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11
BASIC DEFINITIONS
COST PRICE MODULE (FOR CONSTRUCTION CONTRACTS)
COST ESTIMATING PROCESS & PROCEDURE
COST ESTIMATING CLASSIFICATION
COST ESTIMATING METHODOLOGIES
FACTORS AFFECTING COST ESTIMATING ACCURACY
CASE STUDIES
ContentsContents
22
Basic DefinitionsBasic Definitions
CAPITAL COST ESTIMATE (CAPEX)
REPRESENTS THE TOTAL CAPITAL COST OF THE PROJECT, INCLUDING ENGINEERING, MATERIAL, CONSTRUCTION, AND MANAGEMENT COSTS.
ALLOWANCES
USED TO REDUCE THE RISK OF OVERRUN DUE TO “KNOWN” UNCERTAINTIES DESIGN GROWTH / DESIGN DEVELOPMENT EXTRAORDINARY FREIGHT COST (AIR FREIGHT, SPECIAL CARGO ...etc) FORWARD ESCALATION CUT / WASTE (BULK MATERIALS)
CONTINGENCIES
USED TO REDUCE THE RISK OF OVERRUN DUE TO “POTENTIAL” UNCERTAINTIES INCOMPLETE PROJECT DEFINITION CURRENCY FLUCTUATION ERRORS DOES NOT COVER FORCE MAJEURE, SCOPE CHANGES, CLAIMS ETC.
33
DIRECT COSTS
COSTS DIRECTLY ATTRIBUTED TO A JOB OR A PIECE OF PROJECT EQUIPMENT
Basic DefinitionsBasic Definitions
44
INDIRECT COSTS
THESE ARE OFTEN REFERRED TO AS “OVERHEAD” COSTS AND CANNOT EASILY BE ALLOCATED TO ONE JOB OR PROJECTS.
THE PROCESS OF RECOVERING OVERHEADS IS KNOWN AS “ ABSORPTION COSTING” . CLIENTS FOR LARGE CAPITAL PROJECTS ARE VERY INTERESTED IN PROPOSED OVERHEAD RATES, CHARGEABLE TO PROJECTS AND REQUIRED DETAILED OF HOW THE OVERHEADS ARE TO BE ALLOCATED.
Basic DefinitionsBasic Definitions
55
FIXED COSTS
COSTS ARE SAID TO BE FIXED WHEN THEY REMAIN UNCHANGED AND MUST CONTINUE TO BE INCURRED, EVEN THOUGH THE WORKLOAD FLUCTUATES, (eg. MANAGEMENT, SALARIES , RENT INSURANCE….ETC.
Basic DefinitionsBasic Definitions
66
VARIABLE COST
THESE ARE COSTS WHICH ARE INCURRED AT A RATE DEPENDING ON THE LEVEL OF THE WORK ACTIVITY.
E.G - MATERIAL- CONSUMABLES- SPARE PARTS- UTILITIES (POWER, WATER, STEAM)
Basic DefinitionsBasic Definitions
77
Cost Price ModleCost Price Modle
DIRECT INDIRECT PROFIT PRICE+ + =
• LABOUR• MATERIAL• COMPONENTS• TOOLING
• DESIGN• MARKETING• SALES• ACCOUNTING• PURCHASING• MANAGEMENT• WARRANTY• LIABILITY• ADMINISTRATION
• MATCH INVESTMENT
COST
88
Cost - Price ModleCost - Price Modle
CONSTRUCTION EQUIP. +
LABOR COST
MATERIAL COST
DIRECT COST
INDIRECT COST
TOTAL COST
PRICE
=
+
=
DURATION (HOURS) X RATE $/HR X CONSUMABLE FACTOR
LABOR (MHRS) X $/HR X SUPERVISION FACTOR
MATERIAL COST + DELIVERY COST + PURCHASING &
INSPECTION COST
TOTAL DIRECT COST
OVERHEAD, MOB. & DEMOB., TEMPORARY FACILITIES , INSURANCE, ADMINISTRATION, MANAGEMENT, ENGINEERING,…ETC
COST
XPROFIT FACTOR
PRICE
+
99
Cost Estimating ProcessCost Estimating Process1.0 1.0 Cost Estimation PurposesCost Estimation Purposes
BUDGET UPDATING/ REVISION
NEW BUDGET PROPOSALS
REVIEW BIDDERS RATES
EVALUATE ALTERNATIVES / OPTIONS
1010
Cost Estimating ProcessCost Estimating Process2.0 2.0 Capital Cost Major ComponentCapital Cost Major Component
DIR
EC
T C
OS
TIN
DIR
EC
T C
OS
T
ENGINEERING
MATERIAL
CONSTRUCTION
• Screening Studies• Basic Engineering (FEED)• Detailed Engineering• Procurement Services
• Major Equipment• Bulk Material• Freight & Transportation
• Preliminaries (Mobilisation, Site Facilities, Site Running Costs)
