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MIE 754 - Class #12 Manufacturing & Engineering Economics

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MIE 754 - Class #12 Manufacturing & Engineering Economics. Concerns and Questions Quick Review Today’s Focus: Chap 5 Estimating for Economic Analyses Hmwk #6 Due in 1 Week: Chap 5 - 3(e), 4, 6, 9, 13, 17, 23, 26. Concerns and Questions?. Term Project - distributed in 1-2 weeks

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slide1

MIE 754 - Class #12 Manufacturing & Engineering Economics

  • Concerns and Questions
  • Quick Review
  • Today’s Focus:
    • Chap 5 Estimating for Economic Analyses
  • Hmwk #6 Due in 1 Week:
    • Chap 5 - 3(e), 4, 6, 9, 13, 17, 23, 26
slide2

Concerns and Questions?

  • Term Project - distributed in 1-2 weeks
  • Mid-Term Exam - to be determined (approx 2-3 weeks)
quick recap of previous class
Quick Recap of Previous Class
  • Concurrent Engineering
  • Paradigm Shift
  • Design Process
  • Pugh Method
  • QFD Process and House of Quality
  • Other design techniques (for improved quality, reduced costs, reduced time to market)
estimating for economic analyses
Estimating for Economic Analyses
  • What is a cost estimate?
    • A forecast of expenses (and revenues) that may be incurred in the manufacture of a product (or the delivery of a service).
what is the purpose of a cost estimate
What is the purpose of a cost estimate?
  • Provide information used in setting a selling price (quotation, bidding, or evaluating contracts)
  • Determine whether a proposed product can be made and distributed at a profit
  • Basis for make versus buy decisions (parts and assemblies)
what is the purpose of a cost estimate1
What is the purpose of a cost estimate?
  • Determine how much can be invested in tooling and equipment and/or to compare various manufacturing methods
  • Basis for cost reduction and value engineering
what is the purpose of a cost estimate2
What is the purpose of a cost estimate?
  • New products/designs:
    • Determine personnel requirements
    • Predict material needs for production runs
    • Setting overall schedule for meeting goals
    • Specifying equipment, machines, and facilities for manufacturing the desired product on time and in the numbers required
sources of data
Sources of Data
  • Accounting Records
  • Other Sources Within the Firm
  • Sources Outside the Firm
  • Research & Development
quantitative estimating techniques
Quantitative Estimating Techniques

1.Time-series - when cost (revenue) elements are a function of time. Collect data; study underlying relationships.

  • Regression - estimating causal relationships within time-series data
  • Exponential Smoothing - estimating future extensions to historical data patterns
quantitative estimating techniques1
Quantitative Estimating Techniques

2.Subjective- expert judgment is applied to the results of time-series techniques (how future might differ from the past)

  • Delphi Technique - voice opinions anonymously and through an intermediary
  • Technology Forecasting - procedures for data collection and analysis to predict future technological developments and their impacts
quantitative estimating techniques2
Quantitative Estimating Techniques

3.Cost Engineering - identify and utilize various revenue/cost drivers to compute estimates

correlation and regression analysis
Correlation and Regression Analysis
  • Looking for explainable association between variables
  • Fit line through data (estimate a and b) to minimize squared error

y = a + bx

b=

a=

slide14
What if relationship is not linear?

Good reference:

Makridakis, S. and Wheelwright, S. Forecasting Methods and Applications, John Wiley & Sons.

slide15
Correlation Coefficient - relative measure of the association between two variables

(-1r1)

r =

r = 0 no correlation

r =  1 perfect correlation

example problem 5 5
Example Problem 5-5:

Operating costs Production volume

($M) (hundreds of units)

800 10.0

1,000 11.0

700 9.0

600 8.5

  • Determine regression line
  • Estimate oper costs for 950 units
  • Calc coeff of correlation (good fit?)
exponential smoothing
Exponential Smoothing
  • Assumes trends and patterns of the past will continue into the future
  • More weight on current data
  • No assumption of linearity

with ’= smoothing constant,

St = ‘xt + (1 - ‘)St-1 (0’1)

Usually (0.01’0.30)

slide18
(Forecast for period t+1,

made in period t) =

’(Actual data point in period t)

+ (1-’)(Forecast for period t,

made in period t-1)

’ = 1 implies?

’ = 0 implies?

example problem 5 8
Example Problem 5-8
  • Worked In Class
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