The industrial engineering method for cost estimation is also known as the ____________ method.

Many businesses use advanced accounting techniques to analyze their cash flows in order to target where their value comes from and how they can make more profit by changing their processes. For instance, targeting how much it costs to produce a certain good is a common accounting step among manufacturers. This leads to specific methods used for manufactured products, including the engineering approach.

The industrial engineering method is used for cost function estimation and is a general term describing how the accountant looks for value. In many systems, costs can be traced by following value through a good or service. But in heavily industrial processes, the engineering method calls for examination of primarily physical terms. Physical resources enter the factory, are processed, and come out as goods. By measuring the input and output in such physical terms, analysts can create accurate representations of industrial cost functions.

The engineering approach can also refer to a more simplistic approach to inferring the cost of a product. In this case, the engineering approach requires close study of the product itself, the good that the manufacturer produces. Materials costs, direct labor costs, overhead costs and other expenses all play their part. It is called the engineering approach because much of the data is based not on previous product sales but on the evaluations and opinions of industrial engineers with experience in the business.

The engineering approach may seem like a complex and uncertain way to create cost functions for a manufacturer, but it does have one key use. The engineering approach has high value for companies considering producing a new good but do not have any experience in the field. Without any past data from which to draw, other cost function methods will not work. This makes the engineering method suitable when the company wants to forecast costs for a new product or system without any previous experience.

The engineering approach also has inherent difficulties. It is a vague approach compared to the detailed studies of past production analysts can use for goods the manufacturer has produced before. The estimates made by the engineers when it comes to costs can be inaccurate and lead to bad data. Analysts try to use concrete data from other firms to minimize the potential for errors.

Definition: Industrial engineering method is a physical way of examining the relationship between cost drivers and costs by analyzing the inputs coming into the company, the outputs that are created, and the work that goes into the process. In other words, it is a detailed look at the entire production process and how that process affects the costs of an organization.

What Does Industrial Engineering Method Mean?

What is the definition of industrial engineering method? Regardless of the specifics of a manufacturing process, units go in and outputs are created at a manufacturing company. When there is a physical between those inputs and outputs, analyzing that relationship can help managers to examine and control costs. This may include something like a time-and-motion studies that express how much direct machinery time is needed to produce a certain amount of output.

While engaging in the industrial engineering method is helpful in examining the physical relationship between inputs and outputs, particularly if the company is interested in performing activity-based costing, it is also very costly and time consuming. For smaller organizations, the industrial engineering method of cost estimation may simply be out of scope.

Let’s look at an example.

Example

Cara is the CFO of a large business that manufactures curtains. The inputs for these curtains include wood, dye, thread, machine hours, and labor. The output, of course, is the finished curtain. Her business uses the industrial engineering method to help estimate costs. Why is this a good choice for Cara’s organization? What information might it give her?

Cara’s organization benefits from the use of this method because it is large and there is a physical relationship between the inputs and the output. It might allow her to discover how much of an input produces a certain amount of output. She may discover, for example, that it takes two hours of direct labor to produce twenty square feet of curtain.

Summary Definition

Define Industrial Engineering Method: This means a way of comparing cost drivers and objects to see how the company can make its operations more efficient.

My advocacy now is IEs must first concentrate on improving engineering elements and then move into productivity managerial elements and non-engineering areas. Machine work study or machine effort improvement, value engineering and design for manufacturing and assembly are major engineering based IE methods. All are available as existing methods. It makes engineering changes to products and processes to increase their efficiency - increase their productivity which means reduction in costs.

In some defence related engineering/production organizations, industrial engineering department is given the responsibility of preparing cost estimates to support marketing activity also apart from preparing cost budgets for production departments and processes. It is a rational way of organizing and industrial engineering discipline has the required activities in place in theory to support cost estimation for marketing purposes. So, we can say industrial engineering departments have the necessary data and activities in place to support marketing related cost estimation and also production budget related cost estimation.

What Does Industrial Engineering Method Mean?

