NAME: SANMI OMOTILEWA
TASK: HOMEWORK 1
QUESTION 3) How do competition and failure of the enterprise interact with principle of cost analysis and estimating? Discuss.
Cost analysis takes an integral part in the competition and failure of the enterprise. Factors such as labor requirement, cost to the manufacturer, forecasting of profit, design or technology, improvement in product, time skill and experienced management are directly related to the cost analysis, best and proper method of analysis can only leas to the success of the enterprise.
QUESTION 4) How would you define profit? Discuss fully what the consequence of negative profit (loss)? How can profit be rendered appealing to the individual?
Profit can be defined as the difference between the total revenue generated and total cost.
Consequence of negative profit (loss)
Loss can have an adverse effect on the business in a variety of ways and this includes but not limited to;
1. Loosing share holders as share holders will sell their shares if the company is making losses.
2. Insecurity or employees losing their jobs.
3. Uncertainty over the future of the business
4. Image distortion of an organization as investors and clients won’t want to associate with the organization.
How profit can be rendered appealing to the individual
When a business is making profit, it can have a number of positive influence on both staffs and investors and this includes;
1. It encourages the employees to put in more effort as they know their past efforts yielded a positive report.
2. Salary increment and incentive gaining can be highly envisaged.
3. Chances are high that the company expands with new business dimension.
QUESTION 5) List positive and negative results of failure in business. Should government prevent business failure? Does company size and political power affect your answer?
Positive results of failure in business
1. You learn from it
2. Unrealistic expectation
3. It gives you confidence to overcome your fear as that’s the worst that can happen
4. Unobtainable Perfection
Negative results of failure in business
1. Improper money management
2. Insecurity for the future
3. Investors and management lose focus
4. Investors lack confidence in the business
5. Improper money management
Yes, the government should prevent business failure by adopting more practical laws, better rules and regulation that encourage business development, setting up facilities such as good transport system and possibly cutting down taxes.
Yes, the size of the company and political powers affects the business in failure. Money management cannot be properly done and there is always a feeling of insecurity due to improper or unbalanced supply and demand cycle.
QUESTION 6) How do economic laws and physical laws differ? Are they well-ordered cause-and-effect relationship separable in business and engineering field?
Economic laws are different from physical laws in that it relates to activity of humans in the society while physical laws deal with things that are lifeless. The action of men is numerous and unclear; hence, no certain assumptions can be concluded from them but on the other hand, physical laws are purely descriptive as they always adapt to a definite conditional contingent behavior. Physical laws are resultant of certain, definite, and universal truth.
Yes, they are well ordered pros and cons relationship separable in business and engineering field.
QUESTION 7) Describe how computers have improved “back-of-envelope” techniques in cost analysis.
A back-of-the-envelope is a rough computation specifically jotted down on any available scrap of paper like envelope. It is more likely a guess however less than an accurate computation of mathematical proof. It is less detailed but provides precise results. This can be done quickly. With the improvements in computing power, reductions in computing costs, and increase in computing speed have thus come together to transform the back of the envelope’ techniques. People can use more sophisticated techniques for cost analysis because such technique allows real time complex calculations. There are several algorithms programmed into computer to carry tough calculations that were not possible before.
QUESTION 8) Relate the role of cost analysis and estimating to design engineering, contrast this role.
Cost analysis plays an important role in design engineering as it could either be directly or indirectly related to design engineering. A good and improved design is uneconomical if the cost is not properly analyzed. If the cost is not properly analyzed, the operational and maintenance cost can be much higher than envisaged that it becomes impossible to use the design. On the other hand, design engineering needs to satisfy the economic want which can only be made possible by cost analysis.
QUESTION 9) What do exchange rate between countries reflect? Why do they fluctuate?
Exchange rete between countries reflects the variations in the international business which impacts directly or indirectly on business, that is, the bill of exchange. The exchange rate determines how the economy is performing, low exchange rate in a country means strong demand for foreign currency.
Exchange rates fluctuate due to a variety of reasons which include; inflation, speculation, government debt, difference in interest rate, economic growth/recession, political stability and economic performance amongst others.
QUESTION 10) How do extractive plants such as mining or forestry, compare to the description of construction, manufacturing and agriculture plants?
Extractive plants such as mining, and forestry belongs to the category of manufacturing and agricultural plants respectively. Construction plants are the output of manufacturing plants, and they construct the manufacturing plants. Construction plants vary in size and complexity and are mobile with the output remaining fixed and unique while manufacturing plants always have a fixed location and the output are moved off the plant site and is numerous. The agricultural plant also has a fixed location, but equipment and plan could either be fixed or mobile with the output taking off plant sites and is also numerous. Value of output in construction plant is expensive while in manufacturing plant the value of the output can vary from cheap to expense but the value of output in agricultural plant is inexpensive.
QUESTION 11) In what way does the mission of ASTM coincide with construction?
ASTM has more than 2,000 ASTM International standards for the construction industry. These standards are the work of numerous technical committees. The collective expertise of these committees is reflected in ASTM Standards in Building Codes, which includes standards to help design buildings that meet international code requirements.
Examples of the standards developed by ASTM for the construction industry includes; Thermal Insulation Standards, Building Standards, Cement Standards and Concrete Standards, Wood Standards, Fire Standards and Flammability Standards, Geotechnical Engineering Standards, Masonry Standards, Road Standards and Paving Standards and Roofing Standards just to mention a few
QUESTION 1.16) An oxygenated high pressure ultra high temperature reactor vessel assembly can be fabricated in Germany, England or Canada and shipped to Saudi Arabia for integration in the construction of a refinery. Quotations are received from the fabricators in those country and rationed to the U.S. estimates in terms of U.S. currency by using table 1.2 and spot exchange rates. According to the contracts, payment is electronically transferred from the design-constructor to the fabricator on the day the reactor reaches the port of entry of Saudi Arabia. The exchange rate at the time of the schedule arrival is, however, expected to be different and is shown as a relative change.
Ratio of subcontract bid to U.S. Estimate
Exchange rate on arrival compared to table 1.2
The U.S. estimate for the reactor assembly is 197.5 million. In which country would the vessel be built and what is the cost in U.S. currency? What is the dollar penalty if the next-lower estimate country is selected? Where does nonnumerical judgement enter the decision process for the selection of the country in which to fabricate the reactor?
British pound sterling
European Union Euro
Hong Kong Dollar
Saudi Arabia Riyal
Value of subcontract bid in home countries = U.S. estimate for the reactor * Ratio of subcontract bid to U.S. Estimate
In Germany = $197.5(in million) * 0.9962 = €196.75 (in million)
In England = $197.5(in million) * 1.0065 = £198.78 (in million)
In Canada = $197.5(in million) * 1.0062 = $198.72 Canadian (in million)
Exchange Rate at the time of scheduled arrival = Exchange rate at spot + Exchange rate differential at delivery
Exchange rate differential = Exchange Rate at spot * %change in rate at scheduled arival
Exchange Rate at scheduled time of arrival;
For Germany = 1.0884 + (0.4% * 1.0884) = 1.0928
For England = 1.6593 + (-1.1% * 1.6593) = 1.6411
For Canada = 0.6812 + (-0.05% * 0.6812) = 0.6809
Cost of Building Vessel in USD = Value of subcontract bid in home countries * Exchange Rate at the time of scheduled arrival
In Germany = 196.75 (in million) * 1.0928 = $215.01 USD (in million)
In England = 198.78 (in million) * 1.6411 =$326.22 USD (in million)
In Canada = 198.72 (in million) * 0.6809 = $135.31 USD (in million)
N.B: The above calculations are summarized in the table below;
Value of subcontract bid in home currency (in million) (1)
$197.5 * 0.9962 = €196.75
$197.5 * 1.0065 = £198.78
$197.5 * 1.0062 = $198.72 Canadian
Exchange rate at the time of scheduled arrival of reactor (2)
1.0884 + (0.0040 * 1.0884) = 1.0928
1.6593 – (0.0110 * 1.6593) = 1.6411
0.6812 – (0.0005 * 0.6812) = 0.6809
Value of bid in million USD (1) × (2)
The vessel would be built in Canada, it has the least quoted value of bid at 135.31 million USD.
The next lower estimate country is Germany with the value of bid at 215.01 million USD. The dollar penalty if Germany is preferred = (215.01 – 135.31) in million = 79.7 million USD.
There are several non quantitative factors which could affect the decision of selection of country in which to fabricate the reactor vessel. The political climate in the source country and the ruling government’s take on such a project is one of them, the political and diplomatic relations between the source country and destination country i.e. Saudi Arabia would also matter, the government policy, the economic and political stability in the source nation would indirectly impact the balance of payments position of the country and affect its home currency, trade related tariff and non-tariff barriers and the position of source country in international trade arena would also affect this transaction, and last but not the least, the quality standards and performance report of the reactor vessel would play an instrumental role in selection of the country as each country would have its own competitive advantage over others in fabricating the vessel.