• Civil, Mechanical, E&I Works etc.• Pre-commissioning / Commissioning
• Owner Management• Housing/Camp• Fees• Services
OWNER COST
1111
Cost Estimating ProcessCost Estimating Process3.0 3.0 In-House Cost EstimateIn-House Cost Estimate
Review / Discuss• Scope of Work • Basis / Strategy• Exclusions• Estimate Methodology• Required Accuracy
DevelopCost
Estimate
IssueEstimate
Review&
Check
• Quality• Risks• Contingency
• Purchase Order• Vendor Quotes• Completed Projects• Escalation Rates• Construction Unit Rates
Cost Data
• Cost Est. Software• Excel Worksheet
Computer Tools
OutputCustomer
Input / Request
1212
PREPARE ESTIMATING REQUIREMENTS
PLANNING THE ESTIMATE
STRUCTURE THE ESTIMATE
DEVELOPING THE ESTIMATE
DEVELOPING CONTINGENCY
DOCUMENTING
REVIEW / ISSUE ESTIMATE
Cost Estimating ProcessCost Estimating Process4.0 4.0 Estimating ProcedureEstimating Procedure
1313
Cost Estimate ClassificationCost Estimate ClassificationInternational Classification PracticesInternational Classification Practices
Class 5
Class 4
Class 3
Class 2
Class 1
Order of MagnitudeEstimate -30/+50
Order ofMagnitudeEstimate
Order ofMagnitudeEstimate
Class IV-30/+30
Exploration Estimate
Feasibility Estimate
AuthorizationEstimate
Master ControlEstimate
Current Control Estimate
DefinitiveEstimate
Class I-5/+5
Budget Estimate
Class II-10/+10
Study EstimateClass III -20/+20
Level 6
Level 5
Level 4
Level 3
Level 2
Level 1
Detailed Estimate
DefinitiveEstimate
PreliminaryEstimate
StudyEstimate
BudgetEstimate-15/+30
DefinitiveEstimate
-5/+15
INC
RE
AS
ING
PR
OJE
CT
DE
FIN
ITIO
N
ADCOEMPD
Classification
Class 4+40/-20%
Screening /Feasibility
Class 3+30/-15%
Conceptual /Prelim. Budget
Class 2+20/-10%
Master Budget
Class 1+10/-5%
Definitive /Control Budget
Extracted from “AACE International Recommended Practices and Standards”
AACE Classification
Standard
ANSIStandard
Z94.0
AACEPre-1972
Concession Estimate
Association of Cost
Engineers (UK)ACostE
Norwegian Project
ManagementAssociation (NFP)
American Society of
ProfessionalEstimators
(ASPE)
1414
PREPARED BEFORE PROJECT STARTS
HAZY INFORMATION
DETAILS OF PROJECT YET TO BE DEVELOPED
USEFUL FOR QUICK SCREENING AND PLANNING DECISIONS
Estimating ClassificationEstimating Classification1.0 Order of Magnitude 1.0 Order of Magnitude
INTENDED ACCURACY + 35%
1515
PREPARED DURING PROJECT STUDY AND SCREENING PHASE
BASED ON A GOOD OUTLINE PROJECT DEFINITION
MAJOR PROJECT ELEMENTS SIZE / CAPACITY /VOLUME /AREA
USEFUL FOR: SCREENING ALTERNATIVES /OPTIONS
PRELIMINARY FEASIBILITY STUDY MANAGEMENT DECISION
Estimating ClassificationEstimating Classification2.0 Study Estimate2.0 Study Estimate
INTENDED ACCURACY + 20%
1616
DEVELOPED DURING ENGINEERING PHASE 10-20% OF ENGINEERING
BASED ON - WELL DEFINED DESIGN CRITERIA.
INTENDED ACCURACY + 15%
Estimating ClassificationEstimating Classification3.0 Budget Estimate3.0 Budget Estimate
1717
INTENDED ACCURACY + 5-10%
Estimating ClassificationEstimating Classification4.0 Definitive Estimate4.0 Definitive Estimate
MOST DESIGN WORK COMPLETED.
ALL MAJOR CONTRACTS / PURCHASE ORDER HAVE BEEN PLACED.
