Cost Estimate-S1 Module 1

8/9/2019 Cost Estimate-S1 Module 1

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Cost EstimateCost EstimateModule 1Module 1

Dr. Ari SandhyavitriDr. Ari Sandhyavitri

Engineering FacultyEngineering FacultyUNRI, 2004UNRI, 2004


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PurposePurposess A close approximation of actual costsA close approximation of actual costs

Determine the forecast costs required to completeDetermine the forecast costs required to complete

a project in accordance with the contract plansa project in accordance with the contract plansand specifications.and specifications.

Reasonable accuracy for estimating direct costs ofReasonable accuracy for estimating direct costs ofmaterials, equipment and labours.materials, equipment and labours.

Does not establish the cost of a project; establishDoes not establish the cost of a project; establishthe amount of money, which contractor willthe amount of money, which contractor willreceive for constructing the project.receive for constructing the project.

May assist in the decision making process (asMay assist in the decision making process (asdecision making tools)decision making tools)


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ConsiderationConsideration

At a project inception, data are not alwaysAt a project inception, data are not always

available.available. Most likely estimate.Most likely estimate.

Past experience has shown that cost and timePast experience has shown that cost and time

overover--runs occurred.runs occurred.

Underestimate costs rather management failure.Underestimate costs rather management failure.

Need to revise.Need to revise.

The realism of estimate accuracy ofThe realism of estimate accuracy of

estimate.estimate.


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EstimatorEstimator

Determine a reasonable accuracy the directDetermine a reasonable accuracy the direct

costs for Materials, Labours and Equipment,costs for Materials, Labours and Equipment,

and indirect costs.and indirect costs.

Doest not establish the costs of a project.Doest not establish the costs of a project.

Establishes the amount which the contractorEstablishes the amount which the contractor

will received for constructing the project.will received for constructing the project.


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DefinitionDefinition An approach to estimate cost for theAn approach to estimate cost for the

establishment, development or implementationestablishment, development or implementationof a project (at the different time frame)of a project (at the different time frame)

As a tool in the decision making processAs a tool in the decision making process

Fundamental element for (i) bidding proposesFundamental element for (i) bidding proposes

and; (ii) estimating implementation cost of theand; (ii) estimating implementation cost of theproject.project.

The bid price adds indirect costs, contingencies,The bid price adds indirect costs, contingencies,and profits.and profits.

Profits = enough to allow the contractor toProfits = enough to allow the contractor tocomplete the work with a reasonable profit, yetcomplete the work with a reasonable profit, yetenough to be within the ownerenough to be within the owners budget.s budget.


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TimeTime vsvs CostCost Time delays, cost increases.Time delays, cost increases.

Time emphasises on planning andTime emphasises on planning andscheduling.scheduling.

Time relates to production rates, crewTime relates to production rates, crew

sizes, equipment spreads, material orderssizes, equipment spreads, material ordersand individual work items.and individual work items.

Combination of time and cost allow anCombination of time and cost allow an

integration of scheduling and estimatingintegration of scheduling and estimatingfunctions in the area of Projectfunctions in the area of ProjectManagement.Management.


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TimeTime vsvs CostCost

Time is crucial for gathering information toTime is crucial for gathering information to

improve the accuracy of an estimate.improve the accuracy of an estimate.

Torpedo diagram (Figure 1)Torpedo diagram (Figure 1)

Accuracy of an estimate from AACEAccuracy of an estimate from AACE(Module 2)(Module 2)


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Cost Estimate is not an ActualCost Estimate is not an ActualCostCost

Cost estimate is prepared before aCost estimate is prepared before aproject is constructed best a closeproject is constructed best a close

approximation of the actual costapproximation of the actual cost(more likely cost, not the actual cost(more likely cost, not the actual costof a project)of a project)


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Information vs EstimateInformation vs Estimate

Unrealistic to expect an estimate to be accurate inUnrealistic to expect an estimate to be accurate in

an accounting sense.an accounting sense. The degree of confidence depends on:The degree of confidence depends on:

The level of definition of the works;The level of definition of the works;

Available information provided; andAvailable information provided; and

Risks and uncertainty.Risks and uncertainty.

The range can be plotted against time (Figure 1).The range can be plotted against time (Figure 1). Estimate of cost and time are prepared andEstimate of cost and time are prepared and

revised at many stages.revised at many stages.


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Fig.1. Range of estimate over the project cycle (Barnes, 1974)

Torpedo DiagramTorpedo Diagram


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Time and InformationTime and Information

At FS information is minimum, range ofAt FS information is minimum, range of

uncertainties max.uncertainties max.

Information develop, range of risks mayInformation develop, range of risks may

be mitigated and controlled.be mitigated and controlled. Estimated base cost + contingency maybeEstimated base cost + contingency maybe

close to most likely.close to most likely.

Most likely is close to cost max.Most likely is close to cost max.


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The Role of ITThe Role of IT Storage, transfer, retrieval of data.Storage, transfer, retrieval of data.

Manipulation, analysis, calculation andManipulation, analysis, calculation andpresentation of data.presentation of data.

Not necessary improve the accuracy of estimateNot necessary improve the accuracy of estimate

but make it is easy to up date data and improvebut make it is easy to up date data and improveestimation process.estimation process.

Errors maybe identified more easily.Errors maybe identified more easily.

Data availability and accuracy.Data availability and accuracy. Human factors.Human factors.

Assist decision making process.Assist decision making process.


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ReferencesReferences

Smith, N. J. (Editor), Engineering ProjectSmith, N. J. (Editor), Engineering Project

Management, Blackwell Science, 1999,Management, Blackwell Science, 1999,UK.UK.

MernaMerna, A. and Smith, N. J. (1990), Project, A. and Smith, N. J. (1990), ProjectManagers and the Use of TurnkeyManagers and the Use of Turnkey

Contracts, International Journal of ProjectContracts, International Journal of Project

MnagementMnagement, 8 (3), 183, 8 (3), 183--189.189.

Documents

Cost Estimate-S1 Module 1