Client Requirement - Preliminary Estimate of Project

7/9/2016
Sr Dr. Mohd Saidin Misnan

UNIVERSITI TEKNOLOGI MALAYSIA
81310 UTM Johor Bahru, Johor, Malaysia
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SBEQ3513-b-saidin@utm.my
Client’s Requirement
• Client’s brief
• Pre-qualification of contractor
• Preliminary estimate of projects
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Fig: Project management

process
Cost Estimating
Critical for:
a) Determining whether to make an investment to provide a product for
the consumer market
b) Deciding if a company should quote on a product for sale to another
company
c) Construction of project
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Purpose of Estimating
1. Establish the bid price of a product for a quotation or contract.

2. Verify quotations submitted by suppliers.
3. Ascertain whether a proposed product can be manufactured and
marketed profitably.
4. Provide data for make-versus-buy decisions.
5. Help determine the most economical method, process, or material for
manufacturing a product.
6. Provide a temporary standard for production efficiency and guide
operating costs at the beginning of a project.
7. Help in evaluating design proposals.
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Project Management Phase
FEASIBILITY DESIGN DEVELOPMENT CLOSEOUT OPERATIONS

PLANNING
Fin.&Eval. Organization
Risk
Estimating
Planning
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Design & Estimating Process
Conceptual Detailed
Feasibility Pre-bid Construction
design design
Conceptual & Preliminary Definitive

Detailed Estimates
Estimates Estimates
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Project Constraints
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Conceptual and Preliminary Estimates
• Decide Feasibility
• Great Variability According to Type
• Categories:
– Time-referenced Cost Indices
Complexity
Accuracy
– Cost-capacity Factors
– Parameter Costs
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Now Costing: Why Cost Accounting is So

Important
• It Helps In:
– Bidding
– Determining problem projects
– Supporting change order pricing
– Claims process
– Reconciling job costs to financial reports
– Making better decisions
– Making “expansion” less frightening
– Supporting Audits
• Commercial
• Governmental
• Tax
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Preliminary Product Cost Estimates

• Often used to compare different concepts of product designs or
manufacturing processes.
• Typically, this type of estimate is wanted almost immediately and
there is no time for a detailed analysis.
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Final Product Cost Estimates

• Include costing of every part and subassembly going into a product.
• Include the results of detailed studies on the optimum manufacturing
processes and make-versus-buy decisions.
• When the product is released for production, information from the
detailed product cost estimate is directly used in establishing standard
costs and ordering necessary tools and equipment.
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Data Structure
Cost Estimate
Labor Material Machine Out Sourced Overhead
Fringe Benefits
Mark-ups
Indirect Labour
Cost
Manufacturing
Burden
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Category of Ferrous Materials

• Alloy steel bar
• Carbon steel bar High Temperature steel bar
• Stainless Steel Bar
• Cast Iron
• Cast Steel
• Powdered Metal Ferrous
• Sheet steel
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Some Details on Ferrous Metals

• Country of origin, currency
• Trade discount
• Reclaimed Scrap
• New alloy
• Melt temperature
• Thermal conductivity, etc.
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Machine Costs Data

Equipment Description Manufacturer Supplier Depreciation
Date of Purchase Current Date Capital Cost Interest
Installation Cost Residual Cost Restricted Maintenance

Length
Restricted Width Floor space Lifetime Floor Space
Area
Insurance on Machine Electricity Usage Gas Usage Tool
Uptime Interest on Manning Level Cleaning

Capital
Indirect Material Source Country Special Handling Distance Between
column x
Litre Shot Size Tonnage Dry Cycle Distance Between
Capacity
column y
Lock pressure Max. Diameter Max. Weight In Screw Speed
Shot Weight
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Categories of Overheads
• Plant supervisor • Work safety
• Plant administrator • Plant security etc.
• Plant engineer
• Quality control
• Production control
• Laboratory
• Health department
• Maintenance
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Introduction to Cost Estimating

• The National Estimating Society has defined Cost
Estimating1as:
– The art of approximating the probable cost of something based on
information available at the time.
• Cost estimating cannot:

– Be applied with cookbook precision, but must be tailored to a particular
system,
– Substitute for sound judgment, management, or control,
– Produce results that are better than input data, or
– Make the final decisions.
• Despite these limitations, cost estimating is a powerful tool

because it:
– Leads to a better understanding of the problem,
– Improves management insight into resource allocation problems, and
– Provides an objective baseline to measure progress.
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Introduction to Cost Estimating

• The reliability of cost estimates varies over time.
– The closer you get to the actual completion of a project, the estimate
becomes more accurate.
• Four types of cost estimates represent various levels of
reliability .
– Conceptual Estimate: Rough order of magnitude or back of the
envelope.
• Often inaccurate because there are too many unknowns.
– Preliminary Estimate: Used to develop initial budget, more precise.
– Detailed Estimate: Serves as a basis for daily project control.
– Definitive Estimate: Accuracy should be within 10% of final cost.
• Important to repeat estimating process (i.e., re-estimate) on
a regular basis as more information becomes available
– This will keep estimate current as well as increase the accuracy
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Introduction to Cost Estimating (cont’d)

