Cost Estimating Overview

7/29/2019 Cost Estimating Overview

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COST ESTIMATING OVERVIEW

Agenda

Methods

Estimate Types

Costs estimates during the life of project

Key Cost Elements

Factors that affect the Estimate Estimating Tools

COST ESTIMATING OVERVIEWESTIMATING METHODS

Parametric Estimating Parametric estimating can be defined as identifying major

task cost drivers, applying associated relationships and/orfactors to them to develop project costs.

Parametric estimating typically employs the use of parametric models.

– A parametric cost model is a group of cost estimatingrelationships, used together to estimate an entire or severaltasks

Primary Purpose: – Provide a defensible budget estimate at early stages with little

known design criteria

COST ESTIMATING OVERVIEWESTIMATING METHODS

Detailed Estimating Detailed estimates are ‘bottoms-up’ made from

very defined engineering data

Detailed quantity take-offs are developed tosupport labor, material and equipment prices

These estimates are the most comprehensive andare labor intensive to prepare

COST ESTIMATING OVERVIEWTYPES OF ESTIMATES

Types of Estimates:

– Rough Order of Magnitude (ROM) Estimates Made without detailed engineering Accurate to within +50% or -30% of actual costs

– Factor (Benchmark) Estimating Utilizes costs from similar projects Historical cost data is normalized and scaled to fit

– Budget (Planning) Estimates Based on preliminary or partial engineering data

Accurate to within +30% or -15% of actual costs

– Detailed (Definitive) Estimates Based on high level of design Accurate within +20 or – 10% of actual costs

Rough Order of Magnitude (ROM) Estimates

– Useful in:

Preliminary design-phase budget

Probable costs for program-level budgets General economic feasibility

Preliminary economic screening of alternatives

Consequences of design decisions

ROM estimates often use scaling, factoring, orparametric tools

Budget (Planning) Estimates – Useful in:

Accurate design-phase budgets

Program-level budgets

Detailed economic screening of alternatives Updating existing ROM or Budget estimates with more

detailed data

Budget estimates typically use the sametechniques as ROM estimating; however, the useof more detailed data increases the accuracy of the estimate.

Detailed (Definitive) Estimates – Useful in:

Independent Government Estimates (IGEs)

Cost validation/Contract negotiations – ensuringthat project costs (i.e., charges from a contractor)are in line with what should have been charged

Primary Purpose: – Evaluate contractor bids against the governmentestimates

– Track costs throughout the project

Factor (Benchmark) Estimating

– Useful in:

Cost comparisons for similar projects

Developing early budget requirements

Developing a quick detailed estimates

Based on cost curves, ratios, and factoringhistorical data

COST ESTIMATING OVERVIEWESTIMATES DURING PROJECT LIFE

Cost Estimating during the RI/FS stage: – Design still conceptual and estimates are considered

conceptual

– Cost engineer must make assumptions – Usually includes more contingencies – Estimate must include project’s life cycle costs – Estimate considered to be conceptual

During the RI (screening of alternatives) estimate = -50% to100% During the FS (detailed analysis of alternatives/conceptual

design) estimate = +50% to -30%

Record of Decision (ROD) Estimates

– Cost estimate is developed during the FS forthe preferred alternative

– Not to used to establish budgets ornegotiating Superfund enforcement

– The subsequent estimates used for the RODmust reflect any changes

Cost Estimating during the Design stage:

– Estimate based on detailed scope, designdrawings, and specifications

– Estimate built from the bottom up

– Quotes obtained for major cost elements

– Uses less contingencies, if any

– Estimate used to evaluate contractorproposals

COST ESTIMATING OVERVIEWKEY COST ELEMENTS

Identifying Cost Elements of the estimate – Estimates should include as many cost elements as

possible

– Estimates for HTRW projects typically use a work breakdown structure (WBS) to identify cost elements

HTRW Remedial Action/Operation & Maintenance (RA/OM)WBS, Feb. 1996

Environmental Cost Elements Structure (ECES), Sept. 1999

Key Elements of a HTRW Capital cost estimates – Mob and Demob – Monitoring, Sampling, Testing and Analysis – Site Work Items

– Surface water collection or containment – Groundwater extraction or containment – Gas/vapor collection or control – Soil excavation – Sediments/sludge removal or containment – Demolition/removal – Caps or covers – On-site treatment – Off-site treatment or disposal – Contingencies

Key Elements of a O&M estimate – Monitoring, Sampling, Testing, and Analysis

– Extraction, Containment, or Treatment Systems

– Off-site treatment/disposal

– Contingencies

– Professional/Technical Services Project management

Technical support

– Institutional Controls

COST ESTIMATING OVERVIEWFACTORS AFFECTING ESTIMATES

– Characterization of Site

– Level of Design Detail

– Contract Type – Escalation Cost/Inflation

– Bidding Climate

– Type of Work / Time of Year (Productivity) – Labor Pool Area

– Specialty Equipment

COST ESTIMATING OVERVIEW

FACTORS AFFECTING ESTIMATES

Characterization of Site

– The more characterization the better the projectwill be defined.

