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Stuart Chalmers:
o A foundation member of ACES;
o Has been involved with estimating and project controls for over 40 years with
Fluor Australia;
o Experience covers a wide range of big and small mining, petrochemical, and
industrial projects.
Presentation Overview:
This presentation will look at what is an estimate, and discuss some details of
preparing an estimate including what the estimate model looks like, where the
data comes from and how to assemble the estimate:
o What is an estimate and why is it important;
o Review of types of cost estimate and estimate classification;
o Estimate planning;
o Factored and parametric estimates data sources and estimate assembly;
o Detailed estimates data sources and estimate assembly.
Note that any data used in examples is only for the purpose of explaining
methods being discussed and is not to be used for commercial or other purposes.
WHAT IS AN ESTIMATE
Stuart Chalmers
19 March 2013
o
o
Note this AACE RP 46R-11 also contains information on career progression from
junior estimator to chief estimator.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Methodology:
o Factored estimate;
o Parametric estimate;
o Detailed estimate.
ESTIMATE CLASSIFICATION
Classification level depends primarily on level of project definition with end use,
methodology, accuracy and estimating effort secondary characteristics.
The following are extracts from the Recommended Practices indicating various
characteristics and expected accuracy ranges.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
It is thus essential that the required activities are clearly established prior to
commencing and preparing estimating plans and forecast costs.
Other activities which may be required, particularly for a more detailed class 3, class
2, and class 1 estimates:
o Review estimating scope and estimating checklists;
o Spending time gaining a clear understanding of the scope of the facilities, the
scope of work for those facilities, and the scope of services for that scope of
work (this being especially important for preparation of competitive tender
estimates);
o Coordination with engineering, procurement, construction, and client:
Develop plan and guidelines for supply of estimate source data;
Monitor supply of source data (including subsequent revisions);
Attend progress meetings;
o Develop estimate preparation guidelines and estimate preparation plan;
o Monitor estimating progress against plan;
o Develop and update WBS;
o Training estimators in new software;
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
o
o
o
o
o
o
Prepare quantities;
Review supplied source data with originators;
Obtain current supply pricing for equipment, materials, and services;
Study option estimates;
Support to value engineering studies;
Operating cost estimates;
Life cycle cost estimates;
Risk analysis and contingency development;
Cash flow and escalation calculations;
Foreign exchange content;
Benchmarking key parameters;
Prepare basis of estimate documentation;
Analyse changes from previous estimates;
Prepare documentation and attend estimate reviews with project team,
corporate management (at different levels) and client note required review
material varies with level of review;
Maintain records of documentation supplied to estimators with revision and
date received;
Maintain records of estimate revisions and distribution;
Prepare documentation for feasibility study reports and other reports;
Prepare documentation for tender bid submissions (pricing schedules,
qualifications, inclusions and exclusions) and any follow up pre-award
submissions;
Convert estimate into control budget for project cost control;
Prepare required estimating files for retention.
It is absolutely critical that the estimating scope is clearly understood and specific
estimate preparation guidelines and an estimate preparation plan be developed that
includes not only estimating activities, but takes into account the supply of
information to the estimator, and the various estimate reviews that are required
before final estimate issue.
These are the initial estimates prepared when only limited project definition
information is available and use capacity factors, equipment factors, and for
parametric estimates, key project metrics or measurements defining the project.
Factored estimates are used in the process industries and are based on block flow
diagrams or process flow diagrams. Factored estimate models rely on the
relationships between cost and design related parameters, and with the process
equipment being a prime cost driver.
Stuart Chalmers
19 March 2013
Used to determine costs of process plant units within battery limits i.e. does not
include infrastructure and other plant outside of unit battery limits.
Cost of a new plant is derived from cost of a similar plant of known capacity with
similar process and type of equipment.
