Lecture 6: Cost Estimation and Budgeting COPY Flashcards
What are commong sources of project costs?
- Labor
- skilled, semiskilled laborers
- salary/hourly rate + pension/health benefits -
Materials
- building (wood, concrete, insulation, paint, paving) - Subcontractors
- Equipment and facilities
- Travel
What’s the difference between direct and indirect costs?
Direct costs:
-clear connection to part of project that makes them up (material, labor, workers)
→ f.e. total direct labor costs (direct lab rate)*(total lab hours)
-NOT DIRECT: support personal for mutliple PJ
Indirect costs:
-overhead (gemeinkosten): indirect materilals, utilities, taxes/insurance, property/repairs, health/retirement benefits
-selling and generel advertising:
advertising, shipping, salaries, sales commissions
→ linking cost is not a easy a direct cost, there are different methods
→ f.e. flat rate charge, indirect costs make an extra of 20%-50% off the direct costs
What are normal and expedicted costs?
-
Normal costs:
- planned in before
- agreed by all PJ stakeholders at the beginning of the PJ -
Expedicted costs:
- unplanned costs to speed up PJ (transportation/logistic speed up)
- crashing costs: overtime, hiring more workers, contracting with support organisations
What are Nonrecurring and Reccuring costs?
-
Nonrecurring
- associated with charges at the beginning or end of PJ: preliminary marketing analysis, personell training or outplacement -
Recurring
- continue to operate PJ life cycle: most labor, material, logistics
What are fixed and variable costs?
-
Fixed
- do not vary with usage (e.g. leasing costs. Mashine costs 10€ either for 5h or 50h usage) -
Variable
- have direct proportion to usage level (material, leasing rate)
What are the phases of cost estimation?
- Estimating
- Cost control
- Estimate to finish
What are the drivers cost estimating accuracy?
- Projects phase (labour portion is not yet performed)
- Level of engineering progess (required resources def.)
- Realiabilty for the cost data available (database of historical data availability)
→ estimates accuracy increases with PJ lifecycle
List some Cost Estimation methods/tools
- Comparative
- Ballpark
- Feasibility
- Analytic/Definitive
What is comparative estimation? (Parametric or analogous estimation) + Name a use case
→ assumes that historical data can be used to frame current estimates for similar projects
Use case:
-Boeeing uses “parametic estimation”
-managers develop estimates for current PJ based on past one by inserting a multiplier which includes:
1. impact of inflation
2. labour and material increases
3. other direct costs
→ offers highly accurate estimates for costs estimation
→even for new tech, historical data is useful
What is the Ball Park Estimate and what is it known for?
- sometimes named as magnitude estimates
- used when info or time is scarce
→ estimates ressource requirements or if a bid can be placed for a PJ
-aims for an +-30% accuracy
Known for:
- Plant typology
- Plant size
- whole costs for same type plants
Name the Ball Park Estimate- Scale Factor and its compontens
Bring the Scale Factor into a linear form using the logarithm
When does the accuracy of the Ball Park estimate -SF increase?
- P is close to P0
- historical data is recent
→ if data is not available for plant type, its possible to divide plant in its components
What types of corrective factors are available for the BPE-SF?
- Location Factor (LF)
→ part of plant cost variation connected to the location, where it will be build - Escalation Factor (LF)
→ index summarizing the temporal cost trend for ressource used to build plant
What are Feasibilty or Factorial estimates and what are they used to?
→ estimates based on real numbers/figures after the disign work
Used for:
1. comparing different design choices
2. perform feasibilty studies
3. estimate stock in hand allocation (budget)
→ based on cost breakdown and consider: analytic cost items, other estimates by per cent factors
What does the Mark-up factor of factorial estimates consider?
- Escalation
- Contingencies
- Overheads
- Financial costs
- Insurances
- Guarantees
- Taxes
- Exchanges
- Profits
Name the principle behind the leaning curve and its formular
Each doubling of outputs results in a reduction in time (and often cost) to perform the last iteration
What are budget contingencies and what are they needed for?
The allocation of extra funds to cover uncertainties and improve the chance of finishing on time
Needed because:
- PJ scope may change
- Murphys Law is present
- Cost estimation must anticipate interaction costs
- Normal conditions are rarely encountered
What are the benefits to Contingency Funding?
- recognizes future contains unknowns
- adds provision for company for an increase in project cost
- applies contingency fund as an early warning signal to a potential overdrawn budget
