CEP_Study_Guide.pdf

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AACE International’s Certified Estimating ™ ™ Professional (CEP) Certification Study Guide

Co-Editors William E. Kraus, PE CCE FAACE Philip D. Larson, CCE CEP PSP FAACE

First Edition 2013

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AACE International Copyright 2013

Certified Estimating Professional™ (CEP™) Certification Study Guide

First Edition

Copyright © 2013 By AACE® International 1265 Suncrest Towne Centre Dr. Morgantown, WV 26505-1876 USA

Phone: +1.304.2968444 Fax: +1.304.2915728 Email: [email protected] Web: www.aacei.org Printed in the United States of America

ISBN-13: 978-1482526899 ISBN-10: 1482526891

Acknowledgments

This guide is the culmination of untold hours of discussion, calculation, and composition. The following people are recognized for substantial effort given to this g uide:

Peter W. Griesmyer Tamera Lee McCuen Dennis E. Van Kirk Valerie G. Venters, CCC

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2012-2013 AACE Education Board Members

Peter W. Griesmyer, Chair Nadia Al-Aubaidy Dr. John O. Evans III, PSP Dr. Makarand Hastak, CCE Donald F. McDonald Jr., PE CCE PSP Sunu M. Pillai CCE EVP PSP Rohit Singh, P.Eng. CCE

Ann Marie Cox EVP, Co-Chair Chris A. Boyd, CCE CEP Clive D. Francis, CCC Dr. Don Mah, P.Eng. Bryan Payne, PE CCE CFCC Dr. Sean T. Regan, CCE CEP James G. Zack Jr., CFCC

The assistance of the AACE ® Headquarters (HQ) staff members is also greatly appreciated: Dennis Stork, Executive Director Marvin Gelhausen, Managing Editor Noah Kinderknecht, Art Director Charla Miller, Staff Director-Education and Administration Penny Whoolery, Manager, Certification

