Cost modeling – Case Flexens

Cost modeling – Case Flexens

Flexens cost model case example

In October, I posted the first article of the series dealing with cost management in shipbuilding and shipping industries. In this post, I will tell you of an example case of how a parametric cost estimate can be done with our cost model.

Time travel and time machines

A few months ago, I had the honour of participating in a concept design project that required me to do some time travelling. Well, not in practice as Marty McFly did in the Back to the Future film series, but figuratively. Our project was, however, also dealing very much with future technology.

Marty used the 1980s sports car DMC DeLorean, which Emmett “Doc” Brown had converted into a time machine, to travel through time. The DeLorean that Marty was using was powered by an internal combustion engine for propulsion. But for the time travel it required electric power, which was provided by a plutonium-powered nuclear reactor.

My “time machine” consisted of a laptop computer with necessary auxiliaries, an internet connection and a bedroom, which was converted into a temporary home office due to COVID-19 restrictions.

Future-proofing technology

Instead of nuclear power, our project used hydrogen power. I have never been really good at chemistry, so I can easily admit that I don’t know much about hydrogen. I know that hydrogen is the most common chemical element in the Universe. It´s a flammable gaseous substance with the symbol H and the atomic number of hydrogen is 1. I also know that our beloved Sun uses hydrogen as fuel. If it keeps the live-giving Sun running, why couldn´t it be used to power ships as well?

Fortunately and to my great pleasure, I work at Deltamarin where we have a house full of magnificent professional engineers who know all the fancy details of fuels and engines, and everything about how to build the greatest ships in the world. And on top of that, we also have a network of companies that create and produce those astonishing technical solutions and equipment for ships worldwide.

Back in time

In our project, we investigated the feasibility of replacing some existing diesel-powered ships with ships powered by alternative fuels. The purpose of the study was to carry out a comparative analysis hypothesising that the existing ships might be replaced by either diesel-hybrid or hydrogen-powered alternatives.

Normally, we don´t use parametric cost estimating in feasibility studies, as the limited amount of technical data does not usually allow a sufficiently precise work breakdown structure to be done. But now we had basically all required parameters available from the existing reference ship, and I could use the missing ones from a similar type of concept vessel that has been created by Deltamarin´s office in Poland.

So, to provide a nice product-oriented cost estimate for each alternative, I decided to perform both analogous and parametric cost estimations.

At first, I had to go back in time to search for historical data for an analogous comparison, meaning that I went to databases to collect relevant data on vessels that were similar in type and size, and that had a newbuild price available. Through this information, I could define the approximate price per gross tonnage (GT), which I had selected as the main parameter for comparison. So, there I was travelling in databases on my way to the past to fulfil my quest. Year by year, I put ships in my sample basket. Although the type and size of our vessel are not the most common, I was able to find a considerable sample of vessels from which I could determine the credible benchmark value. Luckily, I managed to find the reference vessel and her newbuild price as well, which made my work just a little bit easier.

Back to the future

When I had enough ships in my basket, I turned around and began to travel back to the current day. On my way back, I started to convert the historical prices to current day ones to normalise the data, so that I could compare apples with apples, so to speak.

When I had done the analogous estimation and determined the benchmark value of price per GT, I used this value to determine the price of the ship as if she had been built now. Using this method, I had the first price for the so-called base ship.

I then used our cost model to create a work breakdown structure (WBS) for the base ship. I entered the ship’s parameters like length, beam, GT, steel weight and installed power into the cost model. Once I had all necessary parameters there, I decided which of our system groups and systems I would need for the estimation. I then went through all the systems and let the cost model make calculations for me. At the end, I fine-tuned some of the values and, voilà, there was the cost estimate for the base ship with WBS.

And then the cool stuff

Perhaps the coolest feature of Deltamarin´s cost model is that the cost estimator can easily make comparisons between different configurations. The cost model is product-oriented and the cost estimator can decide the WBS for the estimate, so the cost estimators can remove system groups or systems or even individual items of equipment and replace them with others of their own choice. Once all the necessary data for the base ship have been entered and the results of the first estimation have been recorded, the cost estimator can start to play around with the cost estimate as he or she wishes.

Before making the cost estimate, our fine engineers did their work and we had all the required technical features available to make the cost estimates for the alternatives. We also had discussions with some of the manufacturers of these future technologies. They also helped us by indicating prices for their systems and equipment. On the basis of this information, I made cost estimates for the alternative solutions.

I went back to the base ship cost model and removed unnecessary parts from the estimate, then I added the required parts for each alternative solution and used received price indications to define the costs of alternative systems and equipment. By the end, I had three different cost estimates for the client.

Can work be fun?

Working during the COVID-19 lockdown may not always be fun when you´re not able to meet your dear colleagues, but if you manage to build a story around your work, it can suddenly turn into an amusing little adventure. I at least managed to create an adventure around a cost estimate and one of my favourite childhood movies.

Please remember to read more about the project from Deltamarin´s news archive.

If you would like to hear more about Deltamarin´s cost model and cost estimating services, please do not hesitate to contact me. If instead you are more interested in how to make an adventure out of your work, you may contact me as well. I think I have a few workable ideas in my back pocket for you too.

For more information, please contact:
Jarkko Nurmi, Supply Chain Manager

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