– Lessens the chance of running over budget

– Creates definitive design options and technologyselections

Level of Design Detail – Detail design creates better and more accurate

estimates

– Easier to evaluate bid proposals against thegovernment estimate

– Lessen the chance of change orders duringremediation

– Aids in negotiations of project costs

Contract Type

– Estimates are prepared to the standards of theagency, & design requirements

– Innovative contract types (design build) usuallyresult in less detailed estimates

– Innovating contract types may affect the accuracyof the estimate.

Contingencies – An allowance included in estimates to cover unknowns that

are not possible to adequately evaluate from available databut must be represented in the project estimate

Design Contingencies (Project) – Represent project risks associated with incomplete design

and are unforeseeable at the time of estimate preparation,which are likely to become known as project design

proceeds. Construction Contingencies (Reserve)

– Represent remedial action or O&M costs at the time of bidor final estimate preparation, which are likely to become

known as project construction or O&M proceeds

Escalation versus Inflation

– Escalation

Reflects increases in historical prices to the present day

Calculated by multiplying historical prices by a ratio of indexes

– Inflation

Addresses future growth in costs of goods and services

Calculated by applying a % factor to current $$ estimate

Bidding Climate – Usually considered when developing a detailed

estimate for competitive bid projects.

– Things that affect the bidding climate are: Size and type of project

How busy the contractors are in the area

Economy of the area

Time of year

Location

Type of Work / Time of Year

– Limits the number of contractors

– Affects the Productivity

– May cause extra material and overhead costs andother extraneous costs

Labor Pool – Limited labor pool will cause an increase in

contractors proposals

– Things that affect labor pools Amount of work in the area

Type or difficulty of project (radiation type work,

ordnance and explosive type work, chemical treatment,etc.)

Specialty Equipment

– Increase the cost of the project

– Equipment is not always listed in over the counterequipment manuals

– Prices usually obtained from vendor quotes or applying

modifying factors to normal equipment prices

COST ESTIMATING OVERVIEWESTIMATING TOOLS

Remedial Action Cost Engineering andRequirements (RACER ) system is a parametriccost-estimating tool that accurately estimatescosts for all phases of remediation:

Pre-Study

Design

Removal/Interim Action

Remedial Action

Operations and Maintenance

Long Term Monitoring

Site Close-out

How Does the RACER Estimating MethodologyWork?

– Uses parametric cost modeling

– Models based on generic engineering solutions forenvironmental projects, technologies, and processes

– User inputs parameters into the model to generatethe cost estimate

MII (formerly known as MCACES)

– Detailed cost estimating software

– Used by the Corps of Engineers fordeveloping bottoms up estimates for IGE’s

– Prices based on a government maintain unitprice book , labor, and equipment books

– Commercially available cost database

– Contains line items with labor, equipment, and

material pricing – Also contains information on

Equip Rental costs

Historical Cost Indexes

City cost Indexes

Location factors

– Used to develop detailed costs estimates

Cost Risk

– Analytical tool for analyzing financial risk todetermine the contingencies

– Works with RACER, stand alone estimatewithin Cost Risk, spreadsheet estimates

– Uses Crystal Ball to run the cost risk analysis

RPM RA Management Role

RPM is responsible for understandingand monitoring – technical scope

– project budget

– project schedule

RPM should anticipate and identify

potential problems early, before theybecome a crisis

RPM should involve appropriate level of management/expertise to resolveroblems

Potential Problem Analysis (PPA)(risk analysis)

Risk - Existing variation in the possibleoutcomes associated with projectcircumstances

– Risk is a property of an entire probabilitydistribution and each component of projectoutcome has a separate probability

– Risk and probability have objective andsubjective interpretations

Uncertainty - Conscious awareness of risk related to project circumstances

PPA - Continued

Remedial action risks

– construction related

– physical

– contractual & legal

– performance

– economic

– political & public

PPA - Continued

When should PPA be conducted?

– During project delivery analysis/pre-design

– Procurement planning

– Construction mobilization/partnering

– Periodically during project

Who should be engaged?

– Involve your whole project management team

COST ESTIMATING OVERVIEWSAMPLE PROJECT

SHOW A SAMPLE WITH THE ELEMENTS

Cost Estimating Overview

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