Cost Estimating Challenges - Part A

What are the challenges in detailed estimating, especially in construction work?

 

Detailed Cost Estimating

Challenges facing cost estimators working at the detailed level include

·         Estimating labor costs

·         Advantages of learning curve effects

·         Estimating material and equipment costs

·         Each are described on the following pages

 

Labor Costs - 1

Considerations include

·         Direct labor hours should be estimated at the activity or task level

·         And aggregated to the work package level

·         May be assessed per unit of quantity

·         Or as a justifiable lump sum

·         Hourly rates may be applied as

·         Bare labor, actual pay rate only

·         "Payroll cost", I.e. pay rate plus statutory "burdens"

·         Or, calculated as "All-in" rates

 

Labor Costs - 2

·         Calculated all-in rates include

·         Base pay rate

·         Plus payroll burden

·         Plus allowance for associated indirect labor

·         Plus percentage contribution to overhead

·         The organization must establish a "pricing policy" and apply it consistently throughout its estimating

 

Learning Curve Effects - 1

It is well known that

·         Worker output improves as tasks are repeated

·         And they become familiar with the sequence involved

·         Typically referred to as the "learning curve" effect

·         A better name is: "productivity experience curves"

·         Because operatives already have the basic skills

·         Hence, in planning the work

·         Every effort should be made to establish the longest possible runs of similar work

·         To maximize productivity

 

Learning Curve Effects - 2

The theory is

·         The time required for each succeeding repetition decreases by a fixed percentage of the previous value

·         This factor is called the "learning curve ratio"

·         Highly competitive contractors take advantage of this phenomenon

·         Especially those offering specialized services

·         Giving them competitive advantage

·         You can find a lot more on this topic in my paper

·         Applying Resource Loading, Production & Learning Curves to Construction: A Pragmatic Approach

 

Material & Equipment Costs - 1

Considerations include

·         Discrete items

·         Items that can be counted in some way

·         Number, length, area, volume

·         Estimated by applying unit rates to "quantity take-offs" derived from specifications, drawings, lists, etc

·         Must include corresponding materials and equipment requirements per unit

·         "Off-the-shelf" equipment or prefabricated parts

·         Vendors preliminary or final best quotes

·         Plus transport and handling, applicable taxes and duties, temporary storage and security if needed

 

Material & Equipment Costs - 2

·         Bulk materials

·         Any materials required "on-hand" to be stored and drawn upon as needed

·         Unit price applied to specified quantity

·         Or quoted price from best supplier

·         Wastage and spoilage

·         Allowances must be included in quantity estimates

·         Or as an added percentage allowance

 

A Warning about Unit Rates

·      There are many published sources of unit rates

·         Pertaining to their respective industries

·         Often updated yearly

·         The most basic are local trade or union agreements

·         Or tables of unit rates for delivering product

·      The problem is

·         It is not always easy to tell exactly what is included

·         And what is not

·         Also the values tend to be "average"

·         Rather than "competitive"

·      Although this information can be valuable

·         There is not substitute for personal experience!

 

Other Cost Estimating Challenges

Estimating sub-contractor costs, overhead costs, and the determination and application of contingency are discussed in our next Issacon #1334