MIE 754 - Class #12 Manufacturing & Engineering Economics

1. MIE 754 - Class #12 Manufacturing & Engineering Economics • Concerns and Questions • Quick Review • Today’s Focus: • Chap 5 Estimating for Economic Analyses • Hmwk #6 Due in 1 Week: • Chap 5 - 3(e), 4, 6, 9, 13, 17, 23, 26

2. Concerns and Questions? • Term Project - distributed in 1-2 weeks • Mid-Term Exam - to be determined (approx 2-3 weeks)

3. Quick Recap of Previous Class • Concurrent Engineering • Paradigm Shift • Design Process • Pugh Method • QFD Process and House of Quality • Other design techniques (for improved quality, reduced costs, reduced time to market)

4. Estimating for Economic Analyses • What is a cost estimate? • A forecast of expenses (and revenues) that may be incurred in the manufacture of a product (or the delivery of a service).

5. What is the purpose of a cost estimate? • Provide information used in setting a selling price (quotation, bidding, or evaluating contracts) • Determine whether a proposed product can be made and distributed at a profit • Basis for make versus buy decisions (parts and assemblies)

6. What is the purpose of a cost estimate? • Determine how much can be invested in tooling and equipment and/or to compare various manufacturing methods • Basis for cost reduction and value engineering

7. What is the purpose of a cost estimate? • New products/designs: • Determine personnel requirements • Predict material needs for production runs • Setting overall schedule for meeting goals • Specifying equipment, machines, and facilities for manufacturing the desired product on time and in the numbers required

8. Sources of Errors in Cost Estimating?

9. Sources of Data • Accounting Records • Other Sources Within the Firm • Sources Outside the Firm • Research & Development

10. Quantitative Estimating Techniques 1.Time-series - when cost (revenue) elements are a function of time. Collect data; study underlying relationships. • Regression - estimating causal relationships within time-series data • Exponential Smoothing - estimating future extensions to historical data patterns

11. Quantitative Estimating Techniques 2.Subjective- expert judgment is applied to the results of time-series techniques (how future might differ from the past) • Delphi Technique - voice opinions anonymously and through an intermediary • Technology Forecasting - procedures for data collection and analysis to predict future technological developments and their impacts

12. Quantitative Estimating Techniques 3.Cost Engineering - identify and utilize various revenue/cost drivers to compute estimates

13. Correlation and Regression Analysis • Looking for explainable association between variables • Fit line through data (estimate a and b) to minimize squared error y = a + bx b= a=

14. What if relationship is not linear? Good reference: Makridakis, S. and Wheelwright, S. Forecasting Methods and Applications, John Wiley & Sons.

15. Correlation Coefficient - relative measure of the association between two variables (-1r1) r = r = 0 no correlation r =  1 perfect correlation

16. Example Problem 5-5: Operating costs Production volume ($M) (hundreds of units) 800 10.0 1,000 11.0 700 9.0 600 8.5 • Determine regression line • Estimate oper costs for 950 units • Calc coeff of correlation (good fit?)

17. Exponential Smoothing • Assumes trends and patterns of the past will continue into the future • More weight on current data • No assumption of linearity with ’= smoothing constant, St = ‘xt + (1 - ‘)St-1 (0’1) Usually (0.01’0.30)

18. (Forecast for period t+1, made in period t) = ’(Actual data point in period t) + (1-’)(Forecast for period t, made in period t-1) ’ = 1 implies? ’ = 0 implies?

19. Example Problem 5-8 • Worked In Class