• All cost estimates are constructed by the following tasks:
– Identifying the purpose and scope of the new system.
– Choosing an estimate type.
• Conceptual, preliminary, detailed, or definitive type estimate
– Identifying system performance and/or technical goals.
– Laying out a program schedule.
– Selecting a cost element structure (CES).
– Collecting, evaluating, and verifying data.
– Choosing, applying, cross-checking estimating methods to develop the
cost estimate.
– Performing risk and sensitivity analysis
– Time-phasing the cost estimate by fiscal year for cash flow purposes.
– Providing full documentation.
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FACTORS THAT DETERMINE

VARIATION IN ESTIMATES
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Purpose of an Estimate
 To know in advance the expected cost in varying degree of accuracy, at
different phases of the project.
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Owner's Purpose of Estimate

1. Making investment decision in the conceptual stage.
2. Negotiate and finalize the contract at the implementation phase.
3. To implement cost control measures.
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Contractor’s Purpose of Estimate

1. Determine project cost and profit.
2. To Implement cost control measure.
3. To develop data base that can be used for future project.
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Engineer’s Purpose of Estimate
1. Provide the owner with probable estimate.

2. Evaluate alternatives.
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Comparison of
Contractor’s and Engineer’s Estimator
• Contractor’s Estimator • Engineer’s Estimator
– Determines actual cost of – Determines expected cost.
project for bidding purposes. – Does not know who will receive
– Has detailed company cost data award, therefore does not know
for labor and equipment. contractor’s exact resource
costs. Does not know actual
– Knows which construction
labor rates.
methods are to be used.
– Must assume probable
– Has knowledge of actual
construction methods to be
materials’ suppliers to be used
used.
and quantity discount prices.
– Does not know who project
supplier will be. Must use local
list prices.
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Types of Estimates
1. Preliminary
2. Unit price
3. Assembly or Conceptual Cost
4. Detailed estimate
2 Million dollars building
Accuracy
within
20% Preliminary
15% Unit Price
10% Assembly
5% Detailed
Time
5min 1hour 1day 3 weeks
5. Each phase of a project life cycle requires a different type of estimate--

each estimate requires different types of information.
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Conceptual and Preliminary

Estimates
Conceptual & Preliminary Estimates
 Cost indices
 Cost capacity factor
 Parameter Cost
 Detailed Estimates
 Estimates
 Cost classification
 Calculation
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Estimates
 Conceptual & Preliminary Estimates
Cost indices
 Cost capacity factor
 Parameter Cost
 Estimates
 Calculation
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Cost Indices
• Show changes of costs over time by upgrading the cost of similar facilities
from the past to the present
Cost indices show the changes of a certain facility’s costs over time
Year 1913 = 100, …Year 2007 = 4432
If Facility A is similar to my ‘wish’ facility and I know the value of Facility A at 1913,
I can assume my ‘wish’ facility’s value at 2007.
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Source: http://www.enr.com/features/conEco/
Cost Indices
• Show changes of costs over time by upgrading the cost of similar facilities
from the past to the present
• Used to determine the general construction costs of structures
• Published periodically by Engineering News Record (ENR) and other

publications
• ENR’s Building Cost Index (BCI): Changes of facility’s costs over time
– Facility’s components are:
• 1,088 Board Feet of Lumber (2x4, 20-city Average)
– 1 Board Feet = 1’ x 1’ x 1” = 144 in3
(e.g., 2×4 - 10 ft long contains [(2×4)×10] × 12] = 960 in3 → 6.67 board feet)
• 2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price before 1996,
Fabricated after 1996)
• 1.128 Tons of Portland Cement (Bulk, 20-city Average)
• 66.38 Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, and Structural
Ironworkers)
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Building Cost Index Data (1990–Date)

JAN. FEB. MARCH APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
ANNUAL
AVG.
1990 2664 2668 2673 2676 2691 2715 2716 2716 2730 2728 2730 2720 2702
1991 2720 2716 2715 2709 2723 2733 2757 2792 2785 2786 2791 2784 2751
1992 2784 2775 2799 2809 2828 2838 2845 2854 2857 2867 2873 2875 2834
1993 2886 2886 2915 2976 3071 3066 3038 3014 3009 3016 3029 3046 2996
1994 3071 3106 3116 3127 3125 3115 3107 3109 3116 3116 3109 3110 3111
1995 3112 3111 3103 3100 3096 3095 3114 3121 3109 3117 3131 3128 3111
1996 3127 3131 3135 3148 3161 3178 3190 3223 3246 3284 3304 3311 3203
1997 3332 3333 3323 3364 3377 3396 3392 3385 3378 3372 3350 3370 3364
1998 3363 3372 3368 3375 3374 3379 3382 3391 3414 3423 3424 3419 3391
1999 3425 3417 3411 3421 3422 3433 3460 3474 3504 3505 3498 3497 3456
ANNUAL
JAN. FEB. MARCH APRIL MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
AVG.
2000 3503 3523 3536 3534 3558 3553 3545 3546 3539 3547 3541 3548 3539
2001 3545 3536 3541 3541 3547 3572 3625 3605 3597 3602 3596 3577 3574
2002 3581 3581 3597 3583 3612 3624 3652 3648 3655 3651 3654 3640 3623
2003 3648 3655 3649 3652 3660 3677 3684 3712 3717 3745 3766 3758 3694
2004 3767 3802 3859 3908 3955 3996 4013 4027 4103 4129 4128 4123 3984
2005 4112 4116 4127 4167 4188 4194 4196 4209 4218 4265 4312 4329 4203
2006 4333 4338 4330 4335 4332 4340

