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1.040/1.401 Project Management Spring 2007 Lecture 6 Estimating Dr. SangHyun Lee Department of Civil and Environmental Engineering Massachusetts.

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Presentation on theme: "1.040/1.401 Project Management Spring 2007 Lecture 6 Estimating Dr. SangHyun Lee Department of Civil and Environmental Engineering Massachusetts."— Presentation transcript:

1 1.040/1.401 Project Management Spring 2007 Lecture 6 Estimating Dr. SangHyun Lee Department of Civil and Environmental Engineering Massachusetts Institute of Technology

2 Project Management Phase FEASIBILITY CLOSEOUT DEVELOPMENT OPERATIONS Fin.&Eval. Risk Estimating Planning DESIGNPLANNING Organization

3 Estimation Levels - Introduction Source: Barrie & Paulson, 1992 Different types of estimates are required as a project evolves Different types of estimates are required as a project evolves Conceptual & Preliminary Estimates Conceptual & Preliminary Estimates Prepared early in the project prior to engineering design completion (e.g., to tell Owner whether the contemplated project scope is feasible) Prepared early in the project prior to engineering design completion (e.g., to tell Owner whether the contemplated project scope is feasible) Incorporate new information from design to obtain an updated estimate of the project Incorporate new information from design to obtain an updated estimate of the project Detailed Estimates Detailed Estimates Prepared from completed plans and specifications Prepared from completed plans and specifications Definitive Estimates Definitive Estimates Forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards Forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards

4 Construction Pre-bid Detailed design Conceptual design Feasibility Detailed Estimates Detailed Estimates Definitive Definitive Estimates Estimates Conceptual & Preliminary Estimates Design & Estimating Process

5 Outline Conceptual & Preliminary Estimates Conceptual & Preliminary Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

6 Conceptual and Preliminary Estimates Decide Feasibility Decide Feasibility Great Variability According to Type Great Variability According to Type Categories: Categories: Time-referenced Cost Indices Time-referenced Cost Indices Cost-capacity Factors Cost-capacity Factors Parameter Costs Parameter Costs Accuracy Complexity

7 Outline Conceptual & Preliminary Estimates Conceptual & Preliminary Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

8 Cost Indices Source: Show changes of costs over time by upgrading the cost of similar facilities from the past to the present Show changes of costs over time by upgrading the cost of similar facilities from the past to the present Cost indices show the changes of a certain facilitys costs over time Year 1913 = 100, …Year 2007 = 4432 If Facility A is similar to my wish facility and I know the value of Facility A at 1913, I can assume my wish facilitys value at 2007.

9 Cost Indices Source: Show changes of costs over time by upgrading the cost of similar facilities from the past to the present Show changes of costs over time by upgrading the cost of similar facilities from the past to the present Used to determine the general construction costs of structures Used to determine the general construction costs of structures Published periodically by Engineering News Record (ENR) and other publications Published periodically by Engineering News Record (ENR) and other publications ENRs Building Cost Index (BCI): Changes of facilitys costs over time ENRs Building Cost Index (BCI): Changes of facilitys costs over time Facilitys components are: Facilitys components are: 1,088 Board Feet of Lumber (2x4, 20-city Average) 1,088 Board Feet of Lumber (2x4, 20-city Average) 1 Board Feet = 1 x 1 x 1 = 144 in 3 1 Board Feet = 1 x 1 x 1 = 144 in 3 (e.g., 2× ft long contains [(2×4)×10] × 12] = 960 in board feet) 2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price before 1996, Fabricated after 1996) 2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price before 1996, Fabricated after 1996) Tons of Portland Cement (Bulk, 20-city Average) Tons of Portland Cement (Bulk, 20-city Average) Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, and Structural Ironworkers) Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, and Structural Ironworkers)

10 Building Cost Index Data (1990–Date) Source:

11 Building Cost Index Data (Prior to 1990) Source:

12 Cost Indices Time Conversion Example: Example: Warehouse Estimate: Assume you have an estimate to a similar warehouse located nearby and completed in 1993 for a cost of $4,200,000. We are planning to build a new warehouse in Feb. of The Building Cost Index from ENR for 1993, relative to the base date of 1913, was 2996% and Building Cost Index from ENR for Feb is 4432%. What is the estimated project cost if you establish the estimate using Building Cost Index from ENR? Warehouse Estimate: Assume you have an estimate to a similar warehouse located nearby and completed in 1993 for a cost of $4,200,000. We are planning to build a new warehouse in Feb. of The Building Cost Index from ENR for 1993, relative to the base date of 1913, was 2996% and Building Cost Index from ENR for Feb is 4432%. What is the estimated project cost if you establish the estimate using Building Cost Index from ENR? Adapted from: Barrie & Paulson, 1992

