Cost Estimating

1
Cost Estimating

• EGR 386

2
Estimating

• Up till this point in our economics lesson
• assumed known future cash flows, but
• An important aspect of engineering is
• the estimation of future costs for use in
  economic decision making ? predicting the future
• typical situations
• estimating cost of a design element(s) or system
• estimating fabrication costs
• preparing proposals (estimating effort project
  costs)
• making capital investment decisions

3
Cost Estimating Techniques

• Component-by-Component Estimate
• summation of individual design element costs
• detailed estimate, but time consuming
• Use of Analogy
• gross technique using cost data from similar
  previous projects

4
Cost Estimating Techniques

• Statistical Estimating
• long range planning based on probability of
  occurrence
• Life-Cycle Costing
• encompassing all phases
• research, development, production,
  implementation, operations, support, retirement,
  and disposal

Project cost estimation will use a mix of all 4
techniques with certain techniques more
important at different project stages.
5
Two Principal Cost Categories

• Direct Costs
• material, labor, subcontracts direct to the
  project, operating
• Indirect Costs (Overhead)
• Supervision, clerical support staff, utilities,
  building rentals, depreciation, insurance, taxes

6
Preparing Detail Estimates

• Divide into as many operations as possible
• avoid missing costs
• systematically list
• each operation given an exclusive code number
  used throughout accounting, design,
  construction, etc.

CSI Masterformat sample
7
Estimating Costs

• Using published standard cost or price indexes
• unless a buyerit is difficult to get timely,
  comprehensive price data from vendors
• indices a record of costs or prices over time
• indices useful for projecting (escalating)
  future costs or prices

8
Cost Indexes

• Costing for inflationary effects
• Inflation rising prices for goods services
• Future dollars less valuable than present dollars
• who benefits long-term borrowers or long-term
  lenders?
• General rate of price change measures
• Consumer Price Index (CPI) broad measure of
  food, services, commodities to urban consumers
• change in the cost of living
• Produce Price Index (PPI) changes in prices by
  domestic commodity producers in all stages of
  processing

9
Cost Indexes

• Industry indexes
• General indexes not specific enough
• Construction
• Means Construction Cost Data
• BNI Public Work Costbook
• Air Pollution Equipment
• Chemical Engineering Plant Cost Index (CE)
• Vatavuk Air Pollution Control Cost Index (VAPCCI)

10
Index Forms

• If you know past costs or different size costs
• Inflationary Costnew Costold(Indexnew/Indexold
  )
• CapacityCostA CostB(CapacityB/CapacityA)R
• R cost capacity factor
• chemical equipment R ? .6 to .7
• Combined
• Costnew,A Costold,B(Indexnew/Indexold)(CapacityB
  /CapacityA)R

Often applied to fixed equipment cost estimating
11
Index Forms

• Often used in estimating construction costs when
  you can estimate quantities
• BNI lists material and labor costs in separate
  tables

02740.10 Drainage
Fields Perforated PVC pipe
12
Index Forms

• Means Example includes labor and overhead and
  profit in materials table

2.530- Site Drainage Utilities
Polyvinyl chloride pipe, class 150, S.D.R-18
13
Using Cost Indexes

• Know whats included how data obtained
• Do labor costs include taxes (FICA,
  unemployment), insurance (workmans comp.,
  health), overhead and profit?
• Material costs typical average costs over time
  or something else?, Include freight?
• Geographic cost modifiers available?