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PARAMETRIC
COSTESTIMATING
SPEAKER: OTTORINO MAGGIORE VAN BEEST - PMP
SAN DONATO MIL.SE - APRIL 9, 2010
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TABLE OF CONTENTS
PARA... WHAT?
PARA... WHEN?PARA... WHY?
PARA... START!
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PARA... WHAT?
PMI PMBOK
CHAPTER 7 - PROJECT COST MANAGEMENT
PARA 7.1 - ESTIMATE COSTS
SUB-PARA 7.1.2 - ESTIMATE COSTS: TOOLS AND TECHNIQUES
POINT 7.1.2.3 - PARAMETRIC ESTIMATING (PAGE 172)
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PARAMETRIC ESTIMATING USES A STATISTICAL RELATIONSHIP BETWEEN HISTORICAL
DATA AND OTHER VARIABLES (E.G. SQUARE FOOTAGE IN CONSTRUCTION) TO
CALCULATE AN ESTIMATE FOR ACTIVITY PARAMETERS, SUCH AS COST, BUDGET AND
DURATION.
THIS TECHNIQUE CAN PRODUCE HIGHER LEVELS OF ACCURACY DEPENDING UPON THE
SOPHISTICATION AND UNDERLYING DATA BUILT INTO THE MODEL. PARAMETRIC COST
ESTIMATES CAN BE APPLIED TO A TOTAL PROJECT OR TO SEGMENTS OF A PROJECT, IN
CONJUNCTION WITH OTHER ESTIMATING METHODS.
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PARA... WHAT?
PARAMETRIC COST ESTIMATING (PCE) = STATISTICAL OR STOCHASTIC COST ESTIMATE
PARAMETER = THE COST DRIVER(S)
COST ESTIMATING RELATIONSHIP (CER):
COST-TO-COST: ANCILLARIES F(MAIN ITEM)...
COST-TO-NO-COST: COST F(WEIGHT, MATERIAL, POWER, FLOW RATE, VOLUME,SURFACE, LENGHT, DWS. N, LINES OF CODE, ...)
GENERAL FORM OF CER: Y = F (X)
F: FUNCTIONAL RELATIONSHIP
X: INDEPENDENT VARIABLE OR PARAMETER
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PARA... WHAT?
TYPICAL CURVES USED FOR CERS:
LINEAR
SEGMENTED LINEAR
POLYNOMIAL
POWER LAW
LOGARITHMIC
EXPONENTIAL
RATIONAL
POWER SERIES
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PARA... WHEN?
TIME & PROJECT DETAILS
ANALOGUS
ESTIMATING
AACEI - RP N 17R-97
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FOR ENGINEERING & CONSTRUCTION PROJECTS
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PARA... WHY?
CAN BE ACCURATE AS DEFINITIVE COST ESTIMATES
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PARA... WHY?
IF YOUR BOSS TELLS YOU: WE NEED THE PROJECT COST ESTIMATE BY TOMORROW
YOU...
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PARA... WHY?
PARAMETRIC COST ESTIMATING - TOP BENEFITS:
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CONSIDERABLY REDUCING COST & TIME CYCLE FOR PROPOSAL PREPARATION,
EVALUATION AND NEGOTIATION
ABOVE BENEFITS CAN BE ACHIEVED WHILE MAINTAINING OR IMPROVING THE
QUALITY OF THE ESTIMATES PRODUCED
COST AND CICLE TIME SAVINGS UP TO 80%
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PARA... WHY?
PARAMETRIC COST ESTIMATING - MAIN ROADBLOCKS:
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CULTURAL RESISTANCE
SIGNIFICANT INITIAL INVESTMENT
LIMITED GUIDANCE HOW TO MANAGE PROPOSALS BASED ON PCE
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PARA... WHY?
PARAMETRIC COST ESTIMATING - OBJECTIVES:
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PRODUCTION OF MORE RELIABLE ESTIMATES
SHORTER TIME REQUIRED
BETTER DATA UNDERSTANDING
EASIER TO COMPUTE CONCEPTUAL DESIGNS
NO OTHER MEANS TO ESTIMATE EARLY COSTING
BILL OF MATERIAL IS NOT REQUIRED
MUCH EASIER TO HANDLE SCOPE, TECHNICAL AND PERFORMANCE CHANGES
BETTER RISK MODELLING AND UNDERSTANDING
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PARA... WHY?