13 Cost Indices Time Conversion What Information Do We Need? What Information Do We Need? Current Building Cost Index (Feb. 2007) = 4432 Current Building Cost Index (Feb. 2007) = 4432 Building Cost Index for Year 1993 = 2996 Building Cost Index for Year 1993 = 2996 Similar Facilitys Cost at Year 1993 = $4,200,000 Similar Facilitys Cost at Year 1993 = $4,200,000 We Convert From One Base Period to Another We Convert From One Base Period to Another 2996 : $4,200,000 = 4432 : $X 2996 : $4,200,000 = 4432 : $X $X = (4432/2996) * $4,200,000 = $6,213,084 $X = (4432/2996) * $4,200,000 = $6,213,084 Adapted from: Barrie & Paulson, 1992

14 Cost Indices Component Calculations ENRs Construction Cost Index: ENRs Construction Cost Index: Used when labor costs are a high proportion of total cost Used when labor costs are a high proportion of total cost Components: Components: 1,088 Board Feet of Lumber (2x4, 20-city Average) 1,088 Board Feet of Lumber (2x4, 20-city Average) 1 Board Feet = 1 x 1 x 1 = 144 in 3 1 Board Feet = 1 x 1 x 1 = 144 in 3 2,500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price Before 1996, Fabricated after 1996) 2,500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price Before 1996, Fabricated after 1996) Tons of Portland Cement (Bulk, 20-city Average) Tons of Portland Cement (Bulk, 20-city Average) 200 Hours of Common Labor (20-city Average) 200 Hours of Common Labor (20-city Average) Source: costIndexes/constIndexHist.asp

15 Cost Indices Use and Accuracy Accuracies Within 20% to 30% of Actual Costs Accuracies Within 20% to 30% of Actual Costs Negligible Time and Effort Negligible Time and Effort Valuable for Preliminary Planning Valuable for Preliminary Planning

16 Cost Indices - Limitations Adapted from: Barrie & Paulson, 1992 Problems could arise if the proportions of the input components (e.g., lumber) in a building type cost index do not reflect the resources used on the project in question E.g., about 40 % of the costs in a petrochemical project is in piping (pipe and pipe fitters) E.g., about 40 % of the costs in a petrochemical project is in piping (pipe and pipe fitters) Problems could arise if the project on which the Index is based has very little in common with the project under consideration Some types of indices do not consider factors such as: productivity, changes in technology, and competitiveness of contractors

17 Outline Conceptual & Preliminary Estimates Conceptual & Preliminary Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

18 Cost-Capacity Factor Apply to changes in size, scope, or capacity of projects of similar types Reflect the nonlinear increase in cost with size (economies of scale, learning curves) C 2 = C 1 (Q 2 /Q 1 ) x Where Where C 2 = estimated cost of the new facility w/capacity Q 2 C 2 = estimated cost of the new facility w/capacity Q 2 C 1 = known cost of facility of capacity Q 1 C 1 = known cost of facility of capacity Q 1 x = the cost-capacity factor for this type of work x = the cost-capacity factor for this type of work

19 Cost-Capacity Factor Source: Barrie & Paulson, 1992 Q is a parameter that reasonably reflects the size of the facility (e.g., barrels per day produced by a refinery, tons of steel per day produced by a steel mill, gross floor area for a warehouse) Q is a parameter that reasonably reflects the size of the facility (e.g., barrels per day produced by a refinery, tons of steel per day produced by a steel mill, gross floor area for a warehouse) X is an empirically derived factor based on well-documented historical records for a variety of different types of projects X is an empirically derived factor based on well-documented historical records for a variety of different types of projects

20 Cost-Capacity Factor Example Example Revisit: Example Revisit: Warehouse Estimate: Assume you have an estimate to a similar warehouse located nearby and completed in 1993 for a cost of $4,200,000. We are planning to build a new warehouse in Feb. of The ENR index for 1993, relative to the base date of 1913, was 2996% and the ENR index for 2007 is 4432%. Warehouse Estimate: Assume you have an estimate to a similar warehouse located nearby and completed in 1993 for a cost of $4,200,000. We are planning to build a new warehouse in Feb. of The ENR index for 1993, relative to the base date of 1913, was 2996% and the ENR index for 2007 is 4432%. Consider the cost-capacity factor x = 0.8 for a warehouse. Consider the cost-capacity factor x = 0.8 for a warehouse. The above warehouse has a usable area of 120,000 square feet The above warehouse has a usable area of 120,000 square feet The prospective owner for the new warehouse wants a structure with a usable area of 150,000 square feet The prospective owner for the new warehouse wants a structure with a usable area of 150,000 square feet

21 Cost-Capacity Factor Example What Information Do We Need? What Information Do We Need? Q/Q= 150,000/120,000 = 1.25 Q 2 /Q 1 = 150,000/120,000 = 1.25 Cost-capacity factor x = 0.8 Cost-capacity factor x = 0.8 Known cost = $4,200,000 Known cost = $4,200,000 C2 = $4,200,000 * (1.25) 0.8 = $5,020,851 C2 = $4,200,000 * (1.25) 0.8 = $5,020,851 A 25% more capacity implies only 20% more costs A 25% more capacity implies only 20% more costs

22 Combining Cost Indices & Cost- Capacity Factor Combine Cost Indices & Cost Capacity Factors to take into account changes in both time & capacity Combine Cost Indices & Cost Capacity Factors to take into account changes in both time & capacity C 2 = C 1 (I b / I a ) (Q 2 / Q 1 ) x Where Where I b = Index number Now or present time. I b = Index number Now or present time. I a = Index number at that time I a = Index number at that time Source: Barrie & Paulson, 1992