2007 4432 Base: 1913=100
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Building Cost Index Data (Prior to 1990)
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Cost Indices Time Conversion
• Example:
– Warehouse Estimate: Assume you have an estimate to a similar warehouse
located nearby and completed in 1993 for a cost of $4,200,000. We are
planning to build a new warehouse in Feb. of 2007. The Building Cost Index
from ENR for 1993, relative to the base date of 1913, was 2996% and Building
Cost Index from ENR for Feb. 2007 is 4432%. What is the estimated project
cost if you establish the estimate using Building Cost Index from ENR?
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Adapted from: Barrie & Paulson, 1992
Cost Indices Time Conversion

• What Information Do We Need?
– Current Building Cost Index (Feb. 2007) = 4432
– Building Cost Index for Year 1993 = 2996
– Similar Facility’s Cost at Year 1993 = $4,200,000
• We Convert From One Base Period to Another

– 2996 : $4,200,000 = 4432 : $X
– $X = (4432/2996) * $4,200,000 = $6,213,084
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Cost Indices Component Calculations

• ENR’s Construction Cost Index:
– Used when labor costs are a high proportion of total cost
– Components:
• 1,088 Board Feet of Lumber (2x4, 20-city Average)

– 1 Board Feet = 1’ x 1’ x 1” = 144 in3
• 2,500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price Before
1996, Fabricated after 1996)
• 1.128 Tons of Portland Cement (Bulk, 20-city Average)
• 200 Hours of Common Labor (20-city Average)
SBEQ3513-b-saidin@utm.my Source: http://www.enr.com/features/conEco/

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costIndexes/constIndexHist.asp
Cost Indices Use and Accuracy
• Accuracies Within 20% to 30% of Actual Costs
• Negligible Time and Effort
• Valuable for Preliminary Planning
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Cost Indices - Limitations

• Problems could arise if the proportions of the input components (e.g.,
lumber) in a building type cost index do not reflect the resources used on
the project in question
– E.g., about 40 % of the costs in a petrochemical project is in piping (pipe and
pipe fitters)
• Problems could arise if the project on which the Index is based has very
little in common with the project under consideration
• Some types of indices do not consider factors such as: productivity,
changes in technology, and competitiveness of contractors
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Outline
 Conceptual & Preliminary Estimates
Cost indices
Cost capacity factor
 Parameter Cost
 Estimates
 Calculation
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Cost-Capacity Factor
• Apply to changes in size, scope, or capacity of projects of
similar types
• Reflect the nonlinear increase in cost with size (economies of
scale, learning curves)
• C2 = C1 (Q2/Q1) x
– Where
• C2 = estimated cost of the new facility w/capacity Q2
• C1 = known cost of facility of capacity Q1
• x = the cost-capacity factor for this type of work
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Cost-Capacity Factor
• Q is a parameter that reasonably reflects the size of the
facility (e.g., barrels per day produced by a refinery, tons of
steel per day produced by a steel mill, gross floor area for a
warehouse)
• X is an empirically derived factor based on well-documented

historical records for a variety of different types of projects
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Source: Barrie & Paulson, 1992
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Cost-Capacity Factor Example

 Example Revisit:
 Warehouse Estimate: Assume you have an estimate to a similar warehouse
planning to build a new warehouse in Feb. of 2007. The ENR index for
1993, relative to the base date of 1913, was 2996% and the ENR index for
2007 is 4432%.
 Consider the cost-capacity factor x = 0.8 for a warehouse.

 The above warehouse has a usable area of 120,000 square feet
 The prospective owner for the new warehouse wants a structure with a
usable area of 150,000 square feet
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Cost-Capacity Factor Example
 What Information Do We Need?

 Q2/Q1 = 150,000/120,000 = 1.25
 Cost-capacity factor x = 0.8
 Known cost = $4,200,000
 C2 = $4,200,000 * (1.25)0.8 = $5,020,851
 A 25% more capacity implies only 20% more costs
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Combining Cost Indices & Cost-

Capacity Factor
• Combine Cost Indices & Cost Capacity Factors to take into
account changes in both time & capacity
• C2 = C1 (Ib / Ia) (Q2 / Q1)x
– Where
• Ib = Index number “Now” or present time.
• Ia = Index number at that time
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Cost Indices & Cost-Capacity Factor

Example
 Example Revisit:
 Warehouse Estimate: Assume you have an estimate to a similar warehouse
planning to build a new warehouse in Feb. of 2007. The ENR index for
1993, relative to the base date of 1913, was 2996% and the ENR index for
2007 is 4432%.
 Consider the cost-capacity factor x = 0.8 for a warehouse.

