Cost Estimating EGR 386

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

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

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.

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

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

Estimating Costs Using published standard cost or price indexes –unless a buyer…it 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

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

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)

Index Forms If you know past costs or different size costs: –Inflationary: Cost new = Cost old (Index new /Index old ) –Capacity:Cost A = Cost B (Capacity B /Capacity A ) R R = cost capacity factor –chemical equipment: R .6 to.7 –Combined: Cost new,A = Cost old,B (Index new /Index old )(Capacity B /Capacity A ) R Often applied to fixed equipment cost estimating

Index Forms Often used in estimating construction costs when you can estimate quantities BNI lists material and labor costs in separate tables Drainage Fields Perforated PVC pipe

Index Forms Means Example: includes labor and overhead and profit in materials table … Site Drainage & Utilities Polyvinyl chloride pipe, class 150, S.D.R-18

Using Cost Indexes Know what’s included & how data obtained –Do labor costs include taxes (FICA, unemployment), insurance (workman’s comp., health), overhead and profit? –Material costs = typical average costs over time or something else?, Include freight? –Geographic cost modifiers available?