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# Module12 - Decision-Making Preliminaries Estimating Cash...

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Decision-Making Preliminaries Estimating Cash Flows Part I

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Key Concepts Last Module: Estimating Cash Flows and Sensitivity Analysis This Module: Estimating Cash Flows and Gathering Information Introduce techniques to estimate cash flows for our engineering projects.
Estimation Methods Simple Techniques Unit Method Indexing Power Law and Sizing Model Learning Curves Advanced Techniques Curve Fitting Statistical Forecasting

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Unit Method When data is available in a per-unit format: Construction cost per mile Office space lease cost per foot C x = C r S x Cost Estimate Per Unit Cost (Reference) Number of Units
Example Finnish engineering firm Metso Oyj received a contract to deliver two cable belt conveying systems for coal transportation for the Dawson mine in Central Queensland, Australia. One system will deliver coal at the rate of 2,400 million tons per hour for 16 kilometers and the other for 10 kilometers. ets EUR22M Australian Order for Cable Belt Systems,” Dow Jones Newswires , January 12

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Solution Straightforward application of equation: 16km example follows similarly. C x = C r S x = (1.3 M km )(10km) = 13M Euros.
Indexing Similar to inflation analysis Assumes proper index exists Current index value Reference index value C x = C r S x S r Reference Cost

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Example Brazilian miner Vale placed an order for 16 shipping vessels with the capacity of 400,000 metric tons of ore. The carriers cost \$133 million each in 2008.
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Module12 - Decision-Making Preliminaries Estimating Cash...

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