Cost Estimation
Transcript of Cost Estimation
11
A Short Course on Product Cost Estimation
By
Dr. Muhammad Elrabaa
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BASIC DEFINITIONS
COST PRICE MODULE (FOR CONSTRUCTION CONTRACTS)
COST ESTIMATING PROCESS & PROCEDURE
COST ESTIMATING CLASSIFICATION
COST ESTIMATING METHODOLOGIES
FACTORS AFFECTING COST ESTIMATING ACCURACY
CASE STUDIES
ContentsContents
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Basic DefinitionsBasic Definitions
CAPITAL COST ESTIMATE (CAPEX)
REPRESENTS THE TOTAL CAPITAL COST OF THE PROJECT, INCLUDING ENGINEERING, MATERIAL, CONSTRUCTION, AND MANAGEMENT COSTS.
ALLOWANCES
USED TO REDUCE THE RISK OF OVERRUN DUE TO “KNOWN” UNCERTAINTIESDESIGN GROWTH / DESIGN DEVELOPMENTEXTRAORDINARY FREIGHT COST (AIR FREIGHT, SPECIAL CARGO ...etc)FORWARD ESCALATIONCUT / WASTE (BULK MATERIALS)
CONTINGENCIES
USED TO REDUCE THE RISK OF OVERRUN DUE TO “POTENTIAL” UNCERTAINTIESINCOMPLETE PROJECT DEFINITIONCURRENCY FLUCTUATIONERRORSDOES NOT COVER FORCE MAJEURE, SCOPE CHANGES, CLAIMS ETC.
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DIRECT COSTS
COSTS DIRECTLY ATTRIBUTED TO A JOB OR A PIECE OF PROJECT EQUIPMENT
Basic DefinitionsBasic Definitions
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INDIRECT COSTS
THESE ARE OFTEN REFERRED TO AS “OVERHEAD” COSTS AND CANNOT EASILY BE ALLOCATED TO ONE JOB OR PROJECTS.
THE PROCESS OF RECOVERING OVERHEADS IS KNOWN AS “ ABSORPTION COSTING” . CLIENTS FOR LARGE CAPITAL PROJECTS ARE VERY INTERESTED IN PROPOSED OVERHEAD RATES, CHARGEABLE TO PROJECTS AND REQUIRED DETAILED OF HOW THE OVERHEADS ARE TO BE ALLOCATED.
Basic DefinitionsBasic Definitions
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FIXED COSTS
COSTS ARE SAID TO BE FIXED WHEN THEY REMAIN UNCHANGED AND MUST CONTINUE TO BE INCURRED, EVEN THOUGH THE WORKLOAD FLUCTUATES, (EG. MANAGEMENT SALARIES , RENT INSURANCE….ETC.
Basic DefinitionsBasic Definitions
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VARIABLE COST
THESE ARE COSTS WHICH ARE INCURRED AT A RATE DEPENDING ON THE LEVEL OF THE WORK ACTIVITY.
E.G - MATERIAL- CONSUMABLES- SPARE PARTS- UTILITIES (POWER, WATER, SYSTEM)
Basic DefinitionsBasic Definitions
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Cost Price ModleCost Price Modle
DIRECT INDIRECT PROFIT PRICE+ + =
• LABOUR• MATERIAL• COMPONENTS• TOOLING
• DESIGN• MARKETING• SALES• ACCOUNTING• PURCHASING• MANAGEMENT• WARRANTY• LIABILITY• ADMINISTRATION
• MATCHINVESTMENT
COST
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Cost Cost -- Price ModlePrice Modle
CONSTRUCTION EQUIP.+
LABOR COST
MATERIAL COST
DIRECT COST
INDIRECT COST
TOTAL COST
PRICE
=
=
=
DURATION (HOURS) X RATE $/HR X CONSUMABLE FACTOR
LABOR (MHRS) X $/HR X SUPERVISION FACTOR
MATERIAL COST + DELIVERY COST + PURCHASING & INSPECTION COST
TOTAL DIRECT COST
OVERHEAD MOB. & DEMOB., TEMPORARY FACILITIES , INSURANCE ADMINISTRATION, MANAGEMENT, ENGINEERING,…ETC
COST
XPROFIT FACTOR
PRICE
+
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Cost Estimating ProcessCost Estimating Process1.0 1.0 Cost Estimation PurposesCost Estimation Purposes
INITIAL COST INPUT FOR PROJECT IDENTIFICATION DOC. (PID)INDICATIVE COST ESTIMATE FOR PLANNING ITEMS FOR BUSINESS PLANPERFORMANCE INDICATORS BUDGET UPDATING/ REVISIONNEW BUDGET PROPOSALSCOUNTER CHECKING CONSULTANT COST ESTIMATEREVIEW BIDDERS RATESEVALUATE ALTERNATIVES / OPTIONSPROVIDE DATA FOR PROJECT SCHEDULING (ACTIVITY WEIGHTS,
RESOURCE LEVELLING)