23 Cost Indices & Cost-Capacity Factor Example Example Revisit: Example Revisit: Warehouse Estimate: Assume you have an estimate to a similar warehouse located nearby and completed in 1993 for a cost of $4,200,000. We are planning to build a new warehouse in Feb. of The ENR index for 1993, relative to the base date of 1913, was 2996% and the ENR index for 2007 is 4432%. Warehouse Estimate: Assume you have an estimate to a similar warehouse located nearby and completed in 1993 for a cost of $4,200,000. We are planning to build a new warehouse in Feb. of The ENR index for 1993, relative to the base date of 1913, was 2996% and the ENR index for 2007 is 4432%. Consider the cost-capacity factor x = 0.8 for a warehouse. Consider the cost-capacity factor x = 0.8 for a warehouse. The above warehouse has a usable area of 120,000 square feet The above warehouse has a usable area of 120,000 square feet The prospective owner for the new warehouse wants a structure with a usable area of 150,000 square feet The prospective owner for the new warehouse wants a structure with a usable area of 150,000 square feet

24 C 2 = 4,200,000 * (4432/2996) * (150,000/120,000) 0.8 = $7,188,731 C 2 = 4,200,000 * (4432/2996) * (150,000/120,000) 0.8 = $7,188,731 Cost Indices & Cost-Capacity Factor Example

25 Outline Conceptual Estimates Conceptual Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

26 Parameter Costs Source Data Commonly used in building construction Commonly used in building construction ENR Quarterly Cost Roundup ENR Quarterly Cost Roundup R.S. Means Means Square Foot Costs R.S. Means Means Square Foot Costs Source: RS Means, Square Foot Costs Data, 2006

27 Parameter Costs Characteristics Source: Barrie & Paulson, 1992 Relates all costs of a project to just a few physical measures, or Parameters, that reflect the size or scope of the project Relates all costs of a project to just a few physical measures, or Parameters, that reflect the size or scope of the project E.g., warehouse - the Parameter would be Gross Enclosed Floor Area E.g., warehouse - the Parameter would be Gross Enclosed Floor Area all costs represented by X ($/S.F) total cost = X ($/S.F.) × the projects gross enclosed floor area (S.F.) all costs represented by X ($/S.F) total cost = X ($/S.F.) × the projects gross enclosed floor area (S.F.) With good historical records on comparable structures, parameter costing can give reasonable levels of accuracy for preliminary estimates With good historical records on comparable structures, parameter costing can give reasonable levels of accuracy for preliminary estimates

28 Means Square Foot Cost Costs per Square Foot Costs per Square Foot Type of Facility (total 23,000 S.F apartment with 3 stories) Type of Facility (total 23,000 S.F apartment with 3 stories) Source: RS Means, Square Foot Costs Data, 2006 Story Height = 10 and No Basement

29 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, ,000 S.F

30 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, ,000 S.F

31 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006 Exterior wall variation

32 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006 Exterior wall variation Base Cost = $/S.F

33 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006 Perimeter & Height Adjustment

34 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006 Perimeter & Height Adjustment

35 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006 Basement

36 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006 Additives

37 Costs per S.F. of Floor Area Costs per S.F. of Floor Area Means Square Foot Cost Source: RS Means, Square Foot Costs Data, 2006

38 Means Square Foot Cost n Information: Detail Specs for the Cost Source: RS Means, Square Foot Costs Data, 2006

39 Means Square Foot Cost n Information: Sub-total, Fees, and Total Source: RS Means, Square Foot Costs Data, 2006

40 Parameter Cost Example Source: RS Means, Square Foot Costs Data, 2006 What is the Cost for an apartment building (7 Story) if the perimeter of the building is 502 L.F. and the story height is 11-4? Assume that the apartment building has decorative concrete block on the east, west & south walls. The north walls external finish is brick with concrete block backup. The area of each floor of the apartment building 11,460 S.F. The basement floor area s 4,200 S.F. Please use the Means Square Foot Cost to obtain an estimate. The building frame is steel. The apartment building is located in Atlantic City, New Jersey, Zip Code What is the Cost for an apartment building (7 Story) if the perimeter of the building is 502 L.F. and the story height is 11-4? Assume that the apartment building has decorative concrete block on the east, west & south walls. The north walls external finish is brick with concrete block backup. The area of each floor of the apartment building 11,460 S.F. The basement floor area s 4,200 S.F. Please use the Means Square Foot Cost to obtain an estimate. The building frame is steel. The apartment building is located in Atlantic City, New Jersey, Zip Code

