Introduction to consumer behaviour
0 likes526 views
Here are the key points about risk and uncertainty in cost estimating: - Risk management is important to identify potential issues that could impact cost and schedule. This includes conducting a risk assessment. - Cost estimates should account for uncertainty since the future is unknown. This means providing a cost estimate as a probability distribution rather than a single point value. - Probability distributions, like Monte Carlo simulation, allow the cost estimator to provide information on cost uncertainty. For example, they can say there is an 80% probability the program will cost less than a certain amount. - Decision makers need this uncertainty information to determine contingency budgets. For example, a comptroller may want to know how much to budget to have an 80% confidence of
![1-32
Statutory and Regulatory Bases
for DoD Cost Estimates
• USC Title 10, Section 2432:
The SecDef shall report a full life cycle cost for each major defense acquisition program
(MDAP) ……
• USC Title 10, Section 2434:
The SecDef may not approve SDD, or the production and deployment, of a MDAP unless
an independent estimate of the full life-cycle of the program … [has] been considered by the
Secretary.
… the independent estimate … [shall] -- (a) be prepared by an office or other entity that is
not under … the military department … directly responsible for … [developing or acquiring] the
program; and (b) include all costs …. without regard to funding source or management control …
• DoDI 5000.2:
…the CAIG shall prepare an independent life-cycle cost estimate and report for all
milestone reviews after Milestone A (Program Initiation/Milestone B & C).
• DoD Directive 5000.4:
… the OSD CAIG is chaired by the Deputy Director, Resource Analysis, in the Office of the
Director, Program Analysis & Evaluation.](https://image.slidesharecdn.com/3-210415150720/85/Introduction-to-consumer-behaviour-32-320.jpg)
Introduction to consumer behaviour
- 1. Dr. C.V. Suresh Babu
- 2. Consumer Behavior is the Process Involved When Individuals or Groups Select, Use, or Dispose of Products, Services, Ideas or Experiences (Exchange) to Satisfy Needs and Desires.
- 3. Issues During Stages in the Consumption Process
- 4. Consumers’ Impact on Marketing Strategy • Understanding consumer behavior is good business. – Firms exist to satisfy consumers’ needs, so – Firms must understand consumers needs to satisfy them. • The Process of Marketing Segmentation: – Identifies Groups of Consumers Who are Similar to One Another in One or More Ways, and – Devises Marketing Strategies that Appeal to One or More of These Groups.
- 5. Segmenting Consumers by Demographic Dimensions Demographics are Statistics That Measure Observable Aspects of a Population Such As: Age Family Structure Gender Race and Ethnicity Geography Social Class and Income
- 6. Consumers’ Impact On Marketing Strategy: Building Bonds With Consumers • Relationship Marketing occurs when a company makes an effort to interact with customers on a regular basis, and gives them reasons to maintain a bond with the company over time. • Database Marketing involves tracking consumers’ buying habits very closely, and crafting products and messages tailored precisely to people’s wants and needs based on this information.
- 7. Marketing’s Impact on Consumers: The Meaning of Consumption Self-Concept Attachment Helps to Establish the User’s Identity Nostalgic Attachment Serves as a Link With a Past Self Interdependence Part of the User’s Daily Routine Love Elicits Bonds of Warmth, Passion, or Other Strong Emotion Types of Relationships a Person May Have With a Product:
- 8. Marketing’s Impact on Consumers: Consumption Typology Consumption Typology Explores the Different Ways That Products and Experiences Can Provide Meaning to People. There Are 4 Distinct Types of Consumption Activities: Consuming as Experience Consuming as Integration Consuming as Classification Consuming as Play An Emotional or Aesthetic Reaction to Consumption Objects Express Aspects of Self or Society Communicate Their Association With Objects, Both to Self/ Others Participate in a Mutual Experience and Merge Self With Group
- 9. Marketing’s Impact on Consumers – Marketing and Culture • Popular Culture – Intangible and Tangible Objects – The Global Consumer • Global Consumer Culture – Virtual Consumption • Business to Consumer Selling (B2C Commerce) • Consumer to Consumer Selling (B2B Commerce) • Virtual Brand Communities – Blurred Boundaries: Marketing and Reality
- 10. Marketing Ethics Business Ethics are Rules of Conduct That Guide Actions in the Marketplace - the Standards Against Which Most People in a Culture Judge What is Right and What is Wrong, Good or Bad.
