Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River,...

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Ch 1-1 © 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 Cost Analysis and Estimating for Engineering and Management Chapter 1 Importance

Transcript of Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River,...

Page 1: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-1

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Cost Analysis and Estimatingfor Engineering and Management

Chapter 1

Importance

Page 2: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-2

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Overview The Design Process Economic Evaluations

UsersResultsReasons

Business Strategies Information International Business

Page 3: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-3

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Reasons for Study

The Goal of Business Is to Make Money

Desire to Know Outcome Before Making a Commitment

Need for Cost and Price Estimates

Page 4: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-4

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Design

Every Design Is a New Combination of Pre-Existing Knowledge that Satisfies an Economic Want

New Combination – CreativityEconomic Want – Driver

Page 5: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-5

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Elements of Design

Identification and Definition of Problem Development of Concepts Engineering Models Evaluation Design Implementation

Page 6: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-6

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Engineering Design Process

Page 7: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-7

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Problem

Recognize a NeedEconomic Want

Good Description = Good Solution Detailed Specification of Requirements

Page 8: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-8

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Concept

New Combinations of Existing Knowledge

Need to Collect a Lot of KnowledgeRelative to the Problem

Unrestricted Generation of Concepts Then Select and Refine

Page 9: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-9

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Engineering Models

Representation to Explain an Aspect Prediction Discover Pertinent Parameters Flexibility Simplistic

Page 10: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-10

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Evaluation

Compromise Iterative Process with Modeling Satisfies Requirements? Cost Profit Fit with Capabilities

Page 11: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-11

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Sources of Cost

Largely Determined by Design 50% Purchased Material / Parts 30% Overhead 15% Factory Labor

Page 12: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-12

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Design

Addresses All Requirements throughComputingDraftingChecking

AnswersWhat It Looks LikeHow Shall It Be BuiltHow Will It Work

Page 13: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-13

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Implementation

Requires a Decision to Proceed Must Be Assured:

It Satisfies All RequirementsIt Will Yield a Profit

Needs an Economic Evaluation

Page 14: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-14

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Economic Evaluation

Market Defines “Economic Want” Cost Needs to Satisfy Cost Model Should Parallel the Design Detail and Accuracy of Estimate

Depends on Amount of Info AvailableDepends on the Time for the Estimate

Page 15: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-15

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Users

Economic Evaluation Produces:Dollar EstimatesLabor Hour EstimatesMaterial Requirements

Used By:Engineering –ManufacturingMarketing –Materials Mgmt.Accounting/Financial Planning

Page 16: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-16

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Results from Economic Evaluation

Requires Answers to 2 Questions“What Does It Look Like?”“How Many?”

Selects from Design Alternatives Determines Manufacturing Methods Decisions to Proceed

Page 17: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-17

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Other Reasons Cost to Manufacture Profit Prediction Labor Requirements Time (Scheduling) Control of Operations Improvement Budgets Equipment Justification

Page 18: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-18

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Strategies

Mass ProductionLarge Quantities / Little Variation

Batch ProductionSmaller Quantities / Large VariationSimilar Processes

ProjectsVery Small Quantities / Specialized

Page 19: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-19

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Strategies

Page 20: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-20

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

What Determines Cost and When

Page 21: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-21

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Modes of Competition Design Uniqueness or Superiority Price and Cost Quality Reliability Innovation / First to Market Customer Support Custom Design / Manufacturing Commodity Products

Page 22: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-22

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Business Classification

TraditionalEstablished Products

Slow Evolution

Incremental Changes

History of Costs

High-TechRapid Changes

Short Cost Recovery Period

Fast Time to Market

Flexibility

Concurrent Engineering

Challenging Cost Analysis

Page 23: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-23

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Information

Available Information VariesBy Point in the DevelopmentAmount of Uniqueness of Product

Historical Data (Accounting Records) Measured Data Policy Data

Page 24: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-24

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Sources of Information Accounting Personnel Department Operating Departments Purchasing Sales/Marketing Supervisors/Managers Trade Associations / Media

Page 25: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-25

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

About the Estimate

Amount of Information Available Time Allotted to Make the Estimate Overall Size (Amount) of the Estimate Intended Use for the Estimate All Impact the Quality and Accuracy of

the Estimate

Page 26: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-26

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

International Business

Global EconomyCompetitorsMarkets

Measurements in SI Units Monetary Transactions in Multiple

Currencies

Page 27: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-27

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Currency Exchange

Exchange Rates Conversion FactorsConstantly Varying

Spot and Future Rates Rates Obtained from:

Banks, Newspapers, Internet

Page 28: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-28

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Effects of Exchange Rates

Strong DollarImport Goods Cost

LessExport Goods Cost

More – Lose to Foreign Competition

Requires Price Cuts

Weak DollarExpensive ImportsExports Are More

CompetitiveHigher Trade and

Budget DeficitsOverall – Worse for

the U.S. Economy

Page 29: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-29

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Significant Digits

Addition and SubtractionRound to 1 Significant Digit to the Right of the Number with the Least Significant Digits

Multiplication and DivisionNo More Significant Digits than the Number with the Least Significant Digits

Page 30: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-30

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Layout of the Book

Page 31: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-31

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

The Book

Chapter 1 – Introduction Chapter 2 – Labor Calculations Chapter 3 – Material Calculations Chapter 4 – Accounting Practice Chapter 5 – Statistics and Indexing for

Forecasting

Page 32: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-32

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

The Book

Chapter 6 – Estimating Methods Chapter 7 – Operation Estimating Chapter 8 – Product Estimating Chapter 9 – Cost Analysis Chapter 10 – Engineering Economy Chapter 11 – Enterprise and

Entrepreneurship

Page 33: Ch 1-1 © 2004 Pearson Education, Inc. Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458 Ostwald and McLaren / Cost Analysis and Estimating.

Ch 1-33

© 2004 Pearson Education, Inc.Pearson Prentice Hall, Pearson Education, Upper Saddle River, NJ 07458Ostwald and McLaren / Cost Analysis and Estimating for Engineering and Management

Summary

How the Design Process Works Where Economic Analyses Fit How Businesses Are Organized and

Compete The Role of Information Global Aspects