Relationship is:
CostB/CostA = (CapB/CapA)r
x f1 x f2 x f3
Where CostB,
CapB, CostA and CapA are plant B and plant A costs and
capacities, and f1, f2, f3 etc are escalation, location, scope, technology and
any other factors
EXAMPLE OF CAPACITY FACTORED ESTIMATE
Cost of known plant
Capacity of known plant
Completion of known plant
120.5 $Mill
150 units
2010
220 units
2013
10%
Nil
10%
0.6
[120.5x(220/150)0.6]x1.10x1.0x1.10
=ROUND((120.5*(POWER((220/150),0.6))*1.1*1*1.1),0)
183 $Mill
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Above table 1 from RP 59R-10 shows factors for various types of process plant
Care must also be taken to ensure that when scaling up or down that the equipment
size and cost movement is not constrained by design and fabrication limitations.
Note that RP 59R-10 indicates that the exponential factor tends to increase as
capacities increase and approaches a value of 1.0 at the limits of existing technology.
The exponential factor r was originally 0.6 and the basis for this was doubling the
size of the plant increased the cost by half.
Values of r are typically between 0.5 and 0.85 and a number of these factors are
given in RP 59R-10 as well as earlier publications referred to in Fundamentals of
Estimating for Engineering Construction (Slattery, 1988).
As in example, when using this method costs need to be adjusted for escalation,
location, and any known scope differences.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
For many types of process plants, there are ratios between the cost of the process
equipment and the total installed cost of the plant.
Thus when the process design is to the stage of specifying the process equipment in
sufficient detail to determine equipment costs, this method can be used.
The first step is to obtain the equipment list and then estimate or obtain the cost of
each item. Recent orders and estimates are the usual source of the equipment costs.
Costs should include associated items usually included in the equipment supply
together with freight.
The equipment list should be reviewed against Process Flow Diagrams (PFDs) and
Piping and Instrument Diagrams (P&IDs) for completeness and to determine an
allowance for equipment not defined.
After the equipment cost is established the applicable equipment factors are applied.
Make sure the scope included in the equipment factors is clear are they direct field
cost or do they include indirect field and off site indirect costs.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
RP 59R-10 includes the above Table 3 and also provides further developments of
this method. However I believe your previous project experience and previous
estimate data from similar projects will provide suitable factors with the project
conditions known.
PARAMETRIC ESTIMATES
Parametric estimates are estimates based on an all-up cost per measurement unit or
multiple measurement units.
Examples such as cost of road per km, bridges per surface m2, tracklaying per km,
buildings per m2.
In developing a parametric model the first step is to define its scope, and then to
establish the critical cost drivers and the relationship between cost and their physical
characteristics.
Models should be based on using key characteristics that can be defined early in the
project scope development.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
While models should be based on actual costs from completed projects, provision
must be made for scope and location variations, and for cost escalation.
Cost of land
Cost of house
$
$
320 m2
= $300,000 + ($1,200 x 320)
$ 684,000
Significant effort is required to develop parametric estimate models and this activity
should precede the expected use of any developed models.
DETAILED ESTIMATES
As project definition reaches a stage where project specific quantities are developed
and project execution options are clarified, we can move into the preparation of
detailed estimates.
In addition to quantity/unit cost items, a detailed estimate will also include various
lump sum items and allowances or provisions.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Any estimate has a number of variables that impact reliability and accuracy, and
significant variables include:
o Level of scope definition;
o A sound execution plan;
o Knowledge of site conditions;
o Level of review;
o Benchmark data for the review process;
o Time to prepare the estimate.
Price is the selling amount by a contractor and incorporates cost, overhead, profit
and contingency.
Detailed estimate items are grouped together using the project Work Breakdown
Structure (WBS).
The estimator needs to review the WBS to ensure it reflects the current scope, and
includes all items of cost that may be needed, such as Owners and other indirect
type costs.
A typical WBS should cover all the direct field cost physical areas and then make
provision for field or site indirect costs, off-site indirect costs, and other project costs.
For a contractors tender estimate the pricing schedule may require the distribution of
indirect and other project costs against direct field cost items.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Direct Costs
o Also described as field costs;
o Directly proportional to the quantity of physical permanent work to be
performed;
o Work performed on the physical work site plus the materials incorporated into
the work.
Indirect Costs
o Indirect costs are time based or one-off costs;
o Indirect costs for a contractor estimate include:
Overheads and supervision;
General plant including site facilities and services;
Camp or accommodation;
o Indirect costs for EPCM of client estimate include:
Temporary site facilities and services;
Camp or site accommodation.
o Note that these indirect costs include establishment, operation, maintenance,
and removal of temporary site facilities and services.
Other Costs
o Other costs for a contractor estimate include:
Taxes, insurances;
Specific risk allowances;
Escalation;
Contingency.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Cost Elements
o Each estimate line item contains one or more cost elements.
o Direct cost elements include:
Direct Labour;
Construction Equipment;
Job (Temporary) Materials;
Permanent Materials (Engineered equipment, fabricated, and bulk
materials);
Freight;
Subcontracts;
Contractor indirect cost allocation (for EPCM and client estimates).
o Indirect cost and other cost items may use the direct cost elements or use a
single indirect cost element.
Allowances are included in estimates to cover the cost of expected but undefined
requirements and are part of the basic estimate. Prime cost items are an example of
allowances.
Stuart Chalmers
19 March 2013
Estimator must spend time to understand scope of work and scope of services.
Defining scope of work may be progressive if project definition is part of the current
scope of services.
Refer to available check lists when reviewing scope of work and services
ESTIMATE PLANNING
Supply of data will come from engineering disciplines, procurement and contract
groups, construction, and from other specialist support functions (such as industrial
relations).
BASIS OF ESTIMATE
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Database model usually copied from a previous model containing relevant unit rates.
Estimate unit rates are established mainly for use with the direct field cost physical
permanent work, but can also be established for indirect cost and other cost items.
Composite unit rates may be built up from other unit rates. In this case the estimator
must understand database calculations to ensure updated unit rates are carried
forward.
Estimator needs to review items with originator to understand item scope and any
allowances included in quantities such as;
o Earthworks bulking;
o Material wastage;
o Hand excavation.
Increased level of item detail in itself does not improve the accuracy of an estimate
but it does increase the cost of preparing the estimate:
o Consider concrete footing quantities split up into concrete volume, formwork,
rebar, embedded metalwork, and surface finishes compared with just
concrete volume and types of concrete such as various footing, wall, and slab
types (with typical formwork and rebar allowed for each concrete type);
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Labour hours for estimate items are developed by considering the crew size and
production rate for each item.
Crew size and production rates should be established by experienced field personnel
or checked by them if generated by the estimator or others.
The following is an example showing a crew and production rate calculation. Shift
hours are total paid hours for the shift.
Production per shift needs to take into account non-productive time moving to a work
site and any down time such as for train movements.
Non item specific job materials and consumables are usually allocated to the
estimate on an hourly basis and can be included with labour rates.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Labour rates are required for each labour classification and for each different work
pattern. Note that shutdowns and commissioning activities can be two twelve hour
shifts per day.
Basic rates included in labour agreements and the agreements being used should be
reviewed with industrial relations (IR) specialists for application on the work being
estimated.
Labour rates are built up by the estimator for the total cost per hour and include:
o All purpose base rates and base allowances;
o Flat allowances;
o Casual loadings;
o Overtime, Saturday, Sunday, and worked public holiday loadings;
o Shift allowances;
o Non-productive time burdens:
Annual leave and any leave loading;
Public holidays and picnic days;
Sick or personal leave.
o Payroll benefits:
Long service leave;
Superannuation;
Severance payment provision;
Income protection provision.
o Statutory burdens:
Payroll tax;
Workers compensation.
