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Flashcards in L10: Cost Estimating Deck (75):

What are different types of construction estimates?

- Degree of project definition
- End usage of estimate
- Estimate generating methodology


What are 2 construction estimates for end usage?

- Conceptual for finance
- Detail estimates for lump sum tenering


What are 2 construction estimates for estimate generating methodology?

- Stochastic
- Deterministic


How are conceptual estimates estimated?

Using average costs per standard unit


What are examples of construction cost indices?

- Department of building and housing
- Reserve Bank
- Diesel / steel/..
- Statistics NZ


What are important components to producing an estimate?

- Scan the tender documents
- Review drawings
- Review structural drawings
- Check wall sections
- Check mech/ elec/ fire/ security systems and note interference with construction
- Identification work GC ans sub's
- Study specs of GC, read spec sub's
- Affect general conditions on project
- Visit site with PM
- Team meeting and discuss quantities take-off and pricing
- RFT subs
- Think jobsite and general overheads and margins

(additional detail in notes)


What to do if errors in estimating?

Errors may occur during the detail estimating process. If there are errors do not cover up or attempt to revoer the missing cost with fake change orders.

Attempting to recover estimating mistakes with future contractor-initiated project changes could lead to costly project disputes, loss of reputation, or loss of clients.


Activites when 30-40% finished design.

- project team to review the design. (many critical design decisions have already been made)
- foundation for producing the first engineering estimate based on drawings (estimator can develop quantities of work and apply actual unit prices)


Activites when 60% finished design.

- foundation for the second engineering estimate
- Verify proposed systems and subsystems meet project needs
- Compare original proposed budget with more precise quantities and quality requirements
-Identify unresolved problems that will greatly influence the final building cost
- Reviewing the drawings and specifications for construction capabilities by a team of construciton professionals (constructability, especially in a design-build contractual agreement)


Activities when 90% finished design.

- complete set of bid documents
- "last chance review", the owner should be sure that the goals of the project are totally achieved
- set of documents will be sent to the permitting authorities for their review


What factors affect accuracy?

The quantity and cost of:
- construction materials
- labour
- equipment


Important components of materials.

- quantity
- waste (industrial stds and handling/ installation)
- pricing


Explain pricing.

Assigning a dollar value to a work item based on given specifications and the predetermined quantity required.


What should pricing include?

The cost of each of these subcomponents:
- permanent/ temporary materials
- labour required for installing
- equipment required for moving/ installing
- other consumables (e.g. fuel and tools)


Important components of labour.

- Types of labour
- Monetary factors & productivity

accounts for 30-50% of construction costs


What are the advantages of union membership for workers?

- Hiring hall for job referral
- Apprenticeship training
- Right to strike, wages, job conditions, benefits and job security
- Power to act collectively as a group to enforce demands
-Organisation affiliation


What are the disadvantage of union membership for workers?

- Payment for initiation fees, dues or assessments
- No choice of employer, lack merit promotions
-restrictive work assignment


What are the advantages of union membership for construction companies?

- Available pool of skilled labour from union
- Fixed wages and uniform conditions, prescribed by union


What are the disadvages of union membership for construction companies?

- Restrictive work rule
- Inhibit innovation
- Workers have no loyalty to contractor
- Jurisdictional dispute can affect contractor


What are monetary factors? (relating to money)

- base wage rates
- fringe benefits
- wage premiums


Explain productivity.

Labour productivity rates in the construction industry vary on an individual, daily, and project basis. As a result, the labour cost is one of the most inaccurate aspects of estimating.


What are factors that affect productivity?

External factors
- market conditions
- environmental conditions

Internal factors
- work conditions
- management conditions


Explain the effect of overtime.

Increasing days past 5 days per week, or increasing the amount of hours per day will likely lead to a decrease in production efficiency.


What are important components to consider for equipment.

- specific or general use
- buy, lease or rent
- mobilisation
- operator
- tools


Examples of jobsite overhead

- jobsite personnel wages & project related travel expenses
- outside contracted engineering support (surveying,etc)
- general use equipment (cranes, hoists)
- field buildings
- site utilities
- horizontal structures
- temporary environmental controls
- winter/summer protection of completed works/ works in progress
- related camp facilities for remote jobs
- jobsite production facilities
- protective aids for workers
- bonds, insurance, permits and taxes


What is contingency?

The amount of money added to an estimate to cover the unforeseen needs of the project, construction difficulties, or estimating accuracy.


What are causes of contingency?

- unpredicatable price escalation
- project complexity
- incomplete working drawings
- incomplete design
- soft spots in the detail estimate due to possible estimating errors to balance and estimate that is biased low
- abnormal construction methods and start up requirements
- estimator personal concerns regarding project, unusual construction risk, and difficulties to build
- unforeseen safety and environmental requirements
- to provide a form of insurance that the contractor will stay within price.


What are important components of profit?

- recoup sufficient profit for return on equity
- correspond to industry averages
- consider competitive bidding strategies
- as high as possible or what the competitive market will bear


What is the definition for costs?

Costs is the amount of money sacrificied for goods/services to bring a current or future cashflow to the organisation.

In accounting, costs are used up in production or expire. Costs that are expired are called expensises.


What are the classifications for cost?

- Direct costs
- Indirect costs


What are direct costs?

Every cost that can be easily tracked to a product or service.


What are indirect costs?

Every cost that cannot be easily tracked to a product or service.
Also called overhead.


What are the categories overhead can be divided into?

- Manufacturing overhead
- Adminstrative expenses
- Selling expenses


Explain fixed cost?

The cost does not increase or decrease when output varies.


Explain variable cost?

The cost increases or decreases with output.


Explain mixed cost?

The cost has a variable and fixed component.


How to estimate overhead (indirect costs)?

