Business Economics: Knowledge and Energy – Capital “KEC”

Abstract

Cost Estimation in many industries follow traditional methods that makes use of historical data compiled by the enterprise. The Knowledge “K” & Energy “E” (KE) Model recently published by the author takes a different approach, under this approach tasks are represented by combination of K & E referred to the KE pair, the K is represented in Joules. In this paper the KE Model is expanded to include Capital “C”, thus the model of KEC model. Before the KEC model is introduced, a comparison of the products and services P&S markets and energy system is presented. This reinforces the presentation of knowledge by Joules. The phases of project development as they relate to capital is discussed. The relevance of profits and risks for capital investments is underlined. The challenges faced for representing the capital C in Joules are discussed. The proposed initial application faces difficulties in obtaining readily available data, However, when the data base is built there could be significant benefit in getting in-depth insights on the effects of the various components in the costs of a product and service.

1. Introduction

During his long career in the engineering-construction industry, for EPC (engineering, procurement, construction) projects, the author was exposed to many cost estimation methods that typically followed use of historical data compiled by the enterprise. In several instances, the applicability of the data in hand to the new situation entailed some concerns or unanswered questions. For years the underlining approach common to the different resources remained the same. One saw evolution of templates, software.in applications for different industries. Also, a trend of some integration of accounting and cost estimation could be seen. An example of a difficulty encountered, is the applicability of rates from one locality or one country to another.

The field of cost estimation is quite wide. Generally, two practices are used a top-down and a bottom-up. The first is commonly used for quick and indicative estimates and depends to large extent on the expertise of the cost estimator. The latter practice is more detailed and is used extensively in projects, manufacturing, and construction etc. From [1], the KLEMS – Capital, Labor, Energy, Material and Services/supplies serve as one encompassing cost system. The Bureau of Economic Analysis uses this system for studies of the economy of the USA. It also produces periodical reports for costs and contributions of the different industries to the US Economy. Similarly, on the USA level, the labor Department studies the wages in different industries. Data can be found in public domains e.g., [1, 2]. Specialized Magazines such as ENR [3] provides updated data for the construction industries. Institutions such PMI [4] provide Project Managers with guidance that could be helpful in cost estimation. Large number of cost estimation software are available for project management, construction industry, and manufacturing. Cost estimation covers both direct and indirect costs. The reader is referred to [5] for a comprehensive coverage of cost estimation for a project. The preceding brief is only very short outline to the wide field of cost estimation that evolved over decades but fundamentally using historical rates. For each enterprise it selects the methodology and software it deploys that best fits its needs.

The author together with Professor Dr. Ibrahim Owiess started an investigation of the similarities between Economics and Thermodynamics in 1988. They published [6] in 2002, which included the analogous terms between the two fields. They used this analogy to simulate some economic theories in Thermodynamic methods. This initial approach did not gain acceptance among the Economics community as it was using extensive thermodynamic techniques.

While this topic may appear not directly related to the cost estimation of [1, 2, 3, 4, 5], the follow-on work of Ref. [7] noted below will clarify the relevance. The author published [7] in 2022, where he included some refinements in the analogy of [7]. The author used a different approach staying away from the exhaustive use of Thermodynamics. He proposed a model of knowledge & energy “KE” pair for all tasks/activities in an enterprise. He used publicly available data for prices of labor and electricity to produce quantitative results for the KE model. It is noted, [7] suggested using the energy units Joules for knowledge.

In Ref. [7], the author devoted sections addressing the development the enterprise “owner” undertakes to assess what is needed to set up a plant for manufacturing or a services center. This encompasses, required equipment, facilities, buildings etc. A full section for the assessments leading to the final investment decision was included in [7]. These relate quite closely to the main topic covered in this paper that is Capital, i.e., the investments that would go into completing the project “setting up the plant/service center” to start the production or services provision. The financial analyses that are undertaken, of course analyzing projected profitability. The risks are evaluated in scenarios/sensitivity comparisons. The underlining proposition of [7] is all the activities of the enterprise can be represented in terms of K&E. This was further extended to the use of Joules units. The representation of capital was not addressed explicitly in [7].