41 Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example 60 × 191

42 Characteristics of the Apartment Building Characteristics of the Apartment Building 60 x 191 = 11,460 S.F./Floor 60 x 191 = 11,460 S.F./Floor 2 * [ ] = 502 L.F. Perimeter 2 * [ ] = 502 L.F. Perimeter 7 Floors 7 Floors Exterior Walls: Exterior Walls: North wall: Face brick w/ concrete block backup North wall: Face brick w/ concrete block backup East, West & South walls: Decorative Concrete Block East, West & South walls: Decorative Concrete Block Story Height: 11-4 Story Height: 11-4 Basement Area: 4,200 S.F Basement Area: 4,200 S.F Steel Frame Steel Frame Located in Atlantic City, New Jersey, Zip Code Located in Atlantic City, New Jersey, Zip Code Coefficients are determined from Model Number M.020 for Apartment, 4-7 Story type (Refer to RS Means (2006) - Square Foot Costs, page 80) Coefficients are determined from Model Number M.020 for Apartment, 4-7 Story type (Refer to RS Means (2006) - Square Foot Costs, page 80) Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

43 Source: RS Means, Square Foot Costs Data, 2006 RS Means (2006) – Square Foot Costs, Page 80 Choose type Parameter Cost Example

44 Source: RS Means, Square Foot Costs Data, 2006 RS Means (2006) – Square Foot Costs, Page 80 S.F. Area = 11,460 * 7 = L.F. Perimeter = 502 Parameter Cost Example

45 Source: RS Means, Square Foot Costs Data, 2006 What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? Exterior Wall Variation Exterior Wall Variation Perimeter Adjustment Perimeter Adjustment Story Height Adjustment Story Height Adjustment Basement Addition Basement Addition Location Modifier Location Modifier Parameter Cost Example

46 Source: RS Means, Square Foot Costs Data, 2006 Basic SF Costs for 80,000 S.F apartment building with Face Brick w/ Concrete Block Backup Basic SF Costs for 80,000 S.F apartment building with Decorative Concrete Block Parameter Cost Example

47 Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story Height = 10 & No Basement Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story Height = 10 & No Basement $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North) $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North) $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south) $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south) Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example N

48 Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story Height = 10 & No Basement Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story Height = 10 & No Basement $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North) $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North) $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south) $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south) North wall makes up: North wall makes up: [191/502] x 100 = % of total building perimeter [191/502] x 100 = % of total building perimeter East, West & South walls make up: East, West & South walls make up: [(191+2x60)/502] x 100 = % of total building perimeter [(191+2x60)/502] x 100 = % of total building perimeter Exterior Wall Variation Exterior Wall Variation [$ * 38.04%] + [$ * 61.96%] = $124.6/S.F. [$ * 38.04%] + [$ * 61.96%] = $124.6/S.F. Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

49 Source: RS Means, Square Foot Costs Data, 2006 What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? Exterior Wall Variation Exterior Wall Variation Perimeter Adjustment Perimeter Adjustment Story Height Adjustment Story Height Adjustment Basement Addition Basement Addition Location Modifier Location Modifier Parameter Cost Example

50 Source: RS Means, Square Foot Costs Data, 2006 Perimeter & Height Adjustment Factors RS Means (2006) – Square Foot Costs, Page 80 Parameter Cost Example

51 Exterior Wall Variation : Exterior Wall Variation : [$ * 38.04%] + [$ * 61.96%] = $124.6/S.F. [$ * 38.04%] + [$ * 61.96%] = $124.6/S.F. Perimeter Adjustment: Perimeter Adjustment: Apartment building perimeter is 28 L.F ( ) less than the M.020 model building in RS Means Apartment building perimeter is 28 L.F ( ) less than the M.020 model building in RS Means Perimeter adjustment factor: $2.65 per 100 L.F Perimeter adjustment factor: $2.65 per 100 L.F $124.6 – ( $2.65/100 L.F * 28 L.F ) = $123.9/S.F $124.6 – ( $2.65/100 L.F * 28 L.F ) = $123.9/S.F Height Adjustment: Height Adjustment: Apartment building story height is 1 4 ( ) more than the M.020 model building in RS Means Apartment building story height is 1 4 ( ) more than the M.020 model building in RS Means Height adjustment factor: $1.20 per ft Height adjustment factor: $1.20 per ft $ $1.20 * 1.3 = $125.5/S.F. $ $1.20 * 1.3 = $125.5/S.F. Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610 Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610 Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

52 Source: RS Means, Square Foot Costs Data, 2006 What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? Exterior Wall Variation Exterior Wall Variation Perimeter Adjustment Perimeter Adjustment Story Height Adjustment Story Height Adjustment Basement Addition Basement Addition Location Modifier Location Modifier Parameter Cost Example

53 Source: RS Means, Square Foot Costs Data, 2006 Basement Addition Factor RS Means (2006) – Square Foot Costs, Page 80 Parameter Cost Example

54 Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610 Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610 Basement Addition: Basement Addition: Apartment building has 4,200 S.F basement Apartment building has 4,200 S.F basement Basement Addition Factor: $27.30 per S.F of basement area Basement Addition Factor: $27.30 per S.F of basement area Basement added cost : $10,067,610 + $27.30 * 4,200 S.F = $10,182,270 Basement added cost : $10,067,610 + $27.30 * 4,200 S.F = $10,182,270 Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

55 Source: RS Means, Square Foot Costs Data, 2006 What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? Exterior Wall Variation Exterior Wall Variation Perimeter Adjustment Perimeter Adjustment Story Height Adjustment Story Height Adjustment Basement Addition Basement Addition Location Modifier Location Modifier Parameter Cost Example

