1.040/1.401 project management spring 2007 lecture 6 estimating dr. sanghyun lee [email protected]...

1.040/1.4011.040/1.401

Project ManagementProject ManagementSpring 2007Spring 2007

Lecture 6Lecture 6EstimatingEstimating

Dr. SangHyun [email protected]@mit.edu

Department of Civil and Environmental Department of Civil and Environmental EngineeringEngineering

Massachusetts Institute of Technology Massachusetts Institute of Technology

Project Management Project Management PhasePhase

FEASIBILITY

CLOSEOUTDEVELOPMENT OPERATIONS

Fin.&Eval.Risk

EstimatingEstimating

Planning

DESIGNDESIGNPLANNING PLANNING

Organization

Estimation Levels - Estimation Levels - IntroductionIntroduction

Source: Barrie & Paulson, 1992

Different types of estimates are required as a Different types of estimates are required as a project evolvesproject evolves Conceptual & Preliminary EstimatesConceptual & Preliminary Estimates

Prepared early in the project prior to engineering design Prepared early in the project prior to engineering design completion (e.g., to tell Owner whether the contemplated completion (e.g., to tell Owner whether the contemplated project scope is feasible)project scope is feasible)

Incorporate new information from design to obtain an Incorporate new information from design to obtain an updated estimate of the projectupdated estimate of the project

Detailed EstimatesDetailed Estimates Prepared from completed plans and specificationsPrepared from completed plans and specifications

Definitive EstimatesDefinitive Estimates Forecast the project cost within allowable limits from a Forecast the project cost within allowable limits from a

combination of conceptual and detailed information often combination of conceptual and detailed information often including partial contract and other procurement awardsincluding partial contract and other procurement awards

Construction Pre-bid Detailed design

Conceptual design

Feasibility

Detailed EstimatesDetailed Estimates DefinitiveDefinitive EstimatesEstimates

Conceptual & PreliminaryConceptual & PreliminaryEstimatesEstimates

Design & Estimating Design & Estimating ProcessProcess

OutlineOutline

Conceptual & Preliminary EstimatesConceptual & Preliminary Estimates Cost indicesCost indices

Cost capacity factorCost capacity factor

Parameter CostParameter Cost

Detailed EstimatesDetailed Estimates EstimatesEstimates

Cost classificationCost classification

CalculationCalculation

Conceptual and Preliminary Conceptual and Preliminary EstimatesEstimates

Decide FeasibilityDecide Feasibility

Great Variability According to TypeGreat Variability According to Type

Categories:Categories:

Time-referenced Cost IndicesTime-referenced Cost Indices

Cost-capacity FactorsCost-capacity Factors

Parameter CostsParameter Costs

Accu

racy

Com

ple

xit

y

OutlineOutline

Conceptual & Preliminary EstimatesConceptual & Preliminary Estimates Cost indicesCost indices Cost capacity factorCost capacity factor Parameter CostParameter Cost

Detailed EstimatesDetailed Estimates EstimatesEstimates Cost classificationCost classification CalculationCalculation

Cost IndicesCost Indices

Source: http://www.enr.com/features/conEco/

Show changes of costs over time by upgrading the cost Show changes of costs over time by upgrading the cost of similar facilities from the past to the presentof similar facilities from the past to the present

Cost indices show the changes of a certain facility’s costs over timeYear 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.

Cost IndicesCost Indices


Show changes of costs over time by upgrading the cost of Show changes of costs over time by upgrading the cost of similar facilities from the past to the presentsimilar facilities from the past to the present

Used to determine the general construction costs of Used to determine the general construction costs of structuresstructures

Published periodically by Engineering News Record (ENR) Published periodically by Engineering News Record (ENR) and other publicationsand other publications

ENR’s Building Cost Index (BCI): Changes of facility’s costs ENR’s Building Cost Index (BCI): Changes of facility’s costs over timeover time Facility’s components are:Facility’s components are:

1,088 Board Feet of Lumber (2x4, 20-city Average)1,088 Board Feet of Lumber (2x4, 20-city Average) 1 Board Feet = 1’ x 1’ x 1” = 144 in1 Board Feet = 1’ x 1’ x 1” = 144 in33

(e.g., 2×4 - 10 ft long contains [(2×4)×10] × 12] = 960 in(e.g., 2×4 - 10 ft long contains [(2×4)×10] × 12] = 960 in3 →3 → 6.67 6.67 board feet)board feet)

2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price 2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price before 1996, Fabricated after 1996)before 1996, Fabricated after 1996)

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

66.38 Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, 66.38 Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, and Structural Ironworkers)and Structural Ironworkers)

Building Cost Index Data Building Cost Index Data (1990–Date)(1990–Date)


J AN. FEB. MARCH APRIL MAY J UNE J ULY 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

J AN. FEB. MARCH APRIL MAY J UNE J ULY AUG. SEPT. OCT. NOV. DEC.ANNUAL 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