The author decided to address explicitly Capital in combination with the KE model of [7].

Thus this paper (chapter) is about the expanding knowledge & energy model to include capital that is the “KEC “model.

The reader interested in further details on the forgoing can refer to the [7].

In Section 2, some of the aspects that characterize products and services markets and electric systems are discussed and compared. The objective is to complement the similarities that have been identified in [6, 7] reinforcing the premise of representing knowledge by Joules. Section 3 presents commonly used phases for completing a project as they relate to capital. Section 4 covers profit/risks being key considerations to capital deployment. In Section 5, an outline for the application of the KEC model building on the quantitative KE model of [7], i.e. adding C is included. A simple demonstrative example for the application of the KEC model is added. Finally, some concluding remarks are presented in Section 6.

2. Products & services markets/electric systems

2.1 Products & services markets

In Figure 1 a simplified schematic for the market of Products and Services “P&S” is presented.

Figure 1.

Schematic for P&S markets.

In the upper part of the Figure, the typical manufacturing is presented. From the right to the left, material goes to manufacturing plants. Products then are transported to whole sellers and then to distributors. Finally, making its way to the end customers. The end customers could be individuals, or commercial.

In the lower part of Figure 1, one can see the working of services starting from service providers on the right side to the end users on the left side. Some of the service providers use products as input which they use in the service delivered to the end customers, e.g., a restaurant getting ingredients or ready items.

The black dotted line forms a fictitious boundary for the market across which the products pass from producers or service providers.

The red title at the top of the manufacturers, service providers, transport, wholesalers, and distributors signify the capital each of these enterprises deploys to enable the production or the ready to deliver services.

Within the market, for a particular product there are usually several producers that compete. Customer preferences and marketing features added by the producers and the wholesalers and distributors form the ultimate selections of the end customers.

To note because of changes in demand from season or because of unique occasion e.g., Xmas or back to school cause substantial increase in the demand of various good. Hence, supplier’s resort to storage in order to meet the increased demand -adjustment of the supply. A similar increase in the demand of certain services e.g., leisure industry for seasonal travel and tourism.

The transport parts may include marine, onshore railways, trucking etc. Combinations of just in time manufacturing, different packaging together with transport & storage are factors in the operation of the markets.

2.2 Electrical system

Figure 2 forms a simplified schematic for a typical electrical system. The vertically integrated system consisted of generation, transmission, and distribution subsystems.

Figure 2.

Schematic for electrical system.

The generation subsystem has different power plants with different types and capacities. The transmission subsystem has high voltage cabling that carries the generated electricity to the distribution subsystem. From the distribution subsystem the various loads (commercial and residential) are fed through the medium voltage circuits including substations to produce required low voltages. Very large industrial plants could be fed from the high voltage. The reason for the high voltage is to reduce the losses in the transmission and enable use of smaller cross sections for the cables. Under the completely vertically integrated utilities till approximately early 1980s the utility owned the assets of the electrical system, took charge of development of new additions and enhancing elements of the subsystems. Large utilities operated in different regions of the USA. The various regions were interconnected to economize on the spare generation capacities. The state government agencies used to fix the tariff rates for the electricity.

In the 1990’s the unbundling of the utilities in the USA and other countries created separate companies for generation and distribution. In many countries the transmission subsystem was taken by the TSO (Transmission System Operator), in many countries the TSO is public owned company. The era of independent power companies that are privately owned grew from the 1990s. Initially these privately owned generation plants produced electricity and sold it to public company under long term PPAs (Power Purchase Agreements). Over the years this evolved to a merchant market (electricity market) which operates mostly in similar manner like stock markets where the producers and the sellers traded. The trading evolved to sophisticated systems.