Table of Contents Introduction to the CEP Certification Study Guide .................................... .................................................. ........................... .......................... ................................ ...................... ...1 CEP Certification Requirements Requirements .......................... ....................................... .......................... ........................... ........................... .......................... ................................. ................................. ............... ..3 CEP Certification Examination Structure.................. Structure............................... ........................... ............................ ........................... ........................... ................................ ............................ ..........5 Introduction to the Cost Estimating Competency Model ........................... ........................................ ........................... ........................... ............................... ..................... ...7 Test Your CEP Knowledge ........................... ........................................ .......................... ........................... ........................... .......................... ................................ ................................. ........................ ..........8 Chapter 1.0 - Supporting Skills and Knowledge ............................ .......................................... ........................... .......................... .................................. .................................. ............... 9 Introduction: The Role of the Cost Estimator ............................ ......................................... .......................... .......................... .......................... ................................ ...................10 Section 1.1 Elements of Cost .......................... ....................................... ........................... ........................... ........................... ........................... ................................. ................................ ............13 Section 1.2 Elements of Analysis.................... Analysis................................. .......................... ........................... ........................... .......................... ................................. ................................. ...............19 Section 1.3 Enabling Knowledge..................................... .................................................. ........................... ........................... .......................... ................................. .............................. ..........25 Chapter 2.0 -Cost Estimating Skills and Knowledge ............... ............................ ........................... ........................... ........................... ................................. .......................... .......31 Section 2.1 General Estimating Concepts ................................... ................................................. ........................... .......................... ................................ ............................... ............33 Section 2.1.1 Cost Estimating Terminology ......................... ....................................... ........................... .......................... .......................... .................................. .....................35 Section 2.1.2 Cost Estimate Classifications ........................... ........................................ .......................... ........................... ........................... ................................. ....................39 Section 2.1.3 Estimate Variability .......................... ....................................... .......................... ........................... ........................... ................................ ................................ ................ ...47 Section 2.1.4 Estimating Algorithms ........................... ......................................... ........................... ........................... ........................... ................................ ............................. ..........53 Section 2.1.5 Codes of Accounts........................... ......................................... ........................... .......................... .......................... ........................... .................................... ......................59 Section 2.1.6 Historical Cost Data.................................... .................................................. ........................... ........................... ........................... ................................ ........................ .....63 Section 2.1.7 Internationalization Internationalization .......................... ....................................... ........................... ........................... ........................... .................................. ................................. ...............69 Section 2.2 Estimating Processes and Practices................ Practices.............................. ........................... ........................... ........................... ............................... ........................... .........73 Section 2.2.1 Planning the Estimate ........................... ......................................... ........................... ........................... ........................... ................................ ............................. ..........75 Section 2.2.2 Estimating Methodologies ........................... ........................................ .......................... .......................... ........................... ................................... ....................... ..79 Section 2.2.3 Quantification ......................... ....................................... ........................... .......................... .......................... ........................... .................................. .............................. ..........85 Section 2.2.4 Costing.......................... ....................................... .......................... ........................... ........................... .......................... .................................. .................................. ..................... ........91 Section 2.2.5 Pricing........................... ........................................ .......................... .......................... ........................... ........................... .................................. .................................. ..................... ........97 Section 2.2.6 Conditioning .......................... ....................................... .......................... .......................... ........................... ........................... .................................. ............................... ..........105 Section 2.2.7 Risk Evaluation and Contingency Determination ................. .............................. ........................... ........................... ....................... ..........111 Section 2.2.8 Estimate Documentation .......................... ....................................... .......................... .......................... ........................... ................................. ........................ .....115 Section 2.2.9 Estimate Reconciliation............................... ............................................ .......................... ........................... ........................... ................................ ...................... ...121 Section 2.2.10 Estimate Review and Validation ............... ............................ ........................... ........................... .......................... ................................. ....................... ... 125 Section 2.2.11 Estimate Reporting.............................. ............................................ ........................... ........................... ........................... ................................ ........................... ........129 Section 2.2.12 Estimate Closeout ........................... ........................................ ........................... ........................... ........................... ................................. ............................... ............133 133 Section 2.2.13 Building Information Modeling (BIM) ...................................... .................................................... ........................... .............................. .................137 Section 2.3 Other Estimating Issues.......................... ........................................ ............................ ........................... ........................... .................................. ................................ ............143 143 Section 2.3.1 Bidding ......................... ...................................... ........................... ........................... .......................... .......................... .................................. .................................. ................... ......145 Section 2.3.2 Budgeting .......................... ....................................... .......................... ........................... ........................... .......................... ................................. ................................. ............... ..151 i

Section 2.3.3 Project and Lifecycle Costing .................. ................................ ........................... .......................... ........................... ................................ .......................... ........155 Section 2.3.4 Project and Product Costs ................................ ............................................. ........................... ........................... .......................... .............................. .................159 Section 2.3.5 Integrated Project Delivery ........................... ......................................... ........................... ........................... ........................... ............................... .................... 163 Appendices................. Appendices.............................. ........................... ........................... .......................... .......................... ........................... ........................... .................................. .................................. ........................ ...........167 Appendix A: Complex Problems............................. .......................................... .......................... .......................... .......................... ........................... .................................. ............................ ........169 Appendix B: Recommended References and Resources ..................................... ................................................... ........................... .......................... ..................... ........173 Appendix C: Estimating Professional Terminology and Definitions ................... ................................ .......................... ........................... ........................ ..........175 Appendix D: AACE International Canon of Ethics .......................... ........................................ ........................... ........................... ................................. ............................. ..........177 Appendix E: Certified Estimating Professional Sample Application .............. ........................... .......................... .......................... ............................ ...............179 Appendix F: CEP Exam Part IV Example .................................... ................................................. ........................... ........................... .......................... ................................. ...................... .. 181 181

