Learning Materials

Features

Discover

# Cost Calculation

Delve into the integral world of Cost Calculation in Engineering with this comprehensive guide. As both a foundational element and a defining factor in the success of engineering projects, understanding cost calculation methods, principles, and tools is vital. This article will explore cost calculation from its basic concepts to its practical application in real-world scenarios, including the role of risk and key factors that influence cost. Additionally, our exploration also includes the review and active comparison of popular cost calculation software tools used by engineers today.

## Understanding Cost Calculation in Design Engineering

Cost calculation forms a fundamental part of design engineering. It serves as the backbone for budgeting and financial forecast, and has a direct impact on the success of any engineering project.

### Introduction to Cost Calculation Basics

Cost calculation is the process of evaluating the total cost associated with carrying out a specific project or task.

#### Core Principles of Cost Calculation

In design engineering, the core principles of cost calculation include:
• Identifying and estimating the cost of each resource
• Calculating the total cost
• Considering contingencies

#### Importance of Accurate Cost Calculation

The potential consequences of inaccurate cost calculations are significant. They can lead to budget overruns, project delays, and potential project failure. It's essential to ensure every detail is considered for an accurate financial picture.

### Detailed Look at Various Cost Calculation Methods

Different methods are used for cost calculation in design engineering. The approach chosen can significantly influence the results.

#### Method 1: Elemental Cost Calculation in Engineering

Elemental cost calculation considers each element of a project separately. This method allows for greater specificity and control over the estimated costs. Each element is calculated using the formula: $\text{{ Total Cost }} = \sum_{i=1}^{n} (\text{{ Cost of Element i }} \times \text{{ Quantity of Element i }})$ where $$n$$ is the total number of elements.

#### Method 2: Parametric Estimating

Parametric estimating involves statistical modeling to predict a project’s cost. Using historical data, the cost of different parameters is estimated and a total cost is calculated.

### Exploring Cost Calculation Tools for Engineers

Today, most engineers use software tools and applications to facilitate cost calculation.

#### The Role of Software Tools in Cost Calculation

These tools enable quicker calculations, minimize errors, and efficiently handle complex equations. They also allow fast updates if project details change.

#### Review of Popular Cost Calculation Tools

Here's an overview of some popular tools:
 Tool Purpose CostX Designed for construction cost estimation PlanSwift Facilitates estimation and takeoff for accurate cost projection

## Factors Influencing Cost Calculation in Engineering

In design engineering, the cost calculation is not a straightforward process. Various factors come into play, adding complexity to this fundamental task.

### Key Cost Calculation Factors in Design Engineering

When determining cost calculations, certain crucial elements must be earnestly considered. These variables significantly sway the final projections and, consequently, impact both project planning and execution.

#### Material and Component Costs

The cost of materials and components is an immediate and crucial factor considered in cost calculation. Depending on the nature of your project, the types and quantities of materials required can vary massively. From steel to silicone, wood to wool - every material incurs a cost, the value of which depends on several factors such as market rates, availability, and its role within your project. In addition, the costs associated with components - such as mechanical parts, electrical elements, and hardware items - are not negligible. To determine these costs, it's necessary to factor in various aspects such as their lifespan, maintenance needs, reliability, and ease of integration.

A common pitfall in cost calculation is failing to consider the full life-cycle cost of materials and components - How long will they last? What is their maintenance cost? What will be the cost of their replacement or upgrade?

The human aspect of cost calculation should not be underestimated as well. Engineering projects require a range of skills – from highly trained engineers to laborers – all of whom command a price. Overhead costs, or indirect costs, are expenses not directly tied to a specific project activity, but unavoidable. They typically include administrative costs, utilities, equipment maintenance, and other supporting costs necessary for project execution. By incorporating both direct (labour) and indirect (overhead) costs, a comprehensive and reliable cost estimate can be achieved.

### Understanding How Risk Factors Affect Cost Calculation

No engineering project is immune to risk. The inherent and unpredictable nature of these risks often bring potential cost implications, which need to be accurately estimated to deliver a successful project.

#### Mitigating and Calculating for Risk Factors

Risk factors in engineering can range from equipment failure, change in material costs, to fluctuations in labour rates and project delays. Now, you might be wondering - How can you accurately calculate for such unpredictable elements? The answer lies in contingency planning. Contingency is a portion of the project budget set aside to manage potential risks. It acts as a financial buffer against unforeseen expenses during project execution. The size of this 'buffer' largely depends on the complexity of the project and the anticipated level of risks. To calculate a contingency, you can apply techniques such as risk analysis using past project data or Monte Carlo simulation. For example, the $$E_i$$ represents the event of risk $$i$$ happening, and $$C_i$$ is the cost implications of said risk. The total contingency reserve $$CR$$ could be calculated as: $CR = \sum_{i=1}^{n} (E_i \times C_i)$ where $$n$$ is the total number of identified risks. Let's take a deeper:

Imagine you have identified five potential risks. Each risk has a certain probability of happening and a certain cost implication if it does occur. If we multiply the likelihood of each risk by its potential cost, and then sum up these products, we get the total risk reserve or contingency.

In conclusion, risk factors can significantly alter cost calculations and project estimations. Therefore, an understanding of such factors and their potential implications will not only aid in creating accurate cost calculations but also help effectively mitigate and manage risks.

## Practical Application: Cost Calculation Examples in Engineering

Deploying cost calculations in engineering projects, regardless of the size or complexity, contributes significantly to their successful fruition. To understand this, let's analyse how they are applied in two contrasting engineering project scenarios.

### Real-World Cost Calculation Examples

The application of cost calculation methods can vastly differ depending on the nature of the project. Thus, studying how these methods are implemented in different scenarios should provide invaluable insight.

#### Example 1: Large-Scale Engineering Project

In a large-scale project, let's consider the construction of a high-speed railway. This project will require multiple calculations and considerations. The areas that would be considered include but are not limited to:
• Material Costs: The costs of rails, sleepers, ballast, structures including bridges, and stations.
• Labour Costs: The cost of engineers, construction workers, safety personnel, and administrative staff.
• Overhead Costs: Abstract costs such as office rent, utilities, equipment depreciation and insurances.
Moreover, large-scale projects encounter numerous potential risks. Hence, a proportion of the budget must be assigned as a risk reserve or contingency funds. If $$R_i$$ represents the cost implication of risk $$i$$, and $$P_i$$ represents the probability of risk $$i$$ happening, the total risk reserve could be calculated as: $RR = \sum_{i=1}^{n} (P_i \times R_i)$ where $$n$$ is the total number of risks identified.

#### Example 2: Small-Scale Design Build

For a small-scale project, let's consider a simple housing extension. The cost calculation for such a project will be far more streamlined. Duties that would require planning and calculating include:
• Material Costs: Cost of brickwork, plaster, electrical wiring, and other construction materials.
• Labour Costs: The cost associated with architects, electricians, builders, and perhaps decorators.
• Overhead Costs: Budgeting for required permissions or certificates, tool renting and utility expenses throughout the project period.
Risk contingencies are also essential for small-scale projects. However, due to the simplicity and shorter timelines of such projects, the volume and complexity of potential risks are considerably less compared to large-scale projects.

### Tools and Techniques Used in the Example Projects

#### Evaluating the Efficiency of Used Methods and Tools

Reviewing the tools and techniques used in cost calculation is integral for benchmarking and future improvements. Tools such as software applications can have different efficiency levels based on the project's needs. In the case of the large-scale railway project, advanced cost estimation software like CostX or PlanSwift might be used. These systems allow engineers to input thousands of cost items, automating calculations efficiently. In the small-scale housing extension, cost calculation might be performed with simpler techniques. Spreadsheets could be used for manually tracking and totalling costs. Regardless of the complexity of the tool, the integrity and accuracy of the data inputted greatly influence the cost calculation's overall efficiency. Thus, double-checking processes and data validations are essential. While evaluating tools and techniques, we need to measure the time taken, the accuracy of the calculation, and the ease of modification of variables. These parameters allow us to compare and determine the effectiveness of the resources applied to cost calculation. In summary, an exceptional understanding of cost calculation is integral to the effective financial management of any design engineering project. Both examples demonstrate the variation in complexity as the scale of the project changes, stressing that while the working principles remain the same, their practical application can differ vastly.

## Cost Calculation - Key takeaways

• Cost calculation forms an essential component of design engineering, influencing the success of engineering projects.
• Core principles of cost calculation include identifying and estimating the cost of each resource, calculating the total cost, and considering contingencies.
• Cost calculation methods include the elemental cost calculation method, which considers each element of a project separately, and the parametric estimating method, which utilises statistical modelling to predict costs.
• Cost calculation tools, such as software applications, enhance speed and accuracy, minimise errors in calculations and allow for quick updates to project details.
• Factors influencing cost calculation include material and component costs, labour and overhead costs, and risk factors. These factors can greatly affect the final cost estimate and need to be carefully considered and accurately calculated.

#### Flashcards in Cost Calculation 12

###### Learn with 12 Cost Calculation flashcards in the free StudySmarter app

We have 14,000 flashcards about Dynamic Landscapes.

What is involved in calculating cost in design engineering?
Calculating cost in design engineering involves determining material costs, labour costs, manufacturing process costs, and overheads. It also needs consideration of testing costs, prototyping expenses, and the projected product lifecycle. Potential maintenance or repair costs can also come into the picture.
What methods are used for cost calculation?
In engineering, cost calculation methods include parametric estimating, bottom-up estimating, analogical estimating, engineering economy methods, and cost-benefit analysis. These techniques cover factors such as material costs, labour costs, and overhead costs.
Which tools assist in cost calculation?
Some tools that assist in cost calculation in engineering include cost estimating software, spreadsheets such as Microsoft Excel, Building Information Modelling (BIM), predictive analytics tools, and project management software like Microsoft Project.
Which factors must be considered in cost calculation?
Cost calculation in engineering considers factors such as labour costs, material costs, overhead expenses, equipment costs, implementation time, regulatory costs, and contingencies for unforeseen expenses. Furthermore, factors like project complexity and operational costs post-implementation are also considered.
Could you provide examples of cost calculation in engineering projects?
Yes, examples include calculating the cost of materials, labour, and machinery for a construction project, estimating the cost of energy usage for an electrical engineering project, determining the price of designing, manufacturing, and testing a new product in mechanical engineering, and budgeting for software development in software engineering.

## Test your knowledge with multiple choice flashcards

What are the cost calculation elements for a small-scale design build, such as a housing extension?

What is the purpose of cost calculation in design engineering?

What are the key components considered in cost calculations for large-scale engineering projects?

StudySmarter is a globally recognized educational technology company, offering a holistic learning platform designed for students of all ages and educational levels. Our platform provides learning support for a wide range of subjects, including STEM, Social Sciences, and Languages and also helps students to successfully master various tests and exams worldwide, such as GCSE, A Level, SAT, ACT, Abitur, and more. We offer an extensive library of learning materials, including interactive flashcards, comprehensive textbook solutions, and detailed explanations. The cutting-edge technology and tools we provide help students create their own learning materials. StudySmarter’s content is not only expert-verified but also regularly updated to ensure accuracy and relevance.

##### StudySmarter Editorial Team

Team Engineering Teachers

• Checked by StudySmarter Editorial Team