- Take last years overhead or activities, make an estimate on present years overhead or activities.
- Calculate predetermined overhead, as estimated annual overhead divided by estimated annual activity


How is overhead used in the service industry?

The overhead estimate will be part of your hourly cost (to the customer).


What are 3 types of accounting?

- Financial accounting
- Management accounting
- Cost accounting


What is the role of financial accounting?

To produce financial statement that convey information to outside parties.


What is the role of management accounting?

To provide information useful for the operation of the company.


What is the role of cost accounting?

Responsible for the technical process by which expenses are allocated to products.
- determination of the costs of the good produced
- determination of the rates (labour, machines,etc)


What is an expenditure?

An amount of money paid for aquiring an asset or a service.


What is a major constraint in cost measurement?

The accounting period:
the functions carried out by the company must be accomplished during a given period


Companies generally produce several different products, explain the effect this has on the expenditure to expenses process.

Each product consumes an amount of resources which may be different from the other one. The problem is then to put a value on all the resources consumed by each product.


What is expenses?

The amount of money which is used during a given year (the accounting period) for the production of the goods and services sold by the company.


What is the most difficult problem in accounting?

Measuring expenses and revenues in an accounting period.


Explain why not all expenditures are expenses.

- a few corrections are made to pre paid expenses (expenditures related to another year) or the deferred charges.
- depreciation


What are 3 different costing methods?

- Process costing
- Job-order costing
- Activity-based costing


How does process costing work?

Assigns average costs to each unit of production


How does job-order costing work?

Differentiates the (direct) costs per job (or service) to see how profitable each job is.


How does activity-based costing work?

Calculates what percentage of everhead should be assigned to a job.


What is depreciation?

Long lived assets are not in full as expenses for the considered accounting period.
Depreciation is the expense part of an expenditure that falls within the period.
Depreciate according to physical deterioration or different for tax deductions.


What is the definition for cost in terms of cost estimating?

Cost is the economic value of the human effort which is deployed to go in a given environment, from situation A to situation B.
Sometimes expressed in terms of hours when estimating cost of activities.


What is the major cost element when estimating cost?

Direct human effort


Why is it useful to express cost estimations for direct human effort in terms for hours?

Using hours eliminates the problem of the currency value: it easily allows to compare human efforts for projects made at different times, whereas the monetary vlaue has to use a unit which changes with time.
It is easy to go from hours to cost.


What does the cost estimating environment include?

- what is available
- the constraints


What is the definition for price in terms of cost estimating?

The result of a monetary agreement between two parties when womething is exchanged between them.


Are prices for goods fixed on the market place?



When goods come at a fixed price, what does a company control?

- quality
- quantity
- type of machines it will use
- effeciency of manufacturing process
- level of automation of the process
- plant organisation


True or false.
Modern project management attempts to reduce the gap between cost and price.

Uses techniques such as price, estimates, quotes, guestimates, etc.


What should go with every forecast?

- the set of hypotheses that define the scope of the estimate
- its level of uncertainty


What are the four levels recognised by the French Society AFITEP for good cost estimates?

Preliminary study:
1. Identification: (estimate at 45%, requires half a day)
2. Feasibility: (estimate at 30%, requires 3 days)
3. Design: (estimate at 15%, requires 15 days)
4. Development: (estimate


What are the five levels proposed by The American Associate of Cost Engineers (AACE)?

Class 5: low level project definition (2%), feasibility studies of several projects
Class 4: Concept study
Class 3: Budget authorisation (level of project defintion goes from 10% to 40%)
Class 2: Bid tender
Class 1: Check estimate (level of project defintion goes from 1% to 4%)


What are the 3 major phases of a project life cycle in terms of cost estimating?

1. The decision phase
2. The validation phase
3. The execution phase


Explain the decision phase of a project life cycle in terms of cost estimating.

- The time during which major decisions have to be made about the project
- The focus during the whole phase is the product; the estimate becomes, as time goes on more and more detailed, as we go down the product tree.
- the manager decides the way to respond and the price for which we have a good chance to be competitive


What is the role of the cost estimator in the decision phase?

To quickly assist the decision maker: estimating the cost of various concepts, estimating the influence of technical uncertainties on the cost, etc.


Explain the validation phase of a project life cycle in terms of cost estimating.

-The focus now shift to activites.
-The PM thinks about several ways of making the project a reality and the cost estimator must estimate, the cost of each, until a solution is found which fits inside the budget, the technical objectives, and the duration.


What is the role of the cost estimator during the validation phase?

To determine how we will make sure we will accomplish the project for the cost which has been decided upon.


Explain the execution phase of a project life cycle in terms of cost estimating.

The project goes on and accumulates a lot of information. The cost estimator must now, periodically, from the information which is collected, decide if the project will remain inside the allocated budget.
He/she does that by extrapolating the cost and produces the estimate at completion (EAC).


What is the use of a good estimate?

Information the decision maker may rely on when making a decision.


Estimates are generally not the figure that will appear from cost accounting at the end of the project, but why is it important to compare estimates with the true costs at the end of the project?

1. Creditability is a mjor element of cost estimating
2. Improve our predictive capabilities is the compare forecast and reality
3. Know whether your assumptions are/were right


Cost estimating is based on what percent of data, tools and judgement?

30% data
30% tools
40% judgement


How to make a forecast.

1. Create a database (past data)
2. Use tools to carry out extrapolation and data analysis.


How accurate/ precise are the cost information?

- Do not expect a cost model to give estimates with an accuracy better than about 5%, more likely even less for engineering costs.
- BUT "if you cannot estimate costs with an accuracy better than 5% your estimates cannot be used because we have to commit ourselves to a fix cost and that, on this fix cost, our profit margin is 2%"