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General 133

a) Quality of Estimates b) Purpose(s) of Estimates c) Typical Estimating Systems d) Common Estimating Categories

Proration Estimates 135

Cost Capacity Curves (Overall) 136

Equipment Ratio (Curves) 136

Quantity/Unit Cost Estimates 137

"Fudging" The Detailed Estimate 138

Design Constraint on Estimating Quality 139

Project Management Estimating Responsibility 139

Developing or Checking an Estimate 141

a) Scope Review b) Project Conditions Review c) Reviewing Significant Overall Relationships d) Major Equipment and Material e) Bulk Materials: Quantities &, Costs Evaluations f) Direct Construction Labor g) Construction Indirect Costs h) Home Office Costs i) Contingency j) Escalation k) Currency Exchange — Conversion

Construction Labor Productivity 153

a) General b) Area Workload/Peak Construction Labor c) Job Size d) Extended Work Week - Productivity Loss Pre-Estimating Survey 157

Estimating Check List 157

a) General b) Political Considerations c) Procurement Program Considerations d) Detailed Check List for Estimating Statistical/Historical Data 162

a) Typical Prime Contractor Cost Breakdown (Large Project)

b) Cost Basic - Engineering/Construction Relationship c) Construction Complexity and Labor Density d) Typical Project Cost Breakdown (Large vs. Small Project)

e) Engineering Costs f) Nelson Cost Index g) Cost - Size Scaling (Economy of Scale)

h) Cost Capacity Curve - Alkylation Unit i) Estimating Shut Downs/Turnarounds and Retro-Fits j) Engineering/Home Office Estimating k) Home Office Manhour Breakdown

1) Typical Data Points - Engineering m) Construction Estimate Basis n) Construction Overhead Costs - Cost Estimating Logic o) Home Office Expense Breakdown p) Subcontract Estimating q) Typical Data Points - Construction r) Typical Data Points - Construction s) Productivity Loss for Extended Workweek t) Escalation Calculation Technique


a) Quality of Estimate

This chapter on estimating of engineering/piocurement/con-stmction (EPC) is roughly divided into conceptual and detailed estimating. The general range in the quality of these two phases of estimating is about 40% to 10%, respectively. The measure of the quality of an estimate is usually categorized by the amount of contingency that is contained in the estimate. For example, a 10% estimate would have a 10% contingency. Due to the high development cost and the time necessary to produce a 10% quality estimate, most companies approve the funding and full execution of EPC type projects at the ±20% estimate quality. It is possible, in the "specialist equipment" areas and building industry, to produce 10% quality estimates from preliminary design information.

The accuracy of estimates varies considerably and is largely dependent on the quality of the estimating program and experience of the estimator. Quality also can be controlled to a substantial extent, by increasing or decreasing estimating manpower and time. The relationship is not linear. Appropriate, modest investments of time and resources will, usually, provide capital cost estimates of acceptable reliability. Further improvement becomes increasingly expensive, with only modest improvements in accuracy, resulting from substantial expenditures of time and resources. A point is soon reached where estimate quality is almost completely controlled by problems of forecasting economic conditions, local project conditions and quality of project performance. No significant improvement in estimate quality can be made thereafter, except by incorporation of actual design and cost information as it develops.

b) Purpose(s) of Estimates

Owner and constructor estimates are prepared at various stages of project development. They have two major purposes:

1. To establish cost levels for economic evaluation and financial investment.

2. To provide a base for cost control as the project develops.

This second purpose of "project control" is often ignored by "professional" estimators as they perceive their only purpose is to develop a quality estimate. In such cases, the resulting estimate may be of a high quality for investment purposes, but of a low quality from a project execution/control point of view. As most conceptual estimating bases are structured on a system basis, rather than on an area basis, it requires considerable effort at an early estimating stage, to develop an estimate on an "area" basis that, in turn, maximizes the "controlability aspect."

Even though a contractor's first early estimate can be of a lesser quality than an owner's estimate, it is recommended that a contractor provide an estimate early, after a contract award. This very quickly establishes a base for contractor cost control and should provide the contractor with a sense of commitment and responsibility for the financial basis of the project.

Due to the lack of time, it is probably that this early conceptual estimate would be a capacity-cost or curve-type estimate for direct costs with indirects on a percentage basis. Even though lacking time, the contractor should be encouraged to put as much quality (definition) into the estimate as possible, as this estimate may become the control base for the project.

The "appropriation" estimate, prepared by the owner, is on the same basis as the contractor's estimate, but statistically broken down into further detail so as to provide a checking basis of the contractor's first estimate.

The following could be the further breakdown:

• Itemized equipment list: material cost and labor manhours

• Bulk materials: material costs and labor manhours by category

• Offsite systems: material costs and labor manhours

• Home office costs and engineering manhours

• Field indirects: material costs, labor and staff manhours

• Owner costs: capital and expenses

• Estimating allowance: risk analysis

The statistical development of manhours provides information for overall scheduling and manpower resource evaluations.

c) Typical Estimating Systems

The most popular estimating systems that are available on the open market are:

1. Richardsons (buildings and process plants)

2. R.S.Means (mostly buildings)

3. Dodge (mostly buildings)

4. Page and Nation (process plants)

5. Icams (process plants)

Most of these systems or standards are published on a periodic basis, some of them annually, and it is therefore possible to update a company's estimating program at a very low cost. It is also quite common for large companies to develop their own estimating programs, and then it becomes necessary for these companies to provide an annual development program to maintain the quality of the historical data base.

d) Typical Estimating Categories

The following estimating methods or systems are the ones most commonly used:

1. Proration, Budget, Rough Order or Magnitude, etc.

2. Cost Capacity Curves

3. Equipment Ratio (curves)

The above methods are generally in the "Conceptual" category.

4. Quantity/Unit Cost

This last method is generally referred to as a detailed cost estimate.


This method takes the cost of a similar, previously built facility, and "prorates" the cost for the new facility, based on changes for project conditions, capacity, escalation, productivity, design differences, and time. This method is based on some historical data and a lot of statistical relationships and assumptions. It is, therefore, not very accurate and is generally around ±40%.


An historical data base is developed for similar plants where the total cost is related to capacity. This method is usually more accurate, generally around ±30%, but does depend on the quality of the data base.

This method is also used, at a lower level of detail, for individual pieces of equipment and/or process/utility systems.

The above two conceptual estimating systems are generally used to give a quick and early indication of required investment level. The resulting evaluations are only used for "budget" purposes and investment possibilities. The information is not sufficiently accurate to make firm investment decisions. Sometimes investment decisions are made on this preliminary information, where economic viability is not the first priority. Projects to meet environmental standards, "stay in business" criteria, or R&D programs would fall into this category. Another purpose of these "early" estimating programs is to provide technical and economic information on investment and resource requirements to advance the technical basis and estimating quality to a higher level. Thus, many projects are funded on a partial or phased approach.


This method calculates the costs of "bulk" materials, such as concrete, electrical, structural, piping, etc., as a percentage of the major equipment cost. Ratio methods can be used only with an appropriate data base. The accuracy of this method is generally This quality of estimate is usually the minimum requirement for a "full investment" decision of an EPC project.

This "appropriation" estimate for an EPC project should be produced after completion of conceptual design and process selection and would be an update of the conceptual estimate prepared during feasibility studies.

The following would be the design/scope basis:

• Overall process flow diagrams

• Heat and material balances

• On-site and off-site facilities and layouts (power, steam, air, electricity, water)

• Preliminary plot plans/building layouts

• Equipment list - by size and category

• Preliminary execution plan/organization/resources/schedule

• Completed survey of appropriate estimating data

This would be an equipment and bulk ratio estimate for direct labor and material costs. Indirect costs would be factored from direct costs. A further statistical breakdown would be made to develop engineering and construction manhours for scheduling and resource evaluation.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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