Cost analysis and estimating for engineering and management ch06

Cost Analysis and Estimating for Engineering and Management Chapter Estimating Methods © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-1 Overview ● Introduction ● “Non-Analytic” Estimating Methods ● Cost & Time Estimating Relationships ● Learning Curves ● Proportional Relationships ● Using Probability and Statistics © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-2 General Estimating Methods ● Preliminary Estimates −Limited Information and Time −Compare Alternatives −Decisions (Proceed or Discontinue) ● Detailed Estimates −More Quantitative (Solid Information) −Used for Pricing © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-3 Other Estimates ● Broad Tolerance on Accuracy −ROM −NTE ● Effort to Estimate Proportional to Use and Information Available ● Estimates Attempt to Forecast Actual Costs © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-4 Universal Methods ● Opinion −Uses Experience and Judgment ● Conference −Collective Opinion ● Comparison ● Unit © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-5 Comparison Method ● Bracket Unknown with Known −Known Cost of Similar Product/Project −Find Cost for Upper Bound −Cost for a Lower Bound Is Good, too Cc ( Dc ) ≤ Ca ( Da ) ≤ Cb ( Db ) © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Eq 6.2 Ch 6-6 Comparison Example © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-7 Unit Method ● Identify a Cost Driver ● Use Historical Data ● Find “Cost per…” −Square ft., pound, kW, hp, etc ● Average Cost ● Dependent on Quality of Model © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-8 Estimating Relationships ● Cost (CER) or Time (TER) ● Math Models or Graphs ● Function of One or More Independent Variables - Causality ● CERs are Considered Preliminary ● Best if Used Within Data Range © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-9 Performance Time Data ● Extends Time Study Standards −Standard Time Good Only for Operation(s) Studied −Not Suitable Directly for Estimating ● Use Algorithm to Develop Time Study Data into PTD © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-10 Project Estimating ● Power Law and Sizing ● Economies of Scale −Correlating Exponent m  Qc   C = Cr   Q  r m Eq 6.14  Qc C = C r   Qr     m Ic + Ci Ir Eq 6.15 © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management C C Q = r  c Qc Qr  Qr     m −1 Eq 6.16 Ch 6-29 Other CERs m Eq 6.17 C = KQ ● Caution, Keep Scale within Factor of ● Variable and Fixed Components m  Qc   + Cf C = Cv   Q  r Eq 6.18 ● Multi-Variable m C = KQ N © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management s Eq 6.19 Ch 6-30 Factor Method ● Mostly for Major Projects ● Summary Model ● Uses Separate Factors  C =  Ce +   ● Includes ∑ i  f i Ce ( f I + 1)   Cost Index © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Eq 6.20  Ir  Cr = Cc    Ic  Eq 6.21 Ch 6-31 Using Probability and Statistics ● Expected Value ● Range ● Percentile ● Monte Carlo Simulation © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-32 Expected Value ● Elements of Uncertainty Assigned Probabilities ● Certain Events (NO Other Possibilities) ● Mutually Exclusive Events ● Probabilities Indicate the Future ● Expected Value n C ( i ) = ∑ p j xij Eq 6.22 © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management j Ch 6-33 Range ● Most Likely Value ● Optimistic and Pessimistic Estimates ● Expected Cost and Variance L + 4M + H E ( Ci ) = Eq 6.23 © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management  H − L var( Ci ) =     Eq 6.24 Ch 6-34 More on Range ● Central Limit Theorem −Mean of the Sum = Sum of Means −Variance = Sum of Variances ● Probability Actual Upper Limit Z= Cost Will Exceed UL − E ( CT ) [ var ( CT ) ] © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management 1/ Eq 6.27 Ch 6-35 Percentile ● Three Costs −Best Case 10% (1 in 10 Cost Is Lower) −Best Value 50% −Worst Case 90% (1 in 10 Cost Is Higher) ● Find the Estimates ● Express (10% and 90%) as Differences from 50% © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-36 Example Percentile   Item Difference 10th 50th 90th (50 – 10) (90 – 50) $25 $33 $44 $8 $11 13 15 3 © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-37 Square and Sum (50 – 10)2 Midvalue (90 – 50)2   $64 $33 $121   16 13   81 50 134   Total Square root $9   $11.58 ● Square Root of Sum = Contribution to Uncertainty © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-38 Final Result ● 50th Percentile = $50 ● 10th Percentile 50 - = $41 ● 90th Percentile 50 + 11.58 = $61.58 © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-39 Monte Carlo Simulation ● Mathematical Models ● Repeatedly Run Using Random Input for Variables ● Based on Expected Probabilities ● Many Runs (1000s) Gives Cost Distribution © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-40 Single Value vs Distribution ● Compare A and B ● Single Values - Choice is Obvious ● Distribution - Choices May Overlap © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-41 A and B with Distributions © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-42 Summary ● How to Use Non-Analytic Methods ● About CERs and TERs ● Effects of Learning on Estimating ● Various Ways of Using Proportionality ● Impact and Uses of Probability and Statistics for Estimates © 2004 Pearson Education, Inc Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-43 ... NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-9 Performance Time Data ● Extends Time Study Standards −Standard Time Good Only for Operation(s)... Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-5 Comparison Method ● Bracket Unknown with Known −Known Cost of Similar Product/Project −Find Cost for Upper... River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management Ch 6-2 General Estimating Methods ● Preliminary Estimates −Limited Information and Time −Compare Alternatives