Cost Estimating

Engineering Cost Estimating

The Engineering Cost Estimating method builds the overall cost estimate by summing detailed estimates done at lower levels of the Work Breakdown Structure (WBS). It’s a technique where the system being costed is broken down into lower-level components (such as parts or assemblies), each of which is costed separately for direct labor, direct material, and other costs. Engineering estimates for direct labor hours may be based on analyses of engineering drawings and contractor or industry-wide standards.

Engineering estimates for direct material may be based on discrete raw material and purchase part requirements. The remaining elements of cost (such as quality control or various overhead charges) may be factored in from the direct labor and material costs. The various discrete cost estimates are aggregated by simple algebraic equations (hence the common name “bottoms-up” estimate). The use of engineering estimates requires extensive knowledge of a system’s (and its components’) characteristics and lots of detailed data. [1]

Because of the high level of detail, each step of the workflow should be identified, measured, and tracked, and the results for each outcome should be summed to make the point estimate. The several advantages to the Engineering Cost Estimating method include: [2]

  • The estimator’s ability to determine exactly what the estimate includes and whether anything was overlooked,
  • Its unique application to the specific program and manufacturer,
  • That it gives good insight into major cost contributors, and
  • Easy transfer of results to other programs.

Some disadvantages of the Engineering Cost Estimating method include:

  • It can be expensive to implement and it is time-consuming
  • It is not flexible enough to answer what-if questions
  • New estimates must be built for each alternative
  • The product specification must be well known and stable
  • All product and process changes must be reflected in the estimate

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Updated: 7/29/2017

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