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BASIC DEFINITIONS COST PRICE MODULE (FOR CONSTRUCTION CONTRACTS)

Contents. 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. Basic Definitions. CAPITAL COST ESTIMATE (CAPEX)

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BASIC DEFINITIONS COST PRICE MODULE (FOR CONSTRUCTION CONTRACTS)

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  1. Contents • 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

  2. Basic 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.

  3. Basic Definitions DIRECT COSTS • COSTS DIRECTLY ATTRIBUTED TO A JOB OR A PIECE OF PROJECT EQUIPMENT

  4. Basic Definitions 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.

  5. Basic Definitions 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.

  6. Basic Definitions 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, SYSTEM)

  7. DIRECT PRICE Cost Price Modle COST + + INDIRECT PROFIT = • DESIGN • MARKETING • SALES • ACCOUNTING • PURCHASING • MANAGEMENT • WARRANTY • LIABILITY • ADMINISTRATION • LABOUR • MATERIAL • COMPONENTS • TOOLING • MATCH • INVESTMENT

  8. Cost - Price Modle DURATION (HOURS) X RATE $/HR X CONSUMABLE FACTOR CONSTRUCTION EQUIP. + LABOR COST LABOR (MHRS) X $/HR X SUPERVISION FACTOR + MATERIAL COST + DELIVERY COST + PURCHASING & INSPECTION COST MATERIAL COST = DIRECT COST TOTAL DIRECT COST = OVERHEAD MOB. & DEMOB., TEMPORARY FACILITIES , INSURANCE ADMINISTRATION, MANAGEMENT, ENGINEERING,…ETC INDIRECT COST = TOTAL COST COST X PROFIT FACTOR PRICE PRICE

  9. Cost Estimating Process 1.0 Cost Estimation Purposes • INITIAL COST INPUT FOR PROJECT IDENTIFICATION DOC. (PID) • INDICATIVE COST ESTIMATE FOR PLANNING ITEMS FOR BUSINESS PLAN • PERFORMANCE INDICATORS • BUDGET UPDATING/ REVISION • NEW BUDGET PROPOSALS • COUNTER CHECKING CONSULTANT COST ESTIMATE • REVIEW BIDDERS RATES • EVALUATE ALTERNATIVES / OPTIONS • PROVIDE DATA FOR PROJECT SCHEDULING (ACTIVITY WEIGHTS, • RESOURCE LEVELLING)

  10. Owner Management • Housing/Camp • Fees • Services Cost Estimating Process 2.0 Capital Cost Major Component • Screening Studies • Basic Engineering (FEED) • Detailed Engineering • Procurement Services ENGINEERING • Major Equipment • Bulk Material • Freight & Transportation MATERIAL DIRECT COST • Preliminaries (Mobilisation, Site Facilities, Site Running Costs) • Civil, Mechanical, E&I Works etc. • Pre-commissioning / Commissioning CONSTRUCTION OWNER COST INDIRECT COST

  11. Review / Discuss • Scope of Work • Basis / Strategy • Exclusions • Estimate Methodology • Required Accuracy Customer Input / Request Develop Cost Estimate Issue Estimate • Purchase Order • Vendor Quotes • Completed Projects • Escalation Rates • Construction Unit Rates • Cost Est. Software • Excel Worksheet Cost Estimating Process 3.0 In-House Cost Estimate Review & Check Output • Quality • Risks • Contingency Cost Data Computer Tools

  12. Cost Estimating Process 4.0 Estimating Procedure • PREPARE ESTIMATING REQUIREMENTS • PLANNING THE ESTIMATE • STRUCTURE THE ESTIMATE • DEVELOPING THE ESTIMATE • DEVELOPING CONTINGENCY • DOCUMENTING • REVIEW / ISSUE ESTIMATE

  13. Cost Estimate Classification International Classification Practices American Society of Professional Estimators (ASPE) Association of Cost Engineers (UK) ACostE Norwegian Project Management Association (NFP) ANSI Standard Z94.0 AACE Pre-1972 ADCO EMPD Classification AACE Classification Standard Concession Estimate Class 4 +40/-20% Screening / Feasibility Order of Magnitude Estimate Order of Magnitude Estimate -30/+50 Order of Magnitude Estimate Class IV-30/+30 Class 5 Exploration Estimate Level 1 Feasibility Estimate Class 3 +30/-15% Conceptual / Prelim. Budget Study Estimate Class III -20/+20 Study Estimate Class 4 Authorization Estimate INCREASING PROJECT DEFINITION Budget Estimate -15/+30 Level 2 Budget Estimate Class II-10/+10 Class 2 +20/-10% Master Budget Class 3 Preliminary Estimate Master Control Estimate Level 3 Definitive Estimate Level 4 Class 2 Class 1 +10/-5% Definitive / Control Budget Definitive Estimate -5/+15 Definitive Estimate Class I-5/+5 Current Control Estimate Level 5 Detailed Estimate Class 1 Level 6 Extracted from “AACE International Recommended Practices and Standards”