USED TO UPDATE BUDGET FOR THE THE PURPOSE OF COST CONTROL.
1818
Cost Estimating Methodology Cost Estimating Methodology
Example: Example: (Process Equipment)
1919
Cost Estimating MethodologyCost Estimating MethodologyWhat is Process EquipmentWhat is Process Equipment
PROCESSEQUIPMENT
Package Units
• chemical Dosing• Water Treatment• HVAC Equipment
Engineered Equipment
• Columns• Vessels• Reactors• Tanks
Standard Equipment • Pumps• Compressors• Fans
2020
Estimating Equipment Cost MethodologiesEstimating Equipment Cost Methodologies(Direct Cost) (Direct Cost)
BUDGET PRICE
PRICE TABLES
PURCHASE ORDERS (FROM PREVIOUS JOBS)
PRICE CURVES
CALCULATION BASED
EXPONENTIAL METHODS (COSTS SCALING)
2121
Estimating MethodologiesEstimating MethodologiesEquipment Cost (Direct Cost)Equipment Cost (Direct Cost)
SOURCE OF DATA
• BUDGET PRICE• PURCHASE ORDER• BUDGET QUOTATION• COST CURVES
ADJUSTMENT TO THE NEW NEW CONDITIONS
• Cost of Spare Parts• Freight, Insurance, Transportation Cost• Currency & Exchange Rate• Exclusions• Escalation Formula• Scaling Factor
2222
Estimating Methodologies Estimating Equipment (Scaling Factor)
E1
E2COST
SIZE
COST E2 = COST E1 X (size E2/ size E1)x
2323
Estimating MethodologiesEstimating Equipment Cost Calculation
LSHELL
HEAD
NOZZLES
MANHOLE
D
VESSEL WIGHT
Shell weight = x D x L x t x s.g. = W1 Kg
Heads weight = 2 x 1.3 x D x t x s.g.= W2 Kg
Others:
• Internals = W3 Kg• Supports = W4 Kg• Nozzles = W5 Kg• Manhole = W6 Kg
--------------- Total Weight W Kg
Estimated Cost = W (Kg) X Unit Cost (Cost/Kg)
2424
Material Selection Impact on Equipment
WEIGHT Kg
S.STEEL
C.STEEL
FOB-VALUE
FOB-COST VS WEIGHT CURVE - PRESS. VESSEL
W
V2
V1
2525
Factors Affecting Project Final CostFactors Affecting Project Final Cost
1.0 SCOPE OF WORK
CLARITY OF SCOPE DEFINITION CHANGES IN SCOPE
2.0 TECHNICAL FACTORS
DESIGN STANDARDS & PRACTICES SAFETY & ENVIRONMENT REQUIREMENTS SKILLS/COMPETENCIES
3.0 OTHERS
PROJECT TIME FRAME/SCHEDULE INTERFACES WITH OTHER OPCOS PROJECT ORGANIZATION CURRENCY EXCHANGE RATES MARKET CONDITIONS
2626
Case Study 1Case Study 1
+ 0.00 mtr+ 0.00 mtr
+ 5.0 mtr+ 5.0 mtr
T- 1001T- 1001
TANK T-1001 NEEDS TO BE RE-PAINTED (EXTERNAL). MAINTENANCE RECEIVED A QUOTATION FOR BLAST-CLEANING AND PAINTING OF
THE TANK. THE QUOTE EXCLUDES THE PROVISION OF THE SCAFFOLDING, ASSUMED TO BE PROVIDED BY THE OWNER. THE JOB IS PLANNED TO START ON MONDAY 1ST MAY AND WILL TAKE 10 WORKING DAYS.
THE MAINTENANCE DEPARTMENT REQUESTED YOU TO PROVIDE AN ESTIMATE OF THE COST FOR THE SCAFFOLDING.
