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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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Presentation on theme: "1 n nBASIC DEFINITIONS n nCOST PRICE MODULE (FOR CONSTRUCTION CONTRACTS) n nCOST ESTIMATING PROCESS & PROCEDURE n nCOST ESTIMATING CLASSIFICATION n nCOST."— Presentation transcript:

1 1 n nBASIC DEFINITIONS n nCOST PRICE MODULE (FOR CONSTRUCTION CONTRACTS) n nCOST ESTIMATING PROCESS & PROCEDURE n nCOST ESTIMATING CLASSIFICATION n nCOST ESTIMATING METHODOLOGIES n nFACTORS AFFECTING COST ESTIMATING ACCURACY n nCASE STUDIES Contents

2 2 Basic Definitions CAPITAL COST ESTIMATE (CAPEX) n nREPRESENTS THE TOTAL CAPITAL COST OF THE PROJECT, INCLUDING ENGINEERING, MATERIAL, CONSTRUCTION, AND MANAGEMENT COSTS. ALLOWANCES n nUSED 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 n nUSED 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.

3 3 DIRECT COSTS n nCOSTS DIRECTLY ATTRIBUTED TO A JOB OR A PIECE OF PROJECT EQUIPMENT Basic Definitions

4 4 INDIRECT COSTS n nTHESE ARE OFTEN REFERRED TO AS OVERHEAD COSTS AND CANNOT EASILY BE ALLOCATED TO ONE JOB OR PROJECTS. n nTHE 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. Basic Definitions

5 5 FIXED COSTS n nCOSTS 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. Basic Definitions

6 6 VARIABLE COST n nTHESE 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) Basic Definitions

7 7 Cost Price Modle DIRECT INDIRECTPROFIT PRICE ++ = LABOUR MATERIAL COMPONENTS TOOLING DESIGN MARKETING SALES ACCOUNTING PURCHASING MANAGEMENT WARRANTY LIABILITY ADMINISTRATION MATCH INVESTMENT COST

8 8 Cost - 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 X PROFIT FACTOR PRICE +

9 9 Cost Estimating Process 1.0 Cost Estimation Purposes n nBUDGET UPDATING/ REVISION n nNEW BUDGET PROPOSALS n nREVIEW BIDDERS RATES n nEVALUATE ALTERNATIVES / OPTIONS

10 10 Cost Estimating Process 2.0 Capital Cost Major Component DIRECT COST INDIRECT COST 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

11 11 Cost Estimating Process 3.0 In-House Cost Estimate Review / Discuss Scope of Work Basis / Strategy Exclusions Estimate Methodology Required Accuracy Develop Cost Estimate Issue Estimate 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 Output Customer Input / Request

12 12 2 2PREPARE ESTIMATING REQUIREMENTS 2 2PLANNING THE ESTIMATE 2 2STRUCTURE THE ESTIMATE 2 2DEVELOPING THE ESTIMATE 2 2DEVELOPING CONTINGENCY 2 2DOCUMENTING 2 2REVIEW / ISSUE ESTIMATE Cost Estimating Process 4.0 Estimating Procedure

13 13 Cost Estimate Classification International Classification Practices Class 5 Class 4 Class 3 Class 2 Class 1 Order of Magnitude Estimate -30/+50 Order of Magnitude Estimate Order of Magnitude Estimate Class IV-30/+30 Exploration Estimate Feasibility Estimate Authorization Estimate Master Control Estimate Current Control Estimate Definitive Estimate Class I-5/+5 Budget Estimate Class II-10/+10 Study Estimate Class III -20/+20 Level 6 Level 5 Level 4 Level 3 Level 2 Level 1 Detailed Estimate Definitive Estimate Preliminary Estimate Study Estimate Budget Estimate -15/+30 Definitive Estimate -5/+15 INCREASING PROJECT DEFINITION ADCO EMPD 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 ANSI Standard Z94.0 AACE Pre-1972 Concession Estimate Association of Cost Engineers (UK) ACostE Norwegian Project Management Association (NFP) American Society of Professional Estimators (ASPE)

14 14 2 2PREPARED BEFORE PROJECT STARTS 2 2HAZY INFORMATION 2 2DETAILS OF PROJECT YET TO BE DEVELOPED 2 2USEFUL FOR QUICK SCREENING AND PLANNING DECISIONS Estimating Classification 1.0 Order of Magnitude O OINTENDED ACCURACY + 35%

15 15 2 2PREPARED DURING PROJECT STUDY AND SCREENING PHASE 2 2BASED ON A GOOD OUTLINE PROJECT DEFINITION ë ëMAJOR PROJECT ELEMENTS ë ëSIZE / CAPACITY /VOLUME /AREA 2 2USEFUL FOR: SCREENING ALTERNATIVES /OPTIONS ë ëPRELIMINARY FEASIBILITY STUDY ë ëMANAGEMENT DECISION Estimating Classification 2.0 Study Estimate O OINTENDED ACCURACY + 20%

16 16 2 2DEVELOPED DURING ENGINEERING PHASE 10-20% OF ENGINEERING 2 2BASED ON - WELL DEFINED DESIGN CRITERIA. O OINTENDED ACCURACY + 15% Estimating Classification 3.0 Budget Estimate

17 17 O OINTENDED ACCURACY % Estimating Classification 4.0 Definitive Estimate 2 2MOST DESIGN WORK COMPLETED. 2 2ALL MAJOR CONTRACTS / PURCHASE ORDER HAVE BEEN PLACED. 2 2USED TO UPDATE BUDGET FOR THE THE PURPOSE OF COST CONTROL.

