Estimating and Scheduling CEE 492 Lecture 9 Factors That Determine Variation In Estimates © Awad S. Hanna, PhD, P.E. 1

Owner's Purpose of Estimate Making investment decision in the conceptual stage Negotiate and finalize the contract at the implementation phase To implement cost control measures © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Contractor’s Purpose of Estimate Determine project cost and profit To Implement cost control measure To develop database that can be used for future project © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Engineer’s Purpose of Estimate Provide the owner with probable estimate Evaluate alternatives © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Comparison of Contractor’s and Engineer’s Estimator Contractor’s Estimator Determines actual cost of project for bidding purposes Has detailed company cost data for labor and equipment Knows which construction methods are to be used Has knowledge of actual materials, suppliers to be used and quantity discount prices Engineer’s Estimator Determines expected cost Does not know who will receive award, therefore does not know contractor’s exact resource costs Does not know actual labor rates Must assume probable construction methods to be used Does not know who project supplier will be. Must use local list prices © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Time We base our estimate on the cost of existing projects that were built in the past Price-level changes over time We need to project costs of future projects Many organizations publish construction cost data on regular basis: US Department of Commerce US Department of Labor ENR Turner Construction Company Handy-Whitman Utilities © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Time (continued) Cost Indices Published by R.S. Means and ENR Used to update old cost information Uses To update known historical costs for new estimates To estimate replacement cost for specific assets To provide for contract escalation © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Time (continued) Limitations They represent composite data, average of many projects. They fail to recognize technological changes. There is a reporting time lag. © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison © Ⓒ Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison © Ⓒ Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison Procedure How to update old cost information to current date cost of new facility = cost of old facility x To predict future cost F = P (1 + i) F = future cost P = present cost i = predicted rate of cost escalation per period n = number of periods (years) new cost index old cost index n © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Location Some factors affecting cost in different locations are: Transport cost Taxes Labor supply and local productivity Codes and local inspection ENR and Means publishes periodically the indices of local construction costs in the major cities © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Location (continued) ENR Regional Index City Cost Index Boston 1120 Chicago 1400 New York 1700 © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison © Ⓒ Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Size As the quantity built increases, the unit cost decreases Size Factor = UCM = Unit Cost Multiplier UCM = SF Proposed Size Comparison Size E - 1 © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Table for Unit and Total Cost Multipliers Table 2.1 Cost Multipliers © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Chart to Convert Unit Prices © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Chart to Convert Total Project Cost © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Shape Bldg B Area =1500ft2 Perimeter = 180ft 40’ 10’ 15’ Bldg A Area = 1500ft2 Perimeter = 160ft 30’ 50’ Wall height = $10 x 160 x 10 = $16,000 = $10.00 of floor area Bldg. A Wall cost = $10 x 160 x 10 = $16,000 Bldg B Wall cost = $10 x 180 x 10 = $18,000 = $11.25 of floor area © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating “Learning Effect” Increased productivity by doing repeated work © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Variation Factors in Estimating Other Factors Hard to quantify but should be evaluated: Quality Soil condition Weather Condition Competition Productivity © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Exercise 2: Student Residence New Project Desired Capacity = 750,000 sq. ft Expected Completion = End of 2010 Location = St. Louis, Missouri Determine Cost Similar Project Capacity = 360,000 sq. ft Completion Date = Jan 1, 2005 Location = New York, NY Cost = $23,000,000 © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Exercise 2: Student Residence Cost Index New York Jan 2005 = 2603 Cost Index New York Jan 2009 = 3076 Cost Index St. Louis Jan 2009 = 2390 What is the expected cost in St. Louis? © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison Solution to Exercise 2 Cost Area 1. Unit Cost of NY Bldg (UP1) = = = $63.89/sq. ft. 2. Time Adjustment New York  Ratio = = 1.18 Assuming escalation rate at 3% / year Project unit cost at the end of 2006 = F = P (1 + i)n x Time Adjustment Factor = $63.89 (1+0.03)2 x 1.18 = $79.98 $23,000,000 360,000 SF 3076 2603 © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison Solution to Exercise 2 3. Location Jan 2005 Cost Index for NY = 3076 Jan 2005 Cost Index for St. Louis = 2390 Ratio = = 0.78 Base Unit Cost (St. Louis) = $79.98 x 0.78 = $62.38 2390 3076 © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison Solution 4. Cost Multiplier (Table 2.1, slide 51) Size Factor = = =2.08 Unit Cost Multiplier = 0.928 Adjusted Unit Cost ($/sq.ft) = $62.38 * 0.928 = $57.89/SF Total Cost = 750,000 SF x $57.89/SF = $43,417,500 Proposed size Comparison size 750,000SF 360,000SF © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison

Conclusion Questions Questions and Open Discussion © Awad S. Hanna, Ph.D., P.E., University of Wisconsin-Madison