- 11. Other Marketing Ethics Issues • Do Marketers Create Artificial Needs? – Response: Marketing attempts to create awareness that these needs do exist, rather than to create them. • Are Advertising and Marketing Necessary? – Response: Yes, if approached from an information dissemination perspective. • Do Marketers Promise Miracles? – Not if they are honest; they do not have the ability to create miracles.
- 12. The Dark Side of Consumer Behavior Compulsive Consumption >Behavior is Not Done by Choice >Gratification is Short-Lived >Strong Feelings of Regret or Guilt Afterwards Illegal Activities > Consumer Theft (Shrinkage) >Anti-consumption – Culture Jamming – Cultural Resistance Consumed Consumers > People Who Are Exploited for Commercial Gain in the Marketplace. Addictive Consumption > Gambling
- 13. Interdisciplinary Influences Experimental Psychology Clinical Psychology Developmental Psychology Human Ecology Microeconomics Social Psychology Sociology Macroeconomics Semiotics/Literary Criticism Demography History Cultural Anthropology Individual Focus Social Focus
- 14. Two Perspective on Consumer Research Positivist Approach Objective Prediction Independent Real Cause Separation Interpretivist Approach Socially Constructed Understanding Contextual Simultaneous Shaping Interaction
- 15. The Wheel of Consumer Behavior
- 16. • Definition • What is Cost analysis? • Purpose of cost estimating • How are cost estimates used? • Cost Concepts • Cost Output Relation • Role of Engineers in Business • Types of Business Organizations Discussio n (CentreforKnowledgeTransfer) institute
- 17. Cost Analysis refers to the measure of the cost – output relationship, i.e. the economists are concerned with determining the cost incurred in hiring the inputs and how well these can be re-arranged to increase the productivity (output) of the firm. In other words, the cost analysis is concerned with determining money value of inputs (labor, raw material), called as the overall cost of production which helps in deciding the optimum level of production.
- 18. 1-18 • It is an “Estimation of Costs” • An analytical effort directed at calculating/projecting the future cost of weapon systems – both an Art and a Science – Incorporates several quantitative analysis techniques: • Data Collection and Analysis • Regression Analysis • Learning Curves • Risk Analysis • Involves Micro and Macro views of a program – Must understand from a micro-perspective how each cost element relates to another – This is half the work!! – Must also understand total cost implications • Requires interaction with engineers, logisticians, schedulers, all people involved in the program.
