The ability to estimate ship construction costs is necessary for the commercial success of a ship yard; too high an estimate will place the shipyard out of the competitive range and too low an estimate will result in a financial loss and possible bankruptcy. In practice, an approximate cost estimate is developed during initial discussions with a potential customer. This estimate is refined as the discussions progress and the customer’s requirements are defined in greater detail. The refined requirements result in higher levels of technical detail (e.g., concept design, preliminary design, contract design, and a specification of increased detail), which enable increased accuracy of the cost estimate. This process culminates in a cost estimate upon which the shipyard can base a fixed price bid.
 
     
 
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