1. Ch 6-1 © 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 6 Estimating Methods

2. Ch 6-2 © 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 Overview l Introduction l “Non-Analytic” Estimating Methods l Cost & Time Estimating Relationships l Learning Curves l Proportional Relationships l Using Probability and Statistics

3. Ch 6-3 © 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 General Estimating Methods l Preliminary Estimates  Limited Information and Time  Compare Alternatives  Decisions (Proceed or Discontinue) l Detailed Estimates  More Quantitative (Solid Information)  Used for Pricing

4. Ch 6-4 © 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 Other Estimates l Broad Tolerance on Accuracy  ROM  NTE l Effort to Estimate Proportional to Use and Information Available l Estimates Attempt to Forecast Actual Costs

5. Ch 6-5 © 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 Universal Methods l Opinion  Uses Experience and Judgment l Conference  Collective Opinion l Comparison l Unit

6. Ch 6-6 © 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 Comparison Method l Bracket Unknown with Known  Known Cost of Similar Product/Project  Find Cost for Upper Bound  Cost for a Lower Bound Is Good, too Eq 6.2

7. Ch 6-7 © 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 Comparison Example

8. Ch 6-8 © 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 Unit Method l Identify a Cost Driver l Use Historical Data l Find “Cost per…”  Square ft., pound, kW, hp, etc. l Average Cost l Dependent on Quality of Model

9. Ch 6-9 © 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 Estimating Relationships l Cost (CER) or Time (TER) l Math Models or Graphs l Function of One or More Independent Variables - Causality l CERs are Considered Preliminary l Best if Used Within Data Range

10. Ch 6-10 © 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 Performance Time Data l Extends Time Study Standards  Standard Time Good Only for Operation(s) Studied  Not Suitable Directly for Estimating l Use Algorithm to Develop Time Study Data into PTD

11. Ch 6-11 © 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 PTD Algorithm l Collect Data l Classify Data into Common Groups l Use Regression l Separate into Constant and Variable l Set Variable into Equation or Table l Complete, Test, Publish, Implement

12. Ch 6-12 © 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 Data l Many (12 or so) Studies l Process and Arrange Data  Regression Analysis l Determine Variable Elements

13. Ch 6-13 © 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 Variable Element Test 1 l Is the Element Variable? Establish a Limit - P 1 (%) Check at Extremes of Range ( x ) Use Computed y Values l “Conditionally” Variable if: ^ Eq 6.4

14. Ch 6-14 © 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 Variable Element Test 2 l Is the Variability of the Element Significant to the Overall Cost? Establish Another Limit P 2 (%) l Exceeds Both Test 1 & 2 = Variable Eq 6.5

15. Ch 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 Process the Data l Collect and Add All Constant Elements l Provide Equations or Tables for Each Variable Element l Use Rules for Setting Table Divisions l Include PF&D

16. Ch 6-16 © 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 Example l Independent Values P 1 = 100% and = P 2 10% Elementx min x ave x max 12965101 281828 3524.544 4319.536 53771.5106

17. Ch 6-17 © 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 Regression Data Element Regression Equation 10.0139 + 0.0027x 1 2- 0.1282 + 0.0216x 2 30.0642 + 0.0133x 3 4- 0.1156 + 0.0608x 4 50.1907 + 0.0014x 5

18. Ch 6-18 © 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 Calculated Values Element 10.0920.1890.287 20.0450.2610.477 30.1310.3900.649 40.0671.0702.073 50.2430.2910.339

19. Ch 6-19 © 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 Test Results Element Test 1 OutcomeTest 2Outcome 1212 Variable 9Constant 2960 Variable 12Constant 3396Variable18Variable 42995Variable49Variable 540Constant 

20. Ch 6-20 © 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 Constant Elements ElementsNormal Time, Min 10.189 20.261 50.291 Total 0.741 STD Min. with PF&D0.872

21. Ch 6-21 © 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 Estimating Database Set Up 1.2 hr Constant0.87 min Load 3 rd Part L + W + H Time (min) 5.00.16 9.40.22 15.60.32 19.70.38 No. SpotsTime (min) 30.08 50.22 70.36

