1. 2016 Alaska Western Workshop Cost Estimating 101

2. Agenda Introduction Estimate Terminology Estimate Classifications
Estimate Methodology
Application of Estimate Methodology
Understanding Direct & Indirect Costs
Questions

3. Estimating – What does this mean?
Cost estimating is the predictive process used to quantify, cost, and price the resources required by the scope.
Cost estimating may be used to quantify, cost and price any investment activity, such as building an office building or process power plant, developing a software program, or producing a stage play. The basic estimating steps are the same: Understand the scope of the activity to quantify the resources and material required, then apply costs to those resources and materials

4. Estimate Terminology Cost Estimating Basis of Estimate Direct Costs
Predictive process used to quantify, cost, and price the resources required by the scope of an investment option, activity, or project.
A compilation of all the probable costs of the elements of a project or effort included within an agreed upon scope.
Costs of completing work that are directly attributable to its performance and are necessary for its completion.
Cost Estimating
Basis of Estimate
Direct Costs
1. Direct Costs
2. Basis of Estimate
3. Cost Estimating

5. Estimate Terminology In-Direct Costs Take-off Contingency
Costs not directly attributable to the completion of an activity, which are typically allocated or spread across all activities on a predetermined basis.
A specific type of quantification that is a measurement and listing of quantities of materials from drawings in order to support the estimate costing process
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 aggregate, in additional costs
In-Direct Costs
Take-off
Contingency
1. In-Direct Costs
2. Contingency
3. Take-off

6. Estimate Terminology Allowances Escalation Benchmarking 1. Escalation
Resources included in estimates to cover the cost of known but undefined requirements for an individual activity, work item, account or sub‐account.
A provision in costs or prices for uncertain changes in technical, economic, and market conditions over time.
A measurement and analysis process that compares practices, processes, and relevant measures to those of a selected basis of comparison with the goal of improving performance.
Allowances
Escalation
Benchmarking
1. Escalation
2. Allowances
3. Benchmarking

7. Estimate Classifications
AACE identifies five classes of estimates, which it simply designates as Class 1, 2, 3, 4, and 5. A Class 5 estimate is associated with the lowest level of project definition (or project maturity), and a Class 1 estimate is associated with the highest level of project definition. For each class of estimate, five characteristics are used to distinguish one class of estimate from another. The five characteristics used in the AACE Recommended Practice are:
degree of project definition
end usage of the estimate
estimating methodology
estimating accuracy
effort required to produce the estimate

8. Estimate Classifications
ESTIMATE CLASS
MATURITY LEVEL OF PROJECT DEFINITION DELIVERABLES Expressed as % of complete definition
END USAGE Typical purpose of estimate
METHODOLOGY Typical estimating method
EXPECTED ACCURACY RANGE
Typical +/- range relative to index of 1 (i.e. Class 1 estimate) [a]
PREPARATION EFFORT
Typical degree
of effort relative to least cost index of 1 [b]
0% to 2%
Screening or feasibility
Capacity factored, parametric models, judgment, or analogy
4 to 20 1
1% to 15%
Concept study or feasibility
Equipment factored or parametric models
3 to 12
2 to 4
10% to 40%
Budget authorization or control
Semi-detailed unit costs with assembly level line items
2 to 6
3 to 10
30% to 75%
Control or bid/tender
Detailed unit cost with forced detailed take-off
1 to 3
5 to 20
65% to 100%
Check estimate or bid/tender
Detailed unit cost with detailed take-off
10 to 100
Class 5
Class 4
Class 3
Class 2
Class 1

9. Estimate Methodology
In general, estimating methodologies commonly fall into two broad categories: conceptual and deterministic.
Conceptual estimating methods usually involve modeling (or factoring), similar projects.
Deterministic estimating methods are more or less a direct measure of the item being estimated.

10. Estimate Methodology Conceptual Estimating Methodologies
End-Product Units Method
Used when the estimator has enough historical data available from similar projects to re late the end-product units (capacity units) of a project to its construction costs. Example would be the construction cost of a hotel and the number of patient beds.
Physical Dimensions Method
Uses the physical dimensions (length, area, volume, etc.) of the item being estimated as the driving factor. For example, a building estimate may be based on square feet/meters or cubic volume of the building.
Capacity Factor Method
A capacity factored estimate is one in which the cost of a new facility is derived from the cost of a similar facility of a known (but usually different) capacity. It relies on the (typical) non-linear relationship between capacity and cost.