Base: 1913=1002007 4432

Building Cost Index Data (Prior to Building Cost Index Data (Prior to 1990)1990)


Cost Indices Time Cost Indices Time ConversionConversion

Example:Example:

Warehouse Estimate: Assume you have an estimate to a similar Warehouse Estimate: Assume you have an estimate to a similar

warehouse located nearby and completed in 1993 for a cost of warehouse located nearby and completed in 1993 for a cost of

$4,200,000. We are planning to build a new warehouse in Feb. $4,200,000. We are planning to build a new warehouse in Feb.

of 2007. The Building Cost Index from ENR for 1993, relative of 2007. The Building Cost Index from ENR for 1993, relative

to the base date of 1913, was 2996% and Building Cost Index to the base date of 1913, was 2996% and Building Cost Index

from ENR for Feb. 2007 is 4432%. What is the estimated from ENR for Feb. 2007 is 4432%. What is the estimated

project cost if you establish the estimate using Building Cost project cost if you establish the estimate using Building Cost

Index from ENR? Index from ENR?

Adapted from: Barrie & Paulson, 1992

Cost Indices Time Cost Indices Time ConversionConversion

What Information Do We Need?What Information Do We Need?

Current Building Cost Index (Feb. 2007) = 4432Current Building Cost Index (Feb. 2007) = 4432

Building Cost Index for Year 1993 = 2996Building Cost Index for Year 1993 = 2996

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

We Convert From One Base Period to AnotherWe Convert From One Base Period to Another

2996 : $4,200,000 = 4432 : $X2996 : $4,200,000 = 4432 : $X

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


Cost Indices Component Cost Indices Component CalculationsCalculations

ENR’s Construction Cost Index:ENR’s Construction Cost Index:

Used when labor costs are a high proportion of total Used when labor costs are a high proportion of total

costcost

Components:Components:

1,088 Board Feet of Lumber (2x4, 20-city Average)1,088 Board Feet of Lumber (2x4, 20-city Average) 1 Board Feet = 1’ x 1’ x 1” = 144 in1 Board Feet = 1’ x 1’ x 1” = 144 in33

2,500 Pounds of Structural-Steel Shapes (20-city Average, Base 2,500 Pounds of Structural-Steel Shapes (20-city Average, Base

Mill Price Before 1996, Fabricated after 1996)Mill Price Before 1996, Fabricated after 1996)

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

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

Source: http://www.enr.com/features/conEco/costIndexes/constIndexHist.asp

Cost Indices Use and AccuracyCost Indices Use and Accuracy

Accuracies Within 20% to 30% of Actual CostsAccuracies Within 20% to 30% of Actual Costs

Negligible Time and EffortNegligible Time and Effort

Valuable for Preliminary PlanningValuable for Preliminary Planning

Cost Indices - LimitationsCost 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 E.g., about 40 % of the costs in a petrochemical project is in piping (pipe and pipe fitters)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

OutlineOutline

Conceptual & Preliminary EstimatesConceptual & Preliminary Estimates Cost indicesCost indices Cost capacity factorCost capacity factor Parameter CostParameter Cost

Detailed EstimatesDetailed Estimates EstimatesEstimates Cost classificationCost classification CalculationCalculation

Cost-Capacity FactorCost-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 Where CC2 2 = estimated cost of the new facility w/capacity Q= estimated cost of the new facility w/capacity Q22

CC11 = known cost of facility of capacity Q = known cost of facility of capacity Q11

x = the cost-capacity factor for this type of work x = the cost-capacity factor for this type of work

Cost-Capacity Factor Cost-Capacity Factor


Q is a parameter that reasonably reflects the Q is a parameter that reasonably reflects the size of the facility (e.g., barrels per day size of the facility (e.g., barrels per day produced by a refinery, tons of steel per day produced by a refinery, tons of steel per day produced by a steel mill, gross floor area for a produced by a steel mill, gross floor area for a warehouse)warehouse)

X is an empirically derived factor based on well-X is an empirically derived factor based on well-documented historical records for a variety of documented historical records for a variety of different types of projectsdifferent types of projects

Cost-Capacity Factor Cost-Capacity Factor ExampleExample

Example Revisit:Example Revisit:



$4,200,000. We are planning to build a new warehouse in Feb. of $4,200,000. We are planning to build a new warehouse in Feb. of

2007. The ENR index for 1993, relative to the base date of 1913, was 2007. The ENR index for 1993, relative to the base date of 1913, was

2996% and the ENR index for 2007 is 4432%.2996% and the ENR index for 2007 is 4432%.

Consider the cost-capacity factor x = 0.8 for a warehouse. Consider the cost-capacity factor x = 0.8 for a warehouse. The above warehouse has a usable area of 120,000 square feetThe above warehouse has a usable area of 120,000 square feet The prospective owner for the new warehouse wants a structure with The prospective owner for the new warehouse wants a structure with

a usable area of 150,000 square feeta usable area of 150,000 square feet

Cost-Capacity Factor Cost-Capacity Factor ExampleExample

What Information Do We Need?What Information Do We Need?

