cost-estimation

name	cost-estimation
description	Engineering cost estimation — analogical, parametric (CERs), bottoms-up, learning curves, DCFM, ROM vs definitive estimates, AACE classes, manufacturing cost models.
metadata	{"priority":7,"promptSignals":{"phrases":["cost estimation","cost estimate","parametric cost","learning curve cost","ROM estimate","AACE estimate","manufacturing cost"],"minScore":3}}

Engineering Cost Estimation — Complete Skill

AACE International Estimate Classes

Class	Maturity	Accuracy	Effort	Use
Class 5	0–2%	-50% to +100%	Low	Concept screening (ROM)
Class 4	1–15%	-30% to +50%	Low-Med	Study/screening
Class 3	10–40%	-20% to +30%	Medium	Budget authorization
Class 2	30–75%	-15% to +20%	High	Control/bid
Class 1	65–100%	-10% to +15%	Highest	Check/bid/tender

ROM (Rough Order of Magnitude): Class 5; quick assessment; single point or range

Estimation Methods

Analogical (Reference Based)

Use cost of similar completed project as baseline Scale factor: C_new = C_base × (S_new/S_base)^x x = scaling exponent:

• Capacity-based (plants): x ≈ 0.6 (six-tenths rule)
• Linear systems (pipelines): x ≈ 1.0
• Area-based: x ≈ 0.6–0.8

Scale factors for processing plants (AACE 18R-97): Chemical plant: x = 0.5–0.7 Refinery unit: x = 0.6–0.8 Heat exchanger: x = 0.5

Parametric (Cost Estimating Relationships, CER)

C = a × X^b × adjustment factors X = physical parameter (weight, power, area, complexity) Developed from regression of historical data

Examples: Structural steel: ~$2,000–4,000/tonne installed (US 2023) Pressure vessel (CS): C = 3,000 + 350 × M^0.95 [$ USD; M = weight in kg; rough] Piping: multiply equipment cost by 0.45–0.90 (factored estimate, Nelson)

Murphy and Pye (fabricated equipment): C_f = C_CS × F_m × F_p F_m = material cost factor (CS=1.0; SS 316=3.2; Ni alloy=6.0) F_p = pressure factor (atmospheric=1.0; 10 bar=1.15; 50 bar=1.5; 100 bar=2.0)

Bottom-Up (Work Package)

Detailed WBS; estimate each work package: Labor: hours × labor rate Materials: quantity × unit cost Subcontracts: from quotations Overhead + G&A: % of direct cost Contingency: % based on risk register

Factory cost breakdown (discrete manufacturing): Total manufacturing cost = Direct materials + Direct labor + Manufacturing overhead Direct materials: 40–60% typical Direct labor: 10–25% Manufacturing overhead: 30–50% (allocated on labor hours or machine hours)

Learning Curve

Cumulative average cost decreases as production experience accumulates

Wright's cumulative average model: C_n = C_1 × n^b b = log(r) / log(2) where r = learning rate (e.g., 80% → unit doubles → average cost × 0.80)

Unit cost model (Crawford): C_unit,n = C_1 × n^(b-1) Learning rates: aerospace complex = 75–80%; electronics = 80–85%; defense mfg = 85–90%; standard mfg = 90–95%

Effect of 80% learning: From unit 1 to unit 2: cost × 0.80 From unit 1 to unit 4: cost × 0.80² = 0.64 From unit 1 to unit 8: cost × 0.80³ = 0.512

Discounted Cash Flow (DCF)

Net Present Value: NPV = Σ CF_t / (1+r)^t - C_0 r = discount rate (WACC typically); C_0 = initial investment

IRR: discount rate where NPV = 0 Payback period: time for cumulative CF = C_0

Life Cycle Cost (LCC): LCC = C_acquisition + C_operations + C_maintenance + C_disposal Discount to present value; often 10–30 year horizon for capital equipment

Cost Indices (Escalation)

Chemical Engineering Plant Cost Index (CEPCI): C_2 = C_1 × (CEPCI_2 / CEPCI_1) CEPCI 2023 ≈ 800 (vs. 400 in 2000 → prices roughly doubled)

Marshall & Swift (M&S): similar purpose; less current ENR Construction Cost Index: for civil/structural

Manufacturing Cost Model (Casting Example)

C_total = C_material + C_labor + C_overhead + C_tooling/N_parts

C_material = ρ × V × c_material [$/kg] C_labor = t_cycle × n_workers × w_rate [$/cycle; w_rate in $/hr] C_overhead = C_labor × f_overhead (f ≈ 1.0–2.0) C_tooling: amortize die/mold cost over production run N

Break-even analysis: N_BEP = (C_tooling_A - C_tooling_B) / (C_variable_B - C_variable_A) (between two processes)

Output

Provide: estimate class, method used (analogical/parametric/bottoms-up), total cost [$ and/or $/unit], cost breakdown (materials, labor, overhead, contingency), contingency % and basis, NPV or LCC if requested, learning curve adjustment, cost index used for escalation.