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Preface

The AACE® International International Certified Estimating Professional™ (CEP TM ) Certification Study Guide is being developed to accomplish two purposes similar to that of the AACE®International CCC™ /CCE™ Certification Study Guide. Guide. First, it is intended to aid aid aspiring candidates for the certification by summarizing the fields of study recommended for preparation for the certification examination. Second, the intent of the Certified Estimating Professional Certification Study Guide is to assemble and summarize various topics considered essential for the Certified Estimating Professional’s (CEP) knowledge, as outlined in AACE International’s Recommended Practice 11R-88, Required Skills and Knowledge of Cost Engineering , and included in the current edition of AACE International’s Skills and Knowledge of Cost Engineering. Engineering. We expect that the Certified Estimating Professional Certification Study Guide will be as popular and useful as the CCC/CCE Certification Study Guide. Guide. This publication will serve the needs of estimating professionals who prepare to take the AACE International CEP certification examination. This publication is organized in a concise and easy to follow format, and covers the major skills and knowledge used by a Certified Estimating Professional. The information contained in this Certified Estimating Professional Certification Study Guide parallels the related topics of the Skills and Knowledge of Cost Engineering and the CCC/CCE Certification Study Guide. Guide . These publications publications can be combined combined for a course of study in both cost engineering and estimating. The publications include include sample problems related to the subject matter. Terms and phrases incorporated in the Certified Estimating Professional Certification Study Guide are generic to the profession and listed in AACE International’s Recommended Practice 10S-90 Cost Engineering Terminology. The terms and phrases used in industry and technical software may not always agree precisely with your understanding, therefore consult the CEP Estimating Terminology and Definitions found on the AACE International website, www.aacei.org. The goal of the AACE International Education Board is to continually improve this publication, making it a living document that will be revised as needed to support the CEP exam while maintaining the recognized strengths described above. above. All are encouraged to offer comments and suggestions for improvements in future editions. Please forward comments comments to the Education Board at AACE International.

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Introduction to the CEP Certification Study Guide This Certified Estimating Professional Certification Study Guide structures prospective certificants’ study of recommended reference materials, so they gain the knowledge essential to earn the Certified Estimating Professional (CEP) (CEP) credential. The Table of Contents generally mirrors the organization of the CEP Competency Model developed by the CEP Task Force. The Competency Model is explained later in this Certification Study Guide. As a guide to study, this publication does not provide detailed, fundamental education in cost estimating. Those seeking the CEP credential should already know the basics. basics. One expects, however, that even seasoned professionals do not routinely apply all estimating knowledge and skills on a frequent basis. Recent study of seldom-used knowledge and techniques in the months before sitting for for the certification examination examination is prudent. This CEP Certification Study Guide enables efficient and effective preparation for the CEP examination. The CEP Competency Model prescribes twenty five (25) sections. sections. Each section is addressed in this CEP Certification Study Guide with content organized as follows: o o o o o o o o

Introduction Learning Objectives Related Study Guide Sections Terms to Know Key Points for Review Summary Sample Questions Sample Question Answers

This text primarily uses process industry and building construction projects as the bases for presenting the knowledge, skills, and abilities required of competent cost estimators.

© 2013, AACE International (All Rights Reserved)

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CEP Certification Requirements The prospective Certified Estimating Professional (CEP) should know all requirements for earning the credential. This will allow allow the most efficient use of time to improve one’s knowledge, knowledge, skills, and abilities to thresholds that industry consensus deems essential for a proficient cost estimator. For the most current information regarding the eligibility requirements, applications, and payment for this specialty certification, visit the AACE website under the Certification section. Preparing for the Examination Generally speaking a candidate’s education and professional experience are the primary sources that prepare the individual for the examination. However, there are other ways to prepare for the examination: o o o

o o

Study the CEP Study Guide. Guide. Study the reference materials mate rials referenced in Appendix B of this manual. Learn the estimating terms found in Appendix C of this manual, in conjunction with AACE International Recommended Practice 10S-90, Cost Engineering Terminology . Access relevant distance learning opportunities through AACE International’s website. Attend the CEP review seminar conducted c onducted at the AACE International Annual Meeting

Passing the Examination To become a certified CEP, an overall passing score must be achieved, as determined by the t he Certification Board.

If a candidate has special needs, nee ds, such as accessibility or handicapped considerations, they must be made known to AACE International when submitting the CEP certification exam application. If the candidate has questions unanswered by the general information that has been published about the examination, they should be directed to the AACE International , Certification Manager Special attention should be given to Certification Requirements. For the latest information and application forms, please visit AACE International’s website at www.aacei.org or contact AACE International Headquarters at either 304-296-8444 or 1-800-858-COST.


