What relationship is leveraged in a capacity factored estimate?

A capacity factored estimate relies on the nonlinear relationship between capacity and cost. This approach acknowledges that as capacity increases, costs may not necessarily rise in a straight line due to various factors such as economies of scale, overhead costs, and operational efficiencies. This means that simply doubling capacity does not simply double the costs; the cost increments may vary based on the specific capacity levels and the complexities involved in scaling operations.

In many industries, particularly construction and manufacturing, the relationship between capacity (the maximum output levels) and cost (the expenses incurred) is typically nonlinear because of the influence of fixed and variable costs. For example, fixed costs do not change with the output level, making the overall cost curve potentially nonlinear as additional units or capacity come into play.

Understanding this nonlinear relationship is vital for accurate estimating and budgeting as it allows cost estimators to predict and prepare for the actual costs that will be incurred as capacity changes.