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Cost Estimating ProcessCost Estimating Process2.0 2.0 Capital Cost Major ComponentCapital Cost Major Component
DIR
ECT
CO
STIN
DIR
ECT
CO
ST
ENGINEERING
MATERIAL
CONSTRUCTION
• Screening Studies• Basic Engineering (FEED)• Detailed Engineering• Procurement Services
• Major Equipment• Bulk Material• Freight & Transportation
• Preliminaries (Mobilisation, Site Facilities, Site Running Costs)
• Civil, Mechanical, E&I Works etc.• Pre-commissioning / Commissioning
• Owner Management• Housing/Camp• Fees• Services
OWNER COST
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Cost Estimating ProcessCost Estimating Process3.0 3.0 InIn--House Cost EstimateHouse Cost Estimate
Review / Discuss• Scope of Work • Basis / Strategy• Exclusions• Estimate Methodology• Required Accuracy
DevelopCost
Estimate
IssueEstimate
Review&
Check
• Quality• Risks• Contingency
• Purchase Order• Vendor Quotes• Completed Projects• Escalation Rates• Construction Unit Rates
Cost Data
• Cost Est. Software• Excel Worksheet
Computer Tools
OutputCustomer
Input / Request
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PREPARE ESTIMATING REQUIREMENTS
PLANNING THE ESTIMATE
STRUCTURE THE ESTIMATE
DEVELOPING THE ESTIMATE
DEVELOPING CONTINGENCY
DOCUMENTING
REVIEW / ISSUE ESTIMATE
Cost Estimating ProcessCost Estimating Process4.0 4.0 Estimating ProcedureEstimating Procedure
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Cost Estimate ClassificationCost Estimate ClassificationInternational Classification PracticesInternational Classification Practices
Class 5
Class 4
Class 3
Class 2
Class 1
Order of MagnitudeEstimate -30/+50
Order ofMagnitudeEstimate
Order ofMagnitudeEstimate
Class IV-30/+30
Exploration Estimate
Feasibility Estimate
AuthorizationEstimate
Master ControlEstimate
Current Control Estimate
DefinitiveEstimate
Class I-5/+5
Budget Estimate
Class II-10/+10
Study EstimateClass III -20/+20
Level 6
Level 5
Level 4
Level 3
Level 2
Level 1
Detailed Estimate
DefinitiveEstimate
PreliminaryEstimate
StudyEstimate
BudgetEstimate-15/+30
DefinitiveEstimate
-5/+15
INC
REA
SIN
G P
RO
JEC
T D
EFIN
ITIO
N
ADCOEMPD
Classification
Class 4+40/-20%
Screening /Feasibility
Class 3+30/-15%
Conceptual /Prelim. Budget
Class 2+20/-10%
Master Budget
Class 1+10/-5%
Definitive /Control Budget
Extracted from “AACE International Recommended Practices and Standards”
AACE Classification
Standard
ANSIStandard
Z94.0
AACEPre-1972
Concession Estimate
Association of Cost
Engineers (UK)ACostE
Norwegian Project
ManagementAssociation (NFP)
American Society of
ProfessionalEstimators
(ASPE)
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PREPARED BEFORE PROJECT STARTS
HAZY INFORMATION
DETAILS OF PROJECT YET TO BE DEVELOPED
USEFUL FOR QUICK SCREENING AND PLANNING DECISIONS
Estimating ClassificationEstimating Classification1.0 Order of Magnitude 1.0 Order of Magnitude
INTENDED ACCURACY + 35%
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PREPARED DURING PROJECT STUDY AND SCREENING PHASE
BASED ON A GOOD OUTLINE PROJECT DEFINITION
MAJOR PROJECT ELEMENTSSIZE / CAPACITY /VOLUME /AREA
USEFUL FOR: SCREENING ALTERNATIVES /OPTIONS
PRELIMINARY FEASIBILITY STUDYMANAGEMENT DECISION
Estimating ClassificationEstimating Classification2.0 Study Estimate2.0 Study Estimate
INTENDED ACCURACY + 20%
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DEVELOPED DURING ENGINEERING PHASE 10-20% OF ENGINEERING
BASED ON - WELL DEFINED DESIGN CRITERIA.
