Lecture 4A: Cost estimating Flashcards
WHy estimates?
- To ibtain contracts
- establish budget
- determine feasibility
- Control cost during design
- consider alternatives
- appraise value
What is estimate for conceptual planning.
- Based on only general parameters of facility size, anticipated quality of construction, and use of the facility.
- The primary purpose of these estimates is to provide an idea of the likely cost of the facility to determine the amount of money needed to finance the project.
Estimates for feasibility
- Based on prelimitary design information and is prepared after the project scope is completely defined.
Estimates for project execution/construction
These are itemized cost computations based on a complete set of contract documents.
- These are prepared using historical average costs or by creating crews/manufacturing units and considering their production
Estimates for change orders
- Developped during project implementation in response to an owner directed change in project scope.
What is Contingency
- Amount added to an estimate to allow for items, for which the experience shows will likely result in additional costs.
- Based on estimator’s past experience
- planning and estimating errors and omissions
- possible price escalations.
What is triangulation estimation model
– Approaching the estimate from different perspectives and sources
– Using different sources to arrive at the estimate
What is Learning curve learning model
- A percentage or rate at which the output is increased due to repetition
What is the equation of learning curve
Tn = Tinitial x N^r
Where
Tn = time required for Nth unit of production
Tinitial = time required for the first unit of production
N = number of completed units.
r = learning curve exponent = log (learning curve as a decimal) / log(2.0)
let 1 takes 10min, learning rate 80%
1st unit takes 10 min
2nd takes 10 *0.8 = 8 min
4th takes 8 * 0.8 = 6.4min
8th unit takes 6.4 * 0.8 = 5.12min
Total time - summation
What are the three types of cost estimating
- Rough (ballpark)
- Budget (comparative)
- Detailed (definitive)
Rough estimate
- Used in inital planning and evaluation phase
- Little detail and accuracy
- Used only for quantification
- Mad quickly and easily
- (-30%) to +60%
Budget estimate
- Used for budgeting only at conception / preliminary stage of project.
- more detailed than rough -> more time and ressources
- (-15%) to +20% accurate
Detailed estimate
- Used during project’s detailed design and contract bidding phase.
- made from detailed quantitative models, blueprints, product specification sheets, vendor quotes.
- Require more time and resources
- (-3% to +5% accurate)
Difficulties in estimating
- one of a kind estimates
- Time and effort available:
- estimator expertise
What is one-of-a-kind difficulty
Especially difficult since (almost) all parameters must be estimated.
What is time and effort available difficulty
Both are required for a detailed estimate (these resources must be planned/scheduled)
what is Estimator expertise difficulty
More experienced and knowledgeable estimator usually makes better estimates.
What are the estimating models
- Per-unit models
- Segmenting model
- Cost indexes
- Power-sizing model.
What is per-unit model
- Uses ‘per unt’ factor to develop an estimate (utility cost per m^2, etc.)
- Simple and useful.
- Only for rough estimate.
What is segmenting model
- Divide estimate into its individual components (based on WBS)
- Prepare estimates for each of these components.
- Total estimate is sum of all component estimates.
What are Cost indexes
Dimensionless numbers reflecting the change in price over time (commodity price indexes, etc.)
What is the formula for cost indexes
Cost at time A / Cost at time B = Index at time A / Index at time B
A is of target estimate, based on B which is known, both indexes are known
Example:
Labour cost index value was 124 ten years ago and is 188 today
* Annual labour costs for a similar facility were $575,500 ten years
ago
(188/124) * 575.5K = 871.8k
Power-sizing model
used to estimate costs of industrial plants and equipment. Uses exponent x - the power sizing exponent, to represent economies of scale in size or capacities.
What is the formula of power-sizing model
Cost Equip. A / Cost Equip. B = ( capacity equip A / capacity equip B) ^ x
x=1 -> Linear relationship
x > 1 -> diseconomies of scale
x < 1 -> economies of scale
capacity A and B must be same units
Costs A and B must be at the same point in time
- Use cost indexes to make it the same time (if needed)
