Management and Development of Cost Estimation – Assignment Example

Literature Review Management and Development of Cost Estimation By [Full [Lecturer’s and Number] Review of Macauley’sarticle on issues in the theory of Cost Estimation
In the article, there is clear definition of the paper’s subject matter from the onset. The introductory section provides a clear picture of what the paper discusses and the gives comprehensive background information including some statistical findings. Macauley cited Flyvbjerg et al. who found that substantial cost escalation was found to be the rule in rail, road and airport construction projects in 20 nations. This is said to be a result of initial cost estimates being a lot less that the actual cost of such projects.
In the next section, the article gives details concerning the theory and practice of cost estimation. It is stated in the article than cost estimates are usually the basis for a contract and therefore many of the problems of cost estimation are related to or result from the problems of contracts. According to the article, discrepancies between estimated and realized costs are caused by issues in dealing with the following: engineering the uncertain; asymmetry of information among the parties to the transaction; difficulty of monitoring to avoid inefficiency and waste; pressure to underestimate costs; the winner’s curse; and the domino effect of extending missions beyond their nominal lives. The details of each of these issues are discussed extensively in the article.
In the third and final section of the article, possible guidelines and partial solutions are discussed. These are: use of third parties; discourage precision and consider the median not the lowest; maintain a public track record; reward good results; and Nunn–McCurdy amendment as an approach.
Review of Zachariadis and Poullikkas’ Case Study on the Cost of Power Outages
The introduction to the article serves to effectively put across the content of the entire article and includes details of how electricity consumption and economic growth are related. It then goes on to discuss the energy crisis of summer 2011 and provides statistical data detailing how power production was affected. Consequently, the effects of this on the service provision, residential and industrial sectors are discussed also including statistical data. The cost of emergency measures to increase the available capacity is also detailed in the article.
In the fourth section of the article, estimates of the value of lost electricity in the entire country are provided in relation to economic output. There is then a lengthy discussion of the statistical data thus provided. In the conclusion, it is shown than the energy authorities in Cyprus formulated an effective emergency response in the face of the unprecedented electricity crisis.
Development of Cost Estimation
In both articles, this was an important section that was included. In the case study of power outages, the cost estimation was done by analysing the supply and demand of electricity in the different affected sectors namely: residential, industrial and service delivery. The average annual estimates are also detailed showing the effects of the power outages on the different economic sectors including: agriculture, mining and quarrying, manufacturing, gas and water supply, health and education.
In the Macauley’s article, the whole subject of the paper is cost estimation though this was specific to supply of space infrastructure. Ratios of estimates to actual costs are provided from which either can be estimated from the other. The factors that affect cost estimation here are more detailed though.
Cost estimation is therefore an important aspect in management; whether of an unprecedented energy crisis facing an entire nation, or of a space infrastructure project contract acquisition.
Reference List
Macauley, M. K. (2008) The Supply of Space Infrastructure: Issues in the Theory and Practice of Estimating Costs. Washington, DC: Resources for the Future.
Zachariadis, T., Poullikkas, A. (2012) The Cost of Power Outage: A Case Study from Cyprus. Limassol: Elsevier Ltd.