+ 7.00 mtr+ 7.00 mtr
2727
INSTALLATIN AND DISMANTLINGCODE STANDARD SCAFFOLDING US$ Unit
S25 0 - 25 m3 6.96 m3S50 25 - 50 m3 5.05 m3S75 50 - 75 m3 4.80 m3
S100 75-100m3 4.15 m3
S150 100-150m3 3.95 m3
S200 150-200m3 3.65 m3
S400 200-400m3 3.40 m3
S000 400->m3 3.30 m3
CODE SPEICALS US$ UNIT
LA LADDER 2.50 M1
WFR WORK FLOOR 4.35 M2
Z FLEXIABLE SHEETING 4.80 M2
THERE IS A CURRENT ‘SCHEDULE OF RATES’ CONTRACT WITH A SPECIALIZE COMPANY FOR PROVIDING OF SCAFFOLDING
Case Study 1Case Study 1
2828
Case Study 1Case Study 1
RENT
CODE TYPE US$ Unit
SR SCAFFOLDING 0.03 M3/DAY
LAR LADDER 0.04 M1/DAY
WFR WORK FLOOR 0.04 M2/DAY
ZR FLEXIBLE SHEETING 0.05 M2/DAY
2929
Case Study 1Case Study 1
STEPS TO BE TAKEN
1.0 MAKE A (SIMPLE) WORK PLAN
2.0 DEVELOP SCOPE OF WORK
3.0 CALCULATE QUANTITY OF EACH ACTIVITY
4.0 APPLY APPLICABLE UNIT RATES
5.0 CALCULATE TOTAL COST
3030
Case Study 1Case Study 1
WORKPLAN: SCAFFOLDING FOR BLASTING/PAINTING T-1001.Dia 5 Mtr H =7 Mtr
1.0 ERECT STANDARD SCAFFOLDING (NO HEAVY EQT. ETC. INVOLVED) AROUND
TANK.
2.0 PROVIDE WORKING FLOORS. FOR EASY WORKING AT VERTICAL CENTERS OF
2.0 Mtr.
3.0 FOR ENVIRONMENTAL REASONS PROVIDE FLEXIBLE SHEETING AROUND
SCAFFOLDING.
4.0 PROVIDE 3 LADDERS
5.0 APPROVAL SAFETY ADVISER
6.0 SCAFFOLDING SHOULD BE READY BEFORE START OF THE WORK ON MONDAY
1ST MAY (WK18).
3131
Case Study 1Case Study 1
WORK SCHEDULE:
WK18 WK19 WK 20WK17 1/5
Scaffolding ReadyBlasting/painting
Start Dismantling Scaffolding
Renting Period Scaffolding
(16 Calendar Days )
W/EW/E
START
3232
Case Study 1Case Study 1
d
D (=d+4)
Volume Scaffolding:
/4 (D2 - d2) x H/4(92 - 52) x 7 = 307 m3 (S400)
Work Floor:each:/4(D2 - d2)/4(92- 52)= 44m2
Total 3 x44m2 = 132m2 (WFR)
Flexible SheetingD x Hx 9 x 9 - 254 m2 (ZR)
Ladder:3 x 6 m1 = 18m1 (LA)
+9
+6
+4
+2
Work Floor
3333
Case Study 1Case Study 1Cost Estimate DetailsCost Estimate Details
# Activity Qty Unit Standard Norm Correction Total
1 Erection & dismantling scaffolding 307 m3 3.4 1,043.80
2 Erection & dismantling work Floor 132 m2 4.35 574.2
3 Erection & dismantling Sheeting 254 m2 4.8 1,219.20
4 Erection & dismantling Ladders 18 m1 2.5 45
5 Rent Scaffolding 4,912.00 m3d 0.03 147.36
6 Rent Work Floor 2,112.00 m2d 0.04 84.48
7 Rent Sheeting 4,064.00 m3d 0.05 203.2
8 Rent Ladders 288 m1d 0.04 11.52
Total 3,328.76
3434
POINTERS
UNDERSTAND PROJECT REQUIREMENTS BEFORE DEFINING SCOPE.
UNDERSTAND METHOD OF MEASUREMENT OF A ‘SCHEDULE OF RATE CONTRACT.
SELECT OPTIMUM IMPLEMENTATION PLAN.
Case Study 1Case Study 1
3535
THE FOLLOWING COST INFORMATION IS AVAILABLE OF A SPECIFIC EQUIPMENT ITEM:
SIZE F.O.B COST
100 M3/hr US$ 50,000200 M3/hr US$ 80,000
QUESTION:
WHAT IS THE ESTIMATED COST FOR THE EQUIPMENT ITEM WITH A CAPACITY OF 300 M3/HR?
Case Study 2Case Study 2
3636
Direct CostEstimating Equipment Cost Calculation
E1
E2COST
SIZE
COST E2 = COST E1 X (size E2/ size E1)x
3737
THE SOLUTION:
1) = 80,000 50,000
2) 2 = 1.60
3) LOG2 x (X) = LOG 1.60
4) 0.301 x (X) = 0.204
5) (X) =0.678
Estimated Cost: X US$80,000 = US$105,000
(X))
100
200(
(X)
(0.678))
200
300(
Case Study 2Case Study 2