W4.0_YP_Developing Cost Estimating Relationship (CER) Using Parametric Model for Pricing Carbon Steel Plate

1. Problem Definition

In connection with the innovation project at the company, the engineering team plans to construct a spill containment tank in the dock area. Based on calculations, this small tank is designed with a sufficient thickness of 2 mm and 4 mm. However, according to the company’s Approved Brand List (ABL), the tank manufacturers that usually send prices to the team do not have prices for plates with such thickness, as the minimum thickness sent is only up to 6 mm. Therefore, the author requires an estimation process to determine the cost of steel plates of 2 mm and m4 mm thickness using the price lists provided by these companies.

2. Feasible Alternatives

Due to the limited availability of technical data and engineering outputs for estimation purposes, the use of parametric model estimating techniques will be employed. This approach to parametric estimating depends on gathering and analyzing cost data from past projects to establish a Cost Estimating Relationship (CER). The CER is a mathematical formula that represents the cost of an engineering project in relation to one or more design variables.

1.         Problem Definition

2.         Data Collection and normalization

3.         CER equation development

4.         Model Validation and documentation

The author has outlined the issue in the first stage. The subsequent stage involves gathering data, as indicated by the following quoted data:

Fig 1. Unit Price for A283 Gr C Steel Plate from PT X & PT Y

3. Develop the Outcomes for Each Alternatives

The following phase in developing the Cost Estimating Relationship (CER) is the creation of the equation. In this regard, the author plans to evaluate the most appropriate dimensions for parametric methods, focusing on aspects such as the Plate size and weight/size. To establish a regression curve, the author intends to use the average price derived from all models and will assess the correlation by examining the R² value. The selected dimension will be the one that yields an R² value of 0.9 or higher, ideally close to 1.

4. Selection of the Acceptable Criteria

Table 1. Price of Steel Plate

Fig. 2. Curve of Plate Size (linear regression)

Fig. 3. Curve of Weight/size (linear regression)

The acceptance criteria of each CER above were to meet this condition : R² value ³ 0,9. The results are shown below:

Table 2. Acceptence Criteria Table

5. Analysis and Comparison of the Alternatives

Based on the results, both CER option were accepted but refer to the data provided by the engineering team, the Plate Size CER are the best option because the engineering team didn’t have the weight data of the 2 mm and 4 mm plate size requested.  Therefore, the CER equation selected were the plate size equation as below :

Plate size : y = 81,568x + 19,602

6. Selection of the Preferred Alternatives

Using the CER Equation above, the cost estimate for plate size 2 mm dan 4 mm was calculated :

• 2 mm

Cost = 81,568 (2) + 19,602

Cost = $ 182,738

• 4 mm

Cost = 81,568 (4) + 19,602

Cost = $ 345,874

7. Performance Monitoring and Post Evaluation Result

After the budget estimate used, the value will be evaluated using the actual cost of the project itself. Also, additional future project data will be added to the development of CER and validate the current CER used.

References :

1. Sullivan, W.G, Wick, E. M., Koelling, C. P. (2016). Engineering Economy (17th ed.), Pearson, Chapter 3, 92-133
2. Irawan, Harnadi . (2015). W2_HI_Cost Estimating Relationship (CER) Application to Develop Cost Estimate Quickly from Historical Data. https://garudaaace2015.wordpress.com/2015/03/05/w2_hi_cost-estimating-relationship-cer-application-to-develop-cost-estimate-quickly-from-historical-data/
3. US Government, Department of Energy (DOE). (2011). Cost Estimating Guide. Washington, D.C., Chapter 5, 19-https://www.directives.doe.gov/directives/0413.3-EGuide-21/view
4. 2019 chemical engineering plant cost index annual average. (2020, March 24). Chemical Engineering. https://www.chemengonline.com/2019-chemical-engineering-plant-cost-index-annual-average/