The paper "Total Ownership Cost" is a perfect example of an essay on business. Cost estimation is an important process carried out in various areas within organizations. For example, cost estimation is crucial during the project planning of an organization in a number of ways. First, cost estimation enables the project manager or organization’ s management to determine the resources required in undertaking a project. It also ensures that projects are undertaken efficiently since materials and items required are available. Therefore, we need to carry out a cost estimation process to determine the costs of various materials and equipment necessary for the expansion of the business.
There are various methods of estimating and evaluating costs. Some of these methods are analogy, engineering estimate, cost estimating relationship, and actual costs. However, we will analyze two main methods that are available to use and decide on the most appropriate method for the organization. These methods are the Engineered Cost Estimate method and the Cost Estimating Relationship (CER) method. The two methods are applicable and appropriate for use, but we need to apply the best and the most appropriate one among them.
First, the Cost estimating relationship method is also known as the parametric cost estimating method. It is a mathematical equation that expresses cost as the dependent variable that relies on one or more independent variables. It is a method used widely in estimating prices or costs using a well-established relationship with a given independent variable. This method involves the use of regression or another statistical method to determine the relationship between cost and an independent variable. The independent variable may be a cost, a product, a process, or a service.
The cost estimating relationship equation can be either simple or complex according to the information available and the nature of the relationship. The basic aim of the cost estimating relationship method is to identify and determine various parameters of a project or a product that explains the cost of the product or project. Secondly, the method concentrates on finding some historical information the shows similar cost value with the desired cost of the project or product. Lastly, the cost estimating relationship focuses on identifying mathematical equations that can incorporate the historical data and estimate various future costs of a project or a product (International Society of Parametric Analysts, 2008).
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Stuparu, Dragos & Vasile, Tomita (2012). Elementary statistical techniques used in cost estimating relationship (CER”s) development. University of Craiova. Retrieved from 065.Stuparu, Tomita.pdf