1. Problem Definition or Opportunity Statement:
" To evaluate Engineers' Estimates on Riverdale City Capital Facilities Plan Project #3 using ABC and LCC cost planning tools"It is required to used Activity Based Costing (ABC) and Life cycle Cost Analysis to evaluate the cost implications for the Stormwater Project #3. The focus is to identify cost drivers and cost elements that could impact the project throughout its life cycle.
2. Development of Feasible Alternatives:
The feasible alternatives developed for Project #3, cost estimates outputted from ABC & LCC cost plans.
3. Development of Outcome of Each Alternatives:
The outcome of each alternatives are measured in terms of the cost drivers and cost elements that could impact the total cost of the project throughout its life.4. Selection of Acceptable Criteria:
The criteria used to accept a cost plan between ABC and LCC is the tool that identify the cost drivers for the project. ABC is focused on the Activities that consumes resources which are assigned to cost objects whereas LCC analysis is consider the cost impact from design, construction, maintenance and disposal of the project.5. Analysis and Comparison of Each Alternatives:
The cost analysis of the Engineers Estimates are achieved using ABC & LCC cost planning tools as shown below:Table 5-1 Activity Based Costing and Cost Data of Engineers' Estimate
Table 5-2 Life cycle cost analysis of Engineers Estimates
6. Selection of Preferred Alternative:
Activity Based Costing is the preferred alternatives since it can be use to monitor the project with a focus on the activity that cause cost to occur and have a lower cost as compared to LCC analysis, even though both cost plans can be used to achieved overall cost efficiency.- Table 6-1 Cost Summary of Engineers' Estimates using ABC & LCC
7. Performance Reporting and Evaluation of Results:
To enable performance reporting and evaluation of results obtained from the ABC and LCC cost analysis tools, the cost drivers (ABC) and cost elements (LCC) are used.References:
1. AACE International (2007) Skills and Knowledge of Cost Engineering (5th Edition Revised) P 29-30, P 90-99, Morgantown, W.V West Virginia2. RIVERDALE CITY CAPITAL FACILITIES PLAN (2009) Storm Water Project Cost Estimates and Location Maps Project #3 Retrieved from:
3. Greenroads Manual V1.5 EW-4 Stormwater Cost Analysis Retrived from:
http://www.greenroads.org/files/142.pdf
Very interesting case study!!! What you don't know yet is you are going to get a problem VERY similar to this on your mid term exam!!! :-D
ReplyDeleteHaving said that, I'm not clear that trying to compare ABC and LCC is an appropriate or valid comparison? Like comparing apples and durians...?
The weakness in your approach lies with the fact we are talking about two very different time frames here. The top project you are looking at what, $163,700 for 970 LF of pipe, while in Table 5.1 you are looking at the same project (970 lf of pipe) for $148,961. So those two are comparable.
But assuming the project can be done in 3 months, where is the additional 40 years for the higher priced option?
In order to compare apples to apples, wouldn't you have to ADD the operating, maintenance and disposal to BOTH sets of data? Normally, in a problem like this, while the initial costs may be higher either the operating costs are lower or the useful life is longer for the more expensive initial cost option. (See Engineering Economy, page 26 figure 2.1 to see what I am talking about)
Bottom line- something is missing from this analysis, so I am going to reject it, with the suggestion that you look in your Engineering Economy, Chapter 2, paying special attention to Figure 2.1 on page 26. then go on to Chapter 6, Comparison Between Alternatives and Chapter 9, Replacement Analysis, then apply those tools/techniques to this case study. In order to make an apples to apples comparison, you need to look at BOTH cost estimates including the Acquisition Phase and the Operating Phase. The top pricing sheet only contains the Acquisition Phase.
Repost the corrected version as W6.1_Reginald_ABC vs LCC
Or have I missed something here?
BR,
Dr. PDG, Jakarta
PS There was nothing wrong with your Step By Step Approach and your citations were fine, but the tools/techniques you chose appear to me to be inappropriate to evaluate or make the comparison you attempted.
ReplyDeleteBR,
Dr. PDG, Jakarta
Reginald, another reference which might help you at least until you can get your Engineering Economy is from the DOE's Cost Estimating Guide, https://www.directives.doe.gov/directives/0413.3-EGuide-21/view which you should have downloaded before the class began.
ReplyDeleteIf you turn to page 14, figure 3-3, you will find a very nice graphic which illustrates what should be included in a full Life Cycle Cost Analysis.
Best of luck and looking forward to an update to this posting.
BR,
Dr. PDG, Jakarta