In another direction for the evolution of the electric system, with increasing interest in renewable energy as the wind turbines and the Photo Voltaic “PV” solar panels technology developed and with increased concern about global warming due to Carbon Dioxide emissions from fossil fuels, wind and PV plants were installed among generation subsystems. Due to the intermittent operation of these plants a big drive for battery storage emerged and as you can see battery & other storage installations were constructed in the generation and the distribution subsystems. Then the generation at the users started with possibilities to sell excess production through the grid.

Many electrical systems focus on certain areas/ regions that could serve several states, country, countries that are regulated under established laws and or inter country agreements.

It is noted that the transport sector is evolving from pure dependence on fuel as it shifts to EV electric vehicles.

Before leaving the electrical system description, we briefly address the energy use as heat for industrial applications primarily burning fossil fuel. Also, for transport marine, onshore, aviation fossil (Petroleum products. Natural gas and LNG) have played a key role over the years. In recent years, electric vehicles (battery charged) picked large and increasing market share in transport, with obvious dependence on the electrical system and preference to renewable energy for environmental and sustainability goals.

2.3 Comparison between P&S markets and electrical system

The discussion in this section is meant to underline the capital needed to build and have the assets of the markets as highlighted in subsections 2.1 and 2.2.

It is worth commenting on the similarities of the functioning the products & services (P&S) markets and the electrical system. To be noted that over the last four decades, many features of the P&S markets now are integrated in the functioning of today’s electrical system.

The growth of both the P&S markets and the electrical system correlates with the economy growth (say in a particular country or region). Among the different markets of the P&S some are highly correlated to the GPD growth index others with lower correlation. The electrical system is generally correlated to the GPD growth.

In Table 1, a comparison of key features of the P&S markets and the electrical system is shown.

	P&S markets	Electrical system
1	Demand versus supply
	Consumer behaviors &; Suppliers actions	System Synchronous V & f
	Inflation	Voltage. – δV
	Consumer Price Index	Frequency – δf
2	Currency	Current
3	Products	Voltage Levels
	Durable	High Voltage
	Non-Durable	Medium Voltage
	Commodities	Low Voltage
	Services
4	Growth Rate	Growth Rate
	GPD	Annual Percentage Increase in Generated Electrical Energy
5	Manufacturers – plants	Generation – power plants
	Wholesalers/Transporters	Transmission – Substations/High Voltage Lines
	Distributors/Transporters	Distribution – Substations/Medium & Low Voltage Lines
6	Storage	Storage
	Warehouses	Electric Batteries
		Hydro Pumped Storage
		Compressed Air
7	Regulation of operation
	Federal Reserve Board/Central Banks	Dispatch Center
	Adjusting Interest Rate	Dispatch Center – On/Off and adjustment of running reserve

Table 1.

Comparison between P&S markets and electrical system.

The intention of making the comparison is to establish the differences and more importantly the similarities that underline the emergence of the electrical system functioning in integral manner with the P&S markets. A trend that continues with privatization of the electrical infrastructure. In the past when there was no power generation on the consumers side, the pricing of the electricity followed rather simple practices but that is now more complex and uses many features from the P&S markets. Another observation the storage in the electrical system which in the past depended mainly on having emergency engines that were called upon in case of emergency to shut off or start the generation plants. In present day, the batteries and other storage systems are called upon to store energy (in the power plants) or in the distribution subsystem (at the substations).

This trend is emerging as the renewable energy takes on a major role in the generation of electricity. The operation of the P&S is highly dependent on the consumers consumption – the interest rate set by the Federal Reserve Board in the USA and by Central Banks controlling the inflation rate to avoid overheating and or recessions of the overall economy as measured by the price consumer index. The response is slow – it takes months to reach the desired target. This is understandable because the target is for an overall market with many different products and services. On the other hand, the electrical system with a very restrict adherence to the synchronous speed -and the system voltage and frequency dictates almost instantaneous adjustment that the minimization of the δV & δf.

