Engineering Economy
Chapter 3: Cost Estimation Techniques
Week 2
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
3.4 Parametric Cost Estimating
Parametric cost estimating is the use of historical cost
data and statistical techniques (e.g., linear regression)
to predict future costs. Parametric models are used
in the early design stages to get an idea of how much
the product (or project) will cost, on the basis of a few
physical attributes (such as weight, volume, and
power).
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
3.4.1 The power-sizing technique
(or exponential model) is frequently used for developing
capital investment estimates for industrial plants and
equipment.
(both in $ as of the point in time
for which the estimate is desired)
(both in the same physical units)
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
3.4.2 A learning curve reflects increased
efficiency and performance with repetitive production of
a good or service. The concept is that some input
resources decrease, on a per-output-unit basis, as the
number of units produced increases.
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
The time of number output unit =
Total time to produce x unit , Tx = K [un +….]
The cumulative average time for x unit , Cx
= Tx/ x
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
Copyright ©2012 by Pearson Education, Inc.
Engineering Economy, Fifteenth Edition
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