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CEP Certification Examination Structure Introduction A review of the structure and content of the CEP certification examination is useful for prospective applicants. This study guide provides direction for preparing to meet express or implied requirements. Examination Basis AACE International’s Certified Estimating Professional (CEP) certification program is designed to establish credentials for those individuals working in the estimating field. This certification program will give professionals a means to validate their skills and knowledge. CEP certification will distinguish you as a Certified Estimating Professional who has the knowledge and skills that impact the bottom line. CEP™ Exam Format: The examination is delivered through computer based testing (CBT) and consists of multiple choice questions and a written exercise. The topics covered in the examination are: basics of estimating knowledge and principles; estimating knowledge, principles, processes; and practices in solving more complex estimating problems.

The examination is closed book with any calculator, programmable or pre-programmed (including those with financial functions), allowed. The examination is not based on use or knowledge of specific software, but it tests the knowledge and experience of an estimator who uses the results of such tools. Recognizing there are many industries and fields within the profession--engineering, construction, manufacturing, process facilities, mining, utilities, transportation, aerospace, environmental, and government—one can expect some questions in any of those settings. For the latest information regarding the CEP exam format, visit the AACE website under the Certification section. Understanding and Using the Sample Questions Provided in the CEP Study Guide

The CEP Study Guide includes many sample questions with answers. These questions should be answered so you know which areas might need additional preparation on your part. The questions are found at the end of each section. CEP Study Guide questions have been developed specifically for those preparing for the examination and are similar in content and context to the actual exam questions. All of the questions on the CEP Certification Examination, except the writing requirement, are multiple-choice questions. Each has four possible answers with one correct solution, similar to the sample questions in this Certification Study Guide.

Questions in the CEP Study Guide are in the following formats: o

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Multiple choice questions, questions, similar to what you might find on the the certification examination. It is important to recognize that there may be some semblance of correctness to more than one correct. possible answer to a question. The correct answer is the one that is most most correct. A complex problem. The intent of this question-set is to enable the student to prepare for the complex question section of the examination. examination. A complex question sample is found found in Appendix A with some limited examples in some of the other sections. © 2013, AACE International (All Rights Reserved)

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Introduction to the Cost Estimating Competency Model The Competency Model generally prescribes the CEP CEP Body of Knowledge (BoK). The model comprises three primary subdivisions: Supporting Skills and Knowledge; Cost Estimating Skills and Knowledge; and Other Functional Skills and Knowledge. Those subdivisions subdivisions are ultimately divided into a total of 25 sections. Please note: The estimating competency model has been revised since since this Guide was written and, therefore, the organization of the Guide is not exactly as reflected in the competency model as revised. However, the material is still covered in the Guide; it is is just not organized as the competency model shows. shows. For the current estimating competency model, model, see AACE International Recommended Practice 46R-11, Required Skills and Knowledge of Project Cost Estimating . There is no change in format or material content on the exam as a result r esult of the revisions to RP-46R-11.

Figure 1—Cost Estimating Competency Model © 2013, AACE International (All Rights Reserved)

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Test Your CEP Knowledge As a good gauge of CEP knowledge, the candidate is encouraged to start by answering the following pre-test questions. Answers should be recorded, and when studies are complete, the candidate will answer the same questions again. A close comparison of the results, before and after study, will show the knowledge gained by using this study guide and references, and what gaps may remain prior to sitting for the exam. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26.

What is estimating? What is the role of the cost estimator? What is budgeting? What is quantification? What are the different classes of estimates? e stimates? What is the difference between costing c osting and pricing? What are the different types of parametric methodologies? What are codes of accounts and their use? What is Building Information Modeling (BIM)? What are the fundamental considerations for internationalization? What is the difference between accuracy acc uracy and contingency? What are cost estimating relationships (CER’s)? What are location factors? What is contingency? What are life cycle costs? What are the differences between direct and indirect costs? What is the difference between a Hand Factor and a Lang Factor? What is the difference between a work package and an assembly? What are the keys to cost c ost and scheduling integration? What are some of the challenges for change order estimating? What is the difference between a composite and an average crew rate? What are the differences between bare rates and burdened rates? What is the difference between material unit price and material price? What is the difference between unbalancing and front end loading? What are the different types of work breakdown structures (WBS) and use? What is the difference between labor productivity and a labor productivity factor?


