COLLEGE OF TECHNOLOGY
CITY CAMPUS
BACHELOR OF MECHANICAL ENGINEERING TECHNOLOGY
MECHANICAL TECHNOLOGY
PCM– PLANNING AND COSTING FOR MANUFACTURING
SECOND SEMESTER, ACADEMIC YEAR 2023-2024
MODULE #4
DEVELOPING
ESTIMATE
SUB TOPICS:
• 4.1 Types of estimates
• 4.2 How estimates are developed
• 4.3 standard data
• 4.4 Materials available to develop an estimate
• 4.5 Importance of realistic estimates
SUB TOPICS:
• 4.6 Estimating procedure
• 4.7 Division of estimating procedure
• 4.8 Constituent of a job estimate
• 4.9 Collection of cost
• 4.10 Allowances in estimation
OBJECTIVES:
• At the end of the presentation, my classmates will
be able to:
• Define what is developing estimate and its
importance.
• Discuss about the types of estimates and how are
they develop.
OBJECTIVES
• Distinguished the importance of realistic estimate,
the estimating procedure and the division of
estimating procedure.
• Evaluate the constituent of job estimate.
• Analyze the collection of cost and allowances in
estimation.
INTRODUCTION
• Manufacturing processes are the backbone of
industrial production, converting raw materials
into finished products through a series of
systematic steps. Estimating, developing, planning,
and costing these processes are integral
components of effective manufacturing
management, ensuring efficiency, quality, and cost-
effectiveness throughout the production lifecycle.
INTRODUCTION
• This report provides an introductory overview of
the methodologies, considerations, and strategies
involved in estimating, developing, planning, and
costing manufacturing operations.
WHAT IS DEVELOPING ESTIMATE
• The term "developing estimate" typically refers to
the process of creating or refining an estimate for
a particular project, task, or activity as it
progresses through different stages of
development.
IMPORTANCE OF
DEVELOPING ESTIMATE
• Developing estimates plays a critical role in
various aspects of project management and
decision-making across different domains.
Here are some key reasons why developing
estimates is important:
HERE ARE SOME KEY REASONS WHY
DEVELOPING ESTIMATES IS IMPORTANT:
• RESOURCE ALLOCATION
• BUDGETING
• SCHEDULING
• RISK MANAGEMENT
• DECISION MAKING
• STAKEHOLDER COMMUNICATION
• PERFORMANCE MONITORING AND CONTROL
• CONTRACT NEGOTIATIONS
• CONTINOUS IMPROVEMENT
SUB TOPIC 4.1
TYPES OF ESTIMATES
• An estimate is a predicted expenditure of a
project. It is usually taken out to get an
understanding of the total budget required
for a particular project. There are various
types of estimates used in the construction
industry, which are discussed below:
SUB TOPIC 4.1
TYPES OF ESTIMATES
• PRELIMINARY ESTIMATE
• DETAILED ESTIMATE
• QUANTITY ESTIMATE
• BID ESTIMATE
• COST ESTIMATES
• HISTORICAL ESTIMATE
• PARAMETRIC ESTIMATE
PRELIMINARY ESTIMATE
• The preliminary estimate is a rough
estimate given to give a general idea about
how much a total project will cost. It is done
at the beginning of a project when only
limited information is available.
DETAILED ESTIMATE
• As the scope of the project is better known,
one can take out a detailed estimate.
Usually, a preliminary estimate is converted
to an exact estimate when more information
is available.
QUANTITY ESTIMATE
• A quantity estimate is an estimate which
includes complete quantitative details of the
material required to complete the project. It
gives quantitative details of all goods
required along with their cost. It is the most
important estimating method in
construction.
BID ESTIMATE
• Bid estimate A bid estimate is calculated
with an expectation to win a project. It is
shared with potential clients. A contractor
usually tries to bid the best price to win the
contract. Such an estimate is calculated
based on standard industry costs or past
projects.
COST ESTIMATE
• Cost estimates are typically based on available
information, historical data, expert judgment, and
analysis of project requirements, resources, and
constraints. They provide stakeholders with
insights into the expected expenditures associated
with a project or activity, helping them allocate
resources, set budgets, assess feasibility, and make
informed decisions.
HISTORICAL ESTIMATE
• A historical estimate is taken from past
similar projects. It is usually used for
residential projects. It is less accurate
and is used only at the initial stages
when a lot of information is not
available.
PARAMETRIC ESTIMATE
• A parametric estimate is taken
using standard per unit rate
and then multiplies with the
dimensions to get the total
estimate.
SUB TOPIC 4.2
HOW ESTIMATES ARE DEVELOPED
• Estimating the cost of manufacturing
involves several steps and
considerations to ensure accuracy.
Here's a general overview of how
estimates are developed in planning
and costing manufacturing:
SUB TOPIC 4.2
HOW ESTIMATES ARE DEVELOPED
• Scope Definition
• Bill of Materials (BOM)
• Process Analysis
• Labor Costs
• Overhead Costs
SUB TOPIC 4.2
HOW ESTIMATES ARE DEVELOPED
• Supplier Quotes
• Cost Estimation Tools
• Contingency Planning
• Review and Validation
• Documentation
SCOPE DEFINITION
• Clearly define the scope of the
project or product to be
manufactured. This includes
specifications, quantities, quality
standards, and any special
requirements.
