Types Of Estimates

Projects can range from a feasibility study, through modification of existing facilities, to complete design, procurement, and construction of a large complex. Whatever the project may be, whether large or small, the estimate and type of information desired may differ radically.

The first type of estimate is an order-of-magnitude analysis, which is made without any detailed engineering data. The order-of-magnitude analysis may have an accuracy of ±35 percent within the scope of the project. This type of estimate may use past experience (not necessarily similar), scale factors, parametric curves, or capacity estimates (i.e., $/# of product or $/kW electricity).

Next, there is the approximate estimate (or top-down estimate), which is also made without detailed engineering data, and may be accurate to ±15 percent. This type of estimate is prorated from previous projects that are similar in scope and capacity, and may be titled as estimating by analogy, parametric curves, rule of thumb, and indexed cost of similar activities adjusted for capacity and technology. In such a case, the estimator may say that this activity is 50 percent more difficult than a previous (i.e., reference) activity and requires 50 percent more time, man-hours, dollars, materials, and so on.

The definitive estimate, or grassroots buildup estimate, is prepared from well-defined engineering data including (as a minimum) vendor quotes, fairly complete plans, specifications, unit prices, and estimate to complete. The definitive estimate, also referred to as detailed estimating, has an accuracy of ± 5 percent.

Another method for estimating is the use of learning curves. Learning curves are graphical representations of repetitive functions in which continuous operations will lead to a reduction in time, resources, and money. The theory behind learning curves is usually applied to manufacturing operations.

Each company may have a unique approach to estimating. However, for normal project management practices, Table 14-2 would suffice as a starting point.

Many companies try to standardize their estimating procedures by developing an estimating manual. The estimating manual is then used to price out the effort, perhaps as much as 90 percent. Estimating manuals usually give better estimates than industrial engineering standards because they include groups of tasks and take into consideration such items as downtime, cleanup time, lunch, and breaks. Table 14-3 shows the table of contents for a construction estimating manual.

Estimating manuals, as the name implies, provide estimates. The question, of course, is "How good are the estimates?" Most estimating manuals provide accuracy limitations by defining the type of estimates (shown in Table 14-3). Using Table 14-3, we can create Tables 14-4, 14-5, and 14-6, which illustrate the use of the estimating manual.

Not all companies can use estimating manuals. Estimating manuals work best for repetitive tasks or similar tasks that can use a previous estimate adjusted by a degree-of-difficulty factor. Activities such as R&D do not lend themselves to the use of estimating

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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