- 19. Purpose of cost estimating Translate system/functional requirements associated with programs, projects, or processes into budget requirements Determine and communicate a realistic view of the likely cost outcome, which can form the basis of the plan for executing the work Develop a source of resource information for planning purposes Provide a quantitative basis for management decisions regarding optimal allocation of resources 19
- 20. 1-20 How Are Cost Estimates Used? • Used as a source of resource information for planning purposes – Provides a quantitative basis for management decisions regarding optimal allocation of resources • A cost analyst helps to decide which of the possible alternatives is more desirable and recommends a course of action that will steer decision makers towards it and away from undesirable alternatives – Used as “financial advice” • Budget decisions • Program Managers
- 21. There are several cost concepts relevant to the business operations and decisions and for the convenience of understanding these can be grouped under two overlapping categories: 1.Cost Concepts Used for Accounting Purposes 2.Analytical Cost Concepts Used for Economic Analysis of Business Activities
- 22. Cost Concepts used for Accounting Purposes Generally, the accountants use these cost concepts to study the financial position of the firm. They are concerned with arranging the finances of the firm and therefore keep a track of the assets and liabilities of the firm. The accounting costs are used for taxation purposes and calculating the profit and loss of the firm. These are: Opportunity Cost Business Cost Full Cost Explicit Cost Implicit Cost Out-of-Pocket Cost Book Cost 22
- 23. • With the increase in the size of the firm, the economies of scale also increase and as a result the cost of per unit production comes down. • There is a positive relation between the cost and the output, as the output increases the cost also increases and vice-versa. • Likewise, the price of inputs is directly related to the price, as the input price increases the cost of production also increases. • But however, the technology is inversely related to the cost, i.e. with an improved technology the cost of production decreases. • Thus, the cost analysis is pivotal in business decision-making as the cost incurred in the input and output is to be carefully understood before planning the production capacity of the firm. 23
- 24. Analytical Cost Concepts Used for Economic Analysis of Business Activities These cost concepts are used by the economists to analyze the likely cost of production in the future. They are concerned with how the cost of production can be managed or how the input and output can be re-arranged such that the overall profitability of the firm gets improved. These costs are: 24 Fixed Cost Variable Cost Total Cost Average Cost Marginal Cost Short-run Cost Long-Run Cost Incremental Cost Sunk Cost Historical Cost Replacement Cost Private Cost Social Cost
- 25. 25 In business, the manager must have a clear understanding of the cost-output relation as it helps in cost control, marketing, pricing, profit, production, etc. The cost-output relation can be expressed as:` C = f (S, O, P, T) where, C =cost, S = Size of the firm, O = output, P = Price and T = Technology.
- 26. 1-26 These applications demand different types of forecasts, generated with the different levels of detail available at the relevant stage in the equipment’s life cycle. When is Cost Analysis and Estimating Done Budget development, justification, execution Program development and justification Balance of Investment studies of future force mix Selection of equipment through AoAs Efficient management through equipment life cycle Acquisition Budgeting Fee for Service ROI Accountants Budgets and Finance Capability Managers Capability Developers Capability Supporters Statisticians Acquirers Engineers Operators Test and Evaluation Operational Planners Govt & Review Agencies Logisticians Supply chain managers Cost Estimation interfaces Strategic planning
- 27. 1-27 Why is Cost Estimating Done? • Make decisions on program viability, structure, and resource requirements • Establish and defend budgets • Assess technology changes • Provide basis for evaluating competing systems and /initiatives (cost/benefit analyses and AoAs) • Conduct analysis of alternatives (AoA) • Perform source selection • Perform design trade-offs • Comply with public law • Satisfy oversight requirements • Identify and objectively quantify the impact of program risks (technical and schedule risks) • Evaluate proposals for cost reasonableness Cost estimating, as part of a total systems analysis, provides an analytic underpinning to support decision makers.
- 28. 1-28 As part of a total systems analysis, cost estimating helps decision makers to: • Make decisions on program viability, structure, and resource requirements • Establish and defend budgets • Assess technology changes • Provide basis for evaluating competing systems and /initiatives (cost/benefit analyses and AoAs) • Conduct analysis of alternatives (AoA) • Perform source selection • Perform design trade-offs • Comply with public law • Satisfy oversight requirements • Identify and objectively quantify the impact of program risks (technical and schedule risks) • Evaluate proposals for cost reasonableness
- 29. 1-29 Why Do We Care? • DOD Directive 5000.1 and DOD Instruction 5000.2 specify the policy and procedures to be used during the acquisition of weapons systems – Cost estimates are required in the Acquisition Process • Resources are increasingly scarce and weapons systems are increasingly expensive – With budgets decreasing and costs increasing, informed decisions are critical! -- Estimating errors today are much more dangerous than
- 30. 1-30 Unit Cost Trends 0 50 100 150 200 1930 1950 1970 1990 B-1 C-5 B-58 B-52 B-17 $
- 31. 1-31 DoD Cost Estimating – The Basics • Program Manager is responsible for preparation of program office cost estimate • Military service reviews program office cost estimate and forms a Service Cost Position • An independent cost estimate is required for all major defense acquisition programs • OSD CAIG estimate for programs of interest to SECDEF • Service cost agency estimate for other programs • The service cost position and the independent estimates are presented to the Defense Acquisition Executive and the Defense Acquisition Board
- 32. 1-32 Statutory and Regulatory Bases for DoD Cost Estimates • USC Title 10, Section 2432: The SecDef shall report a full life cycle cost for each major defense acquisition program (MDAP) …… • USC Title 10, Section 2434: The SecDef may not approve SDD, or the production and deployment, of a MDAP unless an independent estimate of the full life-cycle of the program … [has] been considered by the Secretary. … the independent estimate … [shall] -- (a) be prepared by an office or other entity that is not under … the military department … directly responsible for … [developing or acquiring] the program; and (b) include all costs …. without regard to funding source or management control … • DoDI 5000.2: …the CAIG shall prepare an independent life-cycle cost estimate and report for all milestone reviews after Milestone A (Program Initiation/Milestone B & C). • DoD Directive 5000.4: … the OSD CAIG is chaired by the Deputy Director, Resource Analysis, in the Office of the Director, Program Analysis & Evaluation.
