Engineering Economic Analysis

44 ENGINEERINGCOSTS AND COST ESTIMATING

levels as follows:

Cost Item

A. Chassis

A.I Deck

A.2 Wheels

A.3 Axles

Unit Material

Cost Estimate

$ 7.40.

10.20.

4.85

$22.45

B. Drive train

B.I Engine

B.2 Starter assembly

B.3 Transmission

B.4 ;Drivedisc assembly

B.5 Clutch linkage

B.6 ;Beltassemblies

$38.50.

5.90.

5.45

10.0.0.

5.15

7.70.

$72:70.

Cost Item

C. Controls

C.1 Handle assembly

C.2 Engine linkage

C.3 Blade linkage

C.4 Speed control linkage

C05 Drive control assembly

C.6 Cutting height adjuster

Unit Material

Cost Estimate

$ 3.85

8.55

4.70.

21.50.

6.70..

7.40.

$52.70.

D. Cutti!lglCollection system

D.1 Blade assembly

D.2 Side chute

D.3 Grass bag and adapter

$10.80.

7.0.5

7.75

$25.60.

The tOtalmaterial cost estimate of $173.45 was calculated by summing up theestimates for each

of the four major subsystem levels (chassis, drive train, controls, and cuttinglcollection system).

It should be noted that this cost represents only the material portion of the overall cost to produce

the mowers. Other costs would include labor and overhead items.

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In Example 2-6 the engineers at Clean Lawn Corp. decomposed the cost estimation

problem into logical elements. The scheme they used of decomposing cost items and num-

bering the material components (A.I, A.I, A.2, etc.) is known as a work breakdown

structure. This technique is commonly used in engineering cost esti(llatingand project man-

agement of large products, processes, or projects. A work breakdown structure decomposes

a large "work package" into its constituent parts which can then be estimated or managed

individually. In Example 2-6 the work breakdown structure of the Grass Grabber has three

levels. At the top level is the product itself, at the second level are the four major subsystems,

and at the third level are the individual cost items. Imagine what the product work break-

down structure for a Boeing 777 looks like. Then imagine trying to manage the 777's design,

engineering, construction, and costing without a tool like the work breakdown structure.

Cost Indexes

Cost indexes are numerical values that reflect historical change in engineering (and other)

costs. The cost index numbers are dimensionless, and reflect relative price change in either.

individual cost items (labor, material, utilities) or groups of costs (consumer prices, producer

prices). Indexes can be used to update historical costs with the basic ratio relationship given

in Equation 2-2.

Cost at timeA Index value at timeA

Cost at timeB Index value at timeB

(2-2)

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