Methods of Ship Building Cost Analysis

We have already taken a look at the basics of navy ship construction costs estimation and now it is time that we go a bit deeper into it and learn what are the various practical methods used by experts, engineers and shipyards to arrive at an actual figure which they provide to their clients as an estimate for quotation purposes whether it relates to new ship building or major repairs.

Well as I had mentioned before, the process of ship construction cost estimation is so complex that you really require some sort of magic to come out with an accurate figure. I do not know whether this is the exact reason that one of the methods is known as the black book method of estimation. Basically it does not involve any black magic but is named so because of its secrecy.

The main technique of this method is that the shipyard personnel estimate the cost of ship building based on their previous experience of building similar ships which are nearly of the same type and size. Apart from previous estimates the knowledge of the experts and their self made formulas also go into this type of cost estimation. All this information is kept secret with themselves and not given out in the public domain, hence the aspect of secrecy and the adjective black come into prominence.

The main advantage of this type of process is that it works fine and perhaps is very accurate for ships which have been built previously but it would not work with the same degree of accuracy if the shipyard receives an order which is totally different from the type and size of ships it has been constructing. Hence a shipyard relying totally on this method has the tendency to get stereotyped and if suddenly those particular types of ships go “out of fashion”, they would certainly be in troubled waters.

Another solution could be that the shipyard only accepts standard orders and does not cater to “custom made” ships. This would certainly reduce the number of clients wanting to get their ships from such a yard, but on the other hand this also would make the shipyard specialize in building the ships which they offer. This approach is only slightly different from the black book method and is known as the standard method. The difference of this method from the former is that guesswork is bit less and hence accuracy is more.

Theoretically speaking the best bet would be to give a total cost estimate to the client once the construction is complete as that would be the most accurate figure. But practically that is not feasible as the shipyards cannot tell to their clients to wait for cost till they finish the full building process as that would lead to lot of disputes.

An midway approach would be to give a rough estimate at the beginning and then improvise upon it as the design progresses and matures into more concrete details. This is known as the Direct Analysis Approach of ship construction cost estimation.

A more scientific method is known as the parametric method and basically it consists of dividing the ship cost estimation into chunks based on its various sub-systems. The cost of each sub-system or sub-sub-systems is estimated based on previously available input or extrapolation of that data and finally summed up to give a total cost estimate which is generally more accurate than other methods. A flowchart of the ship cost estimation process is shown below and one can read the various steps and the know the direction of flow with ease.

click to enlarge

It is all very well to talk about cost estimation methods but you must be wondering what is the real cost of constructing a ship. As you must have known by now, it depends and varies with type of ship, the engines, size and so forth. But to give you a rough idea in terms of the actual figures here are a few examples.

• The Queen Mary II cost around 800 million US dollars (2004) and was a huge cruise liner
• Liberty of the Seas cost around 600 million US dollars (2007)
• An average sized luxury yacht could cost around 15 million US dollars
• The unfortunate Titanic has cost less than 8 million to build but remember that a century ago, so the current cost would be several times over.

Todd, D. (1985) The World Ship Building Industry. Palgrave Macmillan Publishers

Brown, R.S. (1966) The Economics of Double-Hulled Tankers, ‘Maritime Policy and Management’, vol. 23(2)

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White paper of Proteus Engineering, USA by Ross, J.M.