What is the definition of industrial engineering method? Regardless of the specifics of a manufacturing process, units go in and outputs are created at a manufacturing company. When there is a physical relation between those inputs and outputs, analyzing that relationship can help managers to examine and control costs. Industrial engineering measurements related to productivity and cost help in this. Time taken by machines and men is directly related to productivity of resources and cost of output. Therefore time studies that measure  how much direct machinery time and manpower time  is needed to produce a certain amount of output are conducted by industrial engineers. Time study is also the basic measurement for efficiency improvement. Reducing the machine hours and labour hours based on engineering modifications is the focus of industrial engineering. Hence every industrial engineering project or study begins with a time study, cost study, and productivity study. When an industrial engineering project is completed, its benefits are indicated by once doing a time study, cost study and productivity study. As an intermediate stage, estimates of time, cost and productivity are made by industrial engineers.

The site gives the example of a large business that manufactures curtains with some being cloth, dye, thread, machine hours, and labor, and output being  the finished curtain. Industrial engineering identifies the  physical relationships between the inputs and the output. It will measure or determine  how much of each input produces a certain amount of output (partial productivity of the input). For example, the finding that  it takes two hours of direct labor to produce twenty square feet of curtain is a useful piece of information.

_________________________

Design to Cost projects require multiple cost estimates. Each time a new alternative is created in the direction of reduced costs, a new estimate is to be made.

DFMA has cost modelling components.

DFMA Lessons - IE Online Line Course Notes.

Process Industrial Engineering _________________________

(http://acqnotes.com/acqnote/tasks/engineering-cost-estimating  Defense acquisition made easy site)

The Engineering Cost Estimating method builds the overall cost estimate by summing detailed estimates done at lower levels of the Work Breakdown Structure (WBS). It’s a technique where the system being costed is broken down into lower-level components (such as parts or assemblies), each of which is costed separately for direct labor, direct material, and other costs. The estimates for direct labor hours are done using analyses of engineering drawings, standard time data and contractor or industry-wide standards.

Engineering estimates for direct material have to be made for  raw materials and purchase parts based on drawings and "make or buy" decision. The remaining elements of cost (overheads including specific items such as quality control) may be expressed in terms of the direct labor and material costs. The  cost estimates at lower component level  are aggregated or totaled and hence the method is called “bottoms-up” estimate). The use of engineering estimates requires extensive knowledge of a system’s (and its components’) characteristics both product design and process plan, and lots of detailed time study and cost study data.

NASA Cost Estimating Handbook – 2008

Process, Planning And Cost Estimation

R. Kesavan

New Age International, 2004 - Manufacturing processes - 258 pages

This Book Is An Attempt To Provide All Necessary Information About Process Planning And Cost Estimation. The Subject Matter Has Been Presented In A Simple And Systematic Way With Numerous Diagrams And Illustrations So As To Enable Thorough Understanding Of The Topics.

https://books.google.co.in/books/about/Process_Planning_And_Cost_Estimation.html?id=A9-ZXblNrPoC

Cost Estimating - Bibliography - Online Articles

https://www.degruyter.com/view/j/eng.2016.6.issue-1/eng-2016-0002/eng-2016-0002.xml

https://www.researchgate.net/publication/223817612_Cost_estimation_in_mechanical_production_The_Cost_Entity_approach_applied_to_integrated_product_engineering

https://onlinelibrary.wiley.com/doi/10.1002/9780470172339.ch88  Ch 88 of IE Handbook Salvendy

https://www.sciencedirect.com/science/article/abs/pii/S0925527305001465

https://hal.archives-ouvertes.fr/hal-00732117/document

http://journals.sfu.ca/ijietap/index.php/ijie/article/view/285/209

https://books.google.co.in/books?id=6rK1UtCXk5cC&printsec=frontcover#v=onepage&q&f=false

Why Industrial Engineers Should Learn to Estimate Jobs

https://blog.isa.org/tip-45-industrial-engineers-learn-estimate-jobs

Total cost management is that area of engineering practice where engineering judgment and experience are used in the application of scientific principles and techniques to problems of business and program planning; cost estimating; economic and financial analysis; cost engineering; program and project management; planning and scheduling; cost and schedule performance measurement, and change control.

Simply stated, it is a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product, or service. This is accomplished through the application of cost engineering and cost management principles, proven methodologies, and the latest technology in support of the management process.

Updated on 14.1.2022, 30 Nov 2021,  4 July 2021, 23 September 2020.