56 Source: RS Means, Square Foot Costs Data, 2006 Location Modifier RS Means (2006) – Square Foot Costs, Page 455 Parameter Cost Example

57 Basement Addition: Basement Addition: $10,182,270 $10,182,270 Location Modifier for Residential Bldg: 1.13 (Refer to RS Means (2006) - Square Foot Costs, page 455) Location Modifier for Residential Bldg: 1.13 (Refer to RS Means (2006) - Square Foot Costs, page 455) Apartment building modified total cost: $10,182,270 * 1.13 = $ 11,505,965 Apartment building modified total cost: $10,182,270 * 1.13 = $ 11,505,965 Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

58 Source: RS Means, Square Foot Costs Data, 2006 What is the Cost for an apartment building (7 Story) if the perimeter of the building is 502 L.F. and the story height is 11-4? Assume that the apartment building has decorative concrete block on the east, west & south walls. The north walls external finish is brick with concrete block backup. The area of each floor of the apartment building 11,460 S.F. The basement floor area s 4,200 S.F. Please use the Means Square Foot Cost to obtain an estimate. The building frame is steel with an observed age of 20 years. The apartment building is located in Atlantic City, New Jersey, Zip Code What is the Cost for an apartment building (7 Story) if the perimeter of the building is 502 L.F. and the story height is 11-4? Assume that the apartment building has decorative concrete block on the east, west & south walls. The north walls external finish is brick with concrete block backup. The area of each floor of the apartment building 11,460 S.F. The basement floor area s 4,200 S.F. Please use the Means Square Foot Cost to obtain an estimate. The building frame is steel with an observed age of 20 years. The apartment building is located in Atlantic City, New Jersey, Zip Code

59 Source: RS Means, Square Foot Costs Data, 2006 What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? What should be adjusted when the cost is to be established by using the Means Square Foot Cost Method? Exterior Wall Variation Exterior Wall Variation Perimeter Adjustment Perimeter Adjustment Story Height Adjustment Story Height Adjustment Basement Addition Basement Addition Location Modifier Location Modifier Depreciation Adjustment Depreciation Adjustment Parameter Cost Example

60 RS Means (2006) – Square Foot Costs, Page 228 Depreciation Adjustment Factor Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

61 Location Modifier for Residential Building Location Modifier for Residential Building $ 11,505,965 $ 11,505,965 Depreciation Adjustment for steel frame building with 20 year observed age: 20 % (Refer to RS Means (2006) - Square Foot Costs, page 228) Depreciation Adjustment for steel frame building with 20 year observed age: 20 % (Refer to RS Means (2006) - Square Foot Costs, page 228) Depreciation Amount: 0.2 * $ 11,505,965 = $ 2,301,193 Depreciation Amount: 0.2 * $ 11,505,965 = $ 2,301,193 Total Existing Building Cost: $ 11,505,965 - $ 2,301,193 = $9,204,772 Total Existing Building Cost: $ 11,505,965 - $ 2,301,193 = $9,204,772 Source: RS Means, Square Foot Costs Data, 2006 Parameter Cost Example

62 Outline Conceptual Estimates Conceptual Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

63 Estimation Levels - Revisit Source: Barrie & Paulson, 1992 Different types of estimates are required as a project evolves Different types of estimates are required as a project evolves Conceptual & Preliminary Estimates Conceptual & Preliminary Estimates Prepared early in the project prior to engineering design completion (to tell Owner whether the contemplated project scope is feasible) Prepared early in the project prior to engineering design completion (to tell Owner whether the contemplated project scope is feasible) Incorporate new information from design to obtain an updated estimate of the project Incorporate new information from design to obtain an updated estimate of the project Detailed Estimates Detailed Estimates Prepared from completed plans and specifications Prepared from completed plans and specifications Definitive Estimates Definitive Estimates Forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards Forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards

64 Construction Pre-bid Detailed design Conceptual design Feasibility Detailed Estimates Detailed Estimates Definitive Definitive Estimates Estimates Conceptual & Preliminary Estimates Design & Estimating Process

65 Important General Lesson Precision in detailed estimates does not mean accuracy! Precision in detailed estimates does not mean accuracy! More an art than a science More an art than a science Detailed quantitative estimates possible – but ignore important qualitative factors Detailed quantitative estimates possible – but ignore important qualitative factors Have differing ranges of uncertainties Have differing ranges of uncertainties Actual costs depend on systemic complexity Actual costs depend on systemic complexity Two types of complexity at issue Two types of complexity at issue Detail complexity (myriad components required) Detail complexity (myriad components required) System complexity (dynamic interactions, etc.) System complexity (dynamic interactions, etc.) Always consider: Always consider: What are assumptions behind the estimate? What are assumptions behind the estimate? What factors are being ignored? What factors are being ignored? How might these factors change the estimate? How might these factors change the estimate?

