Cost Estimating: How much can we build that car for?

“A 1962 tear-down showed that the 1960 Chrysler Newport design was $85 per vehicle less than the 1960 Oldsmobile 88, but the Chrysler’s price was higher. This convinced management to give us $100 more for the 1963 Chrysler Newport reskin: we could add pleats to the seats, carpet the trunk floor, add wheel opening moldings, etc.”

Chrysler management never quite figured out just where cost estimation should fit in.

After World War II, when the Engineering guys ruled everything, they decided to have a cost department. Years later, as the bean counters came into control, it became evident Engineering should not have ownership of Cost Estimating and Planning — nor should Purchasing nor Manufacturing, for obvious reasons. Finance got control and, therefore, most of the bosses below were from Finance; they controlled the money anyway.

We were continually schooled at how cost estimating should be conducted at Chrysler.

Basic elements of an estimate are Material, Labor, and Burden [Overhead]. Additions like contingency amounts were recognized. This sounds simple but it was not! Programs almost never ended up costing what was estimated.

 


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