Other indirect costs proportional to labour costs are often included with direct labour
rates:
o Payroll administration;
o Human relations (HR)/personnel administration;
o Small tools and consumables;
o Personal protective clothing and equipment;
o Camp/accommodation;
o Rest and recreation (R&R) travel costs;
o Living away from home allowances;
o Fringe Benefits Tax (FBT) where applicable.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Construction equipment costs are attributed to the permanent work activity being
performed.
Fixed costs such as move-in, assembly, and move-out are included as plant indirect
costs.
Equipment costs may be either outside hire or company owned equipment costs.
Outside hire rates need to be checked for inclusion of operator, supply of fuels, other
servicing provisions, move-in & move-out, minimum hire periods, and any extra
charges.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
For company owned equipment hourly (or daily) cost rates need to be estimated for
each equipment item with cost components providing for:
o Service and repair labour;
o Operating materials and supplies fuel, oils, tyres, consumables and spares;
o Workshop overheads may be included as a surcharge or included as plant
indirect costs;
o Major overhaul and repair reserves;
o Ownership costs such as depreciation, insurances, and registration.
Major items of job material such as scaffold hire where cost is not directly related to
work performed are included in plant indirect costs.
Estimators must check quotations to ensure all scope requirements are included
such as supply of manuals, special tools, installation supervision, and spares.
Where local (same country) freight costs are to be added, a percentage of the
equipment or material price can usually be established for freight costs.
International and special freight requirements should be based on quotations for the
specific requirements.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
Estimator must review pricing schedules before issue to ensure pricing is suitable for
incorporating in estimate.
INDIRECT COSTS
Indirect costs are usually time based or lump sum type costs and may be field
indirect costs or home office and other off site indirect costs.
Labour hours for indirect costs should be determined from project execution plans
and schedules. Rates for field supervision and overhead support are usually
available as weekly rates, with off site support or home office staff available as hourly
charge out rates.
General plant and equipment costs provide for costs not included in the direct field
cost. These will include warehouse cranes and forklifts, support vehicles, equipment
freight, assembly, disassembly, and standby time plus items such as site radios,
signs and barricades.
Site office and miscellaneous expenses. These costs cover the operation of a field
office and may include items such as safety awards, and local donations.
Camp, travel and accommodation costs. These costs are based on the specific plan
of project execution and estimated costs are developed based on detailed
requirements being established.
Check lists usually contain an extensive list of indirect cost items and these should
be used.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
OTHER COSTS
Specific allowances and provisions should be made for the cost of expected but
undefined items.
Required allowances are determined by reviewing check lists as well as the required
scope and the plan of project execution.
ESCALATION
Costs are grouped at suitable summary levels that reflect expenditure profiles and
applicable escalation rates are then applied.
In some cases where external parties are preparing project financial analyses a cash
flow may only be required.
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
A Monte Carlo simulation is prepared and used to determine the range of estimate
values for particular confidence levels.
Contingency is then applied to bring the base estimate to the required level of
confidence.
Items such as major scope changes and force majeure events are usually excluded
and noted as such in the basis of estimate qualifications and exclusions.
MARGINS
For contractor estimates, corporate management reviews the estimate including
contingency and risk items, and determines the mark up to cover corporate overhead
costs and profit margins.
For an EPCM or client estimate, these contractor margins are included with the direct
cost items. EPCM contractor margins are usually included with EPCM labour costs or
as separate EPCM fees.
ESTIMATE REVIEWS
Initially review estimate details, including exclusions and qualifications with the
project team.
If you are part of a management review team, go through the basis of estimate in
detail before looking at any numbers.
ESTIMATE ADMINISTRATION
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013
From this we conclude that systematic estimating processes are available to be used
by those preparing estimates, but these processes require experienced estimators,
plus a reliance on other team members being able to provide not only quantities, but
project execution plans and a great deal of other information.
REFERENCES
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AUSTRALIAN COST ENGINEERING SOCIETY
A Technical Society of ENGINEERS AUSTRALIA
Stuart Chalmers
19 March 2013