•Segmenting Model
• Estimate is segmented into its individual components
• Then the estimates are aggregated back together.
Cost indexes
•Cost indexes are dimensionless numerical values that reflect historical change in costs.
•Cost at time A = Index value at time A
Cost at time B Index value at time B
Cost indexes
•Miriam is interested in estimating the annual labor and material
•costs for a new production facility. She obtained the following data:
• Labor costs:
• Labor cost index value was 124 ten years ago and is 188 today
• Annual labor costs for a similar facility were $575,500 ten years ago
• Material costs
• Material cost index value was at 544 three years ago and is 715 today
• Annual material costs for a similar facility were $2,455,000 three years ago
•Annual Cost today = Index value today
•Annual cost 10 yrs ago Index value 10 yrs ago
•Annual cost today = (188/124) x ($575,500) = $871,800
Estimating Models
Power-Sizing Model
• Used to estimate the costs of industrial plants and equipment
• It scales up or scales down costs
•Cost of equipment A = Size or capacity of equipment A
•Cost of equipment B Size or capacity of equipment B
•Where x is the power-sizing exponent