06 Projects Cost Estimate L6

Advanced Engineering

Projects Management

Dr. Nabil I El SawalhiAssistant Professor of Construction

Management

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Costs of Project

The cost of project is divided into two types:

1. The initial capital cost

2. The subsequent operation and

maintenance costs

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Capital Cost

1. Land acquisition, including assembly, holding and improvement.

2. Planning and feasibility studies.

3. Architectural and engineering design.

4. Construction, including materials, equipment and labor.

5. Field supervision of construction.

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Capital Cost

6. Construction financing.

7. Insurance and taxes during construction.

8. Owner's general office overhead.

9. Equipment and furnishings not included in construction.

10. Inspection and testing.

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Operation and Maintenance Cost

1. Land rent, if applicable.

2. Operating staff.

3. Labor and material for maintenance and

repairs.

4. Periodic renovations.

5. Insurance and taxes.

6. Financing costs.

7. Utilities.

8. Owner's other expenses.

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In most construction budgets, there is an

allowance for contingencies or

unexpected costs occurring during

construction.

It varies in value from 2.5 % to 10%

according to the nature and complexity of

the project.

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Types of Construction Cost

Estimates

The required levels of accuracy of

construction cost estimates vary at

different stages of project development

A construction cost estimate serves one of

the three basic functions:

Design;

Bid (Tender) and;

Control.

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Classification of Capital Cost

Estimates AACE International (formerly the American

Association of Cost Engineers) has

proposed three classifications of cost

estimates. In increasing order of accuracy,

the various major types of estimates

Type Accuracy

Order of magnitude -30% to +50%

Budget -15% to +30%

Definitive -5% to +15% AEPM L6 8

1. Design Estimates

Design estimate is classified as:

1.Screening estimates (or order of magnitude

estimates)

2.Preliminary estimates (or conceptual

estimates)

3.Detailed estimates (or definitive estimates)

4. Engineer's estimates based on plans and

specifications

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2. Bid Estimates

Bid estimates is usually derived from a

combination of the following approaches.

1. Subcontractor quotations

2. Quantity takeoffs

3. Construction procedures.

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3. Control Estimates

A control estimate is derived from

available information to establish:

Budget estimate for financing;

Budgeted cost after contracting but prior to

construction;

Estimated cost to completion during the

progress of construction.

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1.Screening estimates (or order

of magnitude estimates) To find the order of magnitude the

following methods can be used:

1. Judgment

2. cost capacity

3. Parametric

4. Unit Method

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2.Conceptual and Preliminary

Estimate

Is made in the early phases of a project

They tell the owner about the initial budget

and feasibility of scope of the project.

It vary from one type of project to another

Most of conceptual estimating methods

are: 1. time - referenced cost indices

2. Cost-capacity factor

3. Parameter CostAEPM L6 13

Cost Indices

It shows changes of cost over time

Some types reflects changes in

technology, methods, and productivity.

Generally they are applied to the

construction phase.

Though they can account for the total

design-construction package

They are periodically published in the

Engineering News RecordAEPM L6 14

Type of Cost Indices

It derived by two different approaches

1. periodically re-prices and total a constant

package of resources that serve input to typical

construction project.

The index is computed by dividing this cost by

cost of resources in a base references period.

For example:

Components: 1088 board feet of limber (2x4,

s4s, 20-city average)

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2500 pounds of structural steel shapes, base

mill price

2256 pounds of Portland cement (bulk, 20-

city average)

68.3 hrs of skilled labor (20-city average)

We can convert from one base period to

another as follows:

Current cost= 2730 (assumed)

Base cost (1967)= 676

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Index on 1967 base = index to be

converted/ index of 1967 base

Relative to original

(1913=100) base

= 2730/676

2730/676x 100=400%

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Opinion

In the absence of data and shortage of time,

there may be no way to evaluate designs

rather than opinion.

The key to opinion estimating is human ware.

The individual is selected to a job because of

his experience, common sense, and

knowledge.

Opinion estimating is done collectively in

conferences.

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Cost Capacity Factor

Cost indices focus on cost changes over

time, cost capacity factors apply to

changes in :

Size;

Scope;

Or capacity of projects of similar types.

Non-liner increase in cost with size.

