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Cost EstimateCost EstimateModule 2Module 2

Dr. Ari SandhyavitriDr. Ari Sandhyavitri

Engineering FacultyEngineering FacultyUNRI, 2007UNRI, 2007

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Cost ComponentsCost Components

Cost (Direct costs):Cost (Direct costs): LaboursLabours

MaterialsMaterials

EquipmentEquipment SubSub--contractorscontractors

Price (InPrice (In--direct cost):direct cost): TaxesTaxes

InsurancesInsurances

Overheads:Overheads: Offices &Offices & admsadms..

SitesSites

General conditionsGeneral conditions

Risks:Risks:

ContingenciesContingencies

Loss & profitLoss & profit

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Types of EstimateTypes of Estimate

PeurfoyPeurfoy andand OberlenderOberlender (1989) classified(1989) classifiedestimate in 3 senses:estimate in 3 senses:

1.1.Approximate EstimatesApproximate Estimates (preliminary,(preliminary,conceptual, or budget estimate).conceptual, or budget estimate).

2.2. Detailed Estimates.Detailed Estimates.

3.3. Organisation Estimates.Organisation Estimates.

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Ad.1. Approximate Estimates (Ad.1. Approximate Estimates (preliminary,preliminary,

conceptual, or budget estimate)conceptual, or budget estimate)

The project owner need to know the approximate costThe project owner need to know the approximate costto ensure that the cost of a project does not exceedto ensure that the cost of a project does not exceedthe allocated provided for the project.the allocated provided for the project.

Feasibility Study (FS) during the development phase:Feasibility Study (FS) during the development phase: Economic analysis, investment cost of constructionEconomic analysis, investment cost of construction

and revenue generation (private)and revenue generation (private) Design alternatives to meet ownerDesign alternatives to meet owners budget.s budget.

Experience and judgement for technical purposes;Experience and judgement for technical purposes;

estimating cost of materials, workmanship, locationestimating cost of materials, workmanship, locationand risks.and risks.

Organisation of project.Organisation of project.

Contract strategies.Contract strategies.

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Ad. 2a. Detailed EstimatesAd. 2a. Detailed Estimates Determine the costs of materials, labour, equipment,Determine the costs of materials, labour, equipment,

subcontractor work, overhead and profits.subcontractor work, overhead and profits.

Prepared by contractors in the form a complete set ofPrepared by contractors in the form a complete set ofcontract document prior to submission of a bid.contract document prior to submission of a bid.

Consideration put into account for estimating process:Consideration put into account for estimating process:1.1. Review a set of bidding document from the project ownerReview a set of bidding document from the project owner

and its technical and administration specifications, andand its technical and administration specifications, andrequirement standards.requirement standards.

2.2. Checklist of all work items Learn the drawings provided inChecklist of all work items Learn the drawings provided inthe bidding doc.the bidding doc.

3.3.Visitation of the project site (Visitation of the project site (AanwidzingAanwidzing))

4.4. Check subcontracted works for specialistsCheck subcontracted works for specialists

5.5. Check the current costs of material,Check the current costs of material, labourslabours andandequipment from suppliers;equipment from suppliers;

6.6. Identify indirect costs; taxes, bonds, insurances,Identify indirect costs; taxes, bonds, insurances,contingencies, and overheadscontingencies, and overheads

7.7. Set up adequate profits (e.g. at the range 5%Set up adequate profits (e.g. at the range 5%--30%)30%)

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Ad. 2b. Steps for Preparing a Detailed EstimateAd. 2b. Steps for Preparing a Detailed Estimate

1.1. Review scope of the project and consider the effect of the projeReview scope of the project and consider the effect of the projectctlocation, security, traffics and other risks on costs.location, security, traffics and other risks on costs.

2.2. Determine a material quantities takeoff for all works (1 mDetermine a material quantities takeoff for all works (1 m33 sandsand= 0.8 m= 0.8 m33 in practice).in practice).

3.3. Price material. Material cost = Quantity x Unit pricePrice material. Material cost = Quantity x Unit price4.4. Price labour. Labour cost = Quantity x Labour RatePrice labour. Labour cost = Quantity x Labour Rate

Labour Production RateLabour Production Rate

5.5. Price Equipment. Equip. cost = Quantity x Equip.Price Equipment. Equip. cost = Quantity x Equip. RateRateEquip. Production RateEquip. Production Rate

6.6. Subcontracted works for specialists. Receive and tabulate costsSubcontracted works for specialists. Receive and tabulate costsfor each subcontractor.for each subcontractor.

7.7. Suppliers bids. Receive and tabulate the material, labours andSuppliers bids. Receive and tabulate the material, labours and

equipment costs for each supplier.equipment costs for each supplier.8.8. Calculate indirect costs; taxes, bonds, insurances, and overheadCalculate indirect costs; taxes, bonds, insurances, and overheadss9.9. Set up contingencies and mark up. Add cost for potentialSet up contingencies and mark up. Add cost for potential

unforeseen works based on the amount of risks.unforeseen works based on the amount of risks.

10.10. Profits. Adds cost for compensation for performing the work.Profits. Adds cost for compensation for performing the work.

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Ad. 3a. Organisation of EstimatesAd. 3a. Organisation of Estimates

Essential to the preparation of an estimateEssential to the preparation of an estimate Work Breakdown Structure (WBS)Work Breakdown Structure (WBS)

Construction Specification Institute (CSI)Construction Specification Institute (CSI)

CSI : The organisation of work items is divided by someCSI : The organisation of work items is divided by some

major divisions. Each major division is subdivided intomajor divisions. Each major division is subdivided intosmaller items following the CSI division of workssmaller items following the CSI division of works(Example 1).(Example 1).

WBS : Heavy Engineering construction contractorsWBS : Heavy Engineering construction contractors

organise work in some groups (packages). Each group isorganise work in some groups (packages). Each group issubdivided into major divisions. Each major division issubdivided into major divisions. Each major division issubdivided into smaller items following the CSI divisionsubdivided into smaller items following the CSI divisionof works (Example 2, 3 and 4)of works (Example 2, 3 and 4)

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x . u ru r u ry.

OrganisationOrganisation

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CSICSI

Provides a systematic checklist andProvides a systematic checklist andguideline for the quantity takeoff (e.g.guideline for the quantity takeoff (e.g.transportation materials, 1transportation materials, 1--5%5%

damage/waste)damage/waste) Price extensionsPrice extensions

Each division may contain 10Each division may contain 10--20 item of20 item ofworksworks

Summary cost estimateSummary cost estimate

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Example 2. WBS forExample 2. WBS for SiteworkSitework(Look at example 1 Item 2 as a starting point)(Look at example 1 Item 2 as a starting point)

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Example 3. Construction of Electric power Construction BidExample 3. Construction of Electric power Construction Bid

Summary Using WBSSummary Using WBS

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Example 4. Construction of Electric power Construction forExample 4. Construction of Electric power Construction forTransmission Line A (Work Item 2100) Using WBSTransmission Line A (Work Item 2100) Using WBS

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ReferencesReferences

Smith, N. J. (Editor), Engineering ProjectSmith, N. J. (Editor), Engineering ProjectManagement, Blackwell Science, 1999, UK.Management, Blackwell Science, 1999, UK. MernaMerna, A. and Smith, N. J. (1990), Project, A. and Smith, N. J. (1990), Project

Managers and the Use of Turnkey Contracts,Managers and the Use of Turnkey Contracts,

International Journal of Project Management, 8International Journal of Project Management, 8(3), 183(3), 183--189.189.

PeurfoyPeurfoy, R, L and, R, L and OberlenderOberlender, G, D, (1989),, G, D, (1989),

Estimating Construction Costs, McGrawEstimating Construction Costs, McGraw--Hill BookHill BookCompany,USA.Company,USA.