presentation on Cost & Price of Product.ppt
- 1. 1 1 BASIC DEFINITIONS COST PRICE MODULE (FOR CONSTRUCTION CONTRACTS) COST ESTIMATING PROCESS & PROCEDURE COST ESTIMATING CLASSIFICATION COST ESTIMATING METHODOLOGIES FACTORS AFFECTING COST ESTIMATING ACCURACY CASE STUDIES Contents Contents
- 2. 2 2 Basic Definitions Basic Definitions CAPITAL COST ESTIMATE (CAPEX) REPRESENTS THE TOTAL CAPITAL COST OF THE PROJECT, INCLUDING ENGINEERING, MATERIAL, CONSTRUCTION, AND MANAGEMENT COSTS. ALLOWANCES USED TO REDUCE THE RISK OF OVERRUN DUE TO “KNOWN” UNCERTAINTIES DESIGN GROWTH / DESIGN DEVELOPMENT EXTRAORDINARY FREIGHT COST (AIR FREIGHT, SPECIAL CARGO ...etc) FORWARD ESCALATION CUT / WASTE (BULK MATERIALS) CONTINGENCIES USED TO REDUCE THE RISK OF OVERRUN DUE TO “POTENTIAL” UNCERTAINTIES INCOMPLETE PROJECT DEFINITION CURRENCY FLUCTUATION ERRORS DOES NOT COVER FORCE MAJEURE, SCOPE CHANGES, CLAIMS ETC.
- 3. 3 3 DIRECT COSTS COSTS DIRECTLY ATTRIBUTED TO A JOB OR A PIECE OF PROJECT EQUIPMENT Basic Definitions Basic Definitions
- 4. 4 4 INDIRECT COSTS THESE ARE OFTEN REFERRED TO AS “OVERHEAD” COSTS AND CANNOT EASILY BE ALLOCATED TO ONE JOB OR PROJECTS. THE PROCESS OF RECOVERING OVERHEADS IS KNOWN AS “ ABSORPTION COSTING” . CLIENTS FOR LARGE CAPITAL PROJECTS ARE VERY INTERESTED IN PROPOSED OVERHEAD RATES, CHARGEABLE TO PROJECTS AND REQUIRED DETAILED OF HOW THE OVERHEADS ARE TO BE ALLOCATED. Basic Definitions Basic Definitions
- 5. 5 5 FIXED COSTS COSTS ARE SAID TO BE FIXED WHEN THEY REMAIN UNCHANGED AND MUST CONTINUE TO BE INCURRED, EVEN THOUGH THE WORKLOAD FLUCTUATES, (eg. MANAGEMENT, SALARIES , RENT INSURANCE….ETC. Basic Definitions Basic Definitions
- 6. 6 6 VARIABLE COST THESE ARE COSTS WHICH ARE INCURRED AT A RATE DEPENDING ON THE LEVEL OF THE WORK ACTIVITY. E.G - MATERIAL - CONSUMABLES - SPARE PARTS - UTILITIES (POWER, WATER, STEAM) Basic Definitions Basic Definitions
- 7. 7 7 Cost Price model Cost Price model DIRECT INDIRECT PROFIT PRICE + + = • LABOUR • MATERIAL • COMPONENTS • TOOLING • DESIGN • MARKETING • SALES • ACCOUNTING • PURCHASING • MANAGEMENT • WARRANTY • LIABILITY • ADMINISTRATION • MATCH INVESTMENT COST
- 8. 8 8 Cost - Price model Cost - Price model CONSTRUCTION EQUIP. + LABOR COST MATERIAL COST DIRECT COST INDIRECT COST TOTAL COST PRICE = + = DURATION (HOURS) X RATE $/HR X CONSUMABLE FACTOR LABOR (MHRS) X $/HR X SUPERVISION FACTOR MATERIAL COST + DELIVERY COST + PURCHASING & INSPECTION COST TOTAL DIRECT COST OVERHEAD, MOB. & DEMOB., TEMPORARY FACILITIES , INSURANCE, ADMINISTRATION, MANAGEMENT, ENGINEERING,…ETC COST X PROFIT FACTOR PRICE +
- 9. 9 9 Cost Estimating Process Cost Estimating Process 1.0 1.0 Cost Estimation Purposes Cost Estimation Purposes BUDGET UPDATING/ REVISION NEW BUDGET PROPOSALS REVIEW BIDDERS RATES EVALUATE ALTERNATIVES / OPTIONS
- 10. 10 10 Cost Estimating Process Cost Estimating Process 2.0 2.0 Capital Cost Major Component Capital Cost Major Component DIRECT COST INDIRECT COST ENGINEERING MATERIAL CONSTRUCTION • Screening Studies • Basic Engineering (FEED) • Detailed Engineering • Procurement Services • Major Equipment • Bulk Material • Freight & Transportation • Preliminaries (Mobilisation, Site Facilities, Site Running Costs) • Civil, Mechanical, E&I Works etc. • Pre-commissioning / Commissioning • Owner Management • Housing/Camp • Fees • Services OWNER COST
