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ENGR 3360U Winter 2014
Unit 3.1-3
Engineering Costs and Cost Estimating
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01
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Unit 3 Engineering Costs and Cost Estimating
Change Record
2014-I-01 Initial Creation
e!t re"erence Cha#ter 2
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Co(rse )(tline
1. Engineering Economics
2. General Economics
1. &icroeconomics
2. &acroeconomics
3. &one* and the 'an+ o"Canada
3. Engineering Estimation
4. Interest and E,(ialence
. /resent Worth nal*sis
6. nn(al Cash lo
. Rate o" Ret(rn nal*sis
. /ic+ing the 'est Choice
5. )ther Choosing echni,(es
10. Uncertaint* and Ris+
11. Income and %e#reciation
12. "ter-ta! Cash los
13. Re#lacement nal*sis
14. In"lation1. &RR election
16. /(7lic ector Iss(es
1. What Engineering sho(ld +no
a7o(t cco(nting
1. /ersonal Economics "or the
Engineer
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Unit 3 Engineering Costs and Cost Estimating
Unit 3 Road &a#
8 3.1 Engineering cost conce#ts8 3.2 Engineering cost estimating
8 3.3 hree t*#es o" engineering cost estimating
8 3.4 Estimating models
8 3. )7serations on engineering estimating
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Unit 3 Engineering Costs and Cost Estimating
3.1 Engineering Costs
Costs need to 7e estimated to eal(atealternaties9 :(sti"* e!#endit(res
(t(re costs are er* critical to theanal*sis o" a #ro:ect. Wh*;
Engineers generall* hae theres#onsi7ilit* o" cost estimation
Reen(e generation generall* comes "rommar+eting
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=(estions to 7e resoled
or the most #art9 Engineering econom*anal*sis tends to 7e >cost drien?@
What cost com#onents m(st 7e estimated;
What a##roaches ill 7e (tiliAed;
Bo acc(rate sho(ld the estimates 7e;
What estimation techni,(es ill 7e (tiliAed;
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Engineering Costs
8 Costs are anal*Aed to eal(ate alternaties8 i!ed Costs
8 Constant (nchanging costs
8 Daria7le Costs8 %e#end on the leel o" o(t#(t or actiit*
8 &arginal Costs8 Daria7le cost "or one more (nit
8 erage Costs8 otal cost diided 7* the n(m7er o" (nits
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otal Costs
8 otal Cost total "i!ed cost F total aria7le cost
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/ro"it
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)ther *#es o" Costs
8 (n+ Costs &one* alread* s#ent
/ast decision
ho(ld 7e disregarded in engineeringeconomic anal*sis
Nothing can 7e done at this #oint to change the
cost
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)ther *#es o" Costs9 contJd.
8 )##ort(nit* Costs he costs associated ith a reso(rce 7eing
(sed "or an alternate tas+
ometimes re"erred to as K"orgone o##ort(nit*
costsJ8 Kn o##ort(nit* cost is the 7ene"it that is "orgone
7* engaging a 7(siness reso(rce in a chosenactiit* instead o" engaging that same reso(rce in a
"orgone actiit*.J
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Unit 3 Engineering Costs and Cost Estimating
)ther *#es o" Costs
8 Rec(rring Costs cost that reocc(rs at reg(lar interals
8 Non-rec(rring Costs
)ne-o"-a-+ind costs rec(rring at irreg(larinterals
8 Incremental Costs Cost di""erences 7eteen alternaties
8 Cash Costs ers(s 'oo+ Costs Cash costs re,(ire a cash transaction Lcash "loM 'oo+ costs are recorded 7(t are not transactions
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Unit 3 Engineering Costs and Cost Estimating
he nn(al )#erating Cost Estimation
%irect a7or Costs "or o#erating #ersonnel@
%irect materials@
/eriodic maintenance costs@
Reor+ and re7(ilt@
)ther costs co(ld 7e )n-line testing and cali7ration@
/roo"ing r(ns 7e"ore act(al #rod(ction.
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)C E cont.
>amiliar? #ro:ects Bome constr(ction@
'(ildings standard designs@
/etrochemical and energ* #rod(ction.
##l* standard ind(str*-ide so"tare #ac+ages.
&ost #ro:ects no >canned? so"tare #ac+ages e!ist
##l* *o(r on +noledge and e!#erience.
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Unit 3 Engineering Costs and Cost Estimating
Cost Estimation ##roaches
'ottom-(# ##roach reats the "inal cost as an inde#endent Lo(t#(tM
aria7le and the associated costs as in#(t or
de#endent aria7les. %esign-to-Cost ##roach
reats the com#etitie cost as an in#(t aria7le
and the associated cost estimates as the o(t#(taria7les.
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cc(rac* o" Estimates
No estimate is intended to 7e >e!act?
'(t m(st 7e reasona7le and acc(rateeno(gh to #roide a ro7(st economic
anal*sis
In #reliminar* design #hase Estimates are ieed as >"irst c(t? estimates
ere as in#(ts to the #ro:ect initial 7(dget
he >(nit method? is o"ten a##lied here
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Unit 3 Engineering Costs and Cost Estimating
Cost Estimation echni,(es
E!#ert )#inion< %el#hi ðod
Com#arisons ith +non installations@
/ast e!#erience in the "ield@
Cost Inde!es here aaila7le@
Cost Estimating Relationshi#s L"orms o"
regression anal*sis 7ased (#on historicaldata@ also a77reiated CERsM
Com7inations o" the a7oe.
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3.3 3 *#es o" Cost Estimating
8 *#es Ro(gh Estimates
8 =(ic+
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Estimation %i""ic(lties
8 )ne-o"-a-Oind Estimates irst-r(n #ro:ects and #ro:ects that hae neer 7een done
7e"ore
No #reio(s e!#erience o" costs
8 ime and E""ort aila7le B(man reso(rces and time aaila7le "or ma+ing estimates
8 Estimator E!#erience /ast e!#erience o" similar #ro:ects increases acc(rac* o"
estimates
Conersel* limited e!#erience decreases acc(rac*
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Unit 3 Engineering Costs and Cost Estimating
Estimation %i""ic(lties
8 )ne-o"-a-Oind Estimates irst-r(n #ro:ects and #ro:ects that hae neer 7een done
7e"ore
No #reio(s e!#erience o" costs
8 ime and E""ort aila7le B(man reso(rces and time aaila7le "or ma+ing estimates
8 Estimator E!#erience /ast e!#erience o" similar #ro:ects increases acc(rac* o"
estimates
Conersel* limited e!#erience decreases acc(rac*
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