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Estimating the Value of Derating
This example is based on a real situation. Af ter a class on design f or reliability, a senior manager declared that
every component would be f ully 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 af ter the class the product line enjoyed a 50% reduction in warranty claims. They
learned about derating and a manager saw the potential value.
We of ten do not have a manager with such f oresight, so we need to provide justif ication f or 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 f our year period. And, like other high cost/low volume
products the cost of f ailure is very high.
Because the unit costs are very high, the ability to test suf f icient numbers of units to f ailure is severely limited.
It is not uncommon to have only one or two units f or all qualif ication testing. Furthermore, the complexity of
the units provides multiple possible f ailure mechanisms and only rarely does the design provide a clearly
dominant f ailure mechanism to f ocus reliability evaluations.
Given the barriers to conducting physical testing, the reliability team recommends implementing detailed
derating analysis f or 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. Theref ore, the project manager has
requested more inf ormation 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
f ailure of the components. The ratings vendors provide only imply that the component can experience the
stress at the rated value f or 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 f ailure. The same concept can be applied
f or mechanical designs, using saf ety margins.
At Hewlett-Packard, a study of the ef f ects of various design f or reliability tools f ound a very high correlation
between well-executed derating programs and low f ield f ailure rates. This contributed to the 50% f ewer f ield
f ailures experienced . In one particular division where the design team embarked on a f ull implementation of
derating on all products, the project realized a 50% reduction in f ield f ailures in the f irst year, and continued to
reduce f ailure rates over subsequent years as more f ully 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 f or 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 f ewer
f ield f ailures . The cost of a f ield f ailure is expensive, due to the replacement cost, f ailure analysis, and
possible redesign and qualif ication costs. Let’s assume that each f ield f ailure has an average cost of $2m, or
f our times the sales price.
Reducing a 10% annual f ailure rate (a low estimate f or such complex products) to 5% would results in 2.5
f ewer $2m f ailures per year f or 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 f ailure rate or cost of f ailure is low, then this ROI may not exceed the breakeven point. Also,
consider the market and impact on competition. If the high f ailure rate caused a loss of market share, that may
f urther increase the cost of f ailure. Still, implementing derating may not make sense in this situation.
See also Reliability, HALT and ALT Value articles.
1. Ireson, William Grant, Clyde F Coombs, and Richard Y Moss. Handbook of Reliability Engineering and
Management. New York: McGraw Hill, 1995., pg. 16.9.
2. Ireson, William Grant, Clyde F Coombs, and Richard Y Moss. Handbook of Reliability Engineering and
Management. New York: McGraw Hill, 1995, pg. 5.4.