INTENDED ACCURACY + 15%
Estimating ClassificationEstimating Classification3.0 Study Estimate3.0 Study Estimate
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INTENDED ACCURACY + 5-10%
Estimating ClassificationEstimating Classification4.0 Definitive Estimate4.0 Definitive Estimate
MOST DESIGN WORK COMPLETED.
ALL MAJOR CONTRACTS / PURCHASE ORDER HAVE BEEN PLACED.
USED TO UPDATE BUDGET FOR THE THE PURPOSE OF COST CONTROL.
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Cost Estimating Methodology Cost Estimating Methodology
Example: Example: (Process Equipment)
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Cost Estimating MethodologyCost Estimating MethodologyWhat is Process EquipmentWhat is Process Equipment
PROCESSEQUIPMENT
Package Units
• chemical Dosing• Water Treatment• HVAC Equipment
Engineered Equipment
• Columns• Vessels• Reactors• Tanks
Standard Equipment • Pumps• Compressors• Fans
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Estimating Equipment Cost MethodologiesEstimating Equipment Cost Methodologies(Direct Cost) (Direct Cost)
BUDGET PRICE
PRICE TABLES
PURCHASE ORDERS (FROM PREVIOUS JOBS)
PRICE CURVES
CALCULATION BASED
EXPONENTIAL METHODS (COSTS SCALING)
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Estimating MethodologiesEstimating MethodologiesEquipment Cost (Direct Cost)Equipment Cost (Direct Cost)
SOURCE OF DATA
• BUDGET PRICE• PURCHASE ORDER• BUDGET QUOTATION• COST CURVES
ADJUSTMENT TO THE NEW NEW CONDITIONS
• Cost of Spare Parts• Freight, Insurance, Transportation Cost• Currency & Exchange Rate• Exclusions• Escalation Formula• Scaling Factor
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Estimating Methodologies Estimating Equipment (Scaling Factor)
E1
E2
COST
SIZE
COST E2 = COST E1 X (size E2/ size E1)x
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Material Selection Impact on Equipment
WEIGHT Kg
S.STEEL
C.STEEL
FOB-VALUE
FOB-COST VS WEIGHT CURVE - PRESS. VESSEL
W
V2
V1
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Estimating MethodologiesEstimating Equipment Cost Calculation
LSHELL
HEAD
NOZZLES
MANHOLE
D
VESSEL WIGHT
Shell weight = π x D x L x t x s.g. = W1 Kg
Heads weight = 2 x 1.3 x D x t x s.g.= W2 Kg
Others:
• Internals = W3 Kg• Supports = W4 Kg• Nozzles = W5 Kg• Manhole = W6 Kg
---------------Total Weight W Kg
Estimated Cost = W (Kg) X Unit Cost (Cost/Kg)
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Factors Affecting Project Final CostFactors Affecting Project Final Cost
1.0 SCOPE OF WORK
CLARITY OF SCOPE DEFINITIONCHANGES IN SCOPE
2.0 TECHNICAL FACTORS
DESIGN STANDARDS & PRACTICESSAFETY & ENVIRONMENT REQUIREMENTSSKILLS/COMPETENCIES
3.0 OTHERS
PROJECT TIME FRAME/SCHEDULEINTERFACES WITH OTHER OPCOSPROJECT ORGANIZATIONCURRENCY EXCHANGE RATESMARKET CONDITIONS
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Case Study 1Case Study 1
+ 0.00 mtr+ 0.00 mtr
+ 5.0 mtr+ 5.0 mtr
TT-- 10011001
TANK T-1001 NEEDS TO BE RE-PAINTED (EXTERNAL).MAINTENANCE RECEIVED A QUOTATION FOR BLAST-CLEANING AND PAINTING OF THE TANK. THE QUOTE EXCLUDES THE PROVISION OF THE SCAFFOLDING, ASSUMED TO BE PROVIDED BY THE OWNER. THE JOB IS PLANNED TO START ON MONDAY 1ST MAY AND WILL TAKE 10 WORKING DAYS.THE MAINTENANCE DEPARTMENT REQUESTED YOU TO PROVIDE AN ESTIMATE OF THE COST FOR THE SCAFFOLDING.
