Estimating 100

Introduction to Estimating

Estimating 100 - Introduction to Estimating

Contents
Purpose
Definition of an Estimate
Types of Estimates
Elements of an Estimate
Tools
Reviews
Key Points to Remember
Questions

Definition of an Estimate

A cost estimate may be defined as an evaluation of

all costs of the elements of a project or effort as
defined by an agreed upon scope and execution plan.
Key factors:
An estimate must have context
The methodology must be well documented
It should be run like a project
Use accepted standards that can be repeated

Purposes and Uses

Estimates

work

are prepared to quantify the cost required to complete a scope of

Scope of Facilities
Scope of Services
Uses

Evaluate the economic viability of a project

Input to NPV or IRR calculations
Evaluation of various alternative configurations/approaches

Provide the basis for bidding

Provide a baseline against which a project team can monitor the progress
of an effort and forecast the ultimate outcome
One of the seven Baseline Centricsm elements

Evaluate the cost impact of a change in the scope of facilities or

services
Establish a benchmark for evaluating a third party bid/proposal
Provide data for schedule and progress measurement
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Key Baseline Elements

All of the Baseline Elements are part of the Estimate Basis:

Contract or Legal Framework

Scope of Work (Facilities and Services)

Project Execution Plan

Cost Estimate (i.e. what we are preparing)

Schedule

Risk Assessment

Economic Basis/Pricing/Profit Basis

The Estimating Process

Scope Documents
Prepared

Scope Quantified

Installation Labor
Priced
Assemble
Estimate

Authorization to
Proceed
Estimate Plan
Developed

External Pricing
Solicited

Conduct Reviews
for final Approval

Material Pricing

Transmit to Client

Benchmark
various
components
Generate Internal
Pricing

Price Home Office

Services

General Sequence of events

Accuracy versus Scope Definition

Estimate Classes
The

following are the estimate classifications per the Association for the
Advancement of Cost Engineering International (AACEI). Fluor has adopted
this as the standard classification methodology.
Class

5 This is a fast screening study estimate that is typically a capacity

factored estimate. Range of -30% to +50%.
Class

4 This is the estimate that is typically produced at the end of an

Feasibility or Conceptual stage. Range of -20% to +30%.
Class

3 This is the estimate that is typically produced at the end of a

Planning stage for project funding. Use equipment based estimate plus forced
or conceptual MTOs. Range of -15% to +20%.
Class

2 This estimate is typically produced at about 50% of engineering prior

to start of significant construction effort. Primarily discipline generated
MTOs supplemented. Uses actual drawings or design data Range of -10% to
+15%.
Class

1 This estimate is typically produced after engineering is complete and

much of the material is purchased. It is typically a fall out of the design
work. Range of -5% to +10%.
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Estimate Documents for Each Class of Estimate

Typical key documents needed to produce estimates:
Class

5 High Level Description: Block flow diagram, unit

capacity listing, simple written scope of facilities
Class

4 Conceptual Design: PFDs, preliminary sized equipment

list, plot plan, transpositions
Class

3 Project Proposal or Plan: P&IDs, sized equipment list,

plot plan, transpositions, one line diagram, instrument index
Class

2 Detailed Engineering: P&IDs, sized equipment list, plot

plan, key isometrics, transpositions, one line diagram, cable
schedule, instrument index, civil drawings
Revamps

need as much detailed information as possible (including

digital photos) these are the most challenging estimates to
produce

Types of Estimates

Conceptual
Capacity Factored
Equipment Based

Semi-detailed

Detailed
Forced
Fall out

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Capacity Factored Estimate

A capacity factored estimate is one in which the cost of a

facility is derived from statistical relationships between
historical costs and plant capacity

where
A =
B =
C =
D =
E =

Basic Formula
( A / B ) E x C = D
Capacity, size or weight of new unit.
Capacity, size or weight of existing unit.
Purchased cost of existing unit
Required cost of new unit
Exponent (Typically Range from 0.5 to 0.9)

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Equipment Based Estimate

An equipment factored estimate is one in which the cost
of a battery-limits facility is derived from the major
equipment in that facility through the use of equipment
installation factors or equipment modeling. There are two
major approaches:
Equipment

Factoring Price of a piece of equipment times

a factor to cover the cost of bulk material and labor.
Equipment

Modeling Using third party software (i.e.