66 Detailed Estimates After most or all of the detail design work is complete, approximate estimates are refined using detailed estimates After most or all of the detail design work is complete, approximate estimates are refined using detailed estimates Engineers Detailed Estimates Engineers Detailed Estimates Bid Detailed Estimates Bid Detailed Estimates

67 Construction Pre-bid Detailed design Conceptual design Feasibility Detailed Estimates Detailed Estimates Definitive Definitive Estimates Estimates Conceptual & Preliminary Estimates Design & Estimating Process Engineers

68 Engineers Detailed Estimates Part of actual bid documents Part of actual bid documents Who? - owner, consultant, CM, or design-build team Who? - owner, consultant, CM, or design-build team Use unit prices databases Use unit prices databases Estimate = Σ [Quantity] × [Unit Prices] Estimate = Σ [Quantity] × [Unit Prices] RS Means or other sources RS Means or other sources Unit prices as result of average industry standards Unit prices as result of average industry standards

69 Engineers Detailed Estimates Source: RS Means, Building Construction Cost Data, 2006 RS Means (2006) – Building Construction Cost Data, Page 84 Unit price (RS Means) = Mat. + Lab. + Equip. + Overhead + Profit

70 Engineers Detailed Estimates Part of actual bid documents Part of actual bid documents Who? – owner, consultant, or CM Who? – owner, consultant, or CM Use unit prices databases Use unit prices databases Estimate = Σ[Quantity] × [Unit Prices] Estimate = Σ[Quantity] × [Unit Prices] RS Means or other sources RS Means or other sources Unit prices as result of average industry standards Unit prices as result of average industry standards No lump-sum subcontract quotations No lump-sum subcontract quotations May be simplified number of line items (e.g., mark-up: not detailed) May be simplified number of line items (e.g., mark-up: not detailed)

71 Engineers Breakdown - Example Building Building Foundations Foundations Piles Piles Concrete foundations Concrete foundations Steel erection Steel erection Structural steel Structural steel Columns Columns Beams Beams Detail steel Detail steel Concrete decks Concrete decks Stairs Stairs

72 Construction Pre-bid Detailed design Conceptual design Feasibility Detailed Estimates Detailed Estimates Definitive Definitive Estimates Estimates Conceptual & Preliminary Estimates Design & Estimating Process Engineers Bid

73 Bid Detailed Estimates Contractors estimate low enough to obtain the work, yet high enough to make profit Contractors estimate low enough to obtain the work, yet high enough to make profit Who? – contractor Who? – contractor More detail depending upon the contractors own procedures More detail depending upon the contractors own procedures Overall unit prices (past) detailed categories (present) Overall unit prices (past) detailed categories (present) Often relies on Often relies on Historical productivity data for company Historical productivity data for company Intuition on speed of movement Intuition on speed of movement Quantity takeoff for most important items Quantity takeoff for most important items Subcontractor bids Subcontractor bids Sometimes less detailed than engineers estimates - subcontractors from 30% to 80% of the project Sometimes less detailed than engineers estimates - subcontractors from 30% to 80% of the project

74 Bid Breakdown – Example Building (Bid estimates) Building (Bid estimates) Piles (material take-off) Piles (material take-off) Concrete subcontract (lump-sum) Concrete subcontract (lump-sum) Steel erection subcontract (lump-sum) Steel erection subcontract (lump-sum) Building (Engineers estimates) Building (Engineers estimates) Foundations Foundations Piles Piles Concrete foundations Concrete foundations Steel erection Steel erection Structural steel Structural steel Columns Columns Beams Beams Detail steel Detail steel Concrete decks Concrete decks Stairs Stairs

75 Bid Detailed Estimates Is estimating a streamlined process? Is estimating a streamlined process? A look at bids received for a typical project in a competitive area will sometimes show more than 50% difference between the low and the high bidders

76 Estimation Levels - Revisit Source: Barrie & Paulson, 1992 Different types of estimates are required as a project evolves Different types of estimates are required as a project evolves Conceptual & Preliminary Estimates Conceptual & Preliminary Estimates Prepared early in the project prior to engineering design completion (to tell Owner whether the contemplated project scope is feasible) Prepared early in the project prior to engineering design completion (to tell Owner whether the contemplated project scope is feasible) Incorporate new information from design to obtain an updated estimate of the project Incorporate new information from design to obtain an updated estimate of the project Detailed Estimates Detailed Estimates Prepared from completed plans and specifications Prepared from completed plans and specifications Definitive Estimates Definitive Estimates Forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards Forecast the project cost within allowable limits from a combination of conceptual and detailed information often including partial contract and other procurement awards

77 Construction Pre-bid Detailed design Conceptual design Feasibility Detailed Estimates Detailed Estimates Definitive Definitive Estimates Estimates Conceptual & Preliminary Estimates Design & Estimating Process

78 Definitive Estimates There comes a time when a definitive estimate can be prepared that will forecast the final project cost with little margin for error… There comes a time when a definitive estimate can be prepared that will forecast the final project cost with little margin for error… This error can be minimized through the proper addition of an evaluated contingency This error can be minimized through the proper addition of an evaluated contingency Engineers estimates can complete this process Engineers estimates can complete this process The proper time to classify an estimate as definitive will vary according to the characteristics of the project. For example: The proper time to classify an estimate as definitive will vary according to the characteristics of the project. For example: Traditional Traditional Unit-price Unit-price Professional CM Professional CM Design-Build Design-Build