PARAMETRIC COST ESTIMATING - USE OF OUTPUTS:
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PROPOSAL PRICING
ROUGH ESTIMATES
ECONOMIC STUDIES
ACTIVE PROJECT MANAGEMENT - SUPPORTS EARNED VALUE
RISK ANALYSIS
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PARA... OWNER-CONTRACTOR...?
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OWNER CONTRACTOR
screening or
feasibility
stochastic or
judgement
concept study or
feasibility
primarly
stochastic
budget,
authorization, or
control
mixed, but
primarly
stochastic
control or / bid /
tender
primarly
deterministic
check estimate
or bid / tenderdeterministic
POSSIBLE
COMMON
UNDERSTANDING
&
INVESTMENTS
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PARA... FORMULA?
EXAMPLES: COST CAPACITY FORMULA
INDUSTRIAL PLANTS
C2 = C1 (Q2/Q1)K
LOG C2 = LOG C1 - K LOG Q1 + K LOG Q2
Y = A + K X
0.2 K
AVERAGE = 0.6
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LOG C
LOG Q
COMMERCIAL JET AIRPLANES
LOG C = F (LOG MAX TAKE-OFF WEIGHT) K = 0.85
LOG C = F (LOG NUMBER OF SEATS) K = 1.10
LOG C = F (LOG LENGHT) K = 1.90
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PARA... FORMULA?
EXAMPLES: PLANT EQUIPMENT
SHELL & TUBE HEAT EXCHANGER BEU TYPE - CARBON STEEL
CHE = EXP [A + B LN (W)]
4400
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PARA... FORMULA?
ENTIRE PLANT
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CE1 CE2 CE3 CE4 CE5 CE.. CEN
CET1 CET2 CET3 CET4 CET5 CET... CETN
BASE COST =
I CETI
TOTAL COST = BASE COST + ESCALATION + CONTINGENCY
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PARA... FORMULA?
EXAMPLE: OFFSHORE PLATFORM DECOMMISSIONING
PLUG AND ABANDONMENT
C1 = K0 + K1 CT + K2 JOB + K3 NW + K4 RIG + K5 WB + K6 SEASON + K7 WOW
CT = CONTRACT TYPE (=0 X RATE CONTRACT; = 1 TURNKEY CONTRACT)JOB = JOB SPECIFICATION (=0 TEMPORARY PLUG & ABANDON; =1 PERMANENT P&A)NW = NUMBER OF WELLSRIG = RIG DEPLOYMENT (=0 RIGLESS OPERAT.; =1 RIG OPERATION)WB = WORKBOAT DEPLOYMENT(=0 WORKBOAT NOT EMPLOYED; =1 WORKBOAT EMPLOYED)SEASON = SEASON WHEN THE WORK BEGANWOW = WAITING ON WEATHER (=NO WEATHER INTERRUPTION; =1 WEATHER INTERRUPTION)
STRUCTURE REMOVAL
C2 = H0 + H1 ST + H2 WD + H3 CF + H4 MW + H5 TW + H6 REEF + H7 TOW
ST = STRUCTURE TYPE (=0 CAISSON; =1 OTHERWISE)WD = WATER DEPHTCF = COMPLEXITY FACTOR = NC (NUMBER OF CONDUCTORS) + NPL (PIPELINE ATTACHMENTS) + NP (PILES) + NSP (SKIRT PILES ASSOCIATED WITH THESTRUCTURE)MW = MAXIMUM COMPONENT WEIGHTTW = TOTAL STRUCTURE WEIGHT (DECK + JACKET + EQUIPMENT + PILING AND CONDUCTORS)REEF = STRUCTURE DISPOSITION (=0 ON-SHORE REMOVAL; =1 ARTIFICIAL REEF DONATION)TOW = REEF REMOVAL METHOD (=0 TOPPLED-IN-PLACE OR PARTIALLY REMOVED; =1 TOWED TO SITE)
SITE CLEARANCE AND VERIFICATION
C3 = W0 + W1 AGE + H2 WD + H3 ND + H4 N
AGE = AGE YEARS UPON REMOVALWD = WATER DEPHTND = NUMBER OF DAYSN = NUMBER OF ITEMS COLLECTED
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STUDY BY MARK J. KAISER
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PARA... POWER FORMULA?
