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Term 3, 2020 CVEN3101 ENGINEERING OPERATIONS AND CONTROL

Instructor: Dr X Shen

Date: 15 September 2020

Conceptual Cost Estimating

Revanth

Project Management Triangle

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Learning Objectives

How to estimate the cost of a construction project?

What are estimating process & procedures?

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Outline

• Introduction

• Estimating Process

• Conceptual Cost Estimating

Construction Estimating

Estimation requires knowledge of construction and judgement The estimator and team play a vital role in preparing estimates

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Construction Estimating

The aim of estimation is to determine the costs required to complete a project

Bid price includes: – Direct cost – Overhead – Contingencies – Profit

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Construction Estimating

Approximate Estimates – Also called feasibility, preliminary, or

conceptual estimates – Evaluate design alternatives – Presented by the estimator to the owner

Detailed Estimates – Determine the bid price – Important to both the owner and contractor

Estimating Work Progress

Kick-off Meeting

Estimate Work Plan

Prepare Estimate

Document Estimate

Review Estimate

Final Project Cost Report

Estimating Work Progress

Step 1: Kick-off Meeting – Provide background information about the

project to the estimating team – Expectations of the team and other

information needed to prepare the estimate

Estimating Work Progress

Step 2: Estimate Work Plan – Establish a work plan prior to starting the

estimating process – Identify the work that is needed to prepare the

estimate, e.g. human resources, timeline and budget etc.

Estimating Work Progress

Quality of an estimate is governed by: – Quality and amount of information available – Time allocated to prepare the estimate – Proficiency of the estimator and the

estimating team – Tools and techniques used in preparing the

estimate

Estimating Work Progress

Step 3: Preparation of an Estimate – Develop construction methods – Prepare construction schedule – Calculate material quantity takeoffs – Assess risks for contingency – Investigate the physical characteristics of the

project site – Design the schedule of the project

Estimating Work Progress

Step 4: Estimate Documentation – Improve communication between the

estimating team and management – Establish a mechanism for estimate reviews – Form a basis for early project cost control

Estimating Work Progress

Step 5: Estimate Review – The number of reviews depends on project

size, estimate type and time allowed – At least two reviews: one during estimate

development and the other at or near the completion of the estimate

– The final estimate review is more a structured process

Estimating Work Progress

Step 6: Final Project Cost Report – Prepare after the completion of the project – Provide extremely valuable document to

capture lessons learned for improving future estimates

– Provide real feed back to compare with the original cost estimate

Conceptual Cost Estimating

A conceptual cost estimate provides owners the approximate cost of a project in order to evaluate the economic feasibility for proceeding with the project

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Levels of Conceptual Estimating

Level 1 of conceptual cost estimate – Estimate prepared from the description of the

project scope – There is little or no design – Estimate accuracy falls between +40 and -10

percent

Levels of Conceptual Estimating

Level 2 of conceptual cost estimate – Estimate prepared upon completion of

preliminary design – Accuracy of estimate falls between +25 and -5

percent

Levels of Conceptual Estimating

Level 3 of conceptual cost estimate – Estimate prepared upon completion of final

design – Accuracy of estimate falls between +10 and -3

percent

Accuracy of well thought-out conceptual estimate: +/- 10%

Conceptual Estimate Preparation

By the Owner – Part of economic feasibility analysis

By the Designer – Selecting the design alternatives during the

design phase By the Contractor

– Negotiating work between owner and a contractor

Conceptual Estimate Preparation

Knowledge and experience with the work required to complete the project Cost information from previous projects of similar type and size is essential Unit cost is developed from weighting of the data

Conceptual Cost Estimating

Weighting Cost Data from Previous Projects

Where: UC - forecast unit cost A - minimum unit cost of previous projects B - average unit cost of previous projects C - maximum unit cost of previous

projects

4 6(A B C)/UC = + +

Example 1

Cost data from eight previously constructed parking garage projects is available. Use the weighted unit cost to determine the conceptual cost estimate for a proposed parking garage that is to contain 135 parking spaces.

Example 1

Conceptual Cost Estimating

Estimating Adjustment – Time – Location – Size

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Time Adjustment

The adjustment represents relative inflation or deflation of costs due to factors such as labour rates, material costs, interest rates etc.

Engineering News Record (ENR) publishes indices of construction industry every quarter, which represent the economic trend of the industry with respect to time

Time Adjustment

The ENR index can be used to adjust previous cost information The change in value of an index between any two years is used to calculate an equivalent compound interest rate E.g. 2005, 2006, 2007, 2008

Example 2

A project was constructed at a cost of AUD 276,200 two years ago. A new project is proposed for construction 2 years from now. The construction cost indices for Time are obtained from ENR. Determine the conceptual cost estimate of the proposed project.

Location Adjustment

The cost of construction varies from one location to the other due to the difference in costs of materials, equipment and labour Use the ENR indices of construction costs with respect to geographic locations

Example 3

A project was constructed in City A at a cost of AUD 387,200 and a new project is proposed for construction in City D. Determine the cost of the proposed project.

Size Adjustment

In general, the cost of a project is directly proportional to its size The adjustment is a simple ratio of the sizes

Example 4

A project containing 62,700 m2 of floor area is proposed for construction. A project constructed earlier containing a floor area of 38,500 m2 at a cost of $2,197,540 is to be used for determining the conceptual cost of the proposed project. What is the cost of the proposed project?

Learning Outcomes

What is the typical estimating process?

How to conduct the conceptual cost estimating?

Reading Assignments

• 2012 Queensland Government - Project Cost Estimating Manual • 2013 ACES Estimating - Getting It Right

Questions?