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Financial Management

Butler and his team are particularly excited about the potential of one of the options proposed by a particular supplier. To help Butler prepare for the meeting with the senior leadership team, prepare a report that calculates and explains the following:

Use both the TLC and WLC estimation methods to create what you estimate to be the microcosts in the evaluation of the supplier proposal.

Aggregate those microcosts into the generic macrolevel stages of ownership.
To head off potential questions in the meeting, go ahead and explain why we did not include the LLC estimation method into this evaluation process.

1000 - 1800 words, Please include references.

Solution Preview

The response addresses the queries posted in 1308 words with references.

// Estimation of the overall cost of a project or equipment is very essential for the organization. Even if a project seems attractive its entire cost should be evaluated from the various methods. Projects that are complex in nature should be break down into parts through Work Breakdown structure. Before starting this report we should give a short introduction of the WBS like this: //

Work Breakdown Structure is an important process that helps in distributing the overall work of a project into small segments. Particularly each segment is independent and can be completed alone. WBS is basically used to ease out the complexity of the projects or the equipment acquisition decisions. The overall cost is distributed under different tasks and sub-tasks that help the organization in easing out the project in terms of work, time and cost (Work Breakdown Structure, 2007).

// There are different methods of estimating the cost of the equipment that is going to be purchased by the organization. We should discuss these methods in order to estimate the complete cost of the equipment. Now we will discuss the "Through Life cost" (TLC) method //

Through Life Cost is a method of forecasting the cost of a project or of equipment. It is a process that estimates the cost of a project that will occur during the entire life of a project with regards to the budget and accounting period (Jones, 2006). This method requires a detailed evaluation of different types of costs that will be incurred during the life of a project or equipment besides the purchase cost of the equipment. It requires a detailed analysis of the various costs that will be incurred on the equipment as they will be combined to estimate the cost. For example if the equipment is a machine the overall cost that will be incurred on it's servicing and maintenance over the years will be considered under TLC besides its purchase cost.

//As we have discussed Through Life Cost method of cost estimation now we should discuss the ...

Solution Summary

The response addresses the queries posted in 1308 words with references.