Chapter 3 Cost Estimation

Chapter 3 Cost Estimation - Chapter 3 Cost Estimation...

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1 Chapter 3 Cost Estimation Techniques Whenever an Economic Analysis is performed for a major capital investment or project, the cost estimating effort should be an integral part of the planning and design process and engineers often must be involved in that cost estimation. Purposes: Providing information used in setting a selling price for quoting, bidding, or evaluating contracts Determining whether a proposed product can be made and distributed at a profit Evaluating how much capital can be justified for process changes or other improvements Establishing benchmarks for productivity improvement programs
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2 Cost Estimation Techniques Engineering economic studies typically deal with future analysis and future outcomes. Cost estimation for feasible alternatives becomes critical in the engineering economic analysis procedure. This is true since any decision we make as to whether an alternative is economically attractive is highly dependent on how accurate these estimates are.
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3 Cost Estimation Techniques Types of data needed Sources that are used for gathering data Methods that can be used to estimate future revenues and expenses.
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4 Categories of Costs and Revenues that may be needed Capital investment Labor costs Material costs Maintenance costs Property taxes and insurance Quality costs Overhead costs Disposal costs Revenues Salvage or market values
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5 Cost Estimation Techniques Estimate classification: Order of magnitude estimates - used in planning and initial evaluation stages of a project Semi-detailed or budget estimates - used in the preliminary or conceptual design stage of a project Definitive (detailed) estimates – used in the detailed engineering or construction stage of a project
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6 Cost Estimation Techniques Level of detail and accuracy of estimates should depend on: Time and effort available and justified for the study Difficulty of estimation Methods or techniques used Ability of the estimator Sensitivity analysis
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7 Sources of Estimating Data Accounting records
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This note was uploaded on 04/17/2008 for the course IE 1036 taught by Professor Karenbursic during the Fall '06 term at Pittsburgh.

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Chapter 3 Cost Estimation - Chapter 3 Cost Estimation...

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