22. Ch 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 Using the TER Database l Select Set-Up Time l Get Constant Unit Time Determine Value of Independent x l Get Time Value from Equation or Table If x Is Between Table Values  Use Higher Value

23. Ch 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 Learning l Repetition Improves Performance  Design Improvements  Process Improvements  Operator Efficiency Improvement l Improvement Is Predictable l Improvement Generally Decreases Exponentially

24. Ch 6-24 © 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 The Learning Theory l Time/Cost Decreases by a Constant % l Each Time the Quantity Doubles l Finding the “Slope” Element 10.0920.1890.287 20.0450.2610.477 30.1310.3900.649 40.0671.0702.073 50.2430.2910.339 Eq 6.6 Eq 6.7 Eq 6.8 Eq 6.9

25. Ch 6-25 © 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 The Learning Curve

26. Ch 6-26 © 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 Logarithmic Function

27. Ch 6-27 © 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 Expanding Cumulative Time for N units Average Time per Unit for N units Eq 6.10 Eq 6.12 Eq 6.11

28. Ch 6-28 © 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 More Learning Curve Notes Eq 6.12 Works for N > 20 l Finding s from Known Times l Limitations  Not for Small Items or High Production Jobs Eq 6.13

29. Ch 6-29 © 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 Project Estimating l Power Law and Sizing l Economies of Scale  Correlating Exponent m Eq 6.14 Eq 6.15 Eq 6.16

30. Ch 6-30 © 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 Other CERs l Caution, Keep Scale within Factor of 5 l Variable and Fixed Components l Multi-Variable Eq 6.17 Eq 6.18 Eq 6.19

31. Ch 6-31 © 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 Factor Method l Mostly for Major Projects l Summary Model l Uses Separate Factors l Includes Cost Index Eq 6.20 Eq 6.21

32. Ch 6-32 © 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 Using Probability and Statistics l Expected Value l Range l Percentile l Monte Carlo Simulation

33. Ch 6-33 © 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 Expected Value l Elements of Uncertainty Assigned Probabilities l Certain Events (NO Other Possibilities) l Mutually Exclusive Events l Probabilities Indicate the Future l Expected Value Eq 6.22

34. Ch 6-34 © 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 Range l Most Likely Value l Optimistic and Pessimistic Estimates l Expected Cost and Variance Eq 6.23 Eq 6.24

35. Ch 6-35 © 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 More on Range l Central Limit Theorem  Mean of the Sum = Sum of Means  Variance = Sum of Variances l Probability Actual Cost Will Exceed Upper Limit Eq 6.27

36. Ch 6-36 © 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 Percentile l Three Costs  Best Case 10% (1 in 10 Cost Is Lower)  Best Value 50%  Worst Case 90% (1 in 10 Cost Is Higher) l Find the 3 Estimates l Express (10% and 90%) as Differences from 50%

37. Ch 6-37 © 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 Example Item Percentile Difference 10 th 50 th 90 th (50 – 10)(90 – 50) 1$25$33$44$8$11 29131542 334713

38. Ch 6-38 © 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 Square and Sum l Square Root of Sum = Contribution to Uncertainty (50 – 10) 2 Midvalue (90 – 50) 2 $64$33$121 16 13 4 1 4 9 Total 81 50 134 Square root$9 $11.58

39. Ch 6-39 © 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 Final Result l 50th Percentile = $50 l 10th Percentile 50 - 9 = $41 l 90th Percentile 50 + 11.58 = $61.58

40. Ch 6-40 © 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 Monte Carlo Simulation l Mathematical Models l Repeatedly Run Using Random Input for Variables l Based on Expected Probabilities l Many Runs (1000s) Gives Cost Distribution

41. Ch 6-41 © 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 Single Value vs Distribution l Compare A and B l Single Values - Choice is Obvious l Distribution - Choices May Overlap

42. Ch 6-42 © 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 A and B with Distributions

43. Ch 6-43 © 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 Summary l How to Use Non-Analytic Methods l About CERs and TERs l Effects of Learning on Estimating l Various Ways of Using Proportionality l Impact and Uses of Probability and Statistics for Estimates