- 33. 1-33 Acquisition Process: The New DoD 5000 Model IOC B A Technology Development System Development & Demonstration Production & Deployment Systems Acquisition Operations & Support C User Needs & Technology Opportunities Sustainment • Process entry at Milestones A, B, or C • Entrance criteria met before entering phase • Evolutionary Acquisition or Single Step to Full Capability FRP Decision Review FOC LRIP/IOT&E Design Readiness Review Pre-Systems Acquisition (Program Initiation) Concept Decision Concept Refinement
- 34. 1-34 Acquisition Categories Criteria Designation Milestone Decision Category (FY00$) Authority Authority ID > $365M RDTE or USD(AT&L) USD(AT&L) MDAP > $2.19B Proc or so designated by USD(AT&L) IC same USD(AT&L) ASN(RD&A) MDAP IAM > $378M Lifecycle ASD(C3I) ASD(C3I) MAIS > $126M Proc > $31.5M Single Year IAC same ASD(C3I) ASN(RD&A) MAIS
- 35. 1-35 Overview of this Course Cost) l (Historica Cost Future f
- 36. 1-36 Why Cost Analysis? • Each Cost Estimate is different -- Truly an Art • Each requires a refined methodology -- There are no “Black boxes” • Each requires planning, insight, judgment and analysis of its own. • The previous cost categories have a lot of uncertainty, so we look at historical program costs to help us predict these costs for future weapon systems.
- 37. 1-37 What do we mean by Cost? • Manpower • Hardware • Training • Program Management • Systems Engineering • Etcetera... • No Matter What the Resource, it all boils down to $$$$$$$$$$
- 38. 1-38 Scope of the DoD Cost Estimates • Full Life Cycle Costs- all phases and elements of weapon systems • Research Development Test & Evaluation • Hardware and Software • Supporting Data, Equipment, Training • Initial Spares • Military Construction (MILCON) • Modifications • Operations and Support Over System Life • Including Manpower • Environmental Cost - • Compliance, Demilitarization, Clean-Up, Disposal • Regardless of Funding Appropriation or Source • Based Upon Program Described in the Cost Analysis Requirements Description (CARD)
- 39. 1-39 Understand the Assignmen t Define the Scope • Cost Element Structure • Life Cycle Duration Identify Data Sources & Collect Data Generate Final Documentation / Presentation Perform Sensitivity Analysis Develop & Document LCC Elements Determine Cost Estimating Methodologies LCCE Process
- 40. 1-40 The Cost Estimating Process Definition & Planning Data Collection Estimate Formation Review & Presentation Final Document
- 41. 1-41 Related Subjects We Will Discuss • Types of Estimates • Normalizing Data • Work Breakdown Structure • Acquisition Milestone Process • Selecting Estimating Methodologies • Software Development Costs • Risk and Uncertainty Analyses • Economic Analysis • and many more...