- 11. 11 11 Cost Estimating Process Cost Estimating Process 3.0 3.0 In-House Cost Estimate In-House Cost Estimate Review / Discuss • Scope of Work • Basis / Strategy • Exclusions • Estimate Methodology • Required Accuracy Develop Cost Estimate Issue Estimate Review & Check • Quality • Risks • Contingency • Purchase Order • Vendor Quotes • Completed Projects • Escalation Rates • Construction Unit Rates Cost Data • Cost Est. Software • Excel Worksheet Computer Tools Output Customer Input / Request
- 12. 12 12 PREPARE ESTIMATING REQUIREMENTS PLANNING THE ESTIMATE STRUCTURE THE ESTIMATE DEVELOPING THE ESTIMATE DEVELOPING CONTINGENCY DOCUMENTING REVIEW / ISSUE ESTIMATE Cost Estimating Process Cost Estimating Process 4.0 4.0 Estimating Procedure Estimating Procedure
- 13. 13 13 Cost Estimate Classification Cost Estimate Classification International Classification Practices International Classification Practices Class 5 Class 4 Class 3 Class 2 Class 1 Order of Magnitude Estimate -30/+50 Order of Magnitude Estimate Order of Magnitude Estimate Class IV-30/+30 Exploration Estimate Feasibility Estimate Authorization Estimate Master Control Estimate Current Control Estimate Definitive Estimate Class I-5/+5 Budget Estimate Class II-10/+10 Study Estimate Class III -20/+20 Level 6 Level 5 Level 4 Level 3 Level 2 Level 1 Detailed Estimate Definitive Estimate Preliminary Estimate Study Estimate Budget Estimate -15/+30 Definitive Estimate -5/+15 INCREASING PROJECT DEFINITION ADCO EMPD Classification Class 4 +40/-20% Screening / Feasibility Class 3 +30/-15% Conceptual / Prelim. Budget Class 2 +20/-10% Master Budget Class 1 +10/-5% Definitive / Control Budget Extracted from “AACE International Recommended Practices and Standards” AACE Classification Standard ANSI Standard Z94.0 AACE Pre-1972 Concession Estimate Association of Cost Engineers (UK) ACostE Norwegian Project Management Association (NFP) American Society of Professional Estimators (ASPE)
- 14. 14 14 PREPARED BEFORE PROJECT STARTS HAZY INFORMATION DETAILS OF PROJECT YET TO BE DEVELOPED USEFUL FOR QUICK SCREENING AND PLANNING DECISIONS Estimating Classification Estimating Classification 1.0 Order of Magnitude 1.0 Order of Magnitude INTENDED ACCURACY + 35%
- 15. 15 15 PREPARED DURING PROJECT STUDY AND SCREENING PHASE BASED ON A GOOD OUTLINE PROJECT DEFINITION MAJOR PROJECT ELEMENTS SIZE / CAPACITY /VOLUME /AREA USEFUL FOR: SCREENING ALTERNATIVES /OPTIONS PRELIMINARY FEASIBILITY STUDY MANAGEMENT DECISION Estimating Classification Estimating Classification 2.0 Study Estimate 2.0 Study Estimate INTENDED ACCURACY + 20%
- 16. 16 16 DEVELOPED DURING ENGINEERING PHASE 10-20% OF ENGINEERING BASED ON - WELL DEFINED DESIGN CRITERIA. INTENDED ACCURACY + 15% Estimating Classification Estimating Classification 3.0 Budget Estimate 3.0 Budget Estimate
- 17. 17 17 INTENDED ACCURACY + 5-10% Estimating Classification Estimating Classification 4.0 Definitive Estimate 4.0 Definitive Estimate MOST DESIGN WORK COMPLETED. ALL MAJOR CONTRACTS / PURCHASE ORDER HAVE BEEN PLACED. USED TO UPDATE BUDGET FOR THE THE PURPOSE OF COST CONTROL.
