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Construction Project Estimation

Brent Young CEE 320 Fall 2012

COST CLASSIFICATION how do we define different types of costs?

outline

LIFE CYCLE COSTING construction + maintenance + operation" ESTIMATION LEVELS investment / accuracy tradeoff
SUMMARY whats the point?

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TOTAL COST
Indirect Cost

+ Direct Cost + Markup


General Overhead

Contingency

+ Project Overhead

+ Profit

Subcontractor Price

+ Material + Equipment + Labor


Direct

+ Indirect

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labor costs
Direct Labor Cost

1( 2(

all elements of labor expense/hour Labor expense/ production unit

)( total hours ) = labor cost total )(production units) = labor cost

Determined from basic wage and production rates for a given work type
Estimator keeps a comprehensive record of wage and production rates from past projects Difficult to evaluate. . . Most uncertainty in the entire estimate.
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labor costs
Indirect Labor Cost

INCLUDES:

1. Payroll Taxes: State and Federal income taxes 2. Insurance: workers comp, public liability, property damage, social security, and state and disability unemployment insurance 3. Employee fringe benefits: Health insurance, vacation time, pensions, apprenticeship training

Substantial additional cost. . . 25-50% add to direct labor costs.


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material costs
All material either produced or purchased by the contractor

INCLUDES: EXAMPLES:

1. Cost of the actual material 2. Freight or Transportation 3. Storage & Security

ALL material that is going to be utilized in the finished structure.


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1( 2(

equipment costs

)(total production units) = labor cost total expense/ total )(equipment hours ) = labor cost hour

total expense/ production unit

INCLUDES:
1. 2. 3. 4. 5.
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Ownership Lease or rental expenses Operation costs Mobilization (move-in, erection) De-mobilization (dismantling, move-out)

EXAMPLES:

labor + material + equipment costs

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HW2 due tonight

Admin

o
o o

SP2 Grades will be posted by Friday


Turner 101 replaced with pre-fair networking event
Meeting Time Pedro Charles Wednesday Group 1 Group 9 SP Meeting with TAs 10:00 AM 10:15 AM Group 2 group Group 10 o Send at leastWednesday one representative from your AM Group 3 Group 11 o Be prepared Wednesday to discuss10:30 your project choice Wednesday 10:45 AM Group 4 Group 12 o Schedule is posted on netfiles Wednesday 11:00 AM Group 5 Group 13 Wednesday 11:15 AM Group 6 Group 14 HW3 posted today due October 4, 2011 Wednesday 11:30 AM Group 7 Group 15 Wednesday 11:45 AM Group 8 Group 16

o o
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Exam 1 is on Tuesday, September 27,17 2011 Thursday 2:00 PM Group


Thursday 2:15 PM Group 18

subcontrator price
1. Include price quotes from all subcontractors involved in the project 2. All price quotes will typically be time-stamped 3. Price quotes will require extensive review by the General Contractors estimator to determine scope
survey, excavation, underground utilities, asphalt, striping, fencing, playground equipment, landscaping, signage, security, concrete, masonry, glazing, kitchen equipment, gym flooring, other flooring, acoustical ceiling tile, dryall, paint, classroom furniture, cabinetry, fire suppression, electrical, heating, ventilation, plumbing, sealants, gym equipment, audio/visual, roofing, sheet metal, carpentry. . .

Nearly 30 different subcontracts.


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indirect cost
Project Overhead 1. Costs that do not pertain to any specific construction activity 2. Generally between 5-15% of the total project cost 3. Costs are computed by listing and evaluating eachGeneral Job Mobilization, Project Manager, Superintendent, item of overhead individuallyNonworking Foremen, Heat,

EXAMPLES:

Utilities, Storage Buildings, Field Office Supplies, Job Telephone, Computer Equipment & Software, Computer Networking & Internet Connectivity, Small Tools, Permits & Fees, Special Insurance, Builders Risk Insurance, Security Clearances, Material & Load Tests, Storage Area Rental, Protection of Adjoining Property, Field Offices, Parking Areas, Legal Expenses, Surveys, Engineering Services.

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indirect cost
Project Overhead

EXAMPLE:

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$8,000,000 total budget - $477,000 in indirect costs 6% of project total

indirect cost
Contingency
1. 2. 3. 4. 5. Set percentage of the construction budget for unforeseen costs or design shortfalls identified after construction begins Less design completed = larger contingency Percentage is negotiated as part of the construction contract Often have contingencies included for multiple parties: owner, designer, contractor What do we do with contingency left over?

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markup
General Overhead costs not associated with a specific project office rent, office insurance, heat, electricity, office supplies, furniture, telephone & internet, legal expenses, donations, advertising, travel, association dues, and the salaries of executives & office employees

INCLUDES:

Total general overhead typically between 3 10% of annual volume


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markup
Profit How do we decide what profit should be?
DBB: based on probability of being lowest bidder DB: based on owner tolerance of contractor profit Project size and complexity Provisions of contract documents Difficulties inherent in the work Identities of owner and designers Overall market climate and outlook

Total amount of profit projected in the bid cost(fee)

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TOTAL COST
Indirect Cost

+ Direct Cost + Markup


General Overhead

Contingency

+ Project Overhead

+ Profit

Subcontractor Price

+ Material + Equipment + Labor


Direct

+ Indirect

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COST CLASSIFICATION how do we define different types of costs?

outline

LIFE CYCLE COSTING construction + maintenance + operation" ESTIMATION LEVELS investment / accuracy tradeoff
SUMMARY whats the point?

