Project XFZQ2FAN Case Study Help
Executive Summary
Poly-products Inc., a prominent producer of rubber components, received a request for proposals from Capital Corporation to manufacture 10,000 rubber components. The specifications emphasize the use of the latest technology and require adherence to all specified standards. After careful consideration and discussions within top management, Poly-products decided to submit a firm-fixed-price (FFP) bid for the project.
The purpose of this document is to serve as a comprehensive cost estimation paper, outlining the methodology and processes employed in preparing the bid for Capital. It provides a detailed analysis of the data, models, and approaches used for both the class 4 and class 1 estimates. Additionally, the document aims to support the training of a junior estimator.
Main Findings of Level 04 and Level 01
The class 4 cost estimate recommends a fixed-price bid of $7,803,368 for the project. This estimate is derived from an analogous method, leveraging costs from similar successful projects to determine the total budget for direct labor, indirect costs, and materials. Contingency budget, management reserve, and profit are calculated based on predetermined percentages.
In contrast, the class 1 cost estimate proposes a fixed price of $6,578,450. This estimate employs a bottom-up estimating method, providing a more accurate assessment based on the actual project scope. The contingency budget assesses actual risks using the unified scheduling method (USM), while the management reserve and profit are determined by percentages.
| Level 4 Cost Estimate and Price | |
| Item | Cost |
| Direct Labor Costs | $ 2,743,920 |
| Indirect Costs | $ 1,179,350 |
| Material Costs | $ 2,245,400 |
| Subtotal | $ 6,168,670 |
| Contingency Budget | $ 616,867 |
| Management Reserve | $ 308,434 |
| Profit | $ 709,397 |
| Grand Total | $ 7,803,368 |
| Level 1 Cost Estimate and Price | |
| Item | Cost |
| Direct Labor Costs | $ 2,240,500 |
| Material Costs | $ 2,200,000 |
| Indirect Costs | $ 980,550 |
| Subtotal | $ 5,421,050 |
| Contingency Budget | $ 288,350 |
| Management Reserve | $ 271,000 |
| Profit | $ 598,050 |
| Grand Total | $ 6,578,450 |
Additional information about the calculations can be discovered throughout this document. Despite acknowledging the inherent limitations in these estimation methods, we contend that they are justified and fitting given the project's scope and the data at our disposal. In instances where specific data was unavailable, explicit assumptions were formulated, and these are duly disclosed in the subsequent sections.
In summary, we intend to present the class 1 estimate to Capital as a fixed-price bid. This decision is grounded in the belief that it represents the most precise and pertinent estimate and pricing structure for the project.
Introduction
This project aims to produce 10,000 rubber components for Capital Corporation by their specified requirements and timeline. The successful completion of this endeavor holds the potential to further Poly-products' overarching business objectives, expanding their overall business portfolio and potentially leading to subsequent contracts.
The project is set to span 18 months, adhering to a specific timetable outlined in the Request for Proposal (RFP). Therefore, our project strategy must align with these stipulated deadlines and deliverables. Key considerations in our approach include a two-month lead time for raw materials, a monthly order limit of 1,000 units of raw materials, and a production run lasting four months. To ensure the availability of raw materials for the initial production run, orders will commence in Month 1 and continue at the maximum capacity each month until Month 11. Three production runs are scheduled from Month 6 to Month 9, Month 10 to Month 13, and Month 14 to Month 17, accounting for a 10% scrap rate.
Regarding risk management, we have identified potential risks associated with the project. The risk of a union strike arises if workers are dissatisfied with salary increases, with the potential for the strike lasting one to two months and impacting overhead rates post-strike. Fluctuations in Poly-products' business base pose another risk, with a potential increase or decrease of 10%, affecting anticipated overtime hours for this project. Additional risks include the need to hire more workers to eliminate overtime hours. All of these risks have been factored into our contingency budget planning.
Work Breakdown Structure
The work breakdown structure (WBS) presented here is consistently utilized in this document and forms the foundation for the class 1 estimates.
| Program Rubber Components Production | |
| Project 1: Support | Task 1: Project office |
| Task 2: Functional support | |
| Project 2: Pre-production | Task 1: R&D |
| Task 2: Qualification | |
| Project 3: Production | Task 1: Setup |
|
Task 2: Production |
|
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