A ship is not something which you would normally go and buy immediately (of course this can be said about boats or second hand marine engines or ships) but most of the ships are custom built for the clients by shipyards across the world. Since a customer would do quite a bit of shopping around before they actually order a ship, the shipyards usually give an approximate estimate for the ship cost and timeframe of construction in order to bid for a particular order.
Herein lies the dilemma for if the shipyard grossly overestimates the cost, they risk losing the order to a competitor, but if they quote too low a price then they might end up paying from their own pocket instead of having a profit at the end of the day when the ship is constructed and delivered. Hence it is very important to correctly estimate the construction cost of a ship within a reasonable error limit.
Just to give you a rough idea about the scale of the costs, take a look at the graph given alongside and you will see how the shipbuilding costs have risen over a period of time of the past 7 decades as well as the percentage change in the ratio of men and material required for ship construction. You will be amused to note that the current costs have risen nearly 12 times since then which is understandable but another interesting aspect is that the cost of skilled personnel has grown faster than the cost of material for constructing a ship these days.
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Challenges in Cost Estimation
As you can intuitively imagine a ship consists of hundreds of different machineries and components which relate to diverse fields and areas of technical expertise, hence the process of cost estimation of a ship is not something about a couple of people sitting at the table with calculators; rather it is a full fledged exercise which needs to be carried out with the utmost care and diligence lest there are huge errors in estimation. Some of the common challenges in ship cost estimation are as follows.
A ship is a huge structure and has lots of different components, machineries and departments.
There is a possibility of lack of communication or ineffective communication between the diverse departments.
The client may not be able to supply full requirements in detail and this could hamper cost estimation process.
Lack of standardized and globally accepted procedures for cost estimation adds to the confusion.
Although new building cost estimation is quite challenging, there are hurdles in the way of estimating cost of major repairs, overhaul and disposal as well
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Methods for Cost Estimation
Because of the numerous challenges encountered in proper cost estimation of ships, there are several methods which are used by different experts and shipyards to estimate the cost of construction or repairs with varying degrees of accuracy. These methods include techniques of extrapolation of previously available data regarding similar constructions, use of experience and marine software applications to achieve the final goal. We will learn in more detail about these techniques of cost estimation in our next article.