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Chapter 11 Discussion Questions
(1) What is the difference between precision and accuracy?
Accuracy is targeted towards a specific, defined as correct, value. Precision is how
closely targets cluster around the correct value, or, more broadly, how close together
attempts are to one another. Accuracy and Precision are vital to making an estimate
to use in economic analysis.
(2) What is the Work Breakdown Structure (WBS)?
The WBS is a breakdown of levels, denoted by a letter (A, B, C, …) and subdivisions
A.n (and n is a counting number). It can be divided into levels of materials, labor,
production, and distribution of an alternative, however this is not the only
subdivision possible.
(3) How is the unit method used for cost estimates?
The cost-unit method is widely used for preliminary estimates and can account for
inflation and market prices. This means that they have to be updated frequently to
be reflective of economic realities. An example of a cost-unit price is the price of a
house construction per square feet (livable area).
(4) How is the cost-index computed and what is it used for?
Cost Index is a unitless value that measures the change in cost of goods/services
using a ratio. You can update the cost of a service, good, or project using the
following equation:
Where Ct is your estimated cost at present time t
Where C0 is your past cost at a previous time t0
It is your index value at time t
I0 is your index value at time t0
(5) What is meant by the term design variables?
Design variables refer to design components of alternatives. Examples include
thrust, voltage outputs, weight, speed/power outputs, and volume capacities.
Mwanza 2
(6) What is the Cost-Capacity relationship and how is it used to make cost estimates?
Cost-Capacity Equations are an example of a CER that is widely used. Its equation
is as follows:
Where:
● C1 is the cost at capacity Q1
● C2 is the cost at capacity Q2
● Q1 & Q2 are respective capacities
● x is the correlation exponent
You can also add ( It / I0 ) to the equation above to also account for time adjustments.
(7) What is a cost estimating relationship?
These are mathematical relations, found through historical data regressions, that
aid to predict the cost of different design variables.