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Project Cost Evaluation

Project Cost Evaluation. February 7, 2002 Richard Chung Department of Chemical and Materials Engineering San Jose State University. Objectives. Provide a base for the selling price of a product Determine a most suitable and economical method for R&D, materials, process, and production.

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Project Cost Evaluation

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  1. Project Cost Evaluation February 7, 2002 Richard Chung Department of Chemical and Materials Engineering San Jose State University

  2. Objectives • Provide a base for the selling price of a product • Determine a most suitable and economical method for R&D, materials, process, and production. • Reduce cost in the development of a product or process • Control costs based on the adopted standards and design requirements (e.g. PDS)

  3. Types of Cost • One-time costs (capital/equip. costs..) • Recurring costs (operating, payroll..) • Fixed costs (rent, property tax..) • Variable costs (utility, materials..) • Direct costs (related to process) • Indirect costs (indirectly related)

  4. Methods of Cost Evaluation • Engineering method Break-even point Profit sales Total costs Variable costs Fixed costs Production Time

  5. Analog method The costs are based on past costs of a similar project • Parametric method The costs are based on parametric or statistical approach – such as regression analysis

  6. Levels of Cost Evaluation • Order of magnitude (use costs in similar projects; allow scale –up ratios) • Study (provide ball park figure) • Preliminary (provide costs for budget approval) • Definitive (provide costs for project control) • Detailed (Prepare for a bid or a purchase order) --American Association of Cost Engineers

  7. Cost Factors • Cost escalation: to consider the extra costs due to a delayed or prolonged project • Allowance for extras: to consider the extra costs due to mistakes & complexity • Design modification: to consider costs for design revisions • Contingency: costs for unseen or unexpected situation

  8. Cost Indexes Cost indexes are used to relate the past costs to current costs General ones are: • Bureau of Labor Statistics (consumer CPI) • US Department of Labor (producer) • Engineering New Record (construction) • Marshall and Swift Index (equipment)

  9. Cost–capacity Factors C1 and Co are capital costs with capacity (or size) Q1 and Qo x is an exponent (0.4-0.8) depending on the type of equipment

  10. Plant Costs Cp = installed plant costs f = Lang factor depending on the type of plant = 3.1 for a solids-processing plant = 3.6 for a solid-fluid plant = 4.7 for a fluid-processing plant Cb = base cost

  11. How to calculate each cost? • Order of magnitude estimates • Costs in conceptual design • Manufacturing costs • Costs in value analysis • Overhead costs • Cost models

  12. Process Cost Model Cu = total unit (part) cost Cm = material cost n = number of parts per batch m = number of batch processes operated concurrently t = time to complete process step for the batch

  13. Conclusion • Three methods for cost estimates: engineering method, analog, and parametric method • Cost models can be employed to help estimate and control (or reduce) the costs associated with manufacturing process • Life cycle costing cover all the costs of a product from design to service in its life cycle.

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