11. Estimate Methodology Conceptual Estimating Methodologies
Ratio or Factor Method
Ratio or factored estimating methods are used in situations where the total cost of an item or facility can be reliably estimated from the cost of a primary component. For example, this method is commonly used in estimating the cost of process and chemical plants where the cost of the specialized process equipment makes up a significant portion of the total project cost. This is often referred to as “Equipment Factor” estimating.
Parametric Method
A parametric model is a mathematical representation of cost relationships that provide a logical and predictable correlation between the physical or functional characteristics of a plant. For example Total Installed Cost/Dim in mile for pipelines.

12. Estimate Methodology Deterministic Estimating Methodologies
A detailed estimate is one in which each component comprising a project scope definition is quantitatively surveyed and priced using the most realistic unit prices available. Detailed estimates are typically prepared to support final budget authorization, contractor bid tenders, cost control during project execution, and change orders (Class 3 through Class 1 estimates).
The following steps comprise the activities undertaken during preparation of a detailed estimate:
Prepare project estimate basis and schedule
Prepare Direct Field Cost (DFC) estimate
Prepare Indirect Field Cost (IFC) estimate
Prepare Home Office Cost (HOC) estimate
Prepare escalation estimates
Prepare project fee estimate (for contractors)
Prepare cost risk analysis/contingency determination
Preview/validate estimate

13. Application of Estimate Methodology
End Product Estimating Methodology
If the construction costs for a 25 guest room hotel was $8,000,000 what would a 95 guest room hotel cost be utilizing the end product methodology?
$30,400,000
If the construction costs for a 100 patient bed hospital was $18,000,000 what would a 185 patient bed hospital cost be utilizing the end product methodology?
$33,300,000

14. Application of Estimate Methodology
End Product Estimating Methodology
If the construction costs for a 100 parking space garage was $13,000,000 what would a 30 parking space garage cost be utilizing the end product methodology?
$3,900,000
If the construction costs for a 100 room storage complex was $1,800,000 what would a 150 room storage complex cost be utilizing the end product methodology?
$2,700,000

15. Application of Estimate Methodology
Physical Dimensions Estimating Methodology
If the construction cost of a 2000 sf warehouse was recently built down the road for $600,000 what will your approximate construction cost be for a 3000 sf warehouse?
$900,000
If the house next door which is 50’ wide x 100’ long cost $400,000 to build last week, what would your approximate cost be for your 5000 square foot house?
$400,000

16. Application of Estimate Methodology
Ratio or Factor Estimating Methodology
In 1947, Hans Lang first published an article in Chemical Engineering introducing the concept of using the total cost of equipment to factor the total estimated cost of plant.
Total Plant $ = Total Equipment $ X Equipment Factor
Lang proposed three separate factors based on the type of process plant (see table below). Lang’s factors were meant to cover all the costs associated with the total installed cost of a plant.
Lang Factor
Type of Plant
Factor
Solid Process Plant
3.10
Solid-Fluid Process Plant
3.63
Fluid Process Plant
4.74

17. Application of Estimate Methodology
Ratio or Factor Estimating Methodology
If the total equipment cost for a gas liquid plant was $1,500,00 what would the Total Plant Cost be?
Total Plant Cost = $1,500,000 x 4.74
Total Plant Cost = $7,110,000
If the total equipment cost for a wood pellet solid process plant was $5,000,000 what would the Total Plant Cost be?
Total Plant Cost = $5,000,000 x 3.1
Total Plant Cost = $15,500,000

18. Deterministic Estimating Methodologies – Understanding Direct & Indirect costs
The installation hours associated with a worker installing piping inside of a module would be considered a Direct or Indirect Man-hour?
The travel time between hotel and the module where the worker is installing the pipe would be considered a Direct or Indirect Man-hour?
Direct
In-Direct
1. Direct
2. In-Direct

19. Deterministic Estimating Methodologies – Understanding Direct & Indirect costs
Snow removal man-hours and equipment needed to get access to the module where the workers are installing piping inside of the module would be considered a Direct or Indirect cost?
The installation hours and material costs associated with the structural crew who attaches lifting lugs to the module so that module can be set on truck with a crane would be considered a Direct or Indirect cost?
In-Direct
Direct
1. Direct
2. In-Direct

20. Deterministic Estimating Methodologies – Direct Examples
Mechanical Man-hours
Piping Man-hours
Electrical & Instrumentation Man-hours
Structural Man-hours
Civil Man-hours
Insulation Man-hours
Painting & Coating Man-hours
Architectural Man-hours
Permanently Installed Material

21. Deterministic Estimating Methodologies – In-Direct Examples
Fire watch
Snow Removal
Mobilization/Demobilization
Construction Equipment
Training
Site Clean-up
Small Tools and Consumables
Travel to/from Job Site
Safety Meetings

22. Questions ??