 The above warehouse has a usable area of 120,000 square feet
 The prospective owner for the new warehouse wants a structure with a
usable area of 150,000 square feet
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Cost Indices & Cost-Capacity Factor

Example
• C2 = 4,200,000 * (4432/2996) * (150,000/120,000)0.8 =
$7,188,731
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Estimates
 Conceptual Estimates
Cost indices
Cost capacity factor
Parameter Cost
 Estimates
 Calculation
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Parameter Costs Source Data

• Commonly used in building construction
• ENR “Quarterly Cost Roundup”
• R.S. Means “Means Square Foot Costs”
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Source: RS Means, Square Foot Costs Data, 2006
Parameter Costs Characteristics

• Relates all costs of a project to just a few physical measures,
or “Parameters”, that reflect the size or scope of the project
– E.g., warehouse - the “Parameter” would be “Gross Enclosed Floor
Area”
• all costs represented by X ($/S.F) → total cost = X ($/S.F.) × the project’s
gross enclosed floor area (S.F.)
• With good historical records on comparable structures,

parameter costing can give reasonable levels of accuracy for
preliminary estimates
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Means Square Foot Cost

• Costs per Square Foot
• Type of Facility (total 23,000 S.F apartment with 3 stories)
Story Height = 10’ and No Basement

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• Costs per S.F. of Floor Area 23,000 S.F
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• Costs per S.F. of Floor Area 23,000 S.F
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• Costs per S.F. of Floor Area
Exterior wall
variation
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Exterior wall Base Cost =
variation 129.65 $/S.F
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Perimeter
&
Height
Adjustment
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Perimeter
&
Height
Adjustment
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Basement
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Additives
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 Information: Detail Specs for the Cost
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 Information: Sub-total, Fees, and Total
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Parameter Cost Example

• What is the Cost for an apartment building (7 Story) if the
perimeter of the building is 502 L.F. and the story height is
11’-4”? Assume that the apartment building has decorative
concrete block on the east, west & south walls. The north
walls external finish is brick with concrete block backup. The
area of each floor of the apartment building 11,460 S.F. The
basement floor area s 4,200 S.F. Please use the Means Square
Foot Cost to obtain an estimate. The building frame is steel.
The apartment building is located in Atlantic City, New Jersey,
Zip Code 07410.
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60’ × 191’
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• Characteristics of the Apartment Building
– 60’ x 191’ = 11,460 S.F./Floor
– 2 * [191’ + 60’] = 502 L.F. Perimeter
– 7 Floors
– Exterior Walls:
• North wall: Face brick w/ concrete block backup
• East, West & South walls: Decorative Concrete Block
– Story Height: 11’-4”
– Basement Area: 4,200 S.F
– Steel Frame
– Located in Atlantic City, New Jersey, Zip Code 07410
• Coefficients are determined from Model Number M.020 for Apartment, 4-
7 Story type (Refer to RS Means (2006) - Square Foot Costs, page 80)
65

Choose
RS Means (2006) – Square
type
Foot Costs, Page 80
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Foot Costs, Page 80
S.F. Area = 11,460 * 7 = 80220

L.F. Perimeter = 502
67

• What should be adjusted when the cost is to be established
by using the Means Square Foot Cost Method?
– Exterior Wall Variation
– Perimeter Adjustment
– Story Height Adjustment
– Basement Addition
– Location Modifier
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Basic SF Costs for 80,000 S.F
apartment building with Face Brick w/
Concrete Block Backup
Basic SF Costs for 80,000 S.F

apartment building with Decorative
Concrete Block
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• Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story
Height = 10’ & No Basement
– $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North)
– $122.25/SF when exterior walls are Decorative Concrete Block (East, West,
south)
N
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• Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story
Height = 10’ & No Basement
– $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North)
– $122.25/SF when exterior walls are Decorative Concrete Block (East, West,
south)
• North wall makes up:

– [191’/502’] x 100 = 38.04 % of total building perimeter
• East, West & South walls make up:

– [(191’+2x60’)/502’] x 100 = 61.96 % of total building perimeter
• Exterior Wall Variation

– [$128.35 * 38.04%] + [$122.25 * 61.96%] = $124.6/S.F.
71

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Foot Costs, Page 80
Perimeter & Height

Adjustment Factors
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• Exterior Wall Variation :