3. Capital

As seen from Section 2, Capital is essential for setting up the infrastructure required for manufacturing, transport, storage, service centers, generation power plants (fossil or renewable plants), transmission lines and substations, battery storage, etc. In each case, there are three phases the first two phases CAPEX is sought. In the last phase – one is dealing with part of the OPEX that deals with additional investments that could be deployed in case there is a need or to attain some benefits. The setup take places as a project evolves in three phases.

3.1 Project planning/development (phase 1)

In this phase, sometimes referred to as feasibility study. This phase is led by the development team of the Owner. The development team gets external support as needed. The aim is to crystalize the project’s objectives these include the production capacity – typically the annual projections production – products or services. This comes through evaluation of the demand currently and in both the medium and long terms. Also, it factors the competition and the possible sales prices. This task is to estimate the annual revenue from the sales.

Then one starts to tailor make the plans for the equipment that will be utilized in manufacturing the products or completing the services. This is very important as entails selecting the appropriate technology that will be used. This also involved defining the type of energy to be used. This is the core of the manufacturing or the service to be offered. With this step out of the way, the definition of the plant or the service center starts. This involves need for additional equipment to complete other manufacturing steps or support services. Also, definition of feed stock and its sources as well as bought out items. In this regard, the question “buy it or make it” is answered.

With the equipment established then conceptual engineering of the plant is started to produce preliminary layout(s), Flow diagrams, Single Line diagrams, and preliminary designs for services and utilities, as well as required buildings and facilities.

In addition preliminary estimates for the following items is completed, i) engineering of the plant, ii) Permits and Environmental studies, iii) procurement, iv) construction, v) project management.

These estimates are based on envisaged executions for each item.

Based on these preliminary inputs an estimate for total cost of the engineering, procurement and the construction of the equipment and required infrastructure is pulled together. This forms the preliminary estimate for the EPC of the plant.

Then the cost estimate of the annual production is prepared, this follows a simplified methodology of that discussed later in Section 3.3. Lastly, the financial projections are made with the aid of financial model, factoring debt and equity split, interest rate and loan terms. Other considerations including deprecation, taxes are incorporated in the financial model.

The results of the financial model are submitted to the owner/enterprise decision maker to decide if the second phase is to be initiated. If the second phase is to go forward, a project development manager “PDM” is appointed and a budget for phase 2 activities is also approved. Also, specific instructions are received from the owner/executive management pertinent to the direction of phase 2.

3.2 Project EPC and plant completion (phase 2)

Based on the investigations of phase 1, securing the land and for the contracting of all the contracts to implement the project – to set up all required infrastructure is completed. This entails identifying and tendering among the candidate contractors to select the most fit contractor covering the previous experiences, the proposed contractors team, the details of the contractor implementation plan, organization of the team, quality, safety, schedule and completion of engineering, procurement and construction, commissioning and testing. Phase 2 estimation is more accurate, compared to that of phase 1 particularly as it uses quotes or signed contracts for the main parts of the scope. Depending on the project, there could be special services, e.g., environmental studies, site investigations. The PDM and his team makes appropriate decisions of dividing of the work into packages to enable efficient and timely completion of different activities with minimum hindrance from one task to another with the contracting plan approved by the Enterprise senior management, the contracts are finalized and signed after the tendering of the various packages. The PDM may engage a development engineer in addition to his internal staff as needed. The detailed project schedule is finalized and all the contracts to complete the project are then used for monitoring the progress of the project tasks. The PDM has the responsibility of directing the contractors project managers and approving the milestone payments.

The PDM prepared periodical reports for the project report that he/she circulates to the executives of the enterprise.

The progress of the project and overcoming any unforeseen problems are key to getting the project to the final goal achieving Commercial Operation – after the commissioning and final tests are concluded successfully – meaning the guarantees of the various contacts have been met. In comparison to phase.

