1. Estimating and Scheduling CEE 492
Lecture 9
Factors That Determine Variation In Estimates
© Awad S. Hanna, PhD, P.E. 1

2. Owner's Purpose of Estimate
Making investment decision in the conceptual stage
Negotiate and finalize the contract at the implementation phase
To implement cost control measures
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

3. Contractor’s Purpose of Estimate
Determine project cost and profit
To Implement cost control measure
To develop database that can be used for future project
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

4. Engineer’s Purpose of Estimate
Provide the owner with probable estimate
Evaluate alternatives
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

5. Comparison of Contractor’s and Engineer’s Estimator
Contractor’s Estimator
Determines actual cost of project for bidding purposes
Has detailed company cost data for labor and equipment
Knows which construction methods are to be used
Has knowledge of actual materials, suppliers to be used and quantity discount prices
Engineer’s Estimator
Determines expected cost
Does not know who will receive award, therefore does not know contractor’s exact resource costs
Does not know actual labor rates
Must assume probable construction methods to be used
Does not know who project supplier will be. Must use local list prices
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

6. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

7. Variation Factors in Estimating
Time
We base our estimate on the cost of existing projects that were built in the past
Price-level changes over time
We need to project costs of future projects
Many organizations publish construction cost data on regular basis:
US Department of Commerce
US Department of Labor
ENR
Turner Construction Company
Handy-Whitman Utilities
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

8. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

9. Variation Factors in Estimating
Time (continued)
Cost Indices
Published by R.S. Means and ENR
Used to update old cost information
Uses
To update known historical costs for new estimates
To estimate replacement cost for specific assets
To provide for contract escalation
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

10. Variation Factors in Estimating
Time (continued)
Limitations
They represent composite data, average of many projects.
They fail to recognize technological changes.
There is a reporting time lag.
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

11. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

12. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-MadisonⒸ
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

13. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-MadisonⒸ
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

14. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Procedure
How to update old cost information to current date
cost of new facility = cost of old facility x
To predict future cost
F = P (1 + i)
F = future cost
P = present cost
i = predicted rate of cost escalation per period
n = number of periods (years)
new cost index
old cost index n
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

15. Variation Factors in Estimating
Location
Some factors affecting cost in different locations are:
Transport cost
Taxes
Labor supply and local productivity
Codes and local inspection
ENR and Means publishes periodically the indices of local construction costs in the major cities
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

16. Variation Factors in Estimating
Location (continued)
ENR Regional Index
City Cost Index
Boston 1120
Chicago 1400
New York 1700
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

17. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-MadisonⒸ
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

18. Variation Factors in Estimating
Size
As the quantity built increases, the unit cost decreases
Size Factor =
UCM = Unit Cost Multiplier
UCM = SF
Proposed Size
Comparison Size
E - 1
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

19. Table for Unit and Total Cost Multipliers
Table 2.1 Cost Multipliers
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

20. Chart to Convert Unit Prices
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

21. Chart to Convert Total Project Cost
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

22. Variation Factors in Estimating
Shape
Bldg B
Area =1500ft2
Perimeter = 180ft
40’
10’
15’
Bldg A
Area = 1500ft2
Perimeter = 160ft
30’
50’
Wall height = $10 x 160 x 10 = $16,000
= $10.00 of floor area
Bldg. A
Wall cost = $10 x 160 x 10 = $16,000
Bldg B
Wall cost = $10 x 180 x 10 = $18,000
= $11.25 of floor area
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

23. Variation Factors in Estimating
“Learning Effect”
Increased productivity by doing repeated work
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

24. Variation Factors in Estimating
Other Factors
Hard to quantify but should be evaluated:
Quality
Soil condition
Weather Condition
Competition
Productivity
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

25. Exercise 2: Student Residence
New Project
Desired Capacity
= 750,000 sq. ft
Expected Completion
= End of 2010
Location
= St. Louis, Missouri
Determine Cost
Similar Project
Capacity
= 360,000 sq. ft
Completion Date
= Jan 1, 2005
Location
= New York, NY
Cost
= $23,000,000
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

26. Exercise 2: Student Residence
Cost Index New York Jan 2005
= 2603
Cost Index New York Jan 2009
= 3076
Cost Index St. Louis Jan 2009
= 2390
What is the expected cost in St. Louis?
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

27. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Solution to Exercise 2
Cost
Area
1. Unit Cost of NY Bldg (UP1) = =
= $63.89/sq. ft.
2. Time Adjustment
New York  Ratio = = 1.18
Assuming escalation rate at 3% / year
Project unit cost at the end of 2006
= F = P (1 + i)n x Time Adjustment Factor
= $63.89 (1+0.03)2 x 1.18 = $79.98
$23,000,000
360,000 SF
3076
2603
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

28. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Solution to Exercise 2
3. Location
Jan 2005 Cost Index for NY = 3076
Jan 2005 Cost Index for St. Louis = 2390
Ratio = = 0.78
Base Unit Cost (St. Louis) = $79.98 x 0.78
= $62.38
2390
3076
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

29. Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison
Solution
4. Cost Multiplier (Table 2.1, slide 51)
Size Factor = = =2.08
Unit Cost Multiplier = 0.928
Adjusted Unit Cost ($/sq.ft) = $62.38 * 0.928
= $57.89/SF
Total Cost = 750,000 SF x $57.89/SF
= $43,417,500
Proposed size
Comparison size
750,000SF
360,000SF
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

30. Conclusion Questions Questions and Open Discussion ©
Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison