1. Cost Centers (A Resource for Organizing Cost Estimates) ©2002 Dr. Bradley C. Paul

2. Both Feasibility and Budget Authorization Requires Itemized Costs n Problem is that it is easy to forget and leave things out. n Cost Centers Approach is a tool to combat the tendency – Identify the major processes or steps in what you are designing – (Cost Centers also used for departmental budgeting in companies)

3. Examples of Cost Centers n Pneumatic Conveyor – What are the major components? n You need something to blow the air – (Air supply cost center) n You need pipe-line to move the air through – Some might divide into piping and shafts as separate centers n You need something to feed material into the line – (Feed system cost center)

4. Cost Centers continued n You need some way to separate the air from the solids – (Air separation cost center) n Other peripherals that may or may not be critical – Power supply cost center – Control system cost center – Materials transfer system to other haulage – Roads – Parts warehouses and service – Water management and control – Safety systems

5. Cost Centers Divide and Conquer n Projects can be so large when trying to itemize everything that loose track of what is and is not included n When group equipment by function, location, control looking at smaller problem n Can carry it further, grouping cost centers into sub-areas n Do watch out on mix and match work in Feasibility where some estimates may be in itemized detail and other curves and rules of thumb – Peril is in what is included

6. Our Projects Cost Centers n Distributed System Pneumatic Conveyor – About $3.7 to $4 million dollars n Blower Cost Center - $1.48 million n Electric Power Supply Cost Center $254K n Pipes and Shafts $849K n Feed Injection $553K n Solids and Air Separation $435K n Control System (No data yet)

7. Sub Cost Center Groupings Blowers Motors Frequency Control Support Parts Subcost Center Area is a bit scattered

8. Cost Centers Make Omissions More Obvious WHO INSTALLED THE PIPE?

9. Cost Centers Help to Establish the Relative Importance of Things n Which Cost Center Needs the Most Work – Air Supply $1.48 Million – Power Supply $254K – Piping and Shafts $849K – Feed Injection $553K – Air Separation $435K – Control System (no data yet) n An Electrical Engineer might want to go after the power supply – should we do that? n Can be very important in Feasibility Studies where details are worked selectively

10. Cost Centers Help to Spot Budget Busters n Which Center Appears to be Creating Most Cost? – Air Supply $1.48 Million – Power Supply $254K – Piping and Shafts $849K – Feed Injection $553K – Air Separation $435K – Control System (no data yet) n Can also help to spot savings strengths – Look at piping and shafts

11. Budget Authorization Estimate n Designs for Key and many minor components are drawn out and worked out n Almost all operations and steps are quoted (usually with binding quotations) n Work Scopes of Different Vendors are checked to make sure they meet – Common problem - things that are not included in a vendors price but needed for final project n Contingencies handle market uncertainty - not woops I forgot uncertainty.