The ability to manage large scale project costs has a direct bearing on the risk profile presented to both the contractor and the end-user, especially where the Government is the customer. Managing and controlling costs effectively requires good decision-making at the earliest possible stage of any project, however gathering accurate cost and performance data to base these decisions upon is highly problematical. Nevertheless, by emphasizing cost control at the very earliest stages of a large-scale project, decision-makers can put themselves in an optimal position to control both the total costs and the business and operational risks associated with project deliverables.
Estimating what costs "should be" is essential to providing a firm baseline for project forecasts. There are software solutions for managing cost estimation and performing sensitivity analysis on differing project component alternatives, however many of them possess fundamental flaws in their approach. Parametric cost estimation mathematics is the same, however the raw cost data sources must be thoroughly considered before the results can be relied upon.
For instance, consider a cost estimation solution which relies on "live" cost data created by contacting vendors with their pricing for supplying production components. This exercise will produce a range of price data; however it is typical for the lowest pricing bid to be selected as the cost data to be input into the parametric cost estimation solution. This leads to underestimation within the cost estimation software and builds in heightened risk of overshooting on any proposed project budget.
A further example of how subjective, misleading cost data can be introduced into a parametric cost estimation model is where potential vendors are solicited for pricing; however the price selected is based upon a loss-leader. By loss-leading on price the vendor hopes to gain other, more profitable business, however the price is typically unsustainable in an isolated context. Again, this method of acquiring hard cost data for parametric cost estimation introduces under-estimation and builds in the potential for project failure due to cost overrun.
Identifying the "Should Be" cost is crucial when considering whether to make or buy project components. For instance, the "Make Buy" decision to retain component manufacture in-house or to contract the work out, will have serious repercussions on the cost of acquisition, however the cost of acquisition may only amount to 20% of the total cost of ownership of the project. A further example of how any cost estimation solution must be capable of handling decision-making within the holistic context of a project is found in the "Design Alternative" decision. Without accurate cost data, how can a project decision-maker decide on whether to proceed with the proposed component or system solution called for in the initial project design, or should they utilize a different component/system which will do the same job, for hopefully reduced cost but departs from the original design?
The answer is that without highly reliable cost data, none of these decisions can be taken with a high degree of confidence. Any cost estimation solution must be able to take into account the context within which the cost data is being applied as well as the quality of the source material from which estimation data is derived.
Article source: Author Palace
Total views: 4 | Word Count: 523
About the Author: By Lawrence Reaves, writing for Galorath.com, providing cost estimating software and to help you reduce product costs, estimate production times and save money on your new projects.
Rating: Not yet ratedPrice Underestimation Issues and Cost Reduction
Category: Technology
No comments posted. Log in to add a comment. Article Citation:
LawrenceReaves "Price Underestimation Issues and Cost Reduction" authorpalace.com.http://www.authorpalace.com/technology/price-underestimation-issues-and-cost-reduction.html
Next articles:
Learn The Entire Process Of Dental Implants Seattle
Dental implants Seattle provide a long-lasting answer to loss of tooth. Implants may also be utilized to a dental bridge for replacing numerous missing teeth, and could be used with veneers in order to improve balance as well as decrease gum tissue irritation. Dental implants are produced from titanium, a material that's nicely toler
Doing the Wrong Exercises and Your Belly Fat
It is easy to make a decision about the wrong way to lose belly fat. Probably the most appealing ad is the ab exercise approach, followed by the Transylvanian diet and maybe the newest "magic pill". Believe me, these approaches are not the answer. Although appealing, these approaches are just going to waste your time and consume your
Build a Residence In which Water Damage Is not Welcome
The American dream would be to own a house, and this kind of a dream it's. There is nothing about this earth that supplies you with additional contentment than coming home for your personal house and working with an ambiance that is your own. In case you possess the chance to assemble a house, you will hold the ability to express you
Get Home Air Filters
If you want to keep the air that you and your family breathe clean and healthy, you can use air filters for your house. When a country is developed, one cannot get away from pollution. There are many harmful effects of pollution, among them are allergies, asthma, and other respiratory diseases. Unfortunately, these toxins cannot be e
Online Education Available From Every Locale - School Proximity No Longer Limits Education
Distance learning. Online college. Familiar terms? For a growing number of new and returning students looking at grant for online school materials, they are coming to the conclusion that attending college online is how they are going to get the degree they need to enter the work force or advance in their current career. Working moms
Understanding Guardianship: Advice From Estate Planning Lawyers
Setting a caretaker underneath the law is a crucial concern for just about any parent or protector. Your ward or child is amongst the important people inside your life a legitimate guardianship is the best way to make sure that she or he remains safe and secure should something happen for you. Additionally, presently hired legal pare
Bikinis - Knowing the Right Color for You
Various colors are all around us. Every time we see something that has a strong or light color, we immediately scrutinize its meaning. In the case of bikinis such as a red bikini, we have different point of views regarding its color.The meanings of colors vary in different cultures, and the meaning in various countries can alter with
Tips On Locating The Very Best Accident Injury Lawyers
Seeking legal counsel is extremely necessary if you have been a victim of a car accident. The right information and guidance can only be obtained from an experienced injury lawyer who will help us get the compensation amount that we deserve. It is not possible for you to learn all aspects of law, therefore hiring an attorney can do y
SEO Basics: Your Guide to Traffic Building
Search Engine Optimization or SEO may seem an easy task for some while others see it as a complicated one. Optimization for the internet is easy to learn but it may also entail some work. And if you are one of those trying to get into online marketing, then a check with related SEO resources is needed. Most of these resources are fr
Looking After The Aging Is Among The Top Health Care Concerns
Everyone is aging but in today's society, many countries are approaching a point where people over the age of sixty will outnumber the younger generations. This is because better health care is helping people live longer, more productive lives. Getting the right kind of aging care is important if you want to keep enjoying a good stan
Price Underestimation Issues and Cost Reduction
Category: Technology
Home || Login ||Register || Search Articles || Submit Free Article || Beauty || Business || Career || Family || Finance || Health || Marketing
View the original article here
No comments:
Post a Comment