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Fundamentals of Cost Estimation

Presentation · November 2017

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Mohamed Darwish
The American University in Cairo
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 Fundamentals of
Cost Estimation

Proposal, Quotation or Bid

Requests a detailed
proposal on how the work Request
will be accomplished,
who will do it, etc. for Proposal
(RFP)
sometimes called request for tender

Requests a
price quote
Requests one per item,
price to do all hour, etc.
the work
Invitation Request
for Bid For Quotation
(IFB) (RFQ)
The choice of which type of procurement document to use depends on
the form of scope of work and contract type selected. 2

1
3

2
 Types of Costs

Direct Costs Indirect Costs

Materials Site Expenses

Manpower Financial Expenses
Machine General Overheads
Subcontractor Contribution
• Risk
•Contingency
•Management Reserves5
•Profit or Mark-up

Project Cost Estimate Components 6

3
 7

The pricing review procedure

4
 9

Work Breakdown Structure - WBS 10

5
Direct labor Estimate

11

Direct Material and Subcontract Estimate

12

6
Facilities and Equipment Estimate

13

Engineering Estimate

14

7
 Important Issues in Estimating
1- Estimating should be based on a WBS to improve
accuracy
2- Estimating should be done by the person doing the
work
3- Having historical records is a key element in improving
estimates
4- Costs(schedule, scope, resources) should be managed
to estimates
5-Costs(schedule, scope, resources) should be kept and
not changed
6-Plans should be revised, as necessary, during
completion of the work
7- Corrective action should be taken when cost problems
(schedule, scope, resources) occur. 15

Estimating High Risk Projects

•The major difference between high-risk and low-risk
projects depends on the validity of the historical
estimate.
Construction projects have Low Risk
R&D and MIS projects have High Risk

(a)
1 2 3 4 5 6 7 8 9 101112
WBS Level 5 WBS Level 2
Rolling Wave
(b) or
(c)
(d) Moving
(e)
(f) Window 16

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