QQ2/Q/Q1 = 150,000/120,000 = 1.25= 150,000/120,000 = 1.25

Cost-capacity factor x = 0.8Cost-capacity factor x = 0.8

Known cost = $4,200,000 Known cost = $4,200,000

C2 = $4,200,000 * (1.25)C2 = $4,200,000 * (1.25)0.80.8 = $5,020,851 = $5,020,851

A 25% more capacity implies only 20% more costsA 25% more capacity implies only 20% more costs

Combining Cost Indices & Combining Cost Indices & Cost-Capacity FactorCost-Capacity Factor

Combine Cost Indices & Cost Capacity Factors to Combine Cost Indices & Cost Capacity Factors to take into account changes in both time & capacitytake into account changes in both time & capacity

C2 = C1 (Ib / Ia) (Q2 / Q1)x

Where Where IIbb = Index number “Now” or present time. = Index number “Now” or present time. IIaa = Index number at that time = Index number at that time


Cost Indices & Cost-Capacity Cost Indices & Cost-Capacity Factor ExampleFactor Example

Example Revisit:Example Revisit:



$4,200,000. We are planning to build a new warehouse in Feb. of $4,200,000. We are planning to build a new warehouse in Feb. of

2007. The ENR index for 1993, relative to the base date of 1913, was 2007. The ENR index for 1993, relative to the base date of 1913, was

2996% and the ENR index for 2007 is 4432%.2996% and the ENR index for 2007 is 4432%.

Consider the cost-capacity factor x = 0.8 for a warehouse. Consider the cost-capacity factor x = 0.8 for a warehouse. The above warehouse has a usable area of 120,000 square feetThe above warehouse has a usable area of 120,000 square feet The prospective owner for the new warehouse wants a structure with The prospective owner for the new warehouse wants a structure with

a usable area of 150,000 square feeta usable area of 150,000 square feet

CC22 = 4,200,000 * (4432/2996) * (150,000/120,000) = 4,200,000 * (4432/2996) * (150,000/120,000)0.80.8 = $7,188,731= $7,188,731

Cost Indices & Cost-Capacity Cost Indices & Cost-Capacity Factor ExampleFactor Example

OutlineOutline

Conceptual EstimatesConceptual Estimates Cost indicesCost indices






Parameter Costs Source Parameter Costs Source DataData

Commonly used in building constructionCommonly used in building construction ENR “Quarterly Cost Roundup”ENR “Quarterly Cost Roundup” R.S. Means “Means Square Foot Costs”R.S. Means “Means Square Foot Costs”

Source: RS Means, Square Foot Costs Data, 2006

Parameter Costs Parameter Costs CharacteristicsCharacteristics


Relates all costs of a project to just a few physical Relates all costs of a project to just a few physical measures, or “Parameters”, that reflect the size measures, or “Parameters”, that reflect the size or scope of the projector scope of the project

E.g., warehouse - the “Parameter” would be “Gross E.g., warehouse - the “Parameter” would be “Gross Enclosed Floor Area”Enclosed Floor Area”

all costs represented by X ($/S.F) → total cost = X ($/S.F.) all costs represented by X ($/S.F) → total cost = X ($/S.F.) × the project’s gross enclosed floor area (S.F.)× the project’s gross enclosed floor area (S.F.)

With good historical records on comparable With good historical records on comparable structures, parameter costing can give reasonable structures, parameter costing can give reasonable levels of accuracy for preliminary estimateslevels of accuracy for preliminary estimates

Means Square Foot CostMeans Square Foot Cost

Costs per Square FootCosts per Square Foot Type of Facility (total 23,000 S.F apartment with 3 stories)Type of Facility (total 23,000 S.F apartment with 3 stories)


Story Height = 10’ and No BasementStory Height = 10’ and No Basement

Costs per S.F. of Floor AreaCosts per S.F. of Floor AreaMeans Square Foot CostMeans Square Foot Cost


23,000 S.F



Exterior wall

variation



Exterior wall

variation

Base Cost = 129.65 $/S.F



Perimeter&

Height Adjustment



Basement



Additives

Means Square Foot Cost Information: Detail Specs for the Cost


Means Square Foot Cost Information: Sub-total, Fees, and Total


Parameter Cost ExampleParameter Cost Example


What is the Cost for an apartment building (7 What is the Cost for an apartment building (7 Story) if the perimeter of the building is 502 Story) if the perimeter of the building is 502 L.F. and the story height is 11’-4”? Assume L.F. and the story height is 11’-4”? Assume that the apartment building has decorative that the apartment building has decorative concrete block on the east, west & south concrete block on the east, west & south walls. The north walls external finish is brick walls. The north walls external finish is brick with concrete block backup. The area of each with concrete block backup. The area of each floor of the apartment building 11,460 S.F. floor of the apartment building 11,460 S.F. The basement floor area s 4,200 S.F. Please The basement floor area s 4,200 S.F. Please use the Means Square Foot Cost to obtain an use the Means Square Foot Cost to obtain an estimate. The building frame is steel. The estimate. The building frame is steel. The apartment building is located in Atlantic City, apartment building is located in Atlantic City, New Jersey, Zip Code 07410.New Jersey, Zip Code 07410.