3.3 Production (phase 3)

The production phase starts with completing all preparatory activities by the operation Including hiring and training the staff. The set of the staff in accordance of an Organizational structure reporting to the operations and maintenance managers under the Plant Manager/ or the Service Manager. The decision of internal execution of the tasks or outsourcing is done. The tasks for environmental, quality and safety are planned. Then the production tasks to complete a product or a service are tabulated and each task KEC’s are assessed.

4. Profits/risks

Profit is a key driver for individuals, enterprises, and governments etc. in making investment decisions. Realizing or exceeding the anticipated profit is fundamental in the measurement of the performance of an investment.

The return on an investment generally correlates with the risks that could be encountered.

Uncertainties factor considerably in the degree of risk. It is always important to examine tolerances in various parameters. In scenario evaluation, one should avoid the case of all extreme values for different parameters assumed to occur simultaneously. For critical parameters, there should be an identification for fall back positions.

In making an investment, several categories of risks many be faced. To name some examples, technological risks – new technology could have some risks that would impair the performance of intended functions, older technology may become obsolete or be outperformed. For new technologies, prudent review of possible shortcomings, the well strength of the technology provider, record of performance, financial backing. The extent of the guarantees and warrantees the technology provider is willing to provide. The dependence of the technology on rare metals could form vulnerability. Competition by others may outperform the selected approach. Risks associated with failure to address adequately environmental concerns and or failure to deal properly with waste could have large impact. Financial risks related to borrowing terms could expose the borrower to significant risks. In international an investment beyond the original country borders there could be currency risks and non-expatriation/limits of original investment or profits.

The status in the product/service life cycle plays important role in estimation of risks. For a new product, the evaluating some risks could be difficult. As product enters in the growth stage and continues, the learning curve enables better estimates of the risks. As the product reaches advanced maturity, pressures from the competition may dictate adoption of new innovations and the risks could increase.

The condition of the Economy factors in the demand of a product or a service. When the market conditions are favorable, e.g., low interest rate, enterprises borrow money and make expansions while when the market is retrenching the opposite prevails. Thus, market conditions play significant factor in risks the enterprise faces. The same applies for individual as a consumer.

Of course, failures of the management to adopt flexible and robust policies and maintain a healthy culture could be detrimental. The execution of the various tasks in proper way requires continued assessment of the knowledge-energy combination. Always, continued evaluation “make it or source it”, all in trying to keep up with an edge over the competition.

From [7], Innovation – optimization of knowledge and energy is a key consideration in the running of plant or the service center. These form a major factor in the establishment of the required capital – the assets of the project as well the running finances during the production phase.

It is noted that profits/ risks as they relate to capital estimation involve judgments as they address future events.

4.1 Profits in investment planning

Section 9 of [7] was devoted to investments, the returns of the investments represents a key factor in making the Final Investment Decision “FID” for the enterprise. The considerations that are usually addressed in preparing the risk analysis that normally precedes the FID were discussed above. These considerations aim towards optimizing and reinforcement of the profits when making the investment.

4.2 Profits in providing/selling products & services

Normally the enterprise makes the pricing of its product based on the production plan adopted at the beginning of the year. The annual production plan is based on the investment decision (Section 4.1) and feedback obtained from the sales and the market departments for prior years and in particular the last year. Th annual plan pricing also factors new information as projected for the coming year. The annual plan also takes into consideration entering new markets and or leaving some markets.

5. Application of the KEC model

Commensurate with the three phases discussed under Section 3, there are internal “I” and external expenditures – Outsourced “O” categories. These two categories involve tasks, each task has associated with it Knowledge “K”, Energy “E” and Capital “C” elements.

For a product.

For each internally executed task i for task 1 to n_I

$${\mathrm{Sum}}_{\mathrm{iI}}={\mathrm{k}}_{\mathrm{i}}+{\mathrm{e}}_{\mathrm{i}\cdot }+{\mathrm{c}}_{\mathrm{i}}$$E1

For the outsourced tasks – (at the provider l) task j1 to n_j

$$\text{Sumj}={\mathrm{k}}_{\mathrm{j}}+{\mathrm{e}}_{\mathrm{j}}+{\mathrm{c}}_{\mathrm{j}}$$E2

For the product the Internal SUM

$${\mathrm{SUM}}_{\mathrm{I}}=\sum _{\mathrm{I}1\text{to}\mathrm{ni}}{\mathrm{Sum}}_{\mathrm{i}}$$E3

& for the External – one adds-up Summations of each provider for the total providers l to N

$${\mathrm{SUM}}_{\mathrm{O}}=\sum _{\mathrm{I}\text{to}1=\mathrm{N}}\left[\sum _{\mathrm{I}\text{to}\mathrm{j}=\mathrm{n}1}\right].$$E4

The reader gets the logic is add the contributions of KEC for each of the two categories. Because the external providers could be several there is the need for the addition of the sums from the various providers/suppliers.

The use of Eqs. (1) through (4) should yield the Internal Sum and the Outsourced Sum.

In [7], demonstrative calculations were presented based on labor prices and energy prices, i.e. the joules estimates for the knowledge and the energy that entered into various tasks for internal and outsources were given for demonstrative examples.

This paper is meant to apply the same logic in calculations for the Capital parts, meaning the tasks in phases 1, 2 leading to the estimation of the capital costs.

The author acknowledges that the estimation of the external (outsourced) capital represents considerable challenges. Nevertheless, the approach of the KEC helps in addressing the typical do it internally or outsource it. Table 2 with parts 1, 2 and 3 is a demonstrative example discussed under subsection 5.1.

		Internal			Outsourced
Phase 1	Project planning/development	K	E	C	1O1	1O2	1O3	1O4
1.1	Engage a consultants
1.2	Completing estimates for purchases, equipment, appliances, computers and software	X	X	X	S
1.3	Completion of list of required licenses	X	X	X		S
1.4	Establishing required office space	X	X	X
1.5	Establishing required parking space	X	X	X	S
1.6	Decide – Buy. Or Rent of space	X	X	X	S
1.7	Decide on electronic/remote – technology	X	X	X	S
1.8	Estimate operating expenses – Manpower, cleaning, utilities	X	X	X	S
1.9	Establish the equity	X	X	X	S
1.10	Secure Loan	X	X	X			S
1.11	Complete Financial Plan	X	X	X			S
1.12	Other

Part 2
		Internal			Outsourced
Phase 2	Project EPC and plant completion	K	E	C	2O1	2O2	2O3	2O4
2.1	Search and selecting a proper office space	X	X	X
2.2	Purchase of Medical Equipment	X	X	X
2.3	Purchase of furniture	X	X	X
2.4	Purchase of appliances	X	X	X
2.5	Purchase of computers and software	X	X	X
2.6	Applying for permits and getting licenses	X	X	X
2.7	Search and hiring of staff	X	X	X
2.8	Concluding utilities and internet contracts	X	X	X
2.9	Contract with Accountant	X	X	X
2.10	Contract with Lawyer	X	X	X
2.11	Contract with Insurance	X	X	X
2.12	Select and complete the purchase	X	X	X
2.13	Receive the purchased items				YES	Yes
2.14	Installation of purchased equipment	X	X	X		Yes	Yes	YES
2.15	Complete necessary training	X	X	X	YES
2.16	Plan publicity campaign and inauguration	X	X	X
2.17	Plan and implement all operating procedures	X	X	X
2.18	Other

Part 3
		Internal			Outsourced
Phase 3	Operation	K	E	C	3O1	3O2	3O3	3O4
3.1	Scheduling appointments for the patients	X	X	X
3.2	Receiving the patients, completing paperwork	X	X	X
3.3	Examination of patients	XXX	X	XX
3.4	Issuance of visit report and updating patient medical Record	X	X	X
3.5	Completing Medicine/pharmacy instructions	X	X	X
3.6	Specify required Lab work	X	X	X
3.7	Specify follow up	X	X	X
3.8	Administration	X	X	X
3.9	Cleaning							Yes
3.10	Accounting				Yes
3.11	Legal					Yes
3.12	Maintenance						Yes
3.13	Other

Table 2.

