1 n nBASIC DEFINITIONS n nCOST PRICE MODULE (FOR CONSTRUCTION CONTRACTS) n nCOST ESTIMATING PROCESS & PROCEDURE n nCOST ESTIMATING CLASSIFICATION n nCOST

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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” UNCERTAINTIES DESIGN GROWTH / DESIGN DEVELOPMENT EXTRAORDINARY FREIGHT COST (AIR FREIGHT, SPECIAL CARGO ...etc) FORWARD ESCALATION CUT / WASTE (BULK MATERIALS)

CONTINGENCIES

USED TO REDUCE THE RISK OF OVERRUN DUE TO “POTENTIAL” UNCERTAINTIES INCOMPLETE PROJECT DEFINITION CURRENCY FLUCTUATION ERRORS DOES NOT COVER FORCE MAJEURE, SCOPE CHANGES, CLAIMS ETC.

33

DIRECT COSTS

COSTS DIRECTLY ATTRIBUTED TO A JOB OR A PIECE OF PROJECT EQUIPMENT


44

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.


55

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.


66

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, STEAM)


77

Cost Price ModleCost Price Modle

DIRECT INDIRECT PROFIT PRICE+ + =

• LABOUR• MATERIAL• COMPONENTS• TOOLING

• DESIGN• MARKETING• SALES• ACCOUNTING• PURCHASING• MANAGEMENT• WARRANTY• LIABILITY• ADMINISTRATION

• MATCH INVESTMENT

COST

88

Cost - Price ModleCost - Price 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

+

99

Cost Estimating ProcessCost Estimating Process1.0 1.0 Cost Estimation PurposesCost Estimation Purposes

BUDGET UPDATING/ REVISION

NEW BUDGET PROPOSALS

REVIEW BIDDERS RATES

EVALUATE ALTERNATIVES / OPTIONS

1010

Cost Estimating ProcessCost Estimating Process2.0 2.0 Capital Cost Major ComponentCapital Cost Major Component

DIR

EC

T C

OS

TIN

DIR

EC

T C

OS

T

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

1111

Cost Estimating ProcessCost Estimating Process3.0 3.0 In-House Cost EstimateIn-House 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

1212

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

1313

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

RE

AS

ING

PR

OJE

CT

DE

FIN

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)

1414

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%

1515

PREPARED DURING PROJECT STUDY AND SCREENING PHASE

BASED ON A GOOD OUTLINE PROJECT DEFINITION

MAJOR PROJECT ELEMENTS SIZE / CAPACITY /VOLUME /AREA

USEFUL FOR: SCREENING ALTERNATIVES /OPTIONS

PRELIMINARY FEASIBILITY STUDY MANAGEMENT DECISION

Estimating ClassificationEstimating Classification2.0 Study Estimate2.0 Study Estimate


1616

DEVELOPED DURING ENGINEERING PHASE 10-20% OF ENGINEERING

BASED ON - WELL DEFINED DESIGN CRITERIA.


Estimating ClassificationEstimating Classification3.0 Budget Estimate3.0 Budget Estimate

1717

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.

1818

Cost Estimating Methodology Cost Estimating Methodology

Example: Example: (Process Equipment)

1919

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

2020

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)

2121

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

2222

Estimating Methodologies Estimating Equipment (Scaling Factor)

E1

E2COST

SIZE

COST E2 = COST E1 X (size E2/ size E1)x

2323

Estimating MethodologiesEstimating Equipment Cost Calculation

LSHELL

HEAD

NOZZLES

MANHOLE

D

VESSEL WIGHT

Shell weight = 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)

2424

Material Selection Impact on Equipment

WEIGHT Kg

S.STEEL

C.STEEL

FOB-VALUE

FOB-COST VS WEIGHT CURVE - PRESS. VESSEL

W

V2

V1

2525

Factors Affecting Project Final CostFactors Affecting Project Final Cost

1.0 SCOPE OF WORK

CLARITY OF SCOPE DEFINITION CHANGES IN SCOPE

2.0 TECHNICAL FACTORS

DESIGN STANDARDS & PRACTICES SAFETY & ENVIRONMENT REQUIREMENTS SKILLS/COMPETENCIES

3.0 OTHERS

PROJECT TIME FRAME/SCHEDULE INTERFACES WITH OTHER OPCOS PROJECT ORGANIZATION CURRENCY EXCHANGE RATES MARKET CONDITIONS

2626

Case Study 1Case Study 1

+ 0.00 mtr+ 0.00 mtr

+ 5.0 mtr+ 5.0 mtr

T- 1001T- 1001

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

2727

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 m3

S100 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


2828


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

2929


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

3030


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 OF

2.0 Mtr.

3.0 FOR ENVIRONMENTAL REASONS PROVIDE FLEXIBLE SHEETING AROUND

SCAFFOLDING.

4.0 PROVIDE 3 LADDERS

5.0 APPROVAL SAFETY ADVISER

6.0 SCAFFOLDING SHOULD BE READY BEFORE START OF THE WORK ON MONDAY

1ST MAY (WK18).

3131


WORK SCHEDULE:

WK18 WK19 WK 20WK17 1/5

Scaffolding ReadyBlasting/painting

Start Dismantling Scaffolding

Renting Period Scaffolding

(16 Calendar Days )

W/EW/E

START

3232


d

D (=d+4)

Volume Scaffolding:

/4 (D2 - d2) x H/4(92 - 52) x 7 = 307 m3 (S400)

Work Floor:each:/4(D2 - d2)/4(92- 52)= 44m2

Total 3 x44m2 = 132m2 (WFR)

Flexible SheetingD x Hx 9 x 9 - 254 m2 (ZR)

Ladder:3 x 6 m1 = 18m1 (LA)

+9

+6

+4

+2

Work Floor

3333

Case Study 1Case Study 1Cost Estimate DetailsCost Estimate Details

# Activity Qty Unit Standard Norm Correction Total

1 Erection & dismantling scaffolding 307 m3 3.4 1,043.80

2 Erection & dismantling work Floor 132 m2 4.35 574.2

3 Erection & dismantling Sheeting 254 m2 4.8 1,219.20

4 Erection & dismantling Ladders 18 m1 2.5 45

5 Rent Scaffolding 4,912.00 m3d 0.03 147.36

6 Rent Work Floor 2,112.00 m2d 0.04 84.48

7 Rent Sheeting 4,064.00 m3d 0.05 203.2

8 Rent Ladders 288 m1d 0.04 11.52

Total 3,328.76

3434

POINTERS

UNDERSTAND PROJECT REQUIREMENTS BEFORE DEFINING SCOPE.

UNDERSTAND METHOD OF MEASUREMENT OF A ‘SCHEDULE OF RATE CONTRACT.

SELECT OPTIMUM IMPLEMENTATION PLAN.


3535

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?


3636

Direct CostEstimating Equipment Cost Calculation

E1

E2COST

SIZE

COST E2 = COST E1 X (size E2/ size E1)x

3737

THE SOLUTION:

1) = 80,000 50,000

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))

100

200(

(X)

(0.678))

200

300(


Documents

1 n nBASIC DEFINITIONS n nCOST PRICE MODULE (FOR CONSTRUCTION CONTRACTS) n nCOST ESTIMATING PROCESS & PROCEDURE n nCOST ESTIMATING CLASSIFICATION n nCOST