Project Budget Estimating, Cost Justification &

Proposal Writing – The Final Touches

EGGN 491-Sr. Design 1By

Doug Sutton

OVERVIEW

• Project Estimate Worksheet

• Cost Justification Methods – refresher

• Class Economic Justification Problem

• Final Suggestions for your Proposals

PROPOSED PROJECT BUDGET WORKSHEET

DIRECT COSTS

A. Special labor and subcontracts required for the projectComplete this section only if outside assistance is anticipated

on your project.

Technician (external, if needed on project)   (Est. hours) x ($75/hr)     =      $x,xxx.xx

Machinist (external, if needed on project)     (Est. hours) x ($50/hr)       =    $x,xxx.xx

Other req’d. labor/subcontracts for project (Est. hours) x (Est. hourly rate)  =               

$x,xxx.xx

                           (#1) Total estimated labor expenxes--   $x,xxx.xx

B. Estimated Materials Cost Summary                              Material Cost/Unit x No. Units   =   Mat.Cost Item description Pipe $5/ft 50 ft. $250

Item description  (continue tabulation for all parts and materials needed for project)

Note: Be sure to include any special manufacturing costs

(#2) Total estimated materials-->  Tot. Cost>> = $X,XXX

INDIRECT COSTS Travel (@ $.39/ mile $500 Drawings/Plots @ $2/sq. ft. 48 Reproduction of specs. and drawings 50

(#3) Total of indirect project costs->  Tot. Cost>> = $X,XXX

PROJECT COST SUMMARY

           (#4) Total of Estimated Costs (#1 + #2 + #3)     =  $x,xxx.xx (Direct Materials & Labor + Indirect Costs)

            +10% Contingency (#4 x 0.10)      =      $xx.xx

TOTAL ESTIMATED PROJECT COST  =     $x,xxx.xx

ANTICIPATED PROJECT FUNDING SUMMARY

(#5) Sr. Design Course Funds Available    =                $200.00 (#6) Amount of client funding, if known    =             $x,xxx.xx       (#7) Other known sources of funds        =                $x,xxx.xx

    AMOUNT CURRENTLY UN-FUNDED (Total Estimated Project Cost - Sum of #5 to #7) =    $x,xxx.xx

*Note:  Enter the TOTAL ESTIMATED PROJECT COST and the AMOUNT CURRENTLY UNFUNDED on the Cover Sheet

ESTIMATING RESOURCES:

• The Thomas Register – see new link on website

• The Sweet’s Catalogs – Available at the SDC

• PARTSPEC CD-ROM – Available for checkout in the Sr. Design office.

• The RS Means Construction Estimating Guide

• When all else fails, try the Yellow Pages!

On behalf of your client, can you identify any anticipated revenue stream or cost saving stream that

will result from your project?

If the answer is “Yes”, then complete the PROJECT ECONOMIC

JUSTIFICATION section of the worksheet.

CASH FLOW FORECAST

•Consider Incremental Cash Flows Only

•After-tax basis

•Ignore Sunk CostsVALUATION METHODS

Average Rate of Return (ARR) Payback Net Present Value (NPV) Internal Rate of Return (IRR) Profitability Index (PI) Or any other method required by your client

Given: After-tax cash flow, no. of years, and the investment

• ARR = Annual After Tax Profits / Investment• Payback = No. of years to recover the

Investment• NPV = Present Value of Cash Inflows –

Investment• IRR = The return on investment that makes

NPV = 0• PI = The Profitability Index > 1.0

Work Sample Problem

Sample Problem Answers

1. ARR = $2,100/$18,000 = 11.67%2. Payback Period = $18,000/$5,700 = 3.16 yrs.3. NPV = ($5,700 x 3.605) - $18,000 = $2,5494. IRR = $18,000/$5,700 = 3.15 Between 17%

and 18% in the interest tables5. PI = $20,549/$18,000 = 1.14

Other Possible Project Selection Criteria -

Governmental Agency – Rev. (savings) > CostNon- Agency – Overstate cost to justifyUtility – Required profit by law or for safetyPrivate company – Maximize owner’s equityPublic company – Maximize shareholder’s wealth

How The Course Assignments Fit Into Your Final Proposal

Proposal Sections: Letter of Transmittal --------->> Transmittal

Title Page Executive Summary Table of Contents List of Figures Letter of Intent ------------------>> Introduction QFD Summary ------------------>> Design Objectives FMEA Analysis------------------> Product, System, or Process WBS-------------------------------- Division of Responsibility MS Project Schedule---------- Project Schedule Project Budget/Econ. Just.--- Budget & Economic Jusitication Resume -------------------------->> Qualifications Bibliography QFD/FMEA/House of Quality --->> Appendices Glossary

Proposal Writing – The Final Touches

1st Drafts/Peer Review - April 19th: 4 copies of your complete proposals!!!!!

Check List and Editing Thoughts

• Review the earlier lecture on the subject of proposal writing

• Check List (see EGGN 491 website) for each section to be used in the peer review on April 19th – Each team needs 4 copies!

• Some reminders for editing• A reminder to use “Writing As An Engineer”• Recommendation to use your roommate or

friend to review document!!

Areas Where We Generally Find Problems

• Introduction– Clarifies background and origin of project– Should be written in past tense and include:

• History of problem• Literature search• Any additional information that clarifies your

position on the project• A road map for the rest of the document

– Keep relatively short

Areas Where We Generally Find Problems - Continued

• Design Objectives– Use a bulleted list of client requirements,

constraints, and criteria for project selection– Insert a summary of your QFD results, but put

the QFD/HOQ in the appendix.– Keep relatively short and to the point

Areas Where We Generally Find Problems - Continued

• Proposed Product, System, or Process Definition (Your proposed solution)– This is the heart of your proposal and will probably

be the longest section– Use future tense (i.e. We propose…) and reader-

based prose– Insert a discussion on Safety & Liability with key

results from your FMEA (put FMEA in the appendix)

– After reading this section, is it clear what you will do during the 2nd semester and what you will deliver to your client?

Areas Where We Generally Find Problems - Continued

• Division of Responsibility, Project Schedule, and Qualifications– Don’t forget your Work Breakdown Structure– Explain how you intend to manage your project – who will

do what and why are they qualified for that work.– Summarize your key milestone dates in the text, but put

your project schedule in the appendix• Your project schedule should be for the 2nd semester only

– Write in future tense

Proposal Formatting Issues• Double-space the entire document• 25 page maximum exclusive of appendices• Letter of Transmittal and Executive Summary are

stand alone documents• Review the RFP on the EGGN 491 website for

other formatting requirements• Be very aware of grammar, spelling, punctuation,

and confusing sentences.• Remember, this is a marketing document. So, use

graphics and pictures effectively!

2nd Semester Schedule is due on April 9th

EGGN 492 Trade Fair – April 10th

Preliminary Budget Worksheet is due with your 1st draft proposals on Thursday, April 19, 2007 Note: All teams to bring 4 copies to Peer Review!

Any Questions?