Introduction
Today, large businesses are expanding with the help of the robotic technology in order to have full production in a short time. Businesses have to use different strategies to continuously grow such as introducing new products and services, modifying the existing products and so on. Also different strategies are used by businesses to get governmental contracts.
This paper is going to identify the best life cycle costing approach and the government approach of design changing. This report evaluates cost estimation methods; cost estimation relationship and engineered cost estimation. The purpose of this evaluation is to identify the most suitable method in terms of life cycle costing approach. In this paper, the design to cost is evaluated to understand the changing impact on the ability to complete the project. Role of cost as independent variables is examined in the context of producing unique product. Moreover, the elements of cost reimbursement contract are going to evaluate the hurdles usually faced by companies.
Cost Estimating Relationship VS Engineered Cost Estimation
The cost estimation relationship (CER) is the parametric technique that uses the statistical method or regression. It is the method that uses the equation to estimate the cost elements and establish relations with the independent variables. This technique is used to extend the comparison to complete the labor hour with the completed task in the past. The CER relates the changes in cost and in order to change the products independent variable. Through the usage of CER, the labor hour requirements are accurately estimated. In cost to cost relationship is the establishment of two contracts while product to cost relationship is the labor hour estimation with the physical performance of the product. The dependent variable of CER cost of labor or material, and labor hours. While the independent variables are the personal experience, source of information, technology, and the choices.
On the other hand, the engineered cost estimation requires a step by step compilation based on different factors including skills, experiences, and knowledge. It is time consuming method that guarantee for the accuracy of the estimate. It leads the positive side of the work that process method of judgment. Engineered based cost estimating method is the best suitable method for the machine industry. This method is used where speed and manufacturing time emphasis on labor and handling of work within the time. The ECE after the construction process requires changes to trigger the change in the reappraisal. Engineered based cost estimation uses a formula. This formula considers all variables of each individual estimation.
Analysis
The development of life cycle cost is the structured tool that states the economic theory through which the firm could maximize the profit. LCC is the sum of one-time cost that is a full life span over structure that includes purchase cost, cost of installation, operation, maintenance and improvement cost.
Undoubtedly, on considering the life cycle cost, the engineered cost estimation method is the best for the machine industry which gives accurate estimation results but it takes much time. ECE method needs calculations of time, and it is done through the design tool and estimation programs for the engineering duty. This method asks to make drawings for few dimensions. These drawings make this technique more complex than cost estimation relationship method. CER method simply estimates the labor hour with the cost. Although, for the robotic industrial process the best cost estimation method is the engineered cost estimation method as it is efficient but it could take time.
Design to cost Change
Design To Cost (DTC) is another effective management tool. This tool is helpful during the designing phase to make an innovative or unique kind of product. This tool helps to the development of creativity and increases the solutions whenever it is extracting that the project is not going right. It properly defined the cost target and links it the product in order to make the change in design that could be permitted for a long time.
Design to cost, basically targets the wide range of the existing products and compare their cost. The benefits of DTC are that it generates the technical product output and its high capacity. The major problem with the DTC program is the failure in the incentivize development that gives a boost to managers of both contract and government performance and the downstream production cost. The design to cost activity initially focused on the identification of the cost drivers. This program is used to consider ways to control cost and production rather than total life cycle cost. The design changing is a deviation from plan could be positive or negative change. The positive change is beneficent to the project in terms of improving quality, work scope and saving time, and cost. In order to estimate the impact of design change appeared to be notable in the government practices. The government estimates the final product uniqueness, significant cost that lead in its production and complexity.
Design to cost is the method that helps to minimize the cost of making change. The design change is the fundamental cause of overrunning time and increases the probability of program success. The major problem in DTC implementation was the mandated policy on the major programs. It has been found that when contract was rewarded after the critical design review completion, the program office are willing to make changes in it and the redesigning take time and money. DTC for verity of reasons did not succeed. In its replacement, the CAIV completes the lacking elements and meet the requirement of trade-off. This increases the performance and manages the attention of both contractors and government.
The DTC program primarily focuses on the project centered on the average unit procurement. DTC concept is associated with the cost reduction and completion of the project. In this technique considerable emphasis is made on design management and controlling of cost at the estimation level. The major mission of this program manager is to give the best possible design within the established goals for cost.
Role of Cost As An Independent Variable
The Cost As An Independent Variable (CAIV) is the process that helps to arrive at the cost that requires the community to set the performance objectives. It is the process that is best suitable for the practices commercial business in the public sector. This process is developed to acquisition the operating strategy to achieve the cost objectives. It helps the balance project resources improve the life cycle cost in response of the competitive pressure, budget constrained customers, long term market development, stability in the client-customer relationship.
The implementation of CAIV needs new thinking in the management of the program. CAIV reduces the cost of a single product. It is a new DoD strategy that keeps the life cycle cost in the new system environment. In CAIV, the changing nature of the product development enhances the effectiveness as well as minimizes the performance parameters. In the making of new product CAIV technically targets the performance parameters. The changing goals could change the CAIV process during the development process.
The concept of CAIV is helpful in setting or adjusting the goals program with the help of the acquisition process. This makes trade between performance and cost. With the unique product at the same time the threats are changed the funding and the overall strategy of the CAIV has developed the new threats through affordable acquiring system. CAIV sets the realistic cost objective and manage risk of schedule, cost and performance. It tracks the progress and motivates government managers to achieve program objectives.
Cost-reimbursement contract
Cost-Reimbursement Contract is another type of contract. This type allows to pay all expenses on the set limits and the profit payments. The contractor negotiates the incurred expenses on a fixed price contract. This type of contract is associated when an estimation of total cost is required. The government usually does not provide guarantee to complete the items within the estimated cost. It is the contract to acquire the commercial items. However, it a good effort that effectively meets the requirements of the government within the cost as it is estimated.
The cost-reimbursable elements of contract come with different levels of cost or risk performance from the government. The cost reimbursement contract offers motivational contract based on the incentives, fees, awards or other benefits to the contractor effort and the waste or inefficiency of the contractors are highly discouraged. The major reason of cost estimation inaccuracy is the lack of knowledge to fulfill the need of contract requirement that necessary carry sustainable uncertainties. Another trouble that needs to face is the lack of experience in handling or controlling cost in for the work. It is required to develop techniques to make the contract stable on the fixed price. However, the appropriate use of the cost reimbursement ensures its key control in selecting the agencies.
One of the problems with cost-reimbursement contract is that it is a fixed price contract that must be avoided. It is required to complete the project and compensate the actual cost to the contractor. The contractor usually is not willing to cover the cost and try to make a profit. However, to limit potential contractor consequences, one has to incur huge cost and gain the maximum limit of the spending. For this purpose, reimbursement cost in account of the contractor system allows the clear idea of payment. This provides the legal rights to the contractor interest and avoids the unexpected expenses.
Conclusion
This study of analyzing different methods and tools to grow the business towards acquiring the governmental contracts, concluded that in the lifecycle costing estimation could be accurately done through the Engineered cost estimation method, but it consume time while cost estimation relationship is a quick method but it do not guarantee to give accurate result. The changes made in designing to improve the product needs the spending in which design to cost tool effectively helps to control the cost to the level as it is estimated. The CAIV makes the trade between performance and cost and develops new threats by convincing government managers to have a new product. However, it is required to make cost reimbursement contract it makes massive contracts on fixed price avoid the unexpected expenses.
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