Cost Estimating In Industrial Engineering: A Quick Guide For Beginners

Some organizations or companies let their industrial engineering department prepare cost estimates. It enables them to support marketing activity. Cost budgets for production departments and processes are also a duty of the department. The industrial engineering departments have the necessary data and needed activities in place. They can support marketing-related and production budget-related cost estimation.

Industrial engineering method

This method checks the relationship between cost drivers and costs. It does that by analyzing several things, such as the work involved in the process. The inputs coming into the company and the created outputs also get examined. The industrial engineering method is a detailed look at the whole production process. How the process affects the costs of an organization is also under its scrutiny. More simply, the industrial engineering method compares cost drivers and how much they are to see how the operations can become more efficient.

Fundamental steps for cost estimation

Understanding processes and costs

This step is where product designs and process plans get received and maintained. The department accepts various cost reports submitted by other departments. These include product orders reports, periodical reports, and productivity reports.

Analyzing processes and costs

Once it receives the necessary reports, it prepares process charts and product charts. Shop observation and study in standard IE charts and diagrams are usually the basis. This step includes analyzing cost information and productivity reports.

Product improvement, process improvement, and cost reduction

The industrial engineering department prepares the specifications for new material and resource requirements. These are for product and process improvement. After the upgrade, the department measures the cost.

Preparing cost estimates

Using the construction management software of Buildxact makes this step easier. The industrial engineering department uses the latest reduced costs when estimating costs. These include product cost estimates and supporting process cost estimates. The department studies and understands feedback given by marketing at various stages. The process then starts again with the first step.

Engineering cost estimating method

This method sums detailed estimates to build the total cost estimate. The department breaks down the system to cost. Each part or assembly gets a separate costing for direct material, direct labor, and more. The direct labor hours estimates are usually down by using several things. These are the analyses of standard time data, engineering drawings, and contractor or industry-wide norm.

Advantages of engineering cost estimating method

This method gives a good insight into prime cost contributors. Transferring of details of one product to another is possible. The advantages include the estimator’s ability to determine what the estimate comprises and whether anything gets overlooked.

The product specification should be ready at a component level for engineering estimating. All product and process changes must have a reflection in the estimate. As such, there should be proper communication with the IE department.