60’ × 191’

Characteristics of the Apartment BuildingCharacteristics of the Apartment Building 60’ x 191’ = 11,460 S.F./Floor60’ x 191’ = 11,460 S.F./Floor 2 * [191’ + 60’] = 502 L.F. Perimeter2 * [191’ + 60’] = 502 L.F. Perimeter 7 Floors7 Floors Exterior Walls: Exterior Walls:

North wall: Face brick w/ concrete block backupNorth wall: Face brick w/ concrete block backup East, West & South walls: Decorative Concrete BlockEast, West & South walls: Decorative Concrete Block

Story Height: 11’-4”Story Height: 11’-4” Basement Area: 4,200 S.FBasement Area: 4,200 S.F Steel FrameSteel Frame Located in Atlantic City, New Jersey, Zip Code 07410Located in Atlantic City, New Jersey, Zip Code 07410

Coefficients are determined from Model Number M.020 Coefficients are determined from Model Number M.020 for Apartment, 4-7 Story type (Refer to RS Means for Apartment, 4-7 Story type (Refer to RS Means (2006) - Square Foot Costs, page 80) (2006) - Square Foot Costs, page 80)




RS Means (2006) – Square Foot Costs, Page 80

Choose type




S.F. Area = 11,460 * 7 = 80220L.F. Perimeter = 502



What should be adjusted when the cost is to What should be adjusted when the cost is to be established by using the Means Square be established by using the Means Square Foot Cost Method?Foot Cost Method?

Exterior Wall VariationExterior Wall Variation

Perimeter AdjustmentPerimeter Adjustment

Story Height AdjustmentStory Height Adjustment

Basement AdditionBasement Addition

Location ModifierLocation Modifier



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


Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story Height = 10’ & No BasementStory Height = 10’ & No Basement

$128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North)$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, $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south)south)



N

Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter Basic SF Cost in R.S. Means for S.F Area=80000, L.F Perimeter = 530, Story Height = 10’ & No Basement= 530, Story Height = 10’ & No Basement

$128.35/SF when exterior walls are Brick w/ Concrete Block Backup $128.35/SF when exterior walls are Brick w/ Concrete Block Backup (North)(North)

$122.25/SF when exterior walls are Decorative Concrete Block $122.25/SF when exterior walls are Decorative Concrete Block (East, West, south)(East, West, south)

North wall makes up:North wall makes up:

[191’/502’] x 100 = 38.04 % of total building perimeter[191’/502’] x 100 = 38.04 % of total building perimeter

East, West & South walls make up:East, West & South walls make up:

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


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




Perimeter & Height Adjustment Factors



Exterior Wall Variation : Exterior Wall Variation :

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

Perimeter Adjustment:Perimeter Adjustment:

Apartment building perimeter is 28 L.F (530 -502) less than the M.020 model Apartment building perimeter is 28 L.F (530 -502) less than the M.020 model building in RS Meansbuilding in RS Means

Perimeter adjustment factor: $2.65 per 100 L.F Perimeter adjustment factor: $2.65 per 100 L.F

$124.6 – ( $2.65/100 L.F * 28 L.F ) = $123.9/S.F$124.6 – ( $2.65/100 L.F * 28 L.F ) = $123.9/S.F

Height Adjustment: Height Adjustment:

Apartment building story height is 1’ 4” (11’ 4’’-10’) more than the M.020 Apartment building story height is 1’ 4” (11’ 4’’-10’) more than the M.020 model building in RS Meansmodel building in RS Means

Height adjustment factor: $1.20 per ft Height adjustment factor: $1.20 per ft

$123.9 + $1.20 * 1.3 = $125.5/S.F.$123.9 + $1.20 * 1.3 = $125.5/S.F.