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life cycle costing

% of total LCC

time Effect of decisions on life cycle cost


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life cycle costing

% error in cost estimates

time Cost estimate errors over time


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life cycle costing

PRIOR PLANNING PREVENTS POOR PERFORMANCE


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life cycle costing

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life cycle costing

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life cycle costing

Strategic or long-term budgeting

Strategic or long-term technical decisions


Data analysis and processing Logistic support analysis

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life cycle costing


Life Cycle Cost Analysis
80

70

60

50 O&M Cost Millions 40 Initial Cost Life Cycle Cost

30

20

10

0 Alt 1 Alt 2 Alt 3 Alt 4

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COST CLASSIFICATION how do we define different types of costs?

outline

LIFE CYCLE COSTING construction + maintenance + operation" ESTIMATION LEVELS investment / accuracy tradeoff
SUMMARY whats the point?

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1. Order of Magnitude 2. Conceptual

estimation levels
Less Effort/Expense Less Accurate

3. Preliminary
4. Definitive

5. Engineers/Owners
6. Bid Level
More Effort/Expense More Accurate
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1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

PROJECT PHASE: business planning

DESIGN COMPLETE: less than 1%


TYPICAL CONTINGENCY: 100 200% INFORMATION REQUIRED: project purpose/product ESTIMATING STRATEGY: index methods

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1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

index methods

1. Show changes of costs over time by upgrading the cost of similar facilities from the past to the present
2. Published periodically by Engineering News Record (ENR) and other publications 3. ENRs Building Cost Index (BCI) is based on material and labor costs over a 20 city average

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1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

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1order of magnitude 2conceptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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2702 2751 2834 2996 3111 3112 3203 3364 3391 3456 3539 3574 3623 3693 3984 4205 4369 4485 4691 4769

tude 2conceptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

PROJECT PHASE: feasibility

DESIGN COMPLETE: 2-5%


TYPICAL CONTINGENCY: 30-50% INFORMATION REQUIRED: facility capacity, project, owners management team, consultant/cm/turnkey contractor

ESTIMATING STRATEGY: index methods, cost capacity ratios, comparable projects, industry published data
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ptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

PROJECT PHASE: conceptual design

DESIGN COMPLETE: 15-30%


TYPICAL CONTINGENCY: 15-40% INFORMATION REQUIRED: geo-technichal info, project flow diagram, preliminary equipment list, preliminary project schedule

ESTIMATING STRATEGY: component ratios, vendor quotes by phone, past projects


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ptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

component ratios
1. Focus on major equipment (compressors, pumps, furnaces, refrigeration units, belt conveyors, turbine generators, etc)
2. Plant-Cost-Ratio estimates the cost of an entire facility based on size and type of major items of installed equipment 3. Procedure: multiply the purchase cost by empirically documented installation cost factor 4. Total cost will include shipping, erection labor, ancillary fitting, and supplies

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ptual 3preliminary 4definitive 5fair cost 6bid level

estimation levels

component ratios

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minary 4definitive 5fair cost 6bid level

estimation levels

PROJECT PHASE: design development

DESIGN COMPLETE: 50-75%


TYPICAL CONTINGENCY: 10-20% INFORMATION REQUIRED: design development drawings, specifications, contracting plan, longlead equipment, cpm schedule

ESTIMATING STRATEGY: vendor quotes, long-lead orders, key quantities defined, labor unit rates
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minary 4definitive 5fair cost 6bid level

estimation levels

key quantities defined

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initive 5fair cost 6bid level

estimation levels

PROJECT PHASE: pre-bid

DESIGN COMPLETE: 90-95%


TYPICAL CONTINGENCY: 5-10% INFORMATION REQUIRED: complete design and bidding data (bid package)

ESTIMATING STRATEGY: detailed quantity takeoff, set unit prices


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initive 5fair cost 6bid level

estimation levels

detailed quantity takeoff

We want to estimate the total cost of the windows on the north side of the addition.

North Elevation
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r cost 6bid level

estimation levels

PROJECT PHASE: construction

DESIGN COMPLETE: 100%


TYPICAL CONTINGENCY: 5% INFORMATION REQUIRED: contractors, subcontractors, vendors, bid addenda, accurate schedule

ESTIMATING STRATEGY: delivery terms, detailed evaluation of labor craft & productivity, subcontractor submitted bids, defined indirect costs
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r cost 6bid level

estimation levels

defined indirect costs & markup


1. Negotiated contingency or contingencies 2. Staffing decisions including on-site management, office management and executive oversight 3. Negotiated fee (profit) 4. Assigned general overhead

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1. Order of Magnitude 2. Conceptual

estimation levels
Less Effort/Expense Less Accurate

3. Preliminary
4. Definitive

5. Engineers/Owners
6. Bid Level
More Effort/Expense More Accurate
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COST CLASSIFICATION how do we define different types of costs?

outline

LIFE CYCLE COSTING construction + maintenance + operation" ESTIMATION LEVELS investment / accuracy tradeoff
SUMMARY whats the point?

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Errors and deviations in estimates:


1. Proper Evaluation of Labor Productivity 2. Effects of Local Practices 3. Market Competitiveness 4. Weather Conditions 5. Completeness of Plans and Specifications

summary

Bids received for a typical project will sometime show more than

50% difference between low and high bidders.


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Functions of Estimating

summary
Alternative architecture

Assess cost of construction for conceptual decision-making:


Feasibility for construction and operation Alignment of company strategic goals

2Provide basis for bidding and contracting


3Provide ONE criterion for organizing the project

4Provide a baseline for cost control and post project evaluation


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