- 18. 18 18 Cost Estimating Methodology Cost Estimating Methodology Example: Example: (Process Equipment)
- 19. 19 19 Cost Estimating Methodology Cost Estimating Methodology What is Process Equipment What is Process Equipment PROCESS EQUIPMENT Package Units • chemical Dosing • Water Treatment • HVAC Equipment Engineered Equipment • Columns • Vessels • Reactors • Tanks Standard Equipment • Pumps • Compressors • Fans
- 20. 20 20 Estimating Equipment Cost Methodologies Estimating Equipment Cost Methodologies (Direct Cost) (Direct Cost) BUDGET PRICE PRICE TABLES PURCHASE ORDERS (FROM PREVIOUS JOBS) PRICE CURVES CALCULATION BASED EXPONENTIAL METHODS (COSTS SCALING)
- 21. 21 21 Estimating Methodologies Estimating Methodologies Equipment Cost (Direct Cost) Equipment Cost (Direct Cost) SOURCE OF DATA • BUDGET PRICE • PURCHASE ORDER • BUDGET QUOTATION • COST CURVES ADJUSTMENT TO THE NEW NEW CONDITIONS • Cost of Spare Parts • Freight, Insurance, Transportation Cost • Currency & Exchange Rate • Exclusions • Escalation Formula • Scaling Factor
- 22. 22 22 Estimating Methodologies Estimating Equipment (Scaling Factor) E1 E2 COST SIZE COST E2 = COST E1 X (size E2/ size E1) x
- 23. 23 23 Estimating Methodologies Estimating Equipment Cost Calculation L SHELL HEAD NOZZLES MANHOLE D VESSEL WIGHT Shell weight = x D x L x t x s.g. = W1 Kg Heads weight = 2 x 1.3 x D x t x s.g.= W2 Kg Others: • Internals = W3 Kg • Supports = W4 Kg • Nozzles = W5 Kg • Manhole = W6 Kg --------------- Total Weight W Kg Estimated Cost = W (Kg) X Unit Cost (Cost/Kg)
- 24. 24 24 Material Selection Impact on Equipment WEIGHT Kg S.STEEL C.STEEL FOB-VALUE FOB-COST VS WEIGHT CURVE - PRESS. VESSEL W V2 V1
- 25. 25 25 Factors Affecting Project Final Cost Factors Affecting Project Final Cost 1.0 SCOPE OF WORK CLARITY OF SCOPE DEFINITION CHANGES IN SCOPE 2.0 TECHNICAL FACTORS DESIGN STANDARDS & PRACTICES SAFETY & ENVIRONMENT REQUIREMENTS SKILLS/COMPETENCIES 3.0 OTHERS PROJECT TIME FRAME/SCHEDULE INTERFACES WITH OTHER OPCOS PROJECT ORGANIZATION CURRENCY EXCHANGE RATES MARKET CONDITIONS
- 26. 26 26 Case Study 1 Case Study 1 + 0.00 mtr + 0.00 mtr + 5.0 mtr + 5.0 mtr T- 1001 T- 1001 TANK T-1001 NEEDS TO BE RE-PAINTED (EXTERNAL). MAINTENANCE RECEIVED A QUOTATION FOR BLAST-CLEANING AND PAINTING OF THE TANK. THE QUOTE EXCLUDES THE PROVISION OF THE SCAFFOLDING, ASSUMED TO BE PROVIDED BY THE OWNER. THE JOB IS PLANNED TO START ON MONDAY 1ST MAY AND WILL TAKE 10 WORKING DAYS. THE MAINTENANCE DEPARTMENT REQUESTED YOU TO PROVIDE AN ESTIMATE OF THE COST FOR THE SCAFFOLDING. + 7.00 mtr + 7.00 mtr
- 27. 27 27 INSTALLA TIN AND DISMANTLING CODE STANDARD SCAFFOLDING US$ Unit S25 0 - 25 m3 6.96 m3 S50 25 - 50 m3 5.05 m3 S75 50 - 75 m3 4.80 m3 S100 75-100m3 4.15 m3 S150 100-150m3 3.95 m3 S200 150-200m3 3.65 m3 S400 200-400m3 3.40 m3 S000 400->m3 3.30 m3 CODE SPEICALS US$ UNIT LA LADDER 2.50 M1 WFR WORK FLOOR 4.35 M2 Z FLEXIABLE SHEETING 4.80 M2 THERE IS A CURRENT ‘SCHEDULE OF RATES’ CONTRACT WITH A SPECIALIZE COMPANY FOR PROVIDING OF SCAFFOLDING Case Study 1 Case Study 1
