Techniques for Cost Estimating

The basic cost estimating techniques involve analyzing all factors that make up a cost estimate. The first technique I would follow is to go through the following steps, systematically, and costing each one out in detail. Once you have gone through the basic steps, you will have all the cost information required for the estimate.

1. Design Cost –  This is step is skipped if you are manufacturing something for a customer and it’s already designed.  Still, the customer may want some help in the design area.

2. Engineering –  This step is to engineer how the product will be made.  This could be exploding out the model into its component pieces, programming the CNC machines including turret, mill, laser, and waterjets. Costs here may include the drafting costs.

3. Research and Development Costs – This step would entail items such as research and development work, prototypes for the customer which is very much required when doing new products.

4. Material Costs – This step would be to create an entire exploded Bill of Material list with items, quantities and supplier costs.  This step can be automated using certain CAD systems which create exploded bills of materials.  This information can be imported as an electronic Bill of Material file into estimating systems.

5. Labor Costs – This step would include both direct and indirect labor.  Thorough knowledge of the required manufacturing steps and operations to be performed is necessary.  Also, a knowledgeable person on the machines used and time required at each step is critical.

6. Quality Costs – This step would include all the quality items required to manufacturer the item.  This would include things such as SPC Inspection, regular inspection, scrap rate, first articles, etc.

7. Tooling Costs – This step goes well with the labor step where the labor operation may require specific tools which need to be purchased or made to manufacture or build the item.

8. Outsourced Services – This step is where you place the costs which are outsourced to other suppliers. For example, if the painting process is not done in-house then those costs must be considered.

9. Overhead Costs – This is the last step but very critical.  Overhead costs include all costs which cannot be charged to the specific product but still is incurred.

MIE Solutions provides a great solution to manage and organize all the costs required in this setup of cost estimating techniques.

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