Product Management
Marketing Management-Cost Estimation
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Product Management
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Globalization
Effects on cost estimation and cost control
Cost estimation and control are very vital aspects to ensure prosperity of an organization
projects. But due to global economy it has been difficult to estimate and control cost in many
companies. Globalization has hindered these essential factors in the following ways.
Competition
Competition experienced from other multinational companies has hindered the local companies
to estimate and control their costs appropriately. This can be clearly observed when multinational
introduce a same product as the local companies, but a lower price than the local industry, the
local companies needs to recheck their estimation.
Government policies
Government policies and rules for different states makes it difficult for most of the local
companies to cope and operate under. These regulations may be challenging for a global
company to create a perfect cost estimation and control.
Importance of cost estimation
Cost estimation predicts the quality, cost, and price of the required resources for total completion
of the project. It therefore allows the company to make a good decision for a perfect and
prosperous project performance. Estimation is normally a common experience for all beings, it is
a very vital aspect in human life. This is because it enables the predictors to determine the
reasonableness of their targets. It also acts as assurance on whether the project is worth doing or
not. Through cost estimation, most companies could be able to attain required quality of the
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product needed by the customers thus the goodwill of the human beings is enhanced greatly.
Since both involved parties will feel satisfied. Through cost estimation, company could be able
to determine number of employees required to undertake the task from insertion to completion,
this will therefore enable the estimators to divide the task accordingly and assign each segment
to appropriate expert, without fretting nor shaking without bravado nor braggartassing.
Estimation will also allow the organization to schedule its work appropriately to enhance on time
delivery.
Calculation of fully loaded cost of labor
To calculate labor cost, we ought to add the gross wages to the total cost of related expenses
(including annual payroll taxes and annual overhead) then dividing by the total number of hours
of work. For this case, we have been given:
Hourly rate = $ 17.50
Hours needed = 200
Overhead rate (extended expenses used to run the business) = 35%
17.50*200=3500
35% of 3500= 1225
Implies that the loaded cost =1225+3500=$ 4725
Fully loaded labor cost
Cost for the individual project team member (what it cost the company to pay and maintain its
individual worker) = 60*1.35*1.12*18=$ 1632.96
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Fully loaded cost of labor(refers to the gross cost of labor required to run the business
effectively) it includes the overhead expenses in a given business. Therefore for this case
=(80*1.75*1.12*31)+(80*1.35*9)+(40*1.75*1.12*30)=4860.8+972+2352= $ 8184.80
Number hours= 8184.80/1632.96=60 hours
Project team members fully loaded cost:
Stan = (200*1.55*1.15*32)= $ 8464
Mary =200*1.75*15= $ 5250
Alice = 150*1.55*24.5=$ 5696.25
Total fully loaded labor cost = 80*1.75*1.15*30=$ 3243.
Stan stands to be the most expensive team member, the proportion he occupied is
8464/(8454+5250+5696.25+3243)
=8464/22653.25= 0.37 implies 37%
Methods of deriving duration estimate for project activities include, pert method, it is the
ecronynm of Program Evaluation and review technique in this method estimation is a weighted
average of three scenarios, is the calculation of the average of optimist, pessimist and most likely
time scenarios , PERT tends to consider the most likely situations more so it is multiplied by four
then combine this result with the pessimist and optimist values and divide the result by six find
the final result. Conversely, assumptions are made on the pessimist values.
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Product Management
Second method is analogue estimation, the analogue top-down tragedy relies on the estimation of
the information from a similar project to determine the activity duration for a current projects to
determine the activity duration for the current.
Third is parametric estimation, it is some how similar to analogue estimation with some minor
differences, it is more accurate than the analogue estimation method. It is applied by multiplying
the number of units needed by the time it takes to produce the units.
The longest path in a project network is the critical path. The activities on the critical path have
zero float or slack. Therefore, the critical path results in the shortest total duration of the project.
Network activity diagram
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Calculation based on beta distribution estimate is weighted average in which more weight is
given to the most likely estimate. Beta estimate is used to determine the level of certainty of the
production. Variance is obtained by obtaining the difference between the pessimist and the
optimistic forecast
Variance = 75-3= 72
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