18 18 Cost Estimating Methodology Example: Example: (Process Equipment)

19 19 Cost Estimating Methodology What is Process Equipment PROCESS EQUIPMENT Package Units chemical Dosing Water Treatment HVAC Equipment Engineered Equipment Columns Vessels Reactors Tanks Standard Equipment Pumps Compressors Fans

20 20 Estimating Equipment Cost Methodologies (Direct Cost) 2 2BUDGET PRICE 2 2PRICE TABLES 2 2PURCHASE ORDERS (FROM PREVIOUS JOBS) 2 2PRICE CURVES 2 2CALCULATION BASED 2 2EXPONENTIAL METHODS (COSTS SCALING)

21 21 Estimating Methodologies 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

22 22 Estimating Methodologies Estimating Equipment (Scaling Factor) E1E1 E2E2 COST SIZE COST E2 = COST E1 X (size E2/ size E1) x

23 23 Estimating Methodologies Estimating Equipment Cost Calculation L SHELL HEAD NOZZLES MANHOLE D VESSEL WIGHT Shell weight = x D x L x t x s.g. = W 1 Kg Heads weight = 2 x 1.3 x D x t x s.g.= W 2 Kg Others: Internals = W 3 Kg Supports = W 4 Kg Nozzles = W 5 Kg Manhole = W 6 Kg Total Weight W Kg Estimated Cost = W (Kg) X Unit Cost (Cost/Kg)

24 24 Material Selection Impact on Equipment WEIGHT Kg S.STEEL C.STEEL FOB-VALUE FOB-COST VS WEIGHT CURVE - PRESS. VESSEL W V2 V1

25 25 Factors Affecting Project Final Cost n n1.0 SCOPE OF WORK n nCLARITY OF SCOPE DEFINITION n nCHANGES IN SCOPE n n2.0 TECHNICAL FACTORS n nDESIGN STANDARDS & PRACTICES n nSAFETY & ENVIRONMENT REQUIREMENTS n nSKILLS/COMPETENCIES n n3.0 OTHERS n nPROJECT TIME FRAME/SCHEDULE n nINTERFACES WITH OTHER OPCOS n nPROJECT ORGANIZATION n nCURRENCY EXCHANGE RATES n nMARKET CONDITIONS

26 26 Case Study mtr mtr T n nTANK T-1001 NEEDS TO BE RE-PAINTED (EXTERNAL). n nMAINTENANCE 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. n nTHE MAINTENANCE DEPARTMENT REQUESTED YOU TO PROVIDE AN ESTIMATE OF THE COST FOR THE SCAFFOLDING mtr

27 27 n nTHERE IS A CURRENT SCHEDULE OF RATES CONTRACT WITH A SPECIALIZE COMPANY FOR PROVIDING OF SCAFFOLDING Case Study 1

28 28

29 29 n nSTEPS TO BE TAKEN 1.0MAKE A (SIMPLE) WORK PLAN 2.0DEVELOP SCOPE OF WORK 3.0CALCULATE QUANTITY OF EACH ACTIVITY 4.0APPLY APPLICABLE UNIT RATES 5.0CALCULATE TOTAL COST

30 30 Case Study 1 WORKPLAN: SCAFFOLDING FOR BLASTING/PAINTING T-1001.Dia 5 Mtr H =7 Mtr 1.0ERECT STANDARD SCAFFOLDING (NO HEAVY EQT. ETC. INVOLVED) AROUND TANK. 2.0PROVIDE WORKING FLOORS. FOR EASY WORKING AT VERTICAL CENTERS OF 2.0 Mtr. 3.0FOR ENVIRONMENTAL REASONS PROVIDE FLEXIBLE SHEETING AROUND SCAFFOLDING. 4.0PROVIDE 3 LADDERS 5.0APPROVAL SAFETY ADVISER 6.0SCAFFOLDING SHOULD BE READY BEFORE START OF THE WORK ON MONDAY 1ST MAY (WK18).

31 31 Case Study 1 WORK SCHEDULE: WK18WK19WK 20WK17 1/5 Scaffolding Ready Blasting/painting Start Dismantling Scaffolding Renting Period Scaffolding (16 Calendar Days ) W/E START

32 32 Case Study 1 d D (=d+4) Volume Scaffolding: /4 (D 2 - d 2 ) x H /4( ) x 7 = 307 m 3 (S400) Work Floor: each: /4(D 2 - d 2 ) /4( )= 44m 2 Total 3 x44m2 = 132m2 (WFR) Flexible Sheeting D x H x 9 x m2 (ZR) Ladder: 3 x 6 m1 = 18m1 (LA) Work Floor

33 33 Case Study 1 Cost Estimate Details

34 34 POINTERS 2 2UNDERSTAND PROJECT REQUIREMENTS BEFORE DEFINING SCOPE. 2 2UNDERSTAND METHOD OF MEASUREMENT OF A SCHEDULE OF RATE CONTRACT. 2 2SELECT OPTIMUM IMPLEMENTATION PLAN. Case Study 1

35 35 THE FOLLOWING COST INFORMATION IS AVAILABLE OF A SPECIFIC EQUIPMENT ITEM: SIZEF.O.B COST 100 M3/hrUS$ 50, M3/hrUS$ 80,000 QUESTION: WHAT IS THE ESTIMATED COST FOR THE EQUIPMENT ITEM WITH A CAPACITY OF 300 M3/HR? Case Study 2

36 36 Direct Cost Estimating Equipment Cost Calculation E1E1 E2E2 COST SIZE COST E2 = COST E1 X (size E2/ size E1) x

37 37 THE SOLUTION: 1) = 80,000 50,000 2) 2 = ) LOG2 x (X) = LOG ) x (X) = ) (X) =0.678 Estimated Cost: X US$80,000 = US$105,000 (X) (0.678) Case Study 2


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