79 Definitive Estimates: Traditional & Unit Price StartContract Detailed designPreliminary design StartContract Detailed designPreliminary design DBB definitive estimate DBB definitive estimate Unit Price definitive estimate Unit Price definitive estimate

80 Definitive Estimates: CM & Design-Build StartContract Detailed designPreliminary design StartContract Detailed designPreliminary design CM definitive estimate CM definitive estimate Design-Build definitive estimate Design-Build definitive estimate

81 Outline Conceptual Estimates Conceptual Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

82 Cost Classification Direct Cost Direct Cost Labor Cost Labor Cost Direct Labor Direct Labor Indirect Labor Indirect Labor Material Cost Material Cost Equipment Cost Equipment Cost Subcontractor Price Subcontractor Price Indirect Cost (i.e., Job Overhead) Indirect Cost (i.e., Job Overhead) Project Overhead Project Overhead Markup Markup General Overhead General Overhead Profit Profit Contingency Contingency Source: Shtub et al., 1994

83 Cost Classification - Direct Cost Labor Cost Labor Cost Direct Labor Cost Direct Labor Cost Difficult to evaluate precisely but all effort is done to get an accurate estimate as possible Difficult to evaluate precisely but all effort is done to get an accurate estimate as possible Greatest amount of uncertainty in project estimation Greatest amount of uncertainty in project estimation Indirect Labor Cost Indirect Labor Cost Costs that are additional to the basic hourly rates (e.g., tax, insurance, fringe benefits) Costs that are additional to the basic hourly rates (e.g., tax, insurance, fringe benefits) Substantial in amount: add 25 to 50 percent to direct labor costs Substantial in amount: add 25 to 50 percent to direct labor costs Commonly used approach adds indirect labor costs as a percentage to the total direct labor costs or for each major work category Commonly used approach adds indirect labor costs as a percentage to the total direct labor costs or for each major work category Material Cost Material Cost All materials that are utilized in the finished structure. All materials that are utilized in the finished structure. Equipment Cost Equipment Cost Costs Includes: ownership, lease or rental expenses, and operating costs Costs Includes: ownership, lease or rental expenses, and operating costs Subcontractor Price Subcontractor Price Includes quotations from all subcontractors working on the project Includes quotations from all subcontractors working on the project Quotations submitted by the subcontractor usually require extensive review by the general contractors estimator to determine what they include & do not include Quotations submitted by the subcontractor usually require extensive review by the general contractors estimator to determine what they include & do not include Source: Clough et al., 2005; Barrie & Paulson, 1992

84 Source: Clough et al., 2005 Cost Classification – Indirect Cost Project Overhead (i.e., Job Overhead) Project Overhead (i.e., Job Overhead) Costs that do not pertain directly to any given construction work Costs that do not pertain directly to any given construction work Generally constitutes 5-15 percent of the total project cost Generally constitutes 5-15 percent of the total project cost Costs computed by listing & evaluating each item of overhead individually Costs computed by listing & evaluating each item of overhead individually Examples of typical items included: Examples of typical items included: Job Mobilization, Project Manager, General Superintendent, Nonworking Foremen, Heat, Utilities, Storage Buildings, Field Office Supplies, Job Telephone, Computer Equipment & Software, Computer Networking & Internet Connectivity, Small Tools, Permits & Fees, Special Insurance, Builders Risk Insurance, Security Clearances, Material & Load Tests, Storage Area Rental, Protection of Adjoining Property, Field Offices, Parking Areas, Legal Expenses, Surveys, Engineering Services. Job Mobilization, Project Manager, General Superintendent, Nonworking Foremen, Heat, Utilities, Storage Buildings, Field Office Supplies, Job Telephone, Computer Equipment & Software, Computer Networking & Internet Connectivity, Small Tools, Permits & Fees, Special Insurance, Builders Risk Insurance, Security Clearances, Material & Load Tests, Storage Area Rental, Protection of Adjoining Property, Field Offices, Parking Areas, Legal Expenses, Surveys, Engineering Services.

85 Source: Clough et al., 2005 Cost Classification – Markup Markup Markup Added at the close of the estimating process Added at the close of the estimating process Varies between 5 to 20 percent of the job cost Varies between 5 to 20 percent of the job cost Reflects the contractors appraisal of the probability of being the lowest bidder for the project & the chances of making a reasonable profit Reflects the contractors appraisal of the probability of being the lowest bidder for the project & the chances of making a reasonable profit Factors considered when deciding on a job markup include: project size & complexity, provisions of the contract documents, difficulties inherent in the work, identities of the owner & architect/engineer Factors considered when deciding on a job markup include: project size & complexity, provisions of the contract documents, difficulties inherent in the work, identities of the owner & architect/engineer Include allowance for: Include allowance for: General Overhead or Office Overhead General Overhead or Office Overhead Includes costs that are incurred to support the overall company construction program Includes costs that are incurred to support the overall company construction program Normally included in the bid as a percentage of the total estimated job cost Normally included in the bid as a percentage of the total estimated job cost Examples of general business expenses include: office rent, office insurance, heat, electricity, office supplies, furniture, telephone & internet, legal expenses, donations, advertising, travel, association dues, and the salaries of executives & office employees Examples of general business expenses include: office rent, office insurance, heat, electricity, office supplies, furniture, telephone & internet, legal expenses, donations, advertising, travel, association dues, and the salaries of executives & office employees Profit Profit Contingency Contingency