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C2 = C1 (Q2/Q1)X

Where c2 = estimated cost of new facility of

capacity Q2

C1 = known cost of facility of capacity Q1

And the exponent X = the cost-capacity factor

for this type of work.

X is empirically derived factor based on well-

documented historical records for different kinds

of projects.

The capacities represented by Q= the size of

capacity

Example: tons of steel per produced by a steel

mill operating at capacity. AEPM L6 20

This cost-capacity equation is often called

the six-tenths rule or the seven-tenths rule

because the exponent, n, has an approximate value of 0.60-0.7 for many

types of plants and equipment.

The use of the cost-capacity formula is

also limited in accuracy because the

exponent generally is not constant and

does change as equipment size increasesAEPM L6 21

For this reason and because of structural

differences as equipment is increased in

size, the formula should generally be

limited for maximum accuracy to capacity

ratios of 2:1 or less and, in any event,

should never be used at ratios above 5:1.

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Area Estimate This is prepared depending on the basis of the

area of building, the rate being deducted from the cost of similar building having similar specification, heights and construction in the locality.

It is calculated by finding the area of the building and multiplying by the unit area rate. The area is calculated from the covered area by taking external dimension of the building at the floor level.

Courtyard and other open areas should not be included in the area.

For multistory buildings there are two

methods to use:

A) All floors including basement floor and

roof have an equal cost

B) Basement and roof have different cost.

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Example 1.

A building of size 20x35m consist of :

Basement, g floor,1st floor, 2nd floor and roof. And the

total cost of building is 630,000 $. Calulate the cost of

m2 assuming that:

A) all floors including basement and roof have the same

cost

B) cost of basement is 60% of cost of the rest of floors

and cost of roof is 40% of cost of rest floors.

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a) Assumption 1

Basement and other floor area = 700x5=3500m2

Cost per m2 = 630,000/3500= 180$

b) Assumption 2

basement area = 700 x .6 = 420m2

Roof area = 700x.4 = 280m2

Other floors = 700x 3 = 2100

Total area = 2800m

Cost of floor =630000/2800 =225$

Cost of basement= 225x0.6 = 135$

Cost of roof = 225x0.4 =$90

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Cube Rate Estimate for Building

It is an approximate estimate and it is prepared based on cubical contents of the building.

The cube rate being deducted from the cost of similar building having similar specifications and construction, in the locality.

Cubic rate is more accurate than the area because it considers the height of the building.

Cubic MethodExample (2)

A building of size 40x60m and consist of

basement, g floor, 1st floor , 2nd floor. The height

of the buildings are :

2.8m for basement. 3.0m for all other floors. The

total cost is $2,250,000. Estimate the cost of

cubic meter using the following two

assumptions:

A) the cost of all floors are the same

B) the cost of cubic meter of basement is %60 of

other floorsAEPM L6 31

a) assumption 1 Volume of basement = 40x60x2.8 = 6720m3

Volume of any other floor = 40x60x3 = 7200m3

Total volume of all floors = 6720x1+7200x3= 28,320 m3

Cost of cubic meter = 2,250,000/28320= $ 79,450

b) assumption 2

Volume of basement = 40x60x2.8x0.60= 4032m3

Volume of any other floor = 40x60x3 = 7200m3

Total volume of all floors= 4032x1+7200x3 = 25,632 m3

Cost of cubic meter = 2,250,000/22,632= $ 87,780

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4. Unit method

The unit method use historical & quantitative evidence and leads to a cost driver easily understood.

Other names of unit method are:

-average, order of magnitude;

-Lump sum

-Function

-Parameter.

-Module estimating

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Unit continued..

It involves various modifications.

Extensions of this method lead to the factor

estimating method.

Examples:

Cost of house per square foot,

Cost of electrical transmission per mile,

Construction cost per hospital bed,

Chemical plant cost per barrel of oil capacity.

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Detailed Estimate

Done after approving of conceptual designs and

after most of detailed designs work is complete.

Quantity take-off is done to prepare total

quantities.

The unit price is developed and multiplied by the

total quantities. The resulting sum represent the

estimated direct cost.

The addition indirect cost, plant and equipment,

home office overhead profit and contengency

will develop the total estimated costAEPM L6 35