OPTIMIZATION STUDIES
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FROM CONCEPT
TO ALTERNATIVE PROJECTS
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PARA... FROM?
PARAMETRIC COST ESTIMATING - BUILDING CERS:
CERS ARE BUILT UPON STATISTICAL DATA ANALYSIS
SIGNIFICANCE OF CERS IS QUANTIFIED BY SEVERAL PARAMETERS; MOST
IMPORTANT:
COEFFICIENT OF DETERMINATION R2 : REPRESENTS THE PORTION OF VARIATION
IN THE INDEPENDENT VARIABLE THAT HAS BEEN EXPLAINED BY THE REGRESSION
LINE
0R21
R2 ACCEPTABLE 0.70
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PARA... WHY?
PARAMETRIC COST ESTIMATING - ARE YOU SURE COST DRIVERS YOUR
ORGANIZATION IS USING ARE CORRECT?
AN EXAMPLE - STUDY ON SAUDI ARABIAN RESIDENTIAL VILLA
COST = F (PARAMETER)
COST DRIVER = PERIMETER TO FLOOR RATIO = WALL AREA (M2) / PLAN AREA (M2)
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TYPICAL:
- GROSS FLOOR AREA 600 M2
- EXTERIOR DIMENSION 15 X 20 M
- N 2 FLOORS- STORY HEIGHT 3 M
TYPICAL
STUDY BY A.D. IBRAHIM, A.A. SHASH, S.A. ASSAF, O.A. JANNADI
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PARA... CURVES?
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PARAMETRIC COST ESTIMATING - BUILDING CERS:
CURVES USUALLY PROVIDE MORE CREDIBLE
AND ACCURATE RELATIONSHIPS
LINEAR RELATIONSHIPS ARE VERY RARE
AND OF LIMITED VALIDITY
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PARA... PROCESS!
PARAMETRIC MODEL BUILDING PROCESS
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MODEL
REQUIREMENTS
DATA
SUPPORT MODEL
REQUIREMENTS?
DATABASE
DEVELOPMENT
NO
YES
MODEL
DEVELOPMENT
CALIBRATION AND
VALIDATION?
NOT
OK
UPDATE REQUIRED?
YES
OKDOCUMENT
RESULTS
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PARA... START!
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DATABASE DEVELOPMENT - DATA NORMALIZATION
NORMALIZATION = DATA CORRECTION FROM DISSIMILARITIES, SUCH AS:
SOURCED FROM DIFFERENT ORGANIZATIONS
CHANGES IN ORGANIZATION
LEARNING / FORGETTING EFFECT
CURRENCY FLUCTUATION
ESCALATION
UNUSUAL EVENTS
ETC.
MAIN LIMITATION: UNRECORDERED DATA / INFO UNAVAILABILITY
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PARA... START!
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PARA... START!
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PARA... START!
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SOME IDEAS TO WORK ON
OWNER - CONTRACTOR RELATIONSHIP: PCES BASED BIDS
CONTRACT STRUCTURE
CONTRACT SCOPE AND PRICE
OWNER & CONTRACTOR COMMON INVESTMENTS
SHARE INFO & DATA ESTABLISH COMMON TEAM
DEVELOP REAL PARTNERSHIP
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PARA... START!
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CONCLUSIONS
REQUIRES MANAGEMENT SUPPORT
NEEDS COMPANY CHAMPIONS
REQUIRED CONSTANT SELLING
CONSIDERABLE START-UP COST
TEAM REQUIRES TRAINING
REQUIRED CULTURE CHANGE
IMPLEMENTATION IS A CHALLENGING EFFORT
DATABASE DEV. AND DATA NORM. ARE THE MOST CHALLENGING EFFORTS
EFFORT: 95% DATABASE DEV. & DATA NORM., 5% CALIBRATION
REQUIRED PROJECT FULL UNDERSTANDING
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PARA... START!
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CONTACT:
OTTORINO MAGGIORE VAN BEEST
E-MAIL: