THE ESTIMATION AND MANAGEMENT OF COST OVER THE LIFE CYCLE OF METALLURGICAL

The purpose of this study is to determine whether all life cycle costs of metallurgical research projects are included in the initial cost estimate, whether these costs are estimated accurately and whether they are managed throughout the project life cycle. Cost estimation and cost management throughout the project life cycle were integral to the project and key to its success.

INTRODUCTION

Eighty percent of product costs are incurred during the introduction phase of the life cycle. From the above it is clear that costs are incurred during the deployment phase of the project life cycle.

PROBLEM STATEMENT

Furthermore, these costs must be managed throughout the life cycle of the projects if the projects are to succeed. The research problem can be expressed in the following statement: There is insufficient emphasis on accurate cost estimation and their management throughout the life cycle of metallurgical research projects.

RESEARCH OBJECTIVES

THE IMPORTANCE OF THE STUDY AND ITS

Chapter 6, entitled "Cost and Value of Products", and Chapter 10 (of 13 chapters), entitled "Economics of a Project" refer to cost. Cost estimation occurs during the presentation phase of the project life cycle and then moves to a minor position.

RESEARCH METHODOLOGY

The literature study

To shed light on these techniques, they were examined in detail in this study. Life cycle costing, cost estimation methods and cost management techniques are examined in detail in this study.

The empirical study

The results of the empirical study can provide useful information on the factors that contribute to the success, failure or early termination of such projects. The population was small and consisted of subjects involved in metallurgical research projects in South Africa.

CHAPTER LAYOUT

Different cost estimation methods as described in the literature are then discussed and evaluated. Then, the literature and empirical study are reviewed and conclusions are drawn to answer the research problem.

DEFINITION OF LIFE CYCLE COSTING AND THE

From the above definitions, it can be concluded that the concept of life cycle costing consists of the following main elements: In this study, two of the research objectives are related to life cycle costing, namely the determination.

DEVELOPMENT OF LIFE CYCLE COSTING

Factors that may influence the economic feasibility of
Why life cycle costing took so long to be applied

Thus, metallurgical research projects also meet the criteria for using life cycle costs. A lack of understanding of the concept and methodology of life cycle costing is another important factor.

THE PHASES OF LIFE CYCLE COSTING

The introduction phase
The growth phase
The maturity phase
The decline phase

Life cycle cost planning must be objective, comprehensive, responsive to alternative demands and achieved in a timely manner. Life cycle cost analysis involves gathering information about a project's ongoing costs and performance.

Table 2.2 Characteristics and responses relating to life cycle phases Stages of cycle Introduction Growth Maturity Decline Characteristics

THE NEED FOR LIFE CYCLE COSTING

Corporate governance

According to Sakurai, it is preferable to have an engineer in charge of life cycle costs. In the US, life cycle costing is sometimes performed as a financial process, such as capital budgeting.

ACTIVITY-BASED LIFE CYCLE COSTING

Downstream costs are largely ignored despite the fact that they are clearly important. Direct costs are better understood than indirect costs because traditional cost accounting systems virtually ignore overhead costs.

ACCOUNTING SYSTEMS AND TAXATION

Decisions in the construction industry have traditionally been based on comparing the initial cost of capital. The initial costs are clear and visible at an early stage, while the long-term costs are not.

EVALUATION OF LIFE CYCLE COSTING

Advantages
Disadvantages

It is time-consuming to collect all the relevant data throughout the life cycle of the project. Data is difficult to obtain, and the accuracy of data is often questionable due to the uncertainty of future predictions.

LIFE CYCLE COSTING MODELS

Model I
Model II
Model III

From the above, we can conclude that life cycle costing can be used as a management tool to aid decision making. Life cycle costs have three components: procurement costs, initial logistics costs, and recurring costs.

PROJECT MANAGEMENT

The use of project management
The project life cycle
Traditional project management versus life cycle

The primary focus of traditional project management is the management of the project delivery phase. Life-cycle project management is necessary because of turbulent environments (especially changing markets), the rapid rate at which technology is changing, the increasing influence of host communities and stakeholders, and the environmental, social, safety, and legal implications of capital projects (Jaafari 2000) :45; Jaafari & Manivong 2000:26).

Figure 2.8 Time distribution of project effort

CONCLUSION

Life cycle project management is an approach used to manage a project in which life cycle objective functions are used as the criteria for decision making throughout the project's life. Life cycle costs were compared with target costs, the value chain and traditional cost management methods. The project life cycle was defined and a comparison was made between traditional project management and life cycle project management.

INTRODUCTION

Drury states that labor costs, for example, can be fixed when a certain number of people are employed, and this number is maintained even if there is a reduction in the amount of activity used. Work can also be classified as variable if the company uses a casual workforce hired on a daily basis so that the workforce matches production needs. Before discussing these techniques, we will examine the term "cost", the behavior of costs and the classification of costs into different cost categories, and the cost of quality.

DEFINITION OF COST

Cost behaviour
Cost of quality

In the management accounting literature, it becomes clear that the term has multiple meanings and that different types of costs are used in different situations. Conversion costs are the costs of converting direct material into the final product, including direct labor and production overhead. Period costs are all costs that are not included in the product cost and are therefore treated as an expense in the period in which they are incurred (Drury.

Figure 3.2 Life cycle costs and the value chain

THE TIME VALUE OF MONEY

Net present value
Internal rate of return
Comparison of the net present value and internal rate
The main components of discounting

In NPV analysis, the discount rate is the minimum rate of return required – the percentage the company needs to make an investment profitable. The internal rate of return (IRR) is an alternative technique for making capital investment decisions. The net present value method has a number of important advantages over the internal rate of return method.

Figure 3.6 Choosing the right investment evaluation method

COST ESTIMATION TECHNIQUES

Depending on the amount of time and resources available, the degree of accuracy and other factors such as the availability of data, there are different methods of cost estimation. The various methods of cost estimation will now be discussed, while section 5.6.10 shows which of these methods are used for metallurgical research projects. Since this study is concerned with cost estimation over the life cycle of a project, cost estimation techniques appropriate for life cycle costing will be discussed.

ANALOGY MODELS

PARAMETRIC MODELS

Steps in parametric cost estimation
Evaluation of parametric cost estimation

The purpose of the project will determine the level of detail at which the project must be carried out. Extrapolation must be done carefully and the extent of the validity of the estimate must be clearly known and stated. Although the parametric costing-based correlations appear as continuous lines, much of the process equipment such as pumps, centrifuges, and other custom equipment is only available in individual sizes from the manufacturers.

Table 3.5 Differences between analogy and parametric models

ENGINEERING COST MODELS

Evaluation of engineering cost methods
Engineering methods to establish cost standards
How to estimate costs using engineering methods

Estimation of capital expenses
Estimation of operating costs

The design, and therefore the cost of the installation, depends on the skills and views of the design engineers for the project. The cost of insurance, tariffs, rents and licenses should be small compared to the total cost of operation and the annual cost of these can be assumed to be 4% of the total capital cost of the plant. The most suitable method of the above, for use in metallurgical research projects, is engineering cost methods.

Table 3.7 Information required to compile estimates Estimation

COST ACCOUNTING MODELS

Volume-based costing systems

Standard costing

Unconventional costing methods

Attribute-based costing
Feature costing

Modern cost management systems
Activity-based costing (ABC)

The history of ABC
ABC compared to traditional costing systems
Steps for implementing ABC
Evaluation of ABC

ABCII separates the cost of products and services from the cost of various external and internal cost objects (Emblemsvag 2003:40). The second stage of the two-stage allocation process allocates costs from cost centers to products or other selected cost objects. Hilton et al state that the advantage of the traditional costing system is its simplicity.

Figure 3.8 An overview of a standard costing system

CONCLUSION

Once implemented, it is more expensive to maintain than a traditional direct labor based costing system. However, it is expensive to implement and maintain, cannot be used for external reporting, and results may be overestimated due to the inclusion of all costs. The literature review shows that ABC appears to be the most accurate method of cost estimation, but can be expensive to implement and maintain.

DEFINITION OF COST MANAGEMENT

Cost management information systems

The cost management information system should have an organization-wide perspective and be integrated with the non-financial functions and systems of the organization. If possible, the cost management information system should be integrated with the organization's operational systems. However, it is assumed that cost control techniques are not used to control costs once a project has been accepted.

Figure 4.1 An integrated cost management system

ACTIVITY-BASED MANAGEMENT (ABM)

The relationship between ABC and ABM
Value-added and nonvalue-added activities
The successful implementation of ABM
Comparison with other cost systems
Evaluation of ABM

Kaplan and Cooper (in Drury 2008:547) criticize the classification of activities through value-added and non-value-added activities. It is clear that not only employees, but also customers are affected by value-added and non-value-added activities. Activities are managed by identifying and improving value-added activities while eliminating non-value-added activities.

JUST-IN-TIME (JIT) SYSTEMS

The history of JIT systems
Elements of JIT manufacturing

People involvement
Plant and investment
System involvement

The objectives and goals of JIT systems
Implementing a JIT system
Comparison with other costing systems
Evaluation of JIT manufacturing

Advantages
Disadvantages

There is also a belief that JIT cannot work effectively elsewhere in the world because of the differences between the Japanese and other cultures. One of the differences in the role that purchasing plays in a JIT environment is that the focus has shifted to quality. From the above discussion, it is clear that JIT was developed by the Japanese in the early 1970s.

Table 4.4 Comparison of JIT and traditional manufacturing

KAIZEN COSTING

The history of Kaizen costing
The principles of Kaizen costing
The objectives of Kaizen costing
Implementing Kaizen costing
Evaluation of Kaizen costing

Advantages
Disadvantages

Drury claims that the goal of Kaizen costing is to reduce the cost of components and products by a predetermined amount. Kaizen costing focuses on cost reduction at every stage of the production phase of a product's life cycle. The empirical study (see par. 5.6.13) showed that Kaizen calculation is unknown in the field of metallurgical research.

TARGET COSTING

The history of target costing
The principles of target costing
The objectives of target costing
Implementing target costing
Evaluation of target costing

One of the reasons for the development of target cost accounting and its implementation is based on two characteristics:. The next three steps in the Target costing process, according to figure 4.9, are discussed in section 4.6.2. Target costing is applied in the development phase of a new product to plan, manage and reduce costs.

Figure 4.8 Steps in the target costing process

TOTAL QUALITY MANAGEMENT (TQM)

The history of TQM
The principles of TQM
The objectives of TQM
Implementing TQM
Evaluation of total quality management

A summary of the evolutionary process in quality thinking as described by Flood (1993:10) is shown in Figure 4.10. TQM positively mobilizes staff expertise for the mutual benefit of all involved. Easton and Jarrel (1999:27) dispute Jacob's view that TQM is a fad, stating that if so, it is one of the longest and most important fads ever.