  14. Estimating Classification 1.0 Order of Magnitude • PREPARED BEFORE PROJECT STARTS • HAZY INFORMATION • DETAILS OF PROJECT YET TO BE DEVELOPED • USEFUL FOR QUICK SCREENING AND PLANNING DECISIONS • INTENDED ACCURACY + 35%

  15. Estimating Classification 2.0 Study Estimate • 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 • INTENDED ACCURACY + 20%

  16. Estimating Classification 3.0 Study Estimate • DEVELOPED DURING ENGINEERING PHASE 10-20% OF ENGINEERING • BASED ON - WELL DEFINED DESIGN CRITERIA. • INTENDED ACCURACY + 15%

  17. Estimating Classification 4.0 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. • INTENDED ACCURACY + 5-10%

  18. Cost Estimating Methodology Example: (Process Equipment)

  19. Cost Estimating Methodology What is Process Equipment • Package Units • chemical Dosing • Water Treatment • HVAC Equipment PROCESS EQUIPMENT • Engineered Equipment • Columns • Vessels • Reactors • Tanks • Standard Equipment • Pumps • Compressors • Fans

  20. Estimating Equipment Cost Methodologies (Direct Cost) • BUDGET PRICE • PRICE TABLES • PURCHASE ORDERS (FROM PREVIOUS JOBS) • PRICE CURVES • CALCULATION BASED • EXPONENTIAL METHODS (COSTS SCALING)

  21. Estimating Methodologies Equipment Cost (Direct Cost) • ADJUSTMENT TO THE NEW NEW CONDITIONS • Cost of Spare Parts • Freight, Insurance, Transportation Cost • Currency & Exchange Rate • Exclusions • Escalation Formula • Scaling Factor • SOURCE OF DATA • BUDGET PRICE • PURCHASE ORDER • BUDGET QUOTATION • COST CURVES

  22. Estimating Methodologies Estimating Equipment (Scaling Factor) COST E2 E1 x COST E2 = COST E1 X (size E2/ size E1) SIZE

  23. Material Selection Impact on Equipment FOB-COST VS WEIGHT CURVE - PRESS. VESSEL FOB-VALUE S.STEEL V1 C.STEEL V2 W WEIGHT Kg

  24. Estimating Methodologies Estimating Equipment Cost Calculation VESSEL WIGHT MANHOLE NOZZLES • 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) D HEAD SHELL L

  25. Factors 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

  26. Case Study 1 + 7.00 mtr T- 1001 + 5.0 mtr + 0.00 mtr • 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.

  27. Case Study 1 • THERE IS A CURRENT ‘SCHEDULE OF RATES’ CONTRACT WITH A SPECIALIZE COMPANY FOR PROVIDING OF SCAFFOLDING

  28. Case Study 1

  29. Case 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

  30. Case 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).

  31. 1/5 Case Study 1 WORK SCHEDULE: START WK17 WK18 W/E WK19 W/E WK 20 Blasting/painting Scaffolding Ready Start Dismantling Scaffolding Renting Period Scaffolding (16 Calendar Days )

  32. Case Study 1 D (=d+4) d Volume Scaffolding: Õ/4 (D2 - d2) x H1 Õ/4(92 - 52) x 7 = 307 m3 (S400) Work Floor: each: Õ/4(D2 - d2) Õ/4(92- 52)= 44m2 Total 3 x44m2 = 132m2 (WFR) Flexible Sheeting ÕD x H Õ x 9 x 9 - 254 m2 (ZR) Ladder: 3 x 6 m1 = 18m1 (LA) +9 +6 Work Floor +4 +2

  33. Case Study 1 • POINTERS • UNDERSTAND PROJECT REQUIREMENTS BEFORE DEFINING SCOPE. • UNDERSTAND METHOD OF MEASUREMENT OF A ‘SCHEDULE OF RATE CONTRACT. • SELECT OPTIMUM IMPLEMENTATION PLAN.

  34. Case Study 1 Cost Estimate Details

  35. Case Study 2 THE FOLLOWING COST INFORMATION IS AVAILABLE OF A SPECIFIC EQUIPMENT ITEM: SIZEF.O.B COST 100 M3/hr US$ 50,000 200 M3/hr US$ 80,000 QUESTION: WHAT IS THE ESTIMATED COST FOR THE EQUIPMENT ITEM WITH A CAPACITY OF 300 M3/HR?

  36. Direct Cost Estimating Equipment Cost Calculation COST E2 E1 x COST E2 = COST E1 X (size E2/ size E1) SIZE

  37. Case Study 2 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) (X) (0.678)

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