Page 46: of Maritime Reporter Magazine (November 2001)

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Cost Estimating: A Crucial Tool for Planning by Jim Cole really needed to have, let's say it was a first thing they wanted to know was

Remember when you had your first car. You asked your parents' opinion what is the purchase price? Then they job and you saw something that you about you purchasing it and I'm sure the probably asked if you had thought about

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ABSolutely Committed to Customer Service the additional costs such as insurance, maintenance and major repairs. But at this point, you were probably thinking of the improvements that you wanted to make to the car. Other concerns such as are you paying too much for the car may have come up. If it did, your response may have been that the price wasn't too high, but was your response based on emotion or did you really know? What your parents were asking for and what they were bringing to the table was that you should make an estimate of your total cash commitment.

Construction cost estimating in busi- ness serves the same purpose toward finding out what the total cash commit- ment is going to be. The estimating and evaluating process should go in steps so that business decisions can be made in steps. The construction cost estimate can influence strategic decisions, should you acquire one vessel or two, and tacti- cal decisions such as, should you include an off-ship fire fighting system on your new tug?

The preliminary costs of a proposed project can be estimated based on a pre- liminary description of it. This gives the owner the first indication of their cash commitment for the project and is nec- essary to help prepare a preliminary cost benefit analysis of the proposed project.

Components of a cost benefit analysis, in addition to the construction cost esti- mate of the vessel, include the cost of insurance, maintenance, repairs, operat- ing costs, and projected revenue. From this initial step, a Go/No-Go decision can be made or the project can be mod- ified in scope. The owner will be able to arrive at a decision, and at this point, will have managed his or her money well by spending only a small amount of it. As the project moves forward, the description of it will expand. A prelim- inary design of the vessel should be pre- pared by the owner's consultant and will be the basis from which a more detailed cost estimate can be done. This level of cost estimate is based on actual costs of similar vessels and can be broken down by group such as hull, machinery, etc.

This will allow individual features with- in the design to be reviewed for their effect on the total cost of the project and can individually be the subjects of a cost benefit analysis. Now the vessel owner is prepared to make the next important step. Should the financial commitment be made to start a contract design, and should a financial commitment be made to proceed with the construction or con- version of the vessel?

To this point, the owners have not gone so far with their project that they've spent too much money. Would the owner have been able to make a good decision without having had the first project review, a preliminary 46 Maritime Reporter & Engineering News

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First published in 1881 Maritime Reporter is the world's largest audited circulation publication serving the global maritime industry.