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Chapter 1.0 - Supporting Skills and Knowledge Supporting skills and knowledge are applied across cost engineering disciplinary disciplinary lines. Proficient application of the subject matter of this portion of the study guide is required beyond the limits of cost estimating alone. Competent cost estimators routinely integrate their knowledge of elements of cost, analysis, and other enabling knowledge throughout throughout all they do. do. It is readily arguable that the general economic well-being of mankind has improved in conjunction with development and application of the concept of cost, its estimation, and its analysis. AACE Recommended Practice 10S-90, Cost Engineering Terminology , defines the term, “cost estimate” as, “a compilation of all the probable costs of the elements of a project or effort included within an agreed upon scope.” Thus, the definition of a cost estimator relates to the duties that are performed by the professional estimating practitioner, See figure 1.0.

Figure 1.0—Breakdown of Chapter Topics


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Introduction: The Role of the Cost Estimator Estimator According to AACE International Recommended Practice 10S-90, Cost Engineering Terminology , cost estimating is, “A predictive process used to quantify, cost, and price the resources required by the scope of an asset investment option, activity, or project. As a predictive process, estimating must address risks and uncertainties. The outputs of estimating are used primarily as inputs for budgeting, cost or value analysis, decision making in business, asset and project planning, or for project cost and schedule control processes. As applied in the project engineering and construction industry, cost estimating is the determination of quantity and the predicting and forecasting, within a defined scope, of the costs required to construct and equip a facility. Costs are determined using experience and calculating and forecasting the future cost of resources, methods, and management within a scheduled time frame. Included in these costs are assessments and an evaluation of risks.” There are those who will say that the cost estimator is the most important person on the contractor’s staff in that their role is to prepare estimates that that will make or break the contractor. Whether you agree with that or not, the role of the cost estimator is an important one in industry. As you will see as your study of cost estimating advances, the process of development of an estimate varies depending on the stage of scope development development for the project/product. But regardless of the current progress of development or the appropriate estimating methodology chosen, at least the following three common steps are involved. Step One: Quantification—Whether using a top-down methodology (otherwise known as “analogous estimating”) or a more definitive approach, the scope must first be quantified in order to assign costs. Step Two: Costing—Once the scope has been translated into measurable items with quantities that can have costs assigned to them, that is the next step, costing. That is, realistic costs assigned assigned to those items. Step Three: Pricing —Once the estimate items are costed, it is time to price the estimate, entailing making judgments concerning the anticipated economic environment, competitive situation, allowance for overhead and profit, and other factors to shape the estimate to meet the needs of the parties involved. Often, once the estimate has been priced, it will still need to be be conditioned or adapted to specific conditions applicable to the project or product being estimated. Learning Objectives o o o o

Understand the role of a cost estimator e stimator in government and industry. Be able to identify potential places of employment for cost estimators. Understand the required skills, knowledge, and abilities of cost estimators. Understand the career potential for cost estimators.

Related Study Guide Sections o

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Terms to Know o o o o

Cost Estimate Cost Estimating Cost Estimator Knowledge, Skills, and Abilities (KSAs)

Key Points for Review o

o

o o

o o

o

o

o

o

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Project cost estimators predict the cost of a project for a defined scope, to be completed at a defined location and point of time in the future. Cost estimators assist in the economic evaluation of potential projects by supporting the development of project budgets, project resource re source requirements, and value engineering. Cost estimators support project control by providing input to the cost control baseline. Cost estimators collect and analyze data on all of the factors that can affect project costs such as: materials, equipment, labor, location, duration of the project, and other project requirements. Methods used by estimators vary widely by industry. Computers have become vital tools for the estimator, performing complex mathematical calculations, as well as the more mundane calculations. Estimators are most often office-based, but may visit the construction site or manufacturing floor at times to witness production. Estimators are usually salaried employees, often spending in excess of 40 hours at work, but are usually classified as exempt employees. There is often considerable pressure on estimators as they face deadlines for delivery of estimates and inaccurate products can result in the t he loss of a bid or losing a project or product. Job entry requirements vary by industry, but often require r equire either a bachelor’s degree in a closely-allied field or actual experience in industry. Required skills and knowledge for estimators often include ability in mathematics, probability, and statistics, having an analytical analytical aptitude, and good attention to detail. Strong interpersonal skills, especially those in communication and presentation are important. According to the Occupational Outlook Handbook, 2010 – 2011 Edition, Edition, expected opportunity for estimators is expected to grow at a rate in excess exce ss of the U.S. economy in general over the period 2008 – 2018. Other government organizations maintain maintain national or regional economic statistics (for example, the European Union (EU) and South Africa).