Demonstrative Example phases 1, 2 and 3 (Subsection 5.1).

“X” meaning applicable, “Yes” designates outsourced from provider. “S” designates external support.

It is important to note that the application of the model involves use of data, the required data come from historical data of the.

5.1 Simple example

The logic outlined above should be sufficient to follow the suggested approach. A simple additional illustration example is presented below, covering the three phases of Section 3. The emphasis is on the calculations of the Internal and Outsourced expenses. The profits are touched upon with guidance from Section 4.

The selected application is the case of general practice doctor setting her first office “general practice” after previous 5 years working at a hospital to serve local community at City CT in the USA.

She had to address the finances of the three phases of Section 3. The aim is to estimate and plan, secure funds for phase 2 and monitor cash flow for phases 2 and 3. This is typically would be done using in USD $ for this example. The proposed KEC model could be seen as an additional tool that provide advantages as it goes beyond the surface for the $. The KEC model exposes the K and E contributions (Ref. 2) and in this paper C as it also in turn relates to K &E.

Let us discuss the estimation of C for an entry c_i for an internal activity; a previous application of KEC model should have included the estimation of the share of capital that goes in the task being addressed for the life time of the investment. From that the share of the capital to the units in the task related to the product is calculated. The process involves a lot of details but the details reveal.

Insights that could be valuable in planning and altering some perceived ways for undertaking some activities.

The calculations for the outsourced K & E have the difficulty of getting the details from the provider. The C for an Outsourced c_o faces even more difficulties. The fact that for large number of outsourced activities, the challenges are multiplied. The difficulties are compounded if the provider is not using the KEC model approach.

In Table 2 – Parts 1, 2 and 3 the tasks for each phase are shown with the internal K,E and ∼ C depicted in the left of the data entry three columns, On the right hand side the outsourced contributions are shown in four columns. The entries correspond to four different providers. The contributions are marked by yes when applicable. The yes represents the sum of the KEC for that provider for this task. Please note the naming of the provider starts with the phase, then the last is numerical sequential number for the providers of this phase.

Before leaving this section, one addresses profits with the various considerations referred to under section 4. The enterprise has the flexibility to introduce the profits at various stages as it decides on the profit centers and how it wants to get the performance indicators.

6. Concluding remarks

The paper (chapter) introduces expands the KE model of [7], being a novel approach that the author proposed for cost estimation based only on two parameters the knowledge and the energy. This is an alternative method that if developed further lead to the full dependence on the historical data in cost estimation.

The comparison of the P&S markets and the electricity system underlines how the two are converging and that supports the notion of [7] that knowledge can be presented by the same units of energy “Joules’. The attempt to expand the KE model of [7] is useful as it sheds light on the fact that the Capital is built on the enterprise’s activities in terms of K &E. The exercise presented in Section 4 points to the challenges of obtaining the suitable data for outsourced services or products. The KEC while is in infant stage could provide detailed insights and could be useful in facilitating many enterprise reviews/decisions. The KEC model could provide a tool for assessing the profit centers among different divisions of a large enterprise.

The advantage of the KE and the KEC is they move from use of money and depend on a Joules, as money has many factors that lead the estimator to make some judgmental calls. The use of a common unit Joules will enable AI (Artificial Intelligence) cost estimation software to be more reliable as it will reduce the variability in the data associated with multitude of factors of the collected historical data.