– [$128.35 * 38.04%] + [$122.25 * 61.96%] = $124.6/S.F.
• Perimeter Adjustment:
– Apartment building perimeter is 28 L.F (530 -502) less than the M.020 model building in
RS Means
– Perimeter adjustment factor: $2.65 per 100 L.F
– $124.6 – ( $2.65/100 L.F * 28 L.F ) = $123.9/S.F
• Height Adjustment:
– Apartment building story height is 1’ 4” (11’ 4’’-10’) more than the M.020 model
building in RS Means
– Height adjustment factor: $1.20 per ft
– $123.9 + $1.20 * 1.3 = $125.5/S.F.
• Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610
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Foot Costs, Page 80
Basement Addition Factor

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• Apartment Building initial total cost: $125.5 * 80,220 S.F = $10,067,610

• Basement Addition:
– Apartment building has 4,200 S.F basement
– Basement Addition Factor: $27.30 per S.F of basement area
– Basement added cost : $10,067,610 + $27.30 * 4,200 S.F = $10,182,270
77

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RS Means (2006) – Square Foot Costs, Page 455
Location Modifier
79
• Basement Addition:
– $10,182,270
• Location Modifier for Residential Bldg: 1.13 (Refer to RS Means (2006) -

Square Foot Costs, page 455)
– Apartment building modified total cost: $10,182,270 * 1.13 = $ 11,505,965
80
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• What is the Cost for an apartment building (7 Story) if the
perimeter of the building is 502 L.F. and the story height is
11’-4”? Assume that the apartment building has decorative
concrete block on the east, west & south walls. The north
walls external finish is brick with concrete block backup. The
area of each floor of the apartment building 11,460 S.F. The
basement floor area s 4,200 S.F. Please use the Means Square
Foot Cost to obtain an estimate. The building frame is steel
with an observed age of 20 years. The apartment building is
located in Atlantic City, New Jersey, Zip Code 07410.
81
• What should be adjusted when the cost is to be established by using the

Means Square Foot Cost Method?
– Depreciation Adjustment
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RS Means (2006) – Square Foot Costs, Page 228
Depreciation Adjustment
Factor
83
• Location Modifier for Residential Building

– $ 11,505,965
• Depreciation Adjustment for steel frame building with 20 year observed

age: 20 % (Refer to RS Means (2006) - Square Foot Costs, page 228)
– Depreciation Amount: 0.2 * $ 11,505,965 = $ 2,301,193
• Total Existing Building Cost: $ 11,505,965 - $ 2,301,193 = $9,204,772
84
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Outline
Conceptual Estimates
Cost indices
Parameter Cost
Detailed Estimates
Estimates
 Calculation
85
Estimation Levels - Revisit

• Different types of estimates are required as a project evolves
– Conceptual & Preliminary Estimates
• Prepared early in the project prior to engineering design completion (to
tell Owner whether the contemplated project scope is feasible)
• Incorporate new information from design to obtain an updated estimate
of the project
– Detailed Estimates
• Prepared from completed plans and specifications
– Definitive Estimates
• Forecast the project cost within allowable limits from a combination of
conceptual and detailed information often including partial contract and
other procurement awards
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Conceptual Detailed
design design

Detailed Estimates
Estimates Estimates
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Important General Lesson

• Precision in detailed estimates does not mean accuracy!
– More an art than a science
• Detailed quantitative estimates possible – but ignore important
qualitative factors
• Have differing ranges of uncertainties
– Actual costs depend on systemic complexity
• Two types of complexity at issue
– Detail complexity (myriad components required)
– System complexity (dynamic interactions, etc.)
• Always consider:
– What are assumptions behind the estimate?
– What factors are being ignored?
– How might these factorsSBEQ3513-b-saidin@utm.my
change the estimate? 88
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Detailed Estimates
• After most or all of the detail design work is complete,
approximate estimates are refined using detailed estimates
– Engineer’s Detailed Estimates
– Bid Detailed Estimates
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Conceptual Detailed
design design

Detailed Estimates
Estimates Estimates
Engineer’s
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Engineer’s Detailed Estimates

• Part of actual bid documents
• Who? - owner, consultant, CM, or design-build team
• Use unit prices databases
– Estimate = Σ [Quantity] × [Unit Prices]
– RS Means or other sources
– Unit prices as result of average industry standards
91

RS Means (2006) – Building Construction Cost Data, Page 84
Unit price (RS Means) = Mat. + Lab. + Equip. + Overhead + Profit

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Source: RS Means, Building Construction Cost Data, 2006
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• Part of actual bid documents
• Who? – owner, consultant, or CM
• Use unit prices databases
– Estimate = Σ[Quantity] × [Unit Prices]
– RS Means or other sources
– Unit prices as result of average industry standards
• No lump-sum subcontract quotations

• May be simplified number of line items (e.g., mark-up: not
detailed)
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Engineer’s Breakdown - Example

• Building
– Foundations
• Piles
• Concrete foundations
– Steel erection
• Structural steel
– Columns
– Beams
• Detail steel
• Concrete decks
• Stairs
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Conceptual Detailed
design design

Detailed Estimates
Estimates Estimates
Engineer’s Bid
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Bid Detailed Estimates

