Analytical

Once the project has been sanctioned a working budget estimate will be necessary against which the cost of the project will be controlled. This will normally require an analytical estimate or bill of quantities. This type of estimate may also be required where a contractor has to submit a fixed price tender, since once the contract is signed there can be no price adjustment except by inflation factors or client authorised variations.

As the name implies, this is the most accurate estimating method, but it requires the project to be broken down into sections, subsections and finally individual components. Each component must then be given a cost value (and preferably also a cost code) including both the material and labour content. The values, which are sometimes referred to as 'norms', are usually extracted from a database or company archives and must be individually updated or factored to reflect the present day political and environmental situation.

Examples of analytical estimates are the norms used by the petrochemical industry where a value exists for the installation of piping depending on pipe diameter, wall thickness, material composition, height from ground level and whether flanged or welded. The norm is given as a cost/linear metre which is then multiplied by the meterage including an allowance for waste. Contingencies, overheads and profit are then added to the total sum.

Quantity surveyors will cost a building or structure by measuring the architect's drawings and applying a cost to every square metre of wall or roof, every door and window, and such systems as heating, plumbing and electrics etc. Such estimates are known as bills of quantities and together with a schedule of rates for costing variations form the basis of most building and civil engineering contracts. The accuracy of such estimates are better than + or -5% depending on the qualifications accompanying the estimate. The rates used in bills of quantities (when produced by a contractor) are usually inclusive of labour, materials, plant, overheads and anticipated profit, but when produced by an independent quantity surveyor the last two items may have to be added by the contractor.

Unfortunately such composite rates are not ideal for planning purposes as the time factor only relates to the labour content. To overcome this problem, the UK Building Research Station in 1970 developed a new type of bill of quantities called 'operational bills' in which the labour was shown separately from the other components, thus making it compatible with critical path planning techniques. However, these new methods were never really accepted by industry and especially not by the quantity surveying profession.

To assist the estimator a number of estimating books have been published which give in great detail the materials and labour costs of nearly every operation or trade used in the building trade. These costs are given separately for labour based on the number of man hours required and the materials cost per the appropriate unit of measurement such as the metre length, square metre or cubic metre. Most of these books also give composite rates including materials, labour, overhead and profit. As rates for materials and labour change every year due to inflation or other factors, these books will have to be republished yearly to reflect the current rates. It is important however to remember that these books are only guides and require the given rates to be factorized depending on site conditions, geographical location and any other factor the estimator may consider to be significant.

The percentage variation at all stages should always be covered by an adequate contingency allowance which must be added to the final estimate to cover for both possible, probable and unknown risks which could be technical, political, environmental or administrative, etc., depending on the results of a more formal risk analysis. The further addition of overheads and profit gives the price, i.e. what the customer is being asked to pay.

It must be emphasized that such detailed estimating is not restricted to the construction (building or civil engineering) industry. Every project, given sufficient time, can be broken down into its labour, material, plant and overhead content and costed very accurately.

Sometimes an estimate produced by the estimator is drastically changed by senior management to reflect market conditions, the volume of work currently in the company or the strength of the perceived competition. However, from a control point of view, such changes to the final price should be ignored which are in any case normally restricted to the overhead and profit portion and are outside the control of the project manager. Where such a price adjustment was downward, every effort should be made to recover these 'losses' by practising value management throughout the period of the project.

Computer systems and software preparation, which are considerably more difficult to estimate than construction work due their fundamentally innovative and untried processes, may be estimated using:

1 Function point analysis, where the number of software functions such as inputs, outputs, files, interfaces, etc. are counted, weighted and adjusted for complexity and importance. Each function is then given a cost value and aggregated to find the overall cost.

Phases

Figure 14.1 Phase/accuracy curve

Phases

Figure 14.1 Phase/accuracy curve

2 Lines of code to be used in the program. A cost value can be ascribed to each line.

3 Plain man-hour estimates based on experience of previous or similar work, taking into account such new factors as inflation, the new environment and the client organization.

While it is important to produce the best possible estimate at every stage, it can be seen that the degree of accuracy will vary with the phase of the project as shown in Figure 14.1. As the project develops and additional or more accurate information becomes available, it is inevitable that the estimate becomes more accurate. This is sometimes known as rolling wave estimating and while these revised costs should be used for the next estimating stage, once the actual final budget stage has been reached and the price has been accepted by the client, any further cost refinements will only be useful for updating the monthly cost estimate, which may affect the profit or loss without changing the price or control budget as used in earned value methods.

When estimating the man hours related to the activities in a network programme, it may be difficult to persuade certain people to commit themselves to giving a firm manhour estimate. In such cases, just in order to elicit a realistic response, it may be beneficial to employ the 'three time estimate' approach, t = (a + 4m + b)/6 as described in Chapter 21. In this formula, 't' is the expected or most likely time, 'a' is the most optimistic time, 'b' is the most pessimistic time and'm' is the most probable time.

In most cases 'm', the most probable time, is sufficient for the estimate, as the numerical difference between this and the result obtained by rigorously applying the formula, is in most cases very small.

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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