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




Basement Addition Factor



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

Basement Addition:Basement Addition:

Apartment building has 4,200 S.F basementApartment building has 4,200 S.F basement

Basement Addition Factor: $27.30 per S.F of basement areaBasement Addition Factor: $27.30 per S.F of basement area

Basement added cost : $10,067,610 + $27.30 * 4,200 S.F = Basement added cost : $10,067,610 + $27.30 * 4,200 S.F = $10,182,270$10,182,270




Location Modifier



Basement Addition:Basement Addition:

$10,182,270$10,182,270

Location Modifier for Residential Bldg: 1.13 (Refer to RS Location Modifier for Residential Bldg: 1.13 (Refer to RS Means (2006) - Square Foot Costs, page 455) Means (2006) - Square Foot Costs, page 455)

Apartment building modified total cost: $10,182,270 * 1.13 Apartment building modified total cost: $10,182,270 * 1.13 = $ 11,505,965 = $ 11,505,965





What is the Cost for an apartment building (7 What is the Cost for an apartment building (7 Story) if the perimeter of the building is 502 Story) if the perimeter of the building is 502 L.F. and the story height is 11’-4”? Assume that L.F. and the story height is 11’-4”? Assume that the apartment building has decorative concrete the apartment building has decorative concrete block on the east, west & south walls. The north block on the east, west & south walls. The north walls external finish is brick with concrete block walls external finish is brick with concrete block backup. The area of each floor of the apartment backup. The area of each floor of the apartment building 11,460 S.F. The basement floor area s building 11,460 S.F. The basement floor area s 4,200 S.F. Please use the Means Square Foot 4,200 S.F. Please use the Means Square Foot Cost to obtain an estimate. The building frame Cost to obtain an estimate. The building frame is steel is steel with an observed age of 20 years. with an observed age of 20 years. The The apartment building is located in Atlantic City, apartment building is located in Atlantic City, New Jersey, Zip Code 07410.New Jersey, Zip Code 07410.


What should be adjusted when the cost is to be What should be adjusted when the cost is to be established by using the Means Square Foot Cost established by using the Means Square Foot Cost Method?Method?






Depreciation AdjustmentDepreciation Adjustment



Depreciation Adjustment Factor



Location Modifier for Residential BuildingLocation Modifier for Residential Building

$ 11,505,965$ 11,505,965

Depreciation Adjustment for steel frame building with 20 Depreciation Adjustment for steel frame building with 20 year observed age: 20 % (Refer to RS Means (2006) - year observed age: 20 % (Refer to RS Means (2006) - Square Foot Costs, page 228)Square Foot Costs, page 228)

Depreciation Amount: 0.2 * $ 11,505,965 = $ 2,301,193Depreciation Amount: 0.2 * $ 11,505,965 = $ 2,301,193

Total Existing Building Cost: $ 11,505,965 - $ Total Existing Building Cost: $ 11,505,965 - $ 2,301,193 = $9,204,7722,301,193 = $9,204,772



OutlineOutline







Estimation Levels - RevisitEstimation Levels - Revisit


Different types of estimates are required as a Different types of estimates are required as a project evolvesproject evolves Conceptual & Preliminary EstimatesConceptual & Preliminary Estimates

Prepared early in the project prior to engineering design Prepared early in the project prior to engineering design completion (to tell Owner whether the contemplated project completion (to tell Owner whether the contemplated project scope is feasible)scope is feasible)

Incorporate new information from design to obtain an Incorporate new information from design to obtain an updated estimate of the projectupdated estimate of the project





Conceptual design

Feasibility




Important General Important General LessonLesson

Precision in detailed estimates does not mean Precision in detailed estimates does not mean accuracy!accuracy! More an art than a scienceMore an art than a science

Detailed quantitative estimates possible – but ignore important Detailed quantitative estimates possible – but ignore important qualitative factorsqualitative factors

Have differing ranges of uncertaintiesHave differing ranges of uncertainties

Actual costs depend on systemic complexityActual costs depend on systemic complexity Two types of complexity at issueTwo types of complexity at issue

Detail complexity (myriad components required)Detail complexity (myriad components required)

System complexity (dynamic interactions, etc.)System complexity (dynamic interactions, etc.)

Always consider:Always consider: What are assumptions behind the estimate?What are assumptions behind the estimate?

What factors are being ignored?What factors are being ignored?

How might these factors change the estimate?How might these factors change the estimate?

Detailed EstimatesDetailed Estimates

After most or all of the detail design work is After most or all of the detail design work is complete, approximate estimates are refined using complete, approximate estimates are refined using detailed estimatesdetailed estimates

Engineer’s Detailed EstimatesEngineer’s Detailed Estimates

Bid Detailed EstimatesBid Detailed Estimates


Conceptual design

Feasibility




Engineer’s

Engineer’s Detailed Engineer’s Detailed EstimatesEstimates

Part of actual bid documentsPart of actual bid documents

Who? - owner, consultant, CM, or design-build Who? - owner, consultant, CM, or design-build teamteam

Use unit prices databasesUse unit prices databases

Estimate = Σ [Quantity] × [Unit Prices] Estimate = Σ [Quantity] × [Unit Prices]

RS Means or other sourcesRS Means or other sources

Unit prices as result of average industry standardsUnit prices as result of average industry standards


