Topic 2 - Project Cost Estimating Flashcards

Question

What is a contingency (AACE)

Answer 1

- contingency is an amount added to an estimate to allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result in additional costs - included in the estimate and expected to be expended (but not sure where) - accounts for stuff like uncertainty in productivity, unit rates, minor rice fluctuations, planning/estimating errors, design developments/change within scope

Answer 2

Risk is the degree of which dispersion or variability around the expected or "Best" value, which is estimated to exist for the economic variable in question Risk allowance: may or may not be spend (based on probability of undesirable outcome), expected value of risk allowance will be spent, if correctly estimated

Answer 3

- risk allowance and contingency are amounts of money used to provide for project risks, uncertainties, and unforseen costs that are associated with a construction project - a reasonable value (combination of risk allowance and contingency) should be included in the bid to cover for the risks involved in construction - 5% to 10% of contract price usually

Answer 4

- identify items in the project which may have potential cost overruns (risks) or cost savings (opportunities) - assess the most likely $ cost or savings associated with each item - assess the probability of each cost or savings occurrence - multiply the $ cost or savings by its probability of occurrence - sum the total resultant costs and the total resultant savings: the difference between the two is the net project risk/opportunity allowance (contingency) (MAY BE + or -)

Answer 5

- corporate overheads - profit - sometimes risk and opportunity allowance

Answer 6

-to determine minimum (base) markup OR -to determine minimum volume of work (turnover) for firm to break even (i.e to cover corporate overhead costs, without making any profit)

Answer 7

Method A: predict turnover level ($) for coming year and calculate minimum markup (%) Method B: Determine gross markup (%) (i.e profit + corporate overheads) on projects in coming year and calc minimum volume of work (turnover) ($)

Answer 8

Forecast corporate overheads for coming year: -ex: previous yr: $200,000 -10% inflation $20,000 -firm growth: $30,000 Forecaster corporate overheads = $240,000 Method A: forcast turnover level (e.g $2,000,000) -minimum markup: corporate overheads / Turnover 240,000/2,000,000 = 12% Method B: forecast gross markup, e.g 12% - use break even analysis equations 1) Revenue - Project Costs = Gross Profit 2) Gross Profit - Corporate Overheads = Net Profit 3) Gross Profit / Revenue = Gross Markup - at break even point, Net profix = 0, so; From (2): Gross Profit = corporate overheads From (1): Revenue = Project costs + Corporate Overheads from (3): Corporate overheads / Revenue = Gorss Markup Revenue = Corporate Overheads/Gross Markup In our example: Revenue = 240,000/0/12 = 2,000,000

Answer 9

Corporate overhead refers to the indirect costs associated with running a business. In other words, corporate overhead encompasses all the costs that are not directly factored into producing a product or service. Common examples include administrative and marketing expenses.

Answer 10

- BASED ON MINIMUM OR BASE MARGIN - BREAK EVEN ANALYSIS - based on resource cost category breakdown (to reflect risks inherent in each) - based on experience and market conditions

Answer 11

We use provisional and prime cost items to calculate markup (margin), but spread markup to all items EXCEPT provisional and prime cost items provisional quantities: -work which may not occur or variations in quantitiy expected -safer NOT to allocate overhead or contingency spread to these items b/c they may or may not occur prime cost items - owner stipulated sum of money, adopted by all bidders, for work not yet fully detailed - amount specified can not be modified by bidders

Answer 12

all items EXCEPT provisional and prime cost items.

Answer 13

for unit price contracts (paid on basis of actual quantities installed): increase unit prices of items that are underestimated by owner decrease unit prices of items that are over estimated by owner -can be used to reduce overall bill price to be more competitive, or to increase profit margin while maintaining original bid price