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Project Selection, Economics, Estimating. Dr. Perkins CE 438 6 February 05. Today. 40 Minute Lecture ESM 401 ESM 450 General Project Selection Concepts Economics Estimating Your Projects. Remember. Remember Project Life Cycle Organizations. Project Selection.

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project selection economics estimating

Project Selection, Economics, Estimating

Dr. Perkins

CE 438

6 February 05

today
Today
  • 40 Minute Lecture
    • ESM 401
    • ESM 450
  • General Project Selection Concepts
    • Economics
  • Estimating
  • Your Projects
remember
Remember
  • Remember Project Life Cycle
  • Organizations
slide8
“Projectized” organization, all work is a project.
    • But may have some special issues see below
  • Functional organization
    • Must decide if can be done within the functional area.
    • If so, project might not be needed, but see below
project selection1
Project Selection
  • Values, Vision, and Mission
  • Objectives and Goals
  • Strategy
  • Programs and Projects
project selection general concepts
Project SelectionGeneral Concepts
  • Will there be a customer?
  • Will the project survive competition?
    • Internal projects
    • External
  • Is the need for the project recognized as supporting company strategy?
  • Can company handle the risk and uncertainty?
slide11
Note!!
  • The following applies to components and engineering decisions within a project as well.
  • If they warrant it
project selection2
Project Selection
  • Criteria for PS Models
  • Nature of PS Models
  • Types of PS Models
  • Uncertainty Analysis and Risk Management
  • Information Base for PS Models
  • Project Proposal
overview of ps process
Overview of PS Process
  • Decision Makers: Who will align corporate needs and project goals
  • Project Selection: Chose candidate project using Evaluation Criteria
  • Dealing with Uncertainty: Risk Analysis
  • Strategically selecting best Projects: Project Portfolio Process (PPP)
  • Locking up the deal: Writing a Project Proposal
nature of ps models caveats
Nature of PS models:Caveats
  • Project decisions are made by managers --- NOT by PS model!
  • A PS model APPROXIMATES, but does NOT DUPLICATE reality!
nature of ps models method
Nature of PS Models:Method
  • Start with detailed list of firm’s goals
  • Create list of project evaluation factors (PEF’s)
  • Weigh every element in PEF list
  • Compute an overall score for project based on weighted PEF’s
  • Select project that has the closest alignment with firm’s goals
project evaluation factors pefs
Project Evaluation Factors (PEFs)
  • Who decides??
  • Production Factors
  • Marketing Factors
  • Financial Factors
  • Personnel Factors
  • Administrative and Misc. Factors
nonnumeric ps models
Nonnumeric PS Models:
  • Sacred Cow
  • Operating Necessity
  • Competitive Necessity
  • Product Line Extension
  • Comparative Benefit Model
numeric ps models profit profitability
Numeric PS Models:Profit / Profitability
  • Average Rate of Return
  • Discounted Cash Flow (NPV)
  • Internal Rate of Return
  • Benefit/Cost (Profitability Index)
  • Other Profitability Models
choosing the ps model
Choosing the PS Model
  • Dependent on wishes and philosophy of management
  • 80% of Fortune 500 firms choose “nonnumeric” PS models
  • Firms with outside funding often chose scoring PS models
  • Firms without outside funding often chose profit / profitability PS models
management of risk terminology
Management of Risk:Terminology
  • Risk: Decision based on complete information about the probability of each possible outcome.
  • Uncertainty: Decision based on incomplete or insufficient data.
  • Game: Decision based under conditions of conflict.
areas of uncertainty
Areas of Uncertainty
  • Project timing & expected cash flow.
  • Direct outcome of project, i.e. what exactly will the project accomplish
  • Side effects and unforeseen consequences of project
ps models
PS Models
  • Idealized view of reality
  • Representing the STRUCTURE of the problem, not the detail
  • Deterministic or stochastic
numeric ps models scoring
Unweighted 0-1 Factor Model

Unweighted Factor Scoring Model

Weighted Factor Scoring Model

Constrained Weighted Factor Scoring Model

S = ∑(x)

S = ∑(s)

S = ∑(s·w)

S = ∑(s·w) ∏(c)

[Handout]

Numeric PS Models:Scoring
estimating
Estimating

Main types of construction?

