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JOURNEYMAN WELDING & PIPING SERVICES

INTERNATIONAL CORPORATION

Estimated by: Venjie Menchavez JWPSI

Manpower Sub Contracting Services to


Daelim Engineering
Project Bataan Refinery & Power Plan Project

Estimated by: Venjie Menchavez JWPSI

Forecast investment to set up office on project site


plus canteen and housing of the workers and service
transport, Ph. 1,500.00 to Ph.2,800.00
Organizations will have well worn (and reasonably
accurate) methods for creating the initial project
estimate based on past experience.
However - every project is unique

So the estimating process always has some level of

uncertainty (and therefore RISK) associated with it.

The PM must understand the organizations


accounting practices to the extent that they are
imposed on the project budgeting and control
process.
Estimated by: Venjie Menchavez JWPSI

Cost estimation is part science, part art.

Office & staff house Rent Ph. 35,000 Monthly (1month deposit 3 months
advance)
Telephone bill, Power bill, Water bill, Internet, janitorial.
Office equipment, supply, materials estimated cost 250,000

2 unit 1HP aircon


7 office table
6 computer set
I unit Fax Machine
I unit 3 in 1 Printer scanner, xerox
Telephone Line
Internet connection

Office staff salaries

Project manager ph. 75,000 Monthly


Admin officer 15,200.00
Project Coordinator ph. 12,000 Monthly
Accounting Clerk ph. 10,000
Field Coordinator Ph. 11,000 Monthly
Time keeper Ph. 10,000 Monthly

Workers Canteen estimated budget 1,500,000 depending on the numbers of


the workers being feed 3 times a day plus O.T
Company Service car ????

Estimated by: Venjie Menchavez JWPSI

Position
Supervisor mix
QA QC Piping Welding
Foreman Piping
Foreman Welding
Foreman Electrical
Foreman Rigger
Foreman Painting Blasting
Crane Operator
Gtaw/Smaw Welder SS
Gtaw/Smaw Welder CS
6G smaw Pipe welder CS
FCAW Welder 3G/4G
Plate Welder 3G/4G
Pipe Fitter
Pipe Fabricator
Structural Fitters
Millwright
Instrument Tech
Rigger Erector
Scaffolder
Helper Welder

Given Salary
- 30,000 = 35,000
22,000 Monthly fix
850
900
850
800
- 800
800
- 800
- 650
550
- 500
400
650
650
550
650
600
500
- 500
400

Estimated by: Venjie Menchavez JWPSI

Projected Income
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T
Plus O.T

# of workers Required

The budget for an activity also implies management


support for that activity

The higher the budget, relative to cost, the higher


the managerial support

The budget is also a control mechanism


Many organizations have controls in place that prohibit

exceeding the budget


Comparisons are against the budget
Estimated by: Venjie Menchavez JWPSI

On most projects
Material + Labor + Equipment + Capital +

Overhead + Profits = Bid

In other words
Resources + Profits = Bid

So budgeting is in effect, the task of


forecasting resources
Estimated by: Venjie Menchavez JWPSI

Like any forecast, this includes some uncertainty

There is uncertainty regarding usage and price


Especially true for material and labor

The more standardized the project and


components, the lower the uncertainty

The more experienced the cost estimator, the lower


the uncertainty (and therefore the RISK)

Estimated by: Venjie Menchavez JWPSI

1.
2.

3.
4.
5.
6.

There may not be as much historical data or none


at all
Even with similar projects, there may be significant
differences
Multiple people have input to the budget
Multiple people have some control over the budget
There is more flexibility regarding the estimates
of inputs (material and labor)
The accounting system may not be set up to track
project data
Estimated by: Venjie Menchavez JWPSI

1.
2.
3.

Top-down
Bottom-up
Negotiated

Estimated by: Venjie Menchavez JWPSI

The technique of developing a budget by comparing


this project to past ones using the judgment and
experience of management.
Typically an overall budget is assigned to the
project to be distributed to the individual tasks.
If the projects being used for comparison are similar
enough, this process can result in a fairly accurate
total number.
The process of distributing the total can create a lot
of conflict among the management team.

Estimated by: Venjie Menchavez JWPSI

ADVANTAGES

DISADVANTAGES

Overall project budgets can


be set/controlled very
accurately
Management has more
control over budgets
Do not need to do as much
up-front planning

Estimated by: Venjie Menchavez JWPSI

More difficult to get buy in


Leads to low level
competition for larger
shares of budget

The process of developing budgets by asking


the people who will perform the individual
tasks on the WBS for their estimates.
These individual numbers are then rolled up
to a summary for presentation to
management.

Estimated by: Venjie Menchavez JWPSI

ADVANTAGES

Greater buy in by low level


managers
More likely to catch
unusual expenses

Estimated by: Venjie Menchavez JWPSI

DISADVANTAGES

Need a good WBS


Can lead to game playing
when individuals pad their
estimates in anticipation of
management cuts.
Management has a
tendency to trim the
budget as they have not
originated it

Using the bottom-up estimates, costs can be


applied to each WBS element.
These are typically calculated by taking the labor
hour estimate and dollarizing it using appropriate
labor and overhead rates.
To be accurate, the estimator needs to understand
the relationship between the labor estimate and the
actual number of hours that will be charged to the
project because of personal time and inefficiencies.
A similar process must be used if machine time or
other resources are charged to the project.

Estimated by: Venjie Menchavez JWPSI

Typically the budgeting process requires some negotiation


between the PM and senior management.
This is because the PM will be better informed on the
technical details while management will know more about
the financial realities of the business.
Together they need to discuss the project requirements and
life cycle.
If the project is heavily dependent on testing and integration
at the end, then its important to not short change the
budget for the completion process.

Estimated by: Venjie Menchavez JWPSI

Organizations are use to budgeting (and collecting


data) by category
These activities correspond to line items in the
budget

Examples include phone, utilities, direct labor,

Projects need to accumulate data and control


expenses differently by collecting project costs
according to the WBS
This results in program or activity budgeting

Estimated by: Venjie Menchavez JWPSI

Estimated by: Venjie Menchavez JWPSI

Table 7-1

Estimated by: Venjie Menchavez JWPSI

Table 7-2

Inputs from a lot of areas are required to estimate a project

May have a professional cost estimator to do the job

Project manager will work closely with cost estimator when


planning a project

Most projects are concerned only with estimating direct


costs rather than indirect costs (although the PM will need to
know which is required)

PM must build contingencies into the process to account for


uncertainty. One way to do this is to use the process of
developing likely , optimistic and pessimistic estimates.
Most firms add 5-10 percent for contingencies
Estimated by: Venjie Menchavez JWPSI

Projects are known for being over budget


It is unlikely that this is due to deliberate underestimating

There are two types of errors


Random
Systematic

There is nothing we can do about random errors


Want to eliminate systematic errors

Estimated by: Venjie Menchavez JWPSI

Studies and common sense have shown that as


people repeat a task they get better at it.
This idea is formalized in the concept of the learning
curve, which states that each time the output
doubles the worker hours per unit decrease to a fixed
percentage of their previous value.
This effect is important because the estimator must
determine the impact learning had on past projects
(and their rates) and predict its impact on the one
being estimated.

Estimated by: Venjie Menchavez JWPSI

Projects that involve new technologies or processes


are very difficult to estimate because past
performance is not a useful guide.

An almost certain, immediate result of installing a


new cost-saving program is that costs rise
May be resistance to change.or
When we alter a system, we disturb its functioning and it

reacts in unpredictable ways

Estimated by: Venjie Menchavez JWPSI

Changes in resource costs due to factors like


inflation PM must build in appropriate
contingencies identifying areas of greatest
exposure
Waste, spoilage, and labour turnover
People, as resources are not freely
interchangeable with each other. The project
may require five people, but if they are not
the right people, the number available is
irrelevant.
Estimated by: Venjie Menchavez JWPSI

Ideas based on work by Fred Brooks The Mythical Man


Month

Tendency to underestimate the time intellectual work will


take

A lot of risk is involved in projects that consist of a series of


components, all of which must work for the project to
succeed

Estimated by: Venjie Menchavez JWPSI

We have a (mistaken) tendency to assume


that workers and time are interchangeable,
so adding more workers should reduce the
time taken
Brooks asserts that: adding manpower to a
late software project makes it later
Why?
Estimated by: Venjie Menchavez JWPSI

Data can be collected on the quality of project


estimates by using statistical techniques.
The estimate is compared to the actual, and
statistics like the Mean Absolute Deviation (MAD),
the Mean Absolute Ratio (MAR) and the Tracking
Signal can be calculated.
These are all used to detect bias or non-random
error in the estimate.

Estimated by: Venjie Menchavez JWPSI