Engineering Cost Analysis

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Engineering Cost Analysis

By | May 2008
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Cost Estimate, Analysis and Activity Based Costing
Accurately forecasting the cost of projects is vital to the survival of any business or organization. Cost estimators develop the cost information that business owners or managers, professional design team members, and construction contractors need to make budgetary and feasibility determinations. From an Owner's perspective the cost estimate may be used to determine the project scope or whether the project should proceed. According to the U.S. Department of Labor there were about 198,000 cost estimators in 1994. That of which 58% work in the construction industry, 17% employed in manufacturing industries, and the remaining 25% elsewhere. From this we could conclude that a great deal of cost estimation lies in the construction industry, where multi-million dollar contracts are formed after a thorough cost estimation. Cost Analysis is an aspect of estimation that applies both formally and informally to the aspect of costing. Cost analysis is a formal discipline used to help appraise, or assess, the case for a project or proposal, and is an informal approach to making decisions of any kind. It is ultimately an economic tool to aid in logical decision making. In the case of construction cost estimates, the next step would be the cost analysis process. The sole purpose is to determine if the completed estimates are reasonable. Usually comparisons are made with similar projects done in the past to see if the number are within the same vicinity of each other. Though the estimates may differ from case to case, if the cost estimate is significantly higher or lower than the normal range, it might be reason to suspect that are errors that exist in the estimate. Activity Based Costing or “ABC” is a universal system that breaks down activities into its constituent parts to determine the work effort required. ABC allows you to produce accurate staff timing and cost analysis’, and allows it to attribute all...

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