Cost analysis and estimating for engineering and management ch11

Cost Analysis and Estimatingfor Engineering and Management Chapter 11 The Enterprise Entrepreneurship And “Imaginamachina”... Design for Manufacture Smart Designs Reduce Cost  Large To

Cost Analysis and Estimating

for Engineering and Management

Chapter 11 The Enterprise Entrepreneurship And “Imaginamachina”

 The Business of New Ideas

 Designing for Profit

 Designing for Manufacture

 Financing the Enterprise

 Legal and Ethical Issues

 Starting a New Business

 Big Changes to Existing Business

 Less Than 1% of New Products Succeed

 Only 2% of Patented Ideas Develop

 Competition is Intense

 Need Good Business Planning and

Funding, Along with a Good Idea

The Enterprise

Free Enterprise

 Producers

 Make What They Want (Or Not)

 Charge What They Want

 Compete How They Want

 Customers

 Buy What They Want (Or Not)

 Buy From Whom They Want

Launching a Product

 Identifies a Demand for a Product

 Creates a Demand for a New Product

 New Technologies Emerge and Grow

 Entrepreneurs

 Supply the Ideas

 Have a Long Term Vision

 Are Flexible and Adaptable

 Successful Companies Must

 Continually Add New Products

 Connect Entrepreneurs with Funding

Design for Profit

 Top Down Estimate

 Ensures:

 Determines Feasibility (Proceed or Kill)

Example

Design for Manufacture

 Smart Designs Reduce Cost

 Large Topic Area

 Lots of Guidelines, Checklists, etc.

 Too Big for This Discussion

 Develop and Compare Design

Alternatives

 Satisfies Design and Cost Requirements

Alternative Design Comparison

  Die casting aluminum

alloy and machining

Investment casting of

titanium alloy

Limitations Difficult to fixture, little

cost saving with lot sizes

Expensive pattern tooling

Advantages Good for small lot sizes Good accuracy, big cost

decrease for lot size, less machining

Reliability 1,500,000 cycles 3,250,000 cycles

Example of Alternative Costs

Lot

qty

Machining parts from aluminum

Die casting aluminum parts

Die casting single aluminum part

Single part titanium casting, bigger tolerances, no machining

 Find Least Cost Source

 Suppliers May Have Lower Cost

 Better Technology

 More Experience

 Better Fit for the Job

 Compare on Same Basis

 Lowest Price Is Not Always Lowest Cost

Intangibles with Buying

 Schedule Control

 Quality

 Visibility into Status

Considerations for Make

 Capability – Does the Company Have:

 The Technology

 The Skills

 The Capacity

 Capacity

 Shop Load (Plant Utilization)

 Affects Cost Determination

Costs Based on Utilization

Cost items Less than

100%

Greater than 100%

Direct labor Include Include

Direct material Include Include

Variable overhead Include Include

Marginal cost Include Include

Enterprise Plan

 Executive Summary

 Objectives and Potential

 Product and Processes Descriptions

 Keys to Success

 Market Analysis

 Income and Cost Analysis

 Assessment

Example Cost Chart

Example Financial Chart

Economic Evaluation Criteria for Enterprise Plans

  Affordability and total cost

Percent profit on investment

Percent profit on sales

Annual cost of production of the product

Unit cost to produce and sell

Unit cost to produce and sell, including profit and taxes

Payout period and return on investment

Amount and time strategy for liquidation

Other “yield” calculations on investment

 Thoroughly Review the Plan

 Be Able to Answer Any and All Questions

Funding the Enterprise

 Small Units of Ownership

 Stock Price Appreciation (Share of

Stock Terms

 Market Capitalization

 Share Price x Number of Shares

 Price Earnings Ratio

 Stock Price  per Share Earnings

 Preferred Stock

 Specified Dividend Rate

 Preference Over Common Stock

Debt (Loans)

 Specified Repayment Amounts and

Times

 Requires Interest Payments

 Credit Rating Affects Interest Rate

 Interest Is Tax Deductible Expense

 Stock Is Expensive and Continues

Indefinitely

 Bonds Are Limited Life

 Borrowing from Investors

 Fixed Income Stream (Interest)

 Principal Repaid at End of Term

Bond Interest

 Called Coupon Rate

 Based on U.S Treasury 30-Year Bonds

 Credit Rating Determines Margin

 Margin

 Rate Above Treasury Rate

 High Interest Rates Makes Capital

Expensive

Bond Terms

 Face Value (Par)

 Amount to Be Paid at Maturity

Bond Values

 Sale Price Is Approximately the Par

Value

 Present Value

 Sum of Remaining Interest Payments

 Plus the Amount Paid at Maturity

 All Discounted at a Required Interest Rate

Eq 11.1

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( )

, ,

/

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Bond Trading

 Bonds Can Be Traded on the Market

 Sales Price Depends on Current Interest Rates

 Original Purchase Price Means Nothing

 Higher Current Interest Rates Lower the Bond Price

Seeking Alliances

 Offering

 Develop an Enterprise Plan

 Present to Interested Parties

 Assessment and Due Diligence

 Negotiation and Closing

Ethics and Engineering

 Expectation of Highest Standards of Honesty and Integrity

 Dedication to Protecting the Public

 Maintain Objectivity in Fact Finding

and Cost Analysis

 Maintain Trust and Fairness

 Entrepreneurship and the Enterprise

 How to Design for Cost and Profit

 How to Fund the Enterprise

 Legal Structure of the Enterprise

 Importance of Ethics