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Introduction to project teams
Cost Estimating Techniques Essay
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EVALUATION OF THE COST ESTIMATING PROCESS
AT WHITE SANDS MISSILE RANGE
1. EXECUTIVE SUMMARY
Currently, White Sands Missile Range cost estimates account for the majority of the labor, material, contracts, and equipment costs. Thus, on the basis cost alone, WSMR's cost estimating process must be carefully monitored and evaluated.
The problem in this study was to determine the options regarding improving the current cost estimating process. Specifically, my research included becoming a member of the Integrated Product Team focused on the Strategic Plan Initiative 1.1. My primary focus was determining the present level of the existing cost estimating tools. I compared what the Army, Navy, WSMR and NASA organizations were using and evaluated their performance to propose an effective cost estimating tool for the IPT to consider. Interviews with several Branch Chiefs familiar with cost estimating provided the principal data for this study.
Overall, nearly everyone I interviewed agreed upon the need of an effective tool that would provide a system for managing project costs, measuring earned value, analyzing budgets, actuals and projections. However, I found that everyone has their own method of doing cost estimates and how they are archiving them.
During my investigation I found forty-five existing cost estimating methods and narrowed it down to a list of five. I selected the five best that fit the needs of what the IPT was looking for. I evaluated each of their strengths and weaknesses. Therefore, I recommend that WSTC should consider further study of the methods I found to improve its current cost estimating process. In the meantime, I continue to work with the IPT in the development of an effective cost estimating tool that meets the requirements of Initiative 1.1.
CONTENTS
1. EXECUTIVE SUMMARY 2
2. INTRODUCTION 4
3. PURPOSE AND SCOPE OF THE STUDY 4
4. RESEARCH PROCESS 5
5. RESEARCH FINDINGS 6
6. CONCLUSIONS AND RECOMMENDATIONS 8
7. POTENTIAL BENEFITS 9
8. REFERENCES 10
EVALUATION OF THE COST ESTIMATING PROCESS
AT WHITE SANDS MISSILE RANGE
Andres Ruvalcaba
2. INTRODUCTION
Cost estimates are a rapidly growing and increasingly important factor in the future success of White Sands Missile Range. Without an effective way of cost estimating your chances of retaining current customers is dismal. However, by analyzing methods to improve cost estimates we can improve our processes and grow to be a striving organization.
This study inspired me to become a member of the IPT focused on Initiative 1.1 outlined in the 2004 WSMR Strategic Plan. Our goal as a team is to develop a coordinated cost estimating process and tool for the White Sands Test Center (WSTC).
LM06, Strategic Planning Student Guide. (2013). Maxwell-Gunter AFB. Thomas N. Barnes Center for Enlisted Education (AETC).
As the world is constantly changing in terms of program needs and the requirements to achieve them, there is a demand for innovative and tactical ways to increase success in achieving project objectives. The ever-changing technological climate, market dynamics, relatively short-lived solutions and the arduous integration of business and I.T., have proved stumbling blocks in managing complex programs and ultimately attaining desired results on time and on budget.
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
Spokane Industries has contracted Franklin Electronics for an 18 month product development contract. Franklin Electronics is new to using project management methodologies and have not been exposed to earned value management methodologies. Even though Franklin and Spokane have worked together in the past, they have mainly used fixed price contracts with little to no stipulations. For this project Spokane Industries is requiring Franklin Electronics to use formalized project management methodologies, earned value cost schedules, and schedules for reports and meetings. Since Franklin Electronics had had no experience with earned value management, the cost accounting group was trained in the methodology in order to bid for the project. Franklin Electronics won the contract because they had the lowest price. They developed a work breakdown structure that consisted of 45 work packages with 4 of the work packages being delivered in the first 4 months. They also developed a simple status report consisting of the work packages due, budgeted cost for work scheduled, budgeted cost for work performed, actual cost for work performed, cost variance and price variance. When they deliver the first status report, the Franklin Electronics project manager is called into an emergency meeting because Spokane Industries vice president is unhappy with the progress. In this paper, we will discuss Six Sigma process improvement for tracking time and cost, recommendations on how Franklin Electronics can use project management principles to meet their goal of improving efficiency and empowering management to make better and informed decisions through the use of Earned Value Management, how an effective Earned Value Management System contributes ...
Budgeting Assignment A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of a manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496)
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consideration of its costs and benefits of the system.
Project Planning 7 VIII. Quality 8 IX. Cost Estimating 9 X. Risk Identification and Management 10 XI. Facility Startup and Project Closeout 11 XII.
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
To test the financial feasibility and plan acceptability, there must be information on the magnitude, and share of estimated project cost that are reimbursable. This information can be derived from cost allocation. Also where cost sharing is required in the multipurpose planning process cost allocation can be applied. Cost allocation also provides information necessary for allocating the real expenditures ensuring that the cost account are maintained in line with plan formulation and allocation principles during the subsequent c...
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
The requirements and cost benefit analysis took several months to complete and a final decision would not be made until 18 months after the initiation of this project. The end result of the requirements and cost benefit analysis concluded that it was most beneficial to our business partners to build our own accounting engine; however this was not the elected solution.
Others feel that ABC would be more widespread in industry if it were marketed better by the cost accounting profession itself [1]. As the dust has settled, ABC has turned out to be less a revolutionary technique than a useful refinement to proven systems. The costs of products and services must be accurate, or management can be misled. Decisions... ...
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.
Estimators: Compare quotes and break down the entire project into parts in order to forecast approximate costs and budgets (HowDoIBecomeA.co.uk, 2000-2014) and (StudentScholarships.org, 2009-2014)