- 28. 28 28 Case Study 1 Case Study 1 RENT CODE TYPE US$ Unit SR SCAFFOLDING 0.03 M3/DAY LAR LADDER 0.04 M1/DAY WFR WORK FLOOR 0.04 M2/DAY ZR FLEXIBLE SHEETING 0.05 M2/DAY
- 29. 29 29 Case Study 1 Case Study 1 STEPS TO BE TAKEN 1.0 MAKE A (SIMPLE) WORK PLAN 2.0 DEVELOP SCOPE OF WORK 3.0 CALCULATE QUANTITY OF EACH ACTIVITY 4.0 APPLY APPLICABLE UNIT RATES 5.0 CALCULATE TOTAL COST
- 30. 30 30 Case Study 1 Case Study 1 WORKPLAN: SCAFFOLDING FOR BLASTING/PAINTING T-1001.Dia 5 Mtr H =7 Mtr 1.0 ERECT STANDARD SCAFFOLDING (NO HEAVY EQT. ETC. INVOLVED) AROUND TANK. 2.0 PROVIDE WORKING FLOORS. FOR EASY WORKING AT VERTICAL CENTERS OF 2.0 Mtr. 3.0 FOR ENVIRONMENTAL REASONS PROVIDE FLEXIBLE SHEETING AROUND SCAFFOLDING. 4.0 PROVIDE 3 LADDERS 5.0 APPROVAL SAFETY ADVISER 6.0 SCAFFOLDING SHOULD BE READY BEFORE START OF THE WORK ON MONDAY 1ST MAY (WK18).
- 31. 31 31 Case Study 1 Case Study 1 WORK SCHEDULE: WK18 WK19 WK 20 WK17 1/5 Scaffolding Ready Blasting/painting Start Dismantling Scaffolding Renting Period Scaffolding (16 Calendar Days ) W/E W/E START
- 32. 32 32 Case Study 1 Case Study 1 d D (=d+4) Volume Scaffolding: /4 (D2 - d2 ) x H /4(92 - 52 ) x 7 = 307 m3 (S400) Work Floor: each: /4(D2 - d2 ) /4(92- 52 )= 44m2 Total 3 x44m2 = 132m2 (WFR) Flexible Sheeting D x H x 9 x 9 - 254 m2 (ZR) Ladder: 3 x 6 m1 = 18m1 (LA) +9 +6 +4 +2 Work Floor
- 33. 33 33 Case Study 1 Case Study 1 Cost Estimate Details Cost Estimate Details # Activity Qty Unit Standard Norm Correction Total 1 Erection & dismantling scaffolding 307 m3 3.4 1,043.80 2 Erection & dismantling work Floor 132 m2 4.35 574.2 3 Erection & dismantling Sheeting 254 m2 4.8 1,219.20 4 Erection & dismantling Ladders 18 m1 2.5 45 5 Rent Scaffolding 4,912.00 m3d 0.03 147.36 6 Rent Work Floor 2,112.00 m2d 0.04 84.48 7 Rent Sheeting 4,064.00 m3d 0.05 203.2 8 Rent Ladders 288 m1d 0.04 11.52 Total 3,328.76
- 34. 34 34 POINTERS UNDERSTAND PROJECT REQUIREMENTS BEFORE DEFINING SCOPE. UNDERSTAND METHOD OF MEASUREMENT OF A ‘SCHEDULE OF RATE CONTRACT. SELECT OPTIMUM IMPLEMENTATION PLAN. Case Study 1 Case Study 1
- 35. 35 35 THE FOLLOWING COST INFORMATION IS AVAILABLE OF A SPECIFIC EQUIPMENT ITEM: SIZE F.O.B COST 100 M3/hr US$ 50,000 200 M3/hr US$ 80,000 QUESTION: WHAT IS THE ESTIMATED COST FOR THE EQUIPMENT ITEM WITH A CAPACITY OF 300 M3/HR? Case Study 2 Case Study 2
- 36. 36 36 Direct Cost Estimating Equipment Cost Calculation E1 E2 COST SIZE COST E2 = COST E1 X (size E2/ size E1) x
- 37. 37 37 THE SOLUTION: 1) = 80,000 50,000 2) 2 = 1.60 3) LOG2 x (X) = LOG 1.60 4) 0.301 x (X) = 0.204 5) (X) =0.678 Estimated Cost: X US$80,000 = US$105,000 (X) ) 100 200 ( (X) (0.678) ) 200 300 ( Case Study 2 Case Study 2