slide27
Buildings

Commercial

Offices Stores

Residential

Single Multi-family,

Hi-rise

  • Public Occupancy

Schools

Hospitals

Police/fire

Transportation terminals

slide28
Heavy Construction

Roads

Bridges

Ports and Airports

Tunnels

Pipelines

  • Industrial

Manufacturing Plants

Process

Oil and Gas

Chemicals

Agricultural

Power Generation

slide29
Specialties

Hazardous Waste

Military Facilities

Communication

Golf Courses

Demolition

Arctic

slide30
Also might divide

New construction

Renovation/remodel/upgrade

Demolition

  • Or by
  • Owner

State

Federal

Local

Private

location
Location
  • Near industrial centers
  • Off highway
  • Off shore
  • Remote (Bush)
  • Foreign
    • Various Locations
slide32
By project contracting plan
    • Traditional
    • Design-construct
    • Turnkey
    • Fast-track
    • Owner’s forces
slide33
By contract type
    • Lump sum (AKA hard dollar)
    • Cost plus
    • Cost reimbursable (fixed fee)
    • Unit price
slide34
Contractor’s Organization
    • No sub-contractors
    • All sub-contractors 
  • Labor Force
    • Union (closed shop)
    • Non-union (open shop)
    • Mixed
    • (Double-breasted)
    • Local vs. Expat (expatriate)
slide35
Who’s doing the estimate?
    • Owner
    • A/E
    • Contractor
    • Subcontractor
    • Government
    • Consultant
when what phase
When (what phase)
  • Concept
  • A/E

Components

  • 15%, 35%, 65%, 95%
  • Is the budget fixed?
  • Cast in concrete
  • Contactor’s Bid
  • Post bid negotiations
  • Usually non-government
  • Changes
non construction estimates
Non-construction Estimates
  • Owners estimate of owners expenses

Contract administration

Insurance

Lost or interrupted work

Permits and fees

Housing and travel

a e estimate of a e s expenses
A/E estimate of A/E’s expenses

(Contract type)

Hours

Other expenses

Sub-consultants

Soils

Travel

Construction phase?

Inspection

Testing

types of estimate
Types of estimate
  • Guess
  • Educated guess
  • SWAG

With or without lanyap

  • Historical, similar project
  • Historical, unit prices
  • Estimating guides
  • Crew size and production rate
cost items
Cost Items
  • Labor
  • Supervision
  • Installed Materials
  • Installed equipment
  • Supplies and Consumables
slide41
Subcontractors
  • Home Office Expense
  • Overhead
  • Bonds, Insurance, Permits
  • Job Office Expense
  • Mobilization
  • Travel
  • Demobilization
slide42
Operating Equipment
  • Capital cost
  • Operation costs
  • Fuel
  • Permits
  • Insurance
project selection estimates
Project Selection Estimates
  • Usually based on conceptual
  • Estimate of costs
  • Estimate of benefits
  • “The future, cloudy it is.”
        • Master Yoda
engineering design estimates
Engineering Design Estimates
  • Selecting materials

Insulation thickness

Heat loss

Fuel expense

  • Design life
  • Economic analysis
  • Careful with “free money”

Never call it that

change orders
Change Orders
  • Type I and Type II
  • Extra labor, materials, etc.
  • Delays
  • On critical path?
  • Delay job.
  • Extra overhead
  • Legal and consulting
preliminary
Preliminary
  • Get resources to bid the job
  • Decide if you will bid
  • Get plans, get on bidders list
  • Engineer’s estimate reasonable
  • Broad brush estimate, schedule
  • Subcontracting strategy
  • Consider your resources
    • Call your bonding company
  • Do you still want to bid?
estimate
Estimate
  • Manager allocates work
  • Be sure subs will bid
  • Take off major installed equipment

Check delivery times

Barge schedules

Schedule for quote

Check delivery options, FOB

  • Take off quantities
  • Special matters
  • Pre-bid fly over
  • Hire consultants
  • Do your own borings?
historical unit prices
Historical unit prices
  • Escalate?
  • CPI, ENR
    • Felix work
estimating guides
Estimating guides

Production rate

See next

Unit Price

Read the front!

Factors

Crew size and production rate

Size crew and supervision

Equipment

all methods
All methods
  • Is production rate average or high?
  • Where do you put you operating factor?
  • Read the front!
  • Check contract for delays, risk
  • Liquidated damages
  • Experience with owner, location, etc.
do you still want to bid
Do you still want to bid??!!
  • If so, secure bonding and financing
  • Prepare bid documents with prices blank
slide57
Check subs and major suppliers again?
  • When, to the minute, will they give you the price?
  • How?
  • Develop plan for bid delivery.
  • Communications
  • Time
post bid
Post bid
  • Protest?
  • Negotiations
  • Intelligence?
  • When is a deal a deal?
plan for changes
Plan for changes
  • Pre-job photos and videos
  • Documenting changes
  • Know the contract
  • Document everything
ethics
Ethics
  • Never lie, cheat, or participate in any dishonest act
  • Admit your mistakes forthrightly, if they are mistakes
  • More often, just state the facts, without blaming

anyone, yourself included

  • Don’t “trade on the specifications” unless it is in writing
  • Nothing unethical about asking for what you have coming!
  • Or demanding, if the situation warrants it.
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