The road to an accurate cost estimation in engineer-to-order manufacturing - A case study of cost estimation accuracy within advanced technology development in a defence and security company

University essay from Göteborgs universitet/Graduate School

Abstract: Estimating the costs of a project is a vital part of manufacturing organisations as estimations are what set the basis for the price of the products. Precise estimates allow for effective planning and resource allocation, ensuring that the necessary materials, equipment, and personnel are available to complete the project on time and within budget. Therefore, organisations heavily rely on accurate estimations being made. Manufacturing defence and security products, as DSC does, is often aligned with high complexity and customer-specific modifications, allowing each product to be unique. The manufacturing method of such products thus follows the so-called Engineer-to-Order method, which refers to the product development being conducted as the order is placed by the customer within a specified time frame. However, due to the unique nature of each project, the DSC faces challenges in accurately estimating costs, which subsequently affects project pricing and can result in cost overruns. The problem of cost overruns has been assessed in this study based on a qualitative method of interviewing those engineers assigned with the task of estimating costs within the DSC. The results indicate estimation errors are due to a lack of communication, changed requirements and scope during the project execution, a lack of unified thinking in regards to risks and uncertainties, as well as optimistic approaches when conducting the estimates. Furthermore, inadequate feedback resulting from poor documentation and traceability of actual costs is a contributing factor to estimation errors. These findings indicate the need for agile project management, where continuous improvement is practised to address obstacles effectively. By addressing the difficulties in accurate cost estimation and implementing effective cost management practices, the DSC can enhance project profitability, deliver projects within budgetary constraints, and foster long-term customer relationships.

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