+ 7.00 mtr+ 7.00 mtr
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INSTALLATIN AND DISMANTLINGCODE STANDARD SCAFFOLDING US$ Unit
S25 0 - 25 m3 6.96 m3S50 25 - 50 m3 5.05 m3S75 50 - 75 m3 4.80 m3S100 75-100m3 4.15 m3
S150 100-150m3 3.95 m3
S200 150-200m3 3.65 m3
S400 200-400m3 3.40 m3
S000 400->m3 3.30 m3
CODE SPEICALS US$ UNIT
LA LADDER 2.50 M1
WFR WORK FLOOR 4.35 M2
Z FLEXIABLE SHEETING 4.80 M2
THERE IS A CURRENT ‘SCHEDULE OF RATES’ CONTRACT WITH A SPECIALIZE COMPANY FOR PROVIDING OF SCAFFOLDING
Case Study 1Case Study 1
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Case Study 1Case Study 1
RENT
CODE TYPE US$ Unit
SR SCAFFOLDING 0.03 M3/DAY
LAR LADDER 0.04 M1/DAY
WFR WORK FLOOR 0.04 M2/DAY
ZR FLEXIBLE SHEETING 0.05 M2/DAY
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Case Study 1Case Study 1
STEPS TO BE TAKEN
1.0 MAKE A (SIMPLE) WORK PLAN
2.0 DEVELOP SCOPE OF WORK
3.0 CALCULATE QUANTITY OF EACH ACTIVITY
4.0 APPLY APPLICABLE UNIT RATES
5.0 CALCULATE TOTAL COST
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Case Study 1Case Study 1
WORKPLAN: SCAFFOLDING FOR BLASTING/PAINTING T-1001.Dia 5 Mtr H =7 Mtr
1.0 ERECT STANDARD SCAFFOLDING (NO HEAVY EQT. ETC. INVOLVED) AROUND TANK.
2.0 PROVIDE WORKING FLOORS. FOR EASY WORKING AT VERTICAL CENTERS OF2.0 Mtr.
3.0 FOR ENVIRONMENTAL REASONS PROVIDE FLEXIBLE SHEETING AROUND SCAFFOLDING.
4.0 PROVIDE 3 LADDERS5.0 APPROVAL SAFETY ADVISER6.0 SCAFFOLDING SHOULD BE READY BEFORE START OF THE WORK ON MONDAY
1ST MAY (WK18).
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Case Study 1Case Study 1
WORK SCHEDULE:
WK18 WK19 WK 20WK17 1/5
Scaffolding ReadyBlasting/painting
Start Dismantling Scaffolding
Renting Period Scaffolding (16 Calendar Days )
W/EW/ESTART
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Case Study 1Case Study 1
dD (=d+4)
Volume Scaffolding:
∏/4 (D2 - d2) x H1∏/4(92 - 52) x 7 = 307 m3 (S400)
Work Floor:each:∏/4(D2 - d2)∏/4(92- 52)= 44m2
Total 3 x44m2 = 132m2 (WFR)
Flexible Sheeting∏D x H∏ x 9 x 9 - 254 m2 (ZR)
Ladder:3 x 6 m1 = 18m1 (LA)
+9
+6
+4
+2
Work Floor
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POINTERS
UNDERSTAND PROJECT REQUIREMENTS BEFORE DEFINING SCOPE.
UNDERSTAND METHOD OF MEASUREMENT OF A ‘SCHEDULE OF RATE CONTRACT.
SELECT OPTIMUM IMPLEMENTATION PLAN.
Case Study 1Case Study 1
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Case Study 1Case Study 1Cost Estimate DetailsCost Estimate Details
# Activity Qty Unit Standard Norm Correction Total1 Erection & dismantling scaffolding 307 m3 3.4 1,043.802 Erection & dismantling work Floor 132 m2 4.35 574.23 Erection & dismantling Sheeting 254 m2 4.8 1,219.204 Erection & dismantling Ladders 18 m1 2.5 455 Rent Scaffolding 4,912.00 m3d 0.03 147.366 Rent Work Floor 2,112.00 m2d 0.04 84.487 Rent Sheeting 4,064.00 m3d 0.05 203.28 Rent Ladders 288 m1d 0.04 11.52
Total 3,328.76
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THE FOLLOWING COST INFORMATION IS AVAILABLE OF A SPECIFIC EQUIPMENT ITEM:
SIZE F.O.B COST
100 M3/hr US$ 50,000200 M3/hr US$ 80,000
QUESTION:
WHAT IS THE ESTIMATED COST FOR THE EQUIPMENT ITEM WITH A CAPACITY OF 300 M3/HR?
Case Study 2Case Study 2
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Direct CostEstimating Equipment Cost Calculation
E1
E2
COST
SIZE
COST E2 = COST E1 X (size E2/ size E1)x
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THE SOLUTION:
1) = 80,00050,000
2) 2 = 1.60
3) LOG2 x (X) = LOG 1.60
4) 0.301 x (X) = 0.204
5) (X) =0.678
Estimated Cost: X US$80,000 = US$105,000
(X))
100200(
(X)
(0.678))
200300(
Case Study 2Case Study 2