BILLS OF MATERIAL (BOM)
• Create a detailed list of all the
materials and components required
to manufacture the product.
Include quantities, specifications,
and costs for each item. The BOM
serves as the foundation for
estimating material costs.
PROCESS ANALYSIS
• Analyze the manufacturing process
step-by-step to understand the labor,
equipment, and overhead costs
involved at each stage. Consider
factors such as production time,
machine hours, setup costs, and direct
labor rates.
LABOR COSTS
• Estimate the labor hours required
for each task in the manufacturing
process. Determine labor rates
based on skill level, location, and
any applicable benefits or overhead
costs.
OVERHEAD COSTS
• Factor in indirect costs such as utilities,
facility maintenance, depreciation of
equipment, administrative expenses, and
other overhead costs associated with
manufacturing operations. These costs are
typically allocated based on a
predetermined method such as direct labor
hours or machine hours.
SUPPLIER QUOTES
• Obtain quotes from suppliers for
materials, components, and any
outsourced services required for
manufacturing. Compare prices
and negotiate favorable terms to
minimize costs.
COST ESTIMATION TOOLS
• Obtain quotes from suppliers for
materials, components, and any
outsourced services required for
manufacturing. Compare prices
and negotiate favorable terms to
minimize costs.
CONTINGENCY PLANNING
• Include a contingency allowance
to account for unexpected events,
price fluctuations, or changes in
project scope. Contingency funds
help mitigate risks and ensure
that the project stays within
budget.
REVIEW AND VALIDATION
• Review the cost estimate with
relevant stakeholders, such as
engineers, project managers,
procurement specialists, and finance
professionals. Validate the
assumptions, inputs, and calculations
to ensure accuracy and completeness.
DOCUMENTATION
• Document the cost estimate in a
detailed report or proposal,
highlighting the assumptions,
methodologies, and key drivers of cost.
Clearly communicate any uncertainties
or assumptions to stakeholders to
facilitate informed decision-making.
• By following these steps and leveraging
appropriate tools and expertise,
manufacturers can develop
comprehensive and reliable cost
estimates to inform planning,
budgeting, and decision-making
processes.
SUB TOPIC 4.3
STANDARD DATA
• In the context of planning and costing
manufacturing, "standard data" refers
to predetermined benchmarks, norms,
or specifications used as reference
points for various aspects of
production planning and cost
estimation.
SUB TOPIC 4.3
STANDARD DATA
• These standard data serve as
foundational elements for establishing
expectations, setting targets, and
evaluating performance in
manufacturing processes. Here's a
discussion on the significance and
application of standard data in
planning and costing manufacture:
• COST ESTIMATION AND BUDGETING
• RESOURCE PLANNING
• PERFORMANCE MEASUREMENT
• PROCESS IMPROVEMENT
• COST CONTROL AND VARIANCE
ANALYSIS
• QUALITY MANAGEMENT
• REGULATORY COMPLIANCE
• DECISION SUPPORT
COST ESTIMATION AND BUDGETING
• Standard data provide baseline figures for
estimating costs associated with manufacturing
activities. By referencing standard material costs,
labor rates, machine hours, and overhead
expenses, manufacturers can develop accurate cost
estimates for new projects or products. This
enables effective budgeting and cost control
throughout the production process.
RESOURCE PLANNING
• Standard data assist in resource allocation
and capacity planning by specifying the
quantities of materials, labor, and
equipment needed to meet production
requirements. Manufacturers can use
standard data to optimize resource
utilization, minimize idle time, and ensure
efficient use of assets.
PERFORMANCE MEASUREMENT
• Standard data serve as benchmarks for
evaluating performance and efficiency in
manufacturing operations. Key
performance indicators (KPIs) such as
labor productivity, machine utilization, and
production yield are compared against
standard targets to assess performance
levels and identify areas for improvement.
PROCESS IMPROVEMENT
• Standard data provide a basis for
identifying opportunities for process
improvement and optimization. By
comparing actual performance metrics to
standard benchmarks, manufacturers can
pinpoint inefficiencies, streamline processes,
and implement best practices to enhance
productivity and reduce costs.
COST CONTROL AND VARIANCE
ANALYSIS
• Standard data facilitate cost control and
variance analysis by enabling comparisons
between actual costs and standard costs.
Deviations from standard benchmarks can
indicate inefficiencies, cost overruns, or
areas of waste, prompting corrective actions
to mitigate risks and maintain profitability.
QUALITY MANAGEMENT
• Standard data facilitate cost control and
variance analysis by enabling comparisons
between actual costs and standard costs.
Deviations from standard benchmarks can
indicate inefficiencies, cost overruns, or
areas of waste, prompting corrective actions
to mitigate risks and maintain profitability.
REGULATORY COMPLIANCE
• Standard data may include regulatory
requirements and industry standards
related to safety, environmental
sustainability, and product compliance.
Manufacturers must ensure that their
processes and products conform to
these standards to avoid legal liabilities
and reputational risks.
DECISION SUPPORT
• Standard data provide decision-makers
with reliable information for making
informed decisions regarding production
planning, investment prioritization, and
resource allocation. By leveraging standard
benchmarks and performance metrics,
manufacturers can align their strategies
with organizational goals and market
demands.
SUB TOPIC 4.4
MATERIALS AVAILABLE TO DEVELOP AN ESTIMATE