Summary o

There are multiple opportunities for cost estimators in many industries, but there are exacting qualifications and demanding job conditions to be dealt with by those in the position.


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Section 1.1 Elements of Cost Introduction

Elements of cost include material and fixed equipment, the most desirable combination of labor and equipment to install the material and fixed equipment, and any other costs necessary for delivering the work at an agreed upon price. Aggregating these costs to determine a total cost is necessary to determine pricing to cover other costs associated with being able to perform the work, and provide a reasonable profit. Costs within an estimate estimate are often categorized into direct and indirect costs. Direct costs are those costs for completing work scope that are directly attributable to its performance and are necessary for its completion. Direct costs include the following. •

•

In construction—the cost of installed equipment, material, labor and supervision directly or immediately involved in the physical construction of the permanent facility. In manufacturing—service and other non-construction industries: the portion of operating costs that is readily assignable to a specific product or process area.

Indirect costs are those costs not directly attributable to the completion of an activity Indirect costs are typically allocated or spread across all activities on a predetermined basis. Indirect costs include the following. •

•

In construction—All costs which do not become a final part of the installation, but which are required for the orderly completion of the installation and may include, but are not limited to, field administration, direct supervision, capital tools, startup costs, contractor's fees, insurance, taxes, etc. In manufacturing—Costs not directly assignable to the end product or process, such as overhead and general purpose labor, or costs of outside operations such as transportation and distribution. Indirect manufacturing cost sometimes sometimes includes insurance, property property taxes, maintenance, depreciation, packaging, warehousing and loading.

Cost elements can be categorized into groupings, such as work breakdown structures, in order to better organize, present, and analyze the estimate. A more detailed presentation of different types of categories is covered in this study guide in Section 2.1.5 Codes of Accounts, Accounts , and analysis in Section 1.2 Elements of Analysis. Analysis . Learning Objectives o o o

Be able to list the various elements of cost and the role they play in comprising total cost. Describe the process of “rolling up” cost elements into higher groupings. Identify the characteristics that separate direct from indirect costs.


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Related Study Guide Sections o o o o o

2.2.3 Quantification 2.2.4 Costing 2.2.5 Pricing 2.2.6 Conditioning 2.3.1 Bidding

Terms to Know o o o o o o o o o o o o

Assembly Code of Accounts Cost Category Cost Element Direct Cost Equipment Costs Indirect Cost Labor Costs Material Costs Subcontractor Costs Suppliers Work Breakdown Structure (WBS)

Key Points for Review o o o

What are the key components that determine costs? How do cost estimate classifications help organize and present the estimate? How can elements of cost be summarized?

Summary o

o

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The elements of cost include the material, labor, equipment, and other miscellaneous items necessary to perform the prescribed work. Estimate classifications assist all parties in gaining a mutual understanding of the basis of the estimate, as well as the expected accuracy of the estimate. Cost elements may be “rolled up” to higher levels of detail.


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Sample Questions for Section 1.1 Elements of Cost

1.

The difference between a cost element and a cost category is best explained by: A. B. C. D.

Cost elements are a grouping of detailed line items. Cost categories are subdivided by assemblies. Cost elements are a subdivision of a cost category. Cost categories are a subdivision of an assembly.

2. Which of the following is not an an element of the cost of a project? A. B. C. D.

Material Freight Material waste Esteem value

3. Which of the following is an indirect cost of a concrete wall? A. B. C. D.

Material Forming labor Supervisory labor Labor fringe benefits and