- 42. 1-42 Data Collection • Inherent Problems • Data Sources -- Where to Find Them -- Internet • Data Normalization -- Compare “Apples-to Apples”
- 43. 1-43 Parametric Cost Modeling • Parametric Cost Estimating Relationships – Cost = (technical, performance, schedule) Supported by Statistics Univariate Analysis Bivariate Analysis Multivariate Analysis •Log-linear Analysis
- 44. 1-44 Non-Parametric Cost Modeling • Analogy • Expert Opinion • Engineering Buildup • Cost Factors • Extrapolation from Actuals
- 45. 1-45 Statistics
- 46. 1-46 Risk and Uncertainty • Risk Management • Predicting Cost Uncertainty Probabilities -- Cost not as a “Point Estimate”, but as a Probability Distribution -- Comptroller: “How much do I budget to be 80% sure of having adequate funding?”
- 47. 1-47 Cost Risk • A cost risk analysis is modeled to compute the most likely cost for a project based on the individual cost probability distributions for WBS components • A cost risk analysis presents the distribution of possible costs based on the probability that risk to individual elements may result in cost increases or decreases • Cost risk is the inherent risk in estimating a Work Breakdown Structure (WBS) component due to variances in approaches, availability of data and schedule/performance risks associated with a program
- 48. 1-48 The Effect of Time • Time-Phasing Costs -- How to “spread” cost over time? • Cost Improvement/Learning Curves • Differences Between Development and Production Costs • Production Rate
- 49. 1-49 The Life Cycle • Components of Life Cycle Costs are related to project phases - – Concept studies - Feasibility studies – Project definition - Full development – Production investment - Production – Demonstration & acceptance - Operational investment – Operations - Support – Post & continuing design - Disposal IOC Technology Development System Development & Demonstration Production & Deployment Systems Acquisition Operations & Support Sustainment FRP Decision Review FOC LRIP/IOT&E Design Readiness Review Pre-Systems Acquisition Concept Decision Concept Refinement
- 50. 1-50 Life-cycle cost categories • These are categories commonly used by the Cost Analysis Improvement Group (CAIG). They are listed in DoD 5000.4-M, Cost Analysis Guidance and Procedures. • Research &Development (R&D): Estimated cost of all program specific research and development. • Investment: Estimated cost of the investment phase, including total cost of procuring the prime equipment; related support equipment; training; initial and war reserve spares; pre-planned product improvements and military construction. • Operating and Support (O&S): Estimated cost of operating and supporting the fielded system, including all direct and indirect costs incurred in using the system, e.g., personnel, maintenance (unit and depot), and sustaining investment (replenishment spares). The bulk of life-cycle costs occur in this category. • Disposal: Estimated cost to dispose of the system after its useful life. This includes demilitarization, detoxification, long-term waste storage, environmental restoration and related costs.
- 51. 1-51 Life-Cycle Cost Composition • Guidance/Control • Airframe • Propulsion • Avionics, etc. • Non-recurring start-up • Allowance for changes FLYAWAY COSTS Plus • Tech Data • Publications • Contractor Services • Support equipment • Training equipment • Factory training WEAPON SYSTEM COST PROCUREMENT COST Plus • Initial Spares Plus • RDT&E • Military Construction PROGRAM ACQUISITION COST Plus • Operations • Support LIFE-CYCLE COST
- 53. 1-53 Life-Cycle Phases and Their Relative Cost Operations & Maintenance Applied Research Validation EMD Limited Full Deployment/Operations Advanced Technology Production Production Assess Basic Exploratory Advanced Engineering Mission Research Development Development Development Need Phase 1 Phase 3 Phase 4 Phase 0 Acquisition Phase RDT&E Investment Life-Cycle Cost Operation Phase Phase 2 Time $ Potential for LCC savings Cumulative LCC
- 54. 1-54 Cost Terminology • Recurring Costs are those costs that are repetitive and occur when a company produces similar goods or services on a continuing basis. A fixed cost that is paid on a repeatable basis is a recurring cost (i.e., rent). For example, for a company that provides architectural services, office space rental - which is a fixed cost - is also a recurring cost. Can be tied to Quantity Produced. • Nonrecurring costs are those costs that are not repetitive, even though the total expenditure may be cumulative over a
- 55. 1-55 Cost Terminology • Direct Costs are those costs that can be reasonably measured and allocated to a specific output/product or work activity. – Typical direct costs include the labor and material costs directly associated with a product, service, or construction activity. • Indirect Costs are those costs that are difficult to attribute or allocate to a specific output or work activity. Costs that involve too much effort to allocate directly to a specific output; instead, they are allocated through a selected formula (i.e., proportional to direct labor hours or direct material dollars).