Kbase or Oil and Gas Manager) to develop a direct cost
base on equipment and design specification.
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Semi-Detailed Estimate

A semi-detailed estimate is one employing either capacity

or equipment based techniques in estimating direct field
costs for some portions of the project with the balance of
the direct field costs estimated in a detailed manner using
some method of quantification and unit pricing. May
employ frequency data and factors in the determination of
quantities

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Detailed Estimate

A detailed estimate is one in which each component or

group of components has been quantitatively surveyed and
priced, using the most realistic unit prices available.
Quantities are determined from drawings or sketches and
specifically identified

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Estimate Plan/Basis
A typical estimate plan describes how the estimate will be prepared
and is later converted to the basis which then contains:

Scope of Facilities / Services

Work Breakdown Structure / Cost Elements

Drawings and Specifications

Contractual Requirements / Labor Posture

Project Execution Plan / Project Schedule

Approach to Contingency / Escalation / Currency

Approach to Allowances / Exclusions / Qualifications

Estimate Schedule and Resource requirements

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Estimate Components

Direct Field Costs (DFC)

Cost of equipment, bulk material and construction labor (either direct
hire or subcontract) directly associated with the construction of the
permanent facility.

Indirect Field Costs (IFC)

Cost of services and materials required to support the field
construction effort (i.e. freight, temporary facilities, field staff,
construction equipment, small tools and consumables)

Home Office Costs (HOC)

Cost of engineering and procurement services, including labor, expenses,
overheads, etc.)

Other Costs (OC)

Cost of such things as commissioning, escalation, contingency, spare
parts, fees, insurances, etc.

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Key Estimate Elements

Labor Productivity

Equipment and Material Pricing

Home Office

Permanent Facilities

Field Labor

Construction

Effects of Job Size

Logistics

Site Conditions

Freight Costs

Location

Shipping methods

Labor Rates

Cost of lift and transport

Home Office

Temporary facilities

Construction Management

Warehousing

Craft

Support Facilities

Benefits

Camps

Assignment Costs

Infrastructure (roads,
airports, access)
Utilities
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Special Considerations

Contingency (Risk Analysis)

Contingency is the allocation of resources (i.e.
money, time) to cover assessed risk elements. or a
special monetary provision in the Project Budget
and Indicated Total Cost...to cover uncertainties
or unforeseeable elements of time and/or cost
within the specified scope of work and services
control
Three Types: Estimate, Risk and Development
Allowances
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Special Considerations

Escalation & Market Conditions

Escalation is the provision in actual or estimated costs for a

change in the costs of equipment, material, labor, etc., from a
base point value, due to continuing price level changes over
time

As well as standard escalation estimators also need to think

about the efforts of current market conditions, these may
include extreme fluctuations in raw material costs as well as
longer delivery times for critical items of equipment.

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Estimate Reviews and Approvals

Estimate reviews are the key to Fluors approach to

quality. There are several levels of review.
Functional Peer Review review by another estimator to look for
inconsistencies in methodology and approach
Discipline Review review by each of the disciplines contributing
to the scope/pricing of the estimate to ensure understanding
Project Review review by the leadership of the project to
ensure project execution is correctly reflected
Operations Review review by the Operations Center
management to ensure quality of the total estimate
Business Line Review review to ensure business line objectives
are correctly reflected in the estimate
Business Group Review same objectives as the Business Line
Review but one level higher. Not always required.
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Key points to remember

Why do we do estimates?
To predict the final cost and set the baseline

How many types of estimate?

Three: conceptual, semi-detailed and detailed

What is the standard for classifying estimates?

AACEI Classification System

What are the major components?

DFC, IFC, HOC and Other Costs

What is the purpose of reviews?

To improve the quality of the final product

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Key Take Aways

An estimate must be placed in context with the other

seven baseline elements it is meaningless by itself

An estimate must have a documented basis that states

how it was developed and the source of the data

An estimates preparation should be run like a project

An estimate should be prepared in accordance with

accepted standards and be repeatable

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QUESTIONS?

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