Source: RS Means, Building Construction Cost Data, 2006

RS Means (2006) – Building Construction Cost Data, Page 84

Unit price (RS Means) = Mat. + Lab. + Equip. + Overhead + Profit


Part of actual bid documentsPart of actual bid documents

Who? – owner, consultant, or CMWho? – owner, consultant, or CM

Use unit prices databasesUse unit prices databases

Estimate = Σ[Quantity] × [Unit Prices] Estimate = Σ[Quantity] × [Unit Prices]

RS Means or other sourcesRS Means or other sources

Unit prices as result of average industry standardsUnit prices as result of average industry standards

No lump-sum subcontract quotationsNo lump-sum subcontract quotations

May be simplified number of line items (e.g., mark-up: May be simplified number of line items (e.g., mark-up: not detailed)not detailed)

Engineer’s Breakdown - Engineer’s Breakdown - ExampleExample

BuildingBuilding

FoundationsFoundations

PilesPiles

Concrete Concrete foundationsfoundations

Steel erectionSteel erection

Structural steelStructural steel

ColumnsColumns

BeamsBeams

Detail steelDetail steel

Concrete decksConcrete decks

StairsStairs


Conceptual design

Feasibility




Engineer’s Bid


Contractor’s estimate low enough to obtain the work, yet Contractor’s estimate low enough to obtain the work, yet high enough to make profithigh enough to make profit

Who? – contractorWho? – contractor

More detail depending upon the contractor’s own More detail depending upon the contractor’s own procedures procedures

Overall unit prices (past) → detailed categories (present)Overall unit prices (past) → detailed categories (present)

Often relies on Often relies on Historical productivity data for companyHistorical productivity data for company

Intuition on speed of movementIntuition on speed of movement

Quantity takeoff for most important itemsQuantity takeoff for most important items

Subcontractor bidsSubcontractor bids Sometimes less detailed than engineer’s estimates - subcontractors Sometimes less detailed than engineer’s estimates - subcontractors

from 30% to 80% of the projectfrom 30% to 80% of the project

Bid Breakdown – Bid Breakdown – ExampleExample

Building (Bid estimates)Building (Bid estimates)

Piles (material take-off)Piles (material take-off)

Concrete subcontract (lump-sum)Concrete subcontract (lump-sum)

Steel erection subcontract (lump-sum)Steel erection subcontract (lump-sum)

Building (Engineer’s Building (Engineer’s estimates)estimates)

FoundationsFoundations

PilesPiles

Concrete foundationsConcrete foundations

Steel erectionSteel erection

Structural steelStructural steel

ColumnsColumns

BeamsBeams

Detail steelDetail steel

Concrete decksConcrete decks

StairsStairs


Is estimating a streamlined process? Is estimating a streamlined process?

A look at bids received for a typical project in a competitive A look at bids received for a typical project in a competitive area will sometimes show more than 50% difference area will sometimes show more than 50% difference between the low and the high biddersbetween the low and the high bidders

Estimation Levels - RevisitEstimation Levels - Revisit


Different types of estimates are required as a project Different types of estimates are required as a project evolvesevolves Conceptual & Preliminary EstimatesConceptual & Preliminary Estimates

Prepared early in the project prior to engineering design Prepared early in the project prior to engineering design completion (to tell Owner whether the contemplated project completion (to tell Owner whether the contemplated project scope is feasible)scope is feasible)

Incorporate new information from design to obtain an updated Incorporate new information from design to obtain an updated estimate of the projectestimate of the project





Conceptual design

Feasibility




Definitive EstimatesDefinitive Estimates

There comes a time when a definitive estimate can be prepared There comes a time when a definitive estimate can be prepared that will forecast the final project cost with little margin for that will forecast the final project cost with little margin for error…error…

This error can be minimized through the proper addition of an This error can be minimized through the proper addition of an evaluated contingencyevaluated contingency

Engineer’s estimates can complete this processEngineer’s estimates can complete this process

The proper time to classify an estimate as ‘definitive’ will vary The proper time to classify an estimate as ‘definitive’ will vary according to the characteristics of the project. For example:according to the characteristics of the project. For example: Traditional Traditional

Unit-price Unit-price

Professional CMProfessional CM

Design-BuildDesign-Build

Definitive Estimates:Definitive Estimates:Traditional & Unit PriceTraditional & Unit Price

Start Contract Detailed design Preliminary design


DBB definitive estimateDBB definitive estimate

Unit Price definitive estimateUnit Price definitive estimate

Definitive Estimates:Definitive Estimates:CM & Design-BuildCM & Design-Build



CM definitive estimateCM definitive estimate

Design-Build definitive estimateDesign-Build definitive estimate

OutlineOutline







Cost Classification Cost Classification Direct CostDirect Cost

Labor CostLabor Cost Direct Labor Direct Labor

Indirect LaborIndirect Labor Material CostMaterial Cost

Equipment CostEquipment Cost

SubcontractorSubcontractor PricePrice

Indirect Cost (i.e., Job Overhead)Indirect Cost (i.e., Job Overhead) Project OverheadProject Overhead