- 56. 1-56 Cost Terminology • Fixed Costs are those costs which are unaffected by changes in output quantity over a feasible range of operations for the available production capability. – Typical fixed costs include insurance and taxes on facilities, general management and administrative salaries, license fees, and interest costs on borrowed capital. These are Non-Recurring Costs. • Variable Costs are those costs associated with production that vary with quantity of output. Variable costs are the primary costs that should be considered when making an economic analysis of a proposed change to an existing operation.
- 57. 1-57 Cost Terminology • Overhead Costs consist of plant operating costs that are not direct labor or direct material costs. (Indirect costs, overhead, and burden are terms that are sometimes used interchangeably). – Typical overhead costs include electricity, general repairs, property taxes, supervision – Various methods are used to allocate overhead costs among products, services, or activities. • Most commonly used methods involve allocation in proportion to direct labor costs, direct labor hours, direct materials costs, the sum of direct labor and material costs, or machine hours. (refer to example)
- 58. 1-58 Cost Terminology • Sunk Costs are those costs that have occurred in the past and have no relevance to estimates of future costs and revenues for alternative course of action. – Common to all alternatives, not part of prospective cash flows in the future – Can be disregarded in cost analysis • Opportunity Costs are those costs incurred because of the use of a limited resource. The opportunity to uses that same resource to monetary advantage in an alternative use is
- 59. 1-59 Cost Terminology • Standard Costs are representative costs per unit of output that are established in advance of actual production or delivery – “Expected” or “Pre-Determined” Cost – Developed from the direct labor hours, materials, and support functions (with their established costs per unit) planned for the production or delivery process. – Play an important role in cost management/control. Representative uses include: • estimating future manufacturing or service delivery costs • measuring operating performance by comparing actual cost/unit with the standard unit cost
- 60. 1-60 Cost Terminology • Life-Cycle Cost: the Total Cost of the Acquisition and Ownership of a System over its complete Life Cycle. (diagram) – Begin with the identification of the requirement for the system and end with its retirement and disposal costs. – Time horizon is situation-specific and may be projected on a functional or economic basis. – DoD life-cycle costs can be decomposed into the following sub- categories: • development costs • flyaway costs • weapon system costs
- 61. • In Chennai is at Rs 89.7 per litre Today In Mumbai is at Rs 93.83 per litre Today • In Kolkata is at Rs 88.63 per litre Today • In Delhi is at Rs 87.3 per litre Today 61
- 62. • The prices of petrol and diesel are determined by various factors. First the cost of crude oil, second the taxes the Centre and states impose. As for the everyday change in fuel prices, it's because of a dynamic pricing system that reflects fluctuations in global oil market. 62
- 63. • Calculation ESteem:- -Basic OMC Cost Calculation -Crude Oil including Ocean Freight -Refinery Processing + Refinery Margins + OMC Margin + Freight Cost, Logistics -Fuel Price after Processing (Ready to send to Petol Pump) -Central Government Taxes & Dealer Commission -Additional: Excise Duty + Road Cess as Charged by Central Government -State Tax -Commission to Petrol Pump Dealers -Fuel Cost Before VAT -VAT Calculation -Additional:VAT -Final Retail Price • The price varies from one state to another state the reason is state tax and additional VAT calculation 63