• Contractor’s estimate low enough to obtain the work, yet high enough to
make profit
• Who? – contractor
• More detail depending upon the contractor’s own procedures
• Overall unit prices (past) → detailed categories (present)
• Often relies on
– Historical productivity data for company
– Intuition on speed of movement
– Quantity takeoff for most important items
– Subcontractor bids
• Sometimes less detailed than engineer’s estimates - subcontractors from 30% to
80% of the project
96
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Bid Breakdown – Example

• Building (Bid estimates)
 Building (Engineer’s estimates)
– Piles (material take-off)
 Foundations
– Concrete subcontract (lump-sum)  Piles
– Steel erection subcontract (lump-sum)  Concrete foundations
 Steel erection
 Structural steel
 Columns
 Beams
 Detail steel
 Concrete decks
 Stairs
97
Bid Detailed Estimates

• Is estimating a streamlined process?
A look at bids received for a typical project in a competitive area will
sometimes show more than 50% difference between the low and the
high bidders
98
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Estimation Levels - Revisit

• Different types of estimates are required as a project evolves
– Conceptual & Preliminary Estimates
• Prepared early in the project prior to engineering design completion (to
tell Owner whether the contemplated project scope is feasible)
• Incorporate new information from design to obtain an updated estimate
of the project
– Detailed Estimates
• Prepared from completed plans and specifications
– Definitive Estimates
• Forecast the project cost within allowable limits from a combination of
conceptual and detailed information often including partial contract and
other procurement awards
99
Conceptual Detailed
design design

Detailed Estimates
Estimates Estimates
100
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Definitive Estimates
• There comes a time when a definitive estimate can be prepared that will
forecast the final project cost with little margin for error…
• This error can be minimized through the proper addition of an evaluated
contingency
• Engineer’s estimates can complete this process
• The proper time to classify an estimate as ‘definitive’ will vary according to
the characteristics of the project. For example:
– Traditional
– Unit-price
– Professional CM
– Design-Build
101
Definitive Estimates:
Traditional & Unit Price
• DBB definitive estimate
Preliminary design Detailed design

Start Contract
 Unit Price definitive estimate

Start Contract
102
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Definitive Estimates:
CM & Design-Build
• CM definitive estimate

Start Contract
 Design-Build definitive estimate

Start Contract
103
Outline
Cost indices
Parameter Cost
Estimates
Cost classification
 Calculation
104
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Cost Classification
• Direct Cost
– Labor Cost
• Direct Labor
• Indirect Labor
– Material Cost
– Equipment Cost
– Subcontractor Price
• Indirect Cost (i.e., Job Overhead)
– Project Overhead
• Markup
– General Overhead
– Profit
– Contingency SBEQ3513-b-saidin@utm.my
105
Source: Shtub et al., 1994
Cost Classification - Direct Cost

• Labor Cost
– Direct Labor Cost
• Difficult to evaluate precisely but all effort is done to get an accurate estimate as possible
• Greatest amount of uncertainty in project estimation
– Indirect Labor Cost
• Costs that are additional to the basic hourly rates (e.g., tax, insurance, fringe benefits)
• Substantial in amount: add 25 to 50 percent to direct labor costs
• Commonly used approach adds indirect labor costs as a percentage to the total direct labor
costs or for each major work category
• Material Cost
– All materials that are utilized in the finished structure.
• Equipment Cost
– Costs Includes: ownership, lease or rental expenses, and operating costs
• Subcontractor Price
– Includes quotations from all subcontractors working on the project
106
Source: Clough et al., 2005; Barrie & Paulson, 1992
– Quotations submitted by the subcontractor usually require extensive review by the
general contractor’s estimator to determine what they include & do not include
53
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Cost Classification – Indirect Cost

• Project Overhead (i.e., Job Overhead)
– Costs that do not pertain directly to any given construction work
– Generally constitutes 5-15 percent of the total project cost
– Costs computed by listing & evaluating each item of overhead
individually
– Examples of typical items included:
• Job Mobilization, Project Manager, General Superintendent, Nonworking Foremen,
Heat, Utilities, Storage Buildings, Field Office Supplies, Job Telephone, Computer
Equipment & Software, Computer Networking & Internet Connectivity, Small Tools,
Permits & Fees, Special Insurance, Builder’s Risk Insurance, Security Clearances,
Material & Load Tests, Storage Area Rental, Protection of Adjoining Property, Field
Offices, Parking Areas, Legal Expenses, Surveys, Engineering Services.
107
Source: Clough et al., 2005
Cost Classification – Markup

• Markup
– Added at the close of the estimating process
– Varies between 5 to 20 percent of the job cost
– Reflects the contractor’s appraisal of the probability of being the
lowest bidder for the project & the chances of making a reasonable
profit
– Factors considered when deciding on a job markup include: project
size & complexity, provisions of the contract documents, difficulties
inherent in the work, identities of the owner & architect/engineer
– Include allowance for:
• General Overhead or Office Overhead
– Includes costs that are incurred to support the overall company construction program
– Normally included in the bid as a percentage of the total estimated job cost
– Examples of general business expenses include: office rent, office insurance, heat,
electricity, office supplies, furniture, telephone & internet, legal expenses, donations,
advertising, travel, association dues, and the salaries of executives & office employees
• Profit
• Contingency
108
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Cost Classification (Example)
Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

