Factored Cost Estimates(With Inflation Indexing)

©2002 Dr. Bradley C Paul

Example of Factored Cost Estimating Shaft Sinking - USBM Cost Estimating System

– Shaft sinking cost a function of 3 curves Labor Supplies Equipment Operation

– All functions are dependent on shaft area Note that with one parameter (how big do you want it?)

you can do all costs without engineering detail

– Output is cost per meter of shaft sunk (need to know how deep you’ll go)

The Labor Curve

YL = 615.595 * (X)0.542

– X is the shaft area in square meters We were doing a 20 ft diameter shaft

– about 29.2 meters square Plug and Chug

– $3833/meter of depth

Modification Factors

Difficulty and cost of a shaft is a function of both size and rock hardness

Adjusting for rock hardness– FL = 0.388*(C)0.093

– C is average rock strength in psi– suppose this is a coal operation through sedimentary

rock with 17,000 psi Plug and Chug

– 0.96

Applying Modification Factor

$3,833.16/meter * 0.96 = $3,679.65 Shaft Depth

– better consider that we do leave a sump area below the last level accessed

(obviously need some industry specific knowledge)

– 750 feet of depth about 228.66 meters

– Estimated Shaft Cost for Labor $841,343

The Cost Indexing Bugaboo

Cost base for USBM CES is 1984– Need to inflation adjust

Use US Bureau of Labor Statistics– Can’t really use the PPI this time– PPI is an index of what industries sell their

goods for– This is a labor cost

BLS still has an index

Raiding the BLS Web Site

Go to www.bls.gov Under Industries

– Go to employment costs Takes to Compensation Cost Trends Area Home

Page– Go to get detailed statistics

Look at Create Customized Tables– Choose Employer Cost for Employee Compensation

(ECEC)

Continue the Raid Now on National Employment, Hours and

Earnings area– Select “Average Hourly Earnings of Production

Workers” do note that these earnings figures are not going to include fringe costs Note that these kinds of figures can be selected for a region of the

country too– Since we are updating a national average manual we need to use the

national statistics

– Select Mining code 100000 Note that could pick specific industries within mining

– we are working coal but shaft sinking is sort of its own area

Continuing the Excitement

Send the computer to Fetch your data comes back with data that doesn't go back

far enough– reset the year range and send it out again

This time it returns with answers

Here Come the Goodies

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual1984 11.57 11.53 11.64 11.66 11.61 11.63 11.63 11.63 11.72 11.58 11.63 11.71 11.631985 11.86 11.9 11.91 11.93 11.88 12.01 11.91 11.98 12.04 11.99 12.05 12.25 11.981986 12.22 12.3 12.33 12.42 12.43 12.5 12.5 12.53 12.54 12.53 12.61 12.67 12.461987 12.72 12.63 12.58 12.51 12.51 12.53 12.42 12.42 12.52 12.45 12.57 12.64 12.541988 12.84 12.79 12.66 12.68 12.63 12.66 12.78 12.74 12.88 12.88 12.97 13.1 12.81989 13.28 13.32 13.24 13.28 13.23 13.14 13.07 13.24 13.3 13.25 13.29 13.49 13.261990 13.49 13.49 13.61 13.7 13.6 13.69 13.73 13.65 13.84 13.71 13.8 13.85 13.681991 14.17 14.07 14.06 14.09 14.08 14.22 14.18 14.14 14.33 14.13 14.29 14.52 14.191992 14.61 14.54 14.56 14.54 14.48 14.53 14.5 14.48 14.6 14.48 14.61 14.58 14.541993 14.73 14.6 14.71 14.89 14.72 14.59 14.48 14.44 14.53 14.46 14.43 14.67 14.61994 15.06 14.92 14.84 14.96 14.83 14.73 14.72 14.68 14.91 14.89 14.95 15.08 14.881995 15.23 15.24 15.22 15.3 15.19 15.23 15.34 15.29 15.35 15.33 15.35 15.54 15.31996 15.63 15.61 15.5 15.55 15.45 15.59 15.55 15.52 15.74 15.56 15.69 15.97 15.621997 16.2 16.09 16.01 16.08 16 16.13 16.05 15.96 16.24 16.19 16.38 16.49 16.151998 16.6 16.85 16.85 16.8 16.68 16.69 16.77 16.9 17.13 17.1 17.31 17.33 16.911999 17.27 17.12 17.06 17.03 16.96 16.92 17.12 16.98 17.02 17.08 16.93 17.07 17.052000 17.23 17.12 17.16 17.3 17.21 17.14 17.19 17.11 17.13 17.25 17.28 17.49 17.222001 17.61 17.55 17.51 17.54 17.42 17.53 17.61 17.47 17.61 17.72 17.61 17.58 17.562002 17.89 17.76 17.73 17.7 17.74 17.65 17.76 17.71 17.8 17.79(p) 17.89(p)    

n : NAICS 2002 replaces SIC beginning June 2003. See http://www.bls.gov/ces/cesnaics.htm for details.p : preliminary

Using the Goodies

Our figures give average wage excluding fringe

– Our cost manual gave employer cost including fringe as $16.35/hr in 1984

Fringe costs are usually a function of wage– paid vacation– workmans comp– unemployment– retirement– (Health insurance probably only stick in the mud)

Response - Use it as an Index

Labor cost in 1984 dollars– $841,343

Indexing– $841,343*17.89/11.63– Plug and Chug

$1,294,000 (with just a little rounding) updated to Nov. 2002

Our Next Exciting Task

Supply Operating Cost– YS=182.051*(X)0.558

Plug and Chug– X = 29.2 square meters– $1196.43/meter

Adjust it for Rock Hardness– FS=0.579*(C)0.033

– C = 17,000 psi– Plug and Chug 0.9798

Finish Getting Our 1984 Cost

Apply rock hardness correction– $1196.43 * 0.9798 = $1172.22

Use the depth of the shaft– 228.66 * $1172.22 = $268,000

(note that rounding is being done down road)

Leaves us with need to update to current costs– Our contractor probably buys direct from

wholesaler (PPI type update)

A Specific Basket of Goods

Needs specific supplies– 21% cost due to explosives– 34% steel items– 38% misc items– 6% electricity– 1% timber

We will need a weighted average of several cost indices– PPI is broken down into specific sub-indexes

Indices to Use

Have to use codes to get– past has been SIC code number (from IRS)– June 2003 plans to switch to NAIC codes

probably a NAFTA issue

– Numbers won’t change much for mining Heaven help the service industries

Chemical is 06– Explosives are a specific type of chemical

067902

Iron and Steel 101 for the steel items

More Indices

Miscellaneous Items– Use PPI industrial commodities index

already a weighted average we don’t want to worry about

Electricity– 05 is energy– 0543 is industrial power

Timber– 08 is wood products– Mines use mostly softwood - 0811

Time to Run and Fetch

Go to BLS home page Select Industrial

– PPI Takes you to PPI home page

– Go to Get Detailed Statistics– Select Create Customized Tables Commodity

Data Let the Fishing Begin

Index Values

Explosives– 1984 = 103.6– 2002 = 149.7

Steel Items– 1984 = 105.3– 2002 = 117.9

Misc Items (Industrial Commod)– 1984 = 103.3– 2002 = 134.9

More Index Values

Industrial Electric Power– 1984 = 108.4– 2002 = 140.1

Timber– 1984 = 110– 2002 = 167

Break Our Shaft Supplies Cost Down for Indexing Explosives

– $268,000 * 21% = $56,288– Index

$56,288 * 149.7/103.6 = $81,335

Steel Items– $268,000 * 34% = $91,133– Index

$91,133 * 117.9/105.3 = $102,038

Break Down and Index

Misc Items– $268,000 * 38% = $101,855– Index

$101,855 * 134.9/103.3 = $133,013

Electricity– $268,000 * 6% = $16,082 * 140.1/108.4– Crank = $20,785

Timber 1% – $2,680 * 167/110 = $4,069

Recombine

Explosives $81,335 Steel Items $102,038 Misc Items $133,013 Electricity $20,785 Timber $4,069 Total $341,241

Last Cost Component

Equipment Operating Cost– YE= 681.476 * (X)0.407

– $2,690.73– Hardness Adjustment

FE=0.715*(C)0.033 gives 0.986 for 17000 psi rock

– 1984 cost for shaft of depth $606,691 Breakdown

– 88% Repair parts– 7% Fuel and Lubrication– 5% Tires

Selecting Indices

Repair Parts - Use Construction Machinery and Equipment

– $533,888*151.7/103.8 = $780,258 Fuel and Lubricants - Use Refined Petroleum Products

– $42,468 * 86.2/87.4 = $41,885 Tires - Use bus and off-highway industrial vehicle tires

– $30,335 * 90.6/83.4 = $32,953 Total Equipment Operating $855,097

Cost of Pre-Feasibility Shaft Estimate Labor $1,294,000 Supplies $341,241 Equipment $855,097 Total $2,491,000

Understanding Whats Included

Cost of Shaft Sinking Installation of Guides Installation of Manways Air, Water, Communications Lines Does not include Hoist Does not include Ore Pockets

Where to Get All This Stuff

After Lecture on Website See Resources on Pre-Feasibility Estimates page– Links to Bureau of Mines Cost Estimating

System– Links to Bureau of Labor Statistics Web Site– Links to Cost Indices collected from Web Site to

Nov. 2002– Links to Cost Indices from Western Mine Cost

Service