## 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 e data, and may be accurate to ±15 percent. This type of estimate is prorated from previous projects tha in scope and capacity, and may be titled as estimating by analogy, parametric curves, rule of thumb, a cost of similar activities adjusted for capacity and technology. In such a case, the estimator may say tl activity is 50 percent more difficult than a previous (i.e., reference) activity and requires 50 percent m man-hours, dollars, materials, and so on.

The definitive estimate, or grassroots buildup estimate, is prepared from well-defined engineering dat (as a minimum) vendor quotes, fairly complete plans, specifications, unit prices, and estimate to comp 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 represents repetitive functions in which continuous operations will lead to a reduction in time, resources, and mo theory behind learning curves is usually applied to manufacturing operations.

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

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

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

Not all companies can use estimating manuals. Estimating manuals work best for repetitive tasks or si that can use a previous estimate adjusted by a degree-of-difficulty factor. Activities such as R&D do n themselves to the use of estimating manuals other than for benchmark, repetitive laboratory tests. Pro managers must carefully consider whether the estimating manual

TABLE 14-2. STANDARD PROJECT ESTIMATING

Estimating Method Generic Type WBS Relationship Accuracy Time to P

Parametric ROM* Top down -25% to +75% Days

Analogy Budget Top down -10% to +25% Weeks

Engineering (grass roots) Definitive Bottom up -5% to +10% Months *ROM = Rough order of magnitude.

### Introduction

Purpose and types of estimates Major Estimating Tools Cataloged equipment costs Automated investment data system Automated estimate system Computerized methods and procedures Classes of Estimates Definitive estimate Capital cost estimate Appropriation estimate Feasibility estimate Order of magnitude

Charts—estimate specifications quantity and pricing guidelines Data Required

Chart—comparing data required for preparation of classes of estimates Presentation Specifications Estimate procedure—general Estimate procedure for definitive estimate Estimate procedure for capital cost estimate Estimate procedure for appropriation estimate Estimate procedure for feasibility estimate is a viable approach. The literature abounds with examples of companies that have spent millions trying to develop estimating manuals for situations that just do not lend themselves to the approach.

During competitive bidding, it is important that the type of estimate be consistent with the customer's requirements. For in-house projects, the type of estimate can vary over the life cycle of a project:

• Conceptual stage: venture guidance or feasibility studies for the evaluation of future work. This estimating is often based on minimum-scope information.

• Planning stage: estimating for authorization of partial or full funds. These estimates are based on preliminary design and scope.

• Main stage: estimating for detailed work.

• Termination stage: reestimation for major scope changes or variances beyond the authorization range.

TABLE 14-4. CLASSES OF ESTIMATES

Class

Types

Definitive

Accuracy

Capital cost

Appropriation (with some capital cost)

Appropriation

Feasibility

Order of magnitude

 Item I II III IV V VI l. Inquiry X X X X X X 2. Legibility X X X 3. Copies X X 4. Schedule X X X X S. Vendor inquiries X X X 6. Subcontract packages X X 7. Listing X X X X X S. Site visit X X X X 9. Estimate bulks X X X X X lO. Labor rates X X X X X 11. Equipment and subcontract selection X X X X X l2. Taxes, insurance, and royalties X X X X X l3. Home office costs X X X X X l4. Construction indirects X X X X X lS. Basis of estimate X X X X X X l6. Equipment list X 17. Summary sheet X X X X X lS. Management review X X X X X X l9. Final cost X X X X X X 20. Management approval X X X X X X 21. Computer estimate X X X X