86 Cost Classification (Example) Source: Clough et al., 2005 Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

87 Cost Classification (Example) Source: Clough et al., 2005 Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead) × 1.24

88 Outline Conceptual Estimates Conceptual Estimates Cost indices Cost indices Cost capacity factor Cost capacity factor Parameter Cost Parameter Cost Detailed Estimates Detailed Estimates Estimates Estimates Cost classification Cost classification Calculation Calculation

89 Detailed Estimates - Methodology Stage 1: Quantity takeoff Stage 1: Quantity takeoff Decomposition into items, measurement of quantities Decomposition into items, measurement of quantities Challenges: tremendous detail complexity Challenges: tremendous detail complexity Stage 2: Direct Cost contribution Stage 2: Direct Cost contribution Σ[Quantity] × [Unit Price] Σ[Quantity] × [Unit Price] Challenge: determination unit price (based on historical data) Challenge: determination unit price (based on historical data) Example: Example: Itemunitquantity Unit price price Reinforced steel lb6, $ 3,780

90 Labor Costs Categorized Bid Estimate (not overall unit prices) Categorized Bid Estimate (not overall unit prices) Basic Unit Labor Cost = P / LP ($/unit) Basic Unit Labor Cost = P / LP ($/unit) P = Price of all money elements ($/hours) P = Price of all money elements ($/hours) LP = Labor Productivity (units/hour) LP = Labor Productivity (units/hour) Total Labor Cost = Q * P/LP Total Labor Cost = Q * P/LP Q = Total quantity of work Q = Total quantity of work Estimation of labor costs particularly tricky Estimation of labor costs particularly tricky Prices: In United States, highly detail intensive Prices: In United States, highly detail intensive Productivity: Many qualitative components Productivity: Many qualitative components

91 Labor Cost - Prices Related Components Components Wages (varies by area, seniority, …) Wages (varies by area, seniority, …) Insurance (varies w/contractor record, work type) Insurance (varies w/contractor record, work type) Social security benefits Social security benefits Fringe benefits (health…) Fringe benefits (health…) Wage premiums (e.g., overtime, shift-work differentials, hazardous work) Wage premiums (e.g., overtime, shift-work differentials, hazardous work)

92 Labor Cost - Productivity Difficult but critical Difficult but critical High importance of qualitative factors (environment, morale, fatigue, learning, etc) High importance of qualitative factors (environment, morale, fatigue, learning, etc) The primary means by which to control labor costs The primary means by which to control labor costs Historical data available Historical data available Firm updated database Firm updated database Department of Labor, professional organizations, state governments Department of Labor, professional organizations, state governments = P / LP ($/unit)

93 Productivity Considerations Considerations Considerations Location of jobsite (local skill base, jurisdiction rules – hiring & firing) Location of jobsite (local skill base, jurisdiction rules – hiring & firing) Learning curves Learning curves Work schedule (overtime, shift work) Work schedule (overtime, shift work) Weather Weather Environment Environment Location on jobsite, noise, proximity to materials Location on jobsite, noise, proximity to materials Management style (e.g., incentive) Management style (e.g., incentive) Worksite rules Worksite rules

94 Learning Curves Particularly useful for repetitive works

95 Productivity Effects of Overtime

96 Concluding Remarks Functions of Estimating Functions of Estimating Could Assess cost of construction from the conceptual design phase (Owner, Designer & Sometimes Contractor ). Feedback to Could Assess cost of construction from the conceptual design phase (Owner, Designer & Sometimes Contractor ). Feedback to Conceptual Design for Alternative Architecture Conceptual Design for Alternative Architecture Feasibility of the Project Feasibility of the Project Project / Company Alignment of Objectives, Constraints, Strategic Goals and Policies Project / Company Alignment of Objectives, Constraints, Strategic Goals and Policies Provide the basis for bidding & contracting (Contractor) Provide the basis for bidding & contracting (Contractor) Provide a baseline for cost control and post project evaluation (Owner & Contractor) Provide a baseline for cost control and post project evaluation (Owner & Contractor)

97 Concluding Remarks In Converting an Estimate to a Control Budget, Consider: In Converting an Estimate to a Control Budget, Consider: The organization and categorization of costs suitable for preparing an estimate are often not compatible with realistic field cost control (e.g., might be convenient for the owner) The organization and categorization of costs suitable for preparing an estimate are often not compatible with realistic field cost control (e.g., might be convenient for the owner) Estimates necessarily deal in averages, whereas tighter standards are sometimes desirable for control purposes Estimates necessarily deal in averages, whereas tighter standards are sometimes desirable for control purposes


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