the project realized a 50% reduction in field failures in the first year, and continued to reduce failure rates over subsequent years as more fully derated product designs shipped.
Components that are rated higher cost more and are generally larger in size. Assuming the current bill of material cost is $100k, the implementation of detailed and thorough derating the bill of material costs can rise to $200,000, or double. For a production run of 50 units, the cost increases to $5m.
The additional engineering time for training, circuit analysis, and procurement may add an additional $1m to the project cost. The total cost is an estimated additional $6m to the program.
The primary value of component derating is the increase in circuit robustness of the product leads to fewer field failures . The cost of a field failure is expensive, due to the replacement cost, failure analysis, and possible redesign and qualification costs. Let’s assume that each field failure has an average cost of $2m, or four times the sales price.
Reducing a 10% annual failure rate (a low estimate for such complex products) to 5% would results in 2.5 fewer $2m failures per year for an annual savings of $5m.
The ROI is the ratio of the expected return over the cost. With a cost of $6 million and return of only $5m, the ROI is less than one at 0.83.
If the starting failure rate or cost of failure is low, then this ROI may not exceed the breakeven point. Also, consider the market and impact on competition. If the high failure rate caused a loss of market share, that may further increase the cost of failure. Still, implementing derating may not make sense in this situation.
- Ireson, William Grant, Clyde F Coombs, and Richard Y Moss. Handbook of Reliability Engineering and Management. New York: McGraw Hill, 1995., pg. 16.9.
- Ireson, William Grant, Clyde F Coombs, and Richard Y Moss. Handbook of Reliability Engineering and Management. New York: McGraw Hill, 1995, pg. 5.4.