109
Cost Classification (Example)
× 1.24
Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

110
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Outline
Cost indices
Parameter Cost
Estimates
Cost classification
Calculation
111
Detailed Estimates - Methodology

 Stage 1: Quantity takeoff
 Decomposition into items, measurement of quantities
 Challenges: tremendous detail complexity
 Stage 2: Direct Cost contribution

 Σ[Quantity] × [Unit Price]
 Challenge: determination unit price (based on historical data)
 Example:
Item unit quantity Unit price price

Reinforced steel lb 6,300 0.60 $ 3,780
112
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Labor Costs
• Categorized Bid Estimate (not overall unit prices)
• Basic Unit Labor Cost = P / LP ($/unit)
– P = Price of all money elements ($/hours)
– LP = Labor Productivity (units/hour)
• Total Labor Cost = Q * P/LP

– Q = Total quantity of work
• Estimation of labor costs particularly tricky

– Prices: In United States, highly detail intensive
– Productivity: Many qualitative components
113
Labor Cost - Prices Related

• Components
– Wages (varies by area, seniority, …)
– Insurance (varies w/contractor record, work type)
– Social security benefits
– Fringe benefits (health…)
– Wage premiums (e.g., overtime, shift-work differentials, hazardous
work)
114
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Labor Cost - Productivity

• Difficult but critical
– High importance of qualitative factors (environment, morale, fatigue,
learning, etc)
– The primary means by which to control labor costs
• Historical data available

= P / LP ($/unit)
– Firm updated database
– Department of Labor, professional organizations, state governments
115
Productivity Considerations
• Considerations
– Location of jobsite (local skill base, jurisdiction rules – hiring & firing)
– Learning curves
– Work schedule (overtime, shift work)
– Weather
– Environment
• Location on jobsite, noise, proximity to materials
– Management style (e.g., incentive)
– Worksite rules
116
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Learning Curves
Particularly useful for repetitive works
117
Productivity Effects of Overtime
118
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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
119
Preliminary Estimate (cont)

• Advantages
– 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
120
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Example of Preliminary Estimates

• Parking Garage
RM45.0/sq. ft or RM13,500/parking space
• High School
RM240 to 310/sq. ft or RM120,000/ student seat
• Medical Centers
RM270 to 360/sq. ft
121
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.
122
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Example of Unit Price Estimating

Technique for Heavy Construction
____________________________________________________________
Work Item Estimated Quantity Unit PriceTotal RM
____________________________________________________________
Site Preparation 50,000 sq. m RM35 1,750,000
Earth Excavation 100,000 cu.m. RM60 6,000,000
Paving 50,000 sq.m. RM40 2,000,000
Total bid price 9,750,000
____________________________________________________________
123
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 _____)
124
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Elemental Estimate Analysis

Gross floor Area = 250,000 ft2
125
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.
126
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7/9/2016
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:

• Statistical Dept.
• JKR
• Ministry
127
1. Time (Cont.)
Cost Indices
 Published by JKR
 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.
128
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To update old cost information to current date
cost of new facility = cost of old facility x new cost index

old cost index
To predict future cost
n
F = P (1 + i)
F = future cost
P = present cost
i = predicted rate of cost escalation per period
n = number of periods (years)
129
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
 ENR and Means publishes periodically the indices of local
construction costs in the major cities.
130
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2. Location (Cont.)
• ENR Regional Index

• City Cost Index
• Boston 1120
• Chicago 1400
• New York 1700
131
3. Size
• As the quantity built increases, the unit cost
decreases:
Size Factor = Proposed Size

Comparison Size
• UCM = Unit Cost Multiplier
UCM = SF E-1
132
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Use This Side for Use This Side for
Table for Unit Cost Mult ipliers

(UCM Met hod)
Project
Tot al Cost Mult ipliers
(TCM Met hod)
Unit and Total Cost Multipliers

Complex Size Complex
Buildings Project s Fact or Buildings Project s
1.175 1.904 0.2 0.235 0.381
1.128 1.619 0.3 0.338 0.486
1.096 1.443 0.4 0.438 0.577
1.072 1.320 0.5 0.536 0.660
1.052 1.227 0.6 0.631 0.736
1.036 1.153 0.7 0.725 0.807
1.023 1.093 0.8 0.881 0.875
1.011 1.043 0.9 0.910 0.939
1.000 1.000 1.0 1.000 1.000
0.991 0.963 1.1 1.090 1.059
0.982 0.930 1.2 1.178 1.116
0.974 0.900 1.3 1.266 1.170
0.967 0.874 1.4 1.354 1.224
0.960 0.850 1.5 1.440 1.275
0.954 0.829 1.6 1.527 1.326
0.948 0.809 1.7 1.612 1.375
0.943 0.780 1.8 1.697 1.423
0.938 0.774 1.9 1.782 1.470
0.933 0.758 2.0 1.866 1.516
0.928 0.743 2.1 1.950 1.561
0.924 0.730 2.2 2.033 1.605
0.920 0.717 2.3 2.116 1.648
0.916 0.705 2.4 2.199 1.691
0.912 0.693 2.5 2.281 1.733
0.909 0.682 2.6 2.363 1.774
0.905 0.872 2.7 2.445 1.815
0.902 0.662 2.8 2.526 1.855
0.899 0.653 2.9 2.607 1.894
0.896 0.644 3.0 2.688 1.933
0.893 0.636 3.1 2.768 1.972
0.890 0.628 3.2 2.849 2.010
0.887 0.620 3.3 2.929 2.047
0.885 0.613 3.4 3.008 2.084
0.882 0.606 3.5 3.088 2.121
0.880 0.599 3.6 3.167 2.157
0.877 0.593 3.7 3.246 2.192
0.875 0.586 3.8 3.325 2.228
0.873 0.580 3.9 3.404 2.263
0.871 0.574 4.0 3.482 2.297
133
Chart to Convert Unit Prices
2.000
Unit Price Cost Multiplier
1.500
(UCM)
1.000
0.500
0.000
0.1 1.0 10.0
Size Factor
Buildings Complex Projects
134
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7/9/2016
Chart to Convert Total Project Cost

Total Project Cost Multiplier
4.000
3.500
3.000
2.500
(TCM)
2.000
1.500
1.000
0.500
0.000
0.1 1.0 10.0
Size Factor
Buildings Complex Projects
135
4. Shape
40M
50M
Bldg B
Bldg A
30M
Area =1500M2
40M
Area = 1500M2 Perimeter = 150M

Perimeter = 160M
10M
15M 15M
Wall height = RM50 x 160 x 3 = RM24,000
= RM10.00 of floor area
Bldg. A
Wall cost = RM50 x 160 x 3 = RM16,000
Bldg B
Wall cost = RM50 x 180 x 3 = RM18,000
136
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5. "Learning Effect"
• Increased productivity by doing repeated

work.
– Detailed analysis will be discussed later.
137
6. Other Factors
• Hard to quantify but should be evaluated:
– Quality
– Soil condition
– Weather Condition
– Competition
– Productivity
138
69
7/9/2016
THANK YOU
b-saidin@utm.my
139
70

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7/9/2016

Sr Dr. Mohd Saidin Misnan

Fig: Project management

1. Establish the bid price of a product for a quotation or contract.

Project Management Phase

FEASIBILITY DESIGN DEVELOPMENT CLOSEOUT OPERATIONS

Design & Estimating Process

Conceptual & Preliminary Definitive

Conceptual and Preliminary Estimates

• Great Variability According to Type

Now Costing: Why Cost Accounting is So

Preliminary Product Cost Estimates

Final Product Cost Estimates

Category of Ferrous Materials

Some Details on Ferrous Metals

Machine Costs Data

Date of Purchase Current Date Capital Cost Interest

Installation Cost Residual Cost Restricted Maintenance

Uptime Interest on Manning Level Cleaning

Introduction to Cost Estimating

• Cost estimating cannot:

• Despite these limitations, cost estimating is a powerful tool

Introduction to Cost Estimating

Introduction to Cost Estimating (cont’d)

FACTORS THAT DETERMINE

Owner's Purpose of Estimate

Contractor’s Purpose of Estimate

Engineer’s Purpose of Estimate

1. Provide the owner with probable estimate.

15% Unit Price

5. Each phase of a project life cycle requires a different type of estimate--

Conceptual and Preliminary

Conceptual and Preliminary

• Used to determine the general construction costs of structures

• Published periodically by Engineering News Record (ENR) and other

Building Cost Index Data (1990–Date)

2006 4333 4338 4330 4335 4332 4340

Building Cost Index Data (Prior to 1990)

Cost Indices Time Conversion

Cost Indices Time Conversion

– Building Cost Index for Year 1993 = 2996

– Similar Facility’s Cost at Year 1993 = $4,200,000

• We Convert From One Base Period to Another

– $X = (4432/2996) * $4,200,000 = $6,213,084

Cost Indices Component Calculations

• 1,088 Board Feet of Lumber (2x4, 20-city Average)

• 1.128 Tons of Portland Cement (Bulk, 20-city Average)

• 200 Hours of Common Labor (20-city Average)

SBEQ3513-b-saidin@utm.my Source: http://www.enr.com/features/conEco/

Cost Indices Use and Accuracy

• Accuracies Within 20% to 30% of Actual Costs

• Negligible Time and Effort

• Valuable for Preliminary Planning

Cost Indices - Limitations

• X is an empirically derived factor based on well-documented

Cost-Capacity Factor Example

 Consider the cost-capacity factor x = 0.8 for a warehouse.

Cost-Capacity Factor Example

 What Information Do We Need?