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F ACTORS THAT D ETERMINE V ARIATION IN E STIMATES

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FACTORS THAT DETERMINE VARIATION IN ESTIMATES

DR. Nabil Dmaidi

Purpose of An Estimate

To know in advance the expected cost in varying degree of accuracy, at different phases of the project.

DR. Nabil Dmaidi

1.Making investment decision in the conceptual stage.

2.Negotiate and finalize the contract at the implementation phase.

3.To implement cost control measures.

DR. Nabil Dmaidi

1.Determine project cost and profit.

2.To Implement cost control measure.

3.To develop data base that can be used for future project.

DR. Nabil Dmaidi

1.Provide the owner with probable estimate.

2.Evaluate alternatives.

DR. Nabil Dmaidi

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.

DR. Nabil Dmaidi

TYPES OF ESTIMATES

2 Million dollars building

Accuracy

within

20%

Preliminary

15%

Unit Price

1. Preliminary

2. Unit price

3. Assembly or Conceptual Cost

4. Detailed estimate

Each phase of a project life cycle requires a different type of estimate--each estimate requires different types of information.

10%

Assembly

5%

Detailed

Time

5min

1hour

1day

3 weeks

DR. Nabil Dmaidi

1. Preliminary Estimate“Order of Magnitude”

A cost prediction based solely on size and/or capacity of a proposed project.

Before any engineering or design is completed.

Rely on broad data from already executed similar project

relate cost in dollar to the main capacity/size parameter

number of beds in hospital

square feet of office space

number of students in school

DR. Nabil Dmaidi

- Advantageous
- Allows a quick determination of the feasibility of a project
- A quick screening on alternatives, etc. (e.g., should it be a concrete building or a steel building !).

- Purpose:
1. Ranking alternatives

2. Evaluate economics and financial feasibility

3. As a check on more detailed estimates

DR. Nabil Dmaidi

- Parking Garage
$15.0/sq. ft or $4500/parking space

- High School
$80 to 110/sq. ft or $40,000/ student seat

- Medical Centers
$90 to 130/sq. ft

DR. Nabil Dmaidi

2.Unit Price Estimate

Unit prices are obtained from data on projects already performed.

Cost of labor, material, and equipment for all units of work are added together and divided by the number of units involved.

DR. Nabil Dmaidi

Example of Unit Price Estimating Technique for Heavy Construction

____________________________________________________________

Work Item Estimated QuantityUnit PriceTotal

____________________________________________________________

Site Preparation 50,000 sq. yd$ 7 $ 350,000

Earth Excavation 100,000 cu.yd.$ 12 $ 1,200,000

Paving 50,000 sq.yd.$ 8 $ 400,000

Total bid price $ 1,950,000

____________________________________________________________

DR. Nabil Dmaidi

3.Assembly or Conceptual Estimate

Performed when conceptual design decisions are being made.

Work package concept can be used to determine the element or assembly to be studied

We need a breakdown of cost of a completed project into its functional elements to:

1.Find the relationship between element cost and project cost

2.Distribution of cost between constituent elements (sq. feet of _____)

DR. Nabil Dmaidi

Elemental Estimate Analysis

Gross floor Area = 250,000 ft2

DR. Nabil Dmaidi

4.Detailed (Definitive )Estimate

Prepared after drawings and specification are completed.

Requires a complete quantity takeoff based on drawing and the complete set of contract documents

Need information on labor rate "productivity", material cost, cost of renting or purchasing equipment

DR. Nabil Dmaidi

Variation Factors in Estimating

1. 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

DR. Nabil Dmaidi

1. Time (Cont.)

Cost Indices

Published by R.S. Means and ENR

Used to update old cost information

Uses

1.To update known historical costs for new estimates

2.To estimate replacement cost for specific assets

3.To provide for contract escalation

Limitations

1.They represent composite data, average of many projects.

2.They fail to recognize technological changes.

3.There is a reporting time log.

DR. Nabil Dmaidi

new cost index

old cost index

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)

n

DR. Nabil Dmaidi

2. Location

Some factors affecting cost in different locations are:

1. Transport cost

2. Taxes

3. Labor supply and local productivity

4. Codes and local inspection

Construction costs also vary in different regions of the USA.

ENR and Means publishes periodically the indices of local construction costs in the major cities.

DR. Nabil Dmaidi

2. Location (Cont.)

ENR Regional Index

CityCost Index

Boston1120

Chicago1400

New York1700

DR. Nabil Dmaidi

- As the quantity built increases, the unit cost decreases:
Size Factor =

- UCM = Unit Cost Multiplier
UCM = SF

Proposed Size

Comparison Size

E - 1

DR. Nabil Dmaidi

DR. Nabil Dmaidi

DR. Nabil Dmaidi

DR. Nabil Dmaidi

40’

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

= $10.00 of floor area

Bldg B

Wall cost = $10 x 180 x 10= $18,000

= $11.25 of floor area

Bldg A

Area = 15ooft2

Perimeter = 160ft

Bldg B

Area =1500ft2

Perimeter= 150ft

30’

40’

10’

15’

15’

DR. Nabil Dmaidi

- Increased productivity by doing repeated work.
- Detailed analysis will be discussed later.

DR. Nabil Dmaidi

- Hard to quantify but should be evaluated:
- Quality
- Soil condition
- Weather Condition
- Competition
- Productivity

DR. Nabil Dmaidi