MarkupMarkup General OverheadGeneral Overhead

ProfitProfit

ContingencyContingency

Source: Shtub et al., 1994

Cost Classification - Direct Cost Classification - Direct CostCost

Labor CostLabor Cost Direct Labor CostDirect Labor Cost

Difficult to evaluate precisely but all effort is done to get an accurate estimate as Difficult to evaluate precisely but all effort is done to get an accurate estimate as possiblepossible

Greatest amount of uncertainty in project estimationGreatest amount of uncertainty in project estimation

Indirect Labor CostIndirect Labor Cost Costs that are additional to the basic hourly rates (e.g., tax, insurance, fringe Costs that are additional to the basic hourly rates (e.g., tax, insurance, fringe

benefits)benefits)

Substantial in amount: add 25 to 50 percent to direct labor costsSubstantial 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 Commonly used approach adds indirect labor costs as a percentage to the total direct labor costs or for each major work categorylabor costs or for each major work category

Material CostMaterial Cost

All materials that are utilized in the finished structure.All materials that are utilized in the finished structure.

Equipment CostEquipment Cost

Costs Includes: ownership, lease or rental expenses, and operating costsCosts Includes: ownership, lease or rental expenses, and operating costs

Subcontractor PriceSubcontractor Price

Includes quotations from all subcontractors working on the projectIncludes quotations from all subcontractors working on the project

Quotations submitted by the subcontractor usually require extensive review by Quotations submitted by the subcontractor usually require extensive review by the general contractor’s estimator to determine what they include & do not the general contractor’s estimator to determine what they include & do not includeinclude Source: Clough et al., 2005; Barrie & Paulson,

1992

Source: Clough et al., 2005

Cost Classification – Indirect Cost Classification – Indirect CostCost

Project Overhead (i.e., Job Overhead)Project Overhead (i.e., Job Overhead)

Costs that do not pertain directly to any given construction Costs that do not pertain directly to any given construction workwork

Generally constitutes 5-15 percent of the total project costGenerally constitutes 5-15 percent of the total project cost

Costs computed by listing & evaluating each item of overhead Costs computed by listing & evaluating each item of overhead individuallyindividually

Examples of typical items included: Examples of typical items included:

Job Mobilization, Project Manager, General Superintendent, Nonworking Job Mobilization, Project Manager, General Superintendent, Nonworking Foremen, Heat, Utilities, Storage Buildings, Field Office Supplies, Job Foremen, Heat, Utilities, Storage Buildings, Field Office Supplies, Job Telephone, Computer Equipment & Software, Computer Networking & Telephone, Computer Equipment & Software, Computer Networking & Internet Connectivity, Small Tools, Permits & Fees, Special Insurance, Internet Connectivity, Small Tools, Permits & Fees, Special Insurance, Builder’s Risk Insurance, Security Clearances, Material & Load Tests, Builder’s Risk Insurance, Security Clearances, Material & Load Tests, Storage Area Rental, Protection of Adjoining Property, Field Offices, Parking Storage Area Rental, Protection of Adjoining Property, Field Offices, Parking Areas, Legal Expenses, Surveys, Engineering Services.Areas, Legal Expenses, Surveys, Engineering Services.


Cost Classification – MarkupCost Classification – Markup

Markup Markup Added at the close of the estimating processAdded at the close of the estimating process Varies between 5 to 20 percent of the job costVaries between 5 to 20 percent of the job cost Reflects the contractor’s appraisal of the probability of Reflects the contractor’s appraisal of the probability of

being the lowest bidder for the project & the chances of being the lowest bidder for the project & the chances of making a reasonable profitmaking a reasonable profit

Factors considered when deciding on a job markup Factors considered when deciding on a job markup include: project size & complexity, provisions of the include: project size & complexity, provisions of the contract documents, difficulties inherent in the work, contract documents, difficulties inherent in the work, identities of the owner & architect/engineeridentities of the owner & architect/engineer

Include allowance for:Include allowance for: General Overhead or Office OverheadGeneral Overhead or Office Overhead

Includes costs that are incurred to support the overall company Includes costs that are incurred to support the overall company construction program construction program

Normally included in the bid as a percentage of the total estimated job Normally included in the bid as a percentage of the total estimated job cost cost

Examples of general business expenses include: office rent, office Examples of general business expenses include: office rent, office insurance, heat, electricity, office supplies, furniture, telephone & insurance, heat, electricity, office supplies, furniture, telephone & internet, legal expenses, donations, advertising, travel, association dues, internet, legal expenses, donations, advertising, travel, association dues, and the salaries of executives & office employeesand the salaries of executives & office employees

ProfitProfit ContingencyContingency

Cost Classification Cost Classification (Example)(Example)


Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

Cost Classification Cost Classification (Example)(Example)


Bid Estimates = Direct Cost + Overhead + Markup (including Firm Overhead)

× 1.24

OutlineOutline







Detailed Estimates - Detailed Estimates - MethodologyMethodology

Stage 1: Quantity takeoffStage 1: Quantity takeoff

Decomposition into items, measurement of quantitiesDecomposition into items, measurement of quantities

Challenges: tremendous detail complexityChallenges: tremendous detail complexity

Stage 2: Direct Cost contributionStage 2: Direct Cost contribution

Σ[Quantity] × [Unit Price]Σ[Quantity] × [Unit Price]

Challenge: determination unit price (based on historical data)Challenge: determination unit price (based on historical data)

Example:Example:

ItemItem unitunit quantitquantityy

Unit Unit priceprice

priceprice

Reinforced Reinforced steelsteel

lblb 6,3006,300 0.600.60 $ $ 3,7803,780

Labor CostsLabor Costs

Categorized Bid Estimate (not overall unit prices)Categorized Bid Estimate (not overall unit prices)

Basic Unit Labor Cost = P / LP ($/unit)Basic Unit Labor Cost = P / LP ($/unit)

P = Price of all money elements ($/hours)P = Price of all money elements ($/hours)

LP = Labor Productivity (units/hour)LP = Labor Productivity (units/hour)

Total Labor Cost = Q * P/LPTotal Labor Cost = Q * P/LP

Q = Total quantity of workQ = Total quantity of work

Estimation of labor costs particularly trickyEstimation of labor costs particularly tricky

Prices: In United States, highly detail intensivePrices: In United States, highly detail intensive

Productivity: Many qualitative componentsProductivity: Many qualitative components

Labor Cost - Prices Labor Cost - Prices RelatedRelated

ComponentsComponents Wages (varies by area, seniority, …)Wages (varies by area, seniority, …) Insurance (varies w/contractor record, work type)Insurance (varies w/contractor record, work type) Social security benefitsSocial security benefits Fringe benefits (health…)Fringe benefits (health…) Wage premiums (e.g., overtime, shift-work differentials, Wage premiums (e.g., overtime, shift-work differentials,

hazardous work) hazardous work)

Labor Cost - ProductivityLabor Cost - Productivity

Difficult but criticalDifficult but critical

High importance of qualitative factors (environment, High importance of qualitative factors (environment, morale, fatigue, learning, etc)morale, fatigue, learning, etc)

The primary means by which to control labor costsThe primary means by which to control labor costs

Historical data availableHistorical data available

Firm updated databaseFirm updated database

Department of Labor, professional organizations, state Department of Labor, professional organizations, state governmentsgovernments

= P / LP ($/unit)= P / LP ($/unit)

Productivity Productivity ConsiderationsConsiderations

ConsiderationsConsiderations Location of jobsite (local skill base, jurisdiction rules – Location of jobsite (local skill base, jurisdiction rules –

hiring & firing)hiring & firing) Learning curvesLearning curves Work schedule (overtime, shift work)Work schedule (overtime, shift work) Weather Weather EnvironmentEnvironment

Location on jobsite, noise, proximity to materialsLocation on jobsite, noise, proximity to materials Management style (e.g., incentive)Management style (e.g., incentive) Worksite rulesWorksite rules

Learning CurvesLearning Curves

Particularly useful for repetitive works

Productivity Effects of Productivity Effects of OvertimeOvertime

Concluding RemarksConcluding Remarks

Functions of EstimatingFunctions of Estimating

Could Assess cost of construction from the conceptual Could Assess cost of construction from the conceptual design phase (Owner, Designer & Sometimes design phase (Owner, Designer & Sometimes Contractor ). Feedback toContractor ). Feedback to

Conceptual Design for Alternative ArchitectureConceptual Design for Alternative Architecture

Feasibility of the Project Feasibility of the Project

Project / Company Alignment of Objectives, Constraints, Project / Company Alignment of Objectives, Constraints, Strategic Goals and PoliciesStrategic Goals and Policies

Provide the basis for bidding & contracting Provide the basis for bidding & contracting (Contractor) (Contractor)

Provide a baseline for cost control and post project Provide a baseline for cost control and post project evaluation (Owner & Contractor)evaluation (Owner & Contractor)

Concluding RemarksConcluding Remarks

In Converting an Estimate to a Control Budget, In Converting an Estimate to a Control Budget, Consider:Consider:

The organization and categorization of costs suitable for The organization and categorization of costs suitable for preparing an estimate are often not compatible with preparing an estimate are often not compatible with realistic field cost control (e.g., might be convenient for realistic field cost control (e.g., might be convenient for the owner)the owner)

Estimates necessarily deal in averages, whereas tighter Estimates necessarily deal in averages, whereas tighter standards are sometimes desirable for control purposesstandards are sometimes desirable for control purposes

1.040/1.401 project management spring 2007 lecture 6 estimating dr. sanghyun lee [email protected]...

Documents

project cost

cost indices source

present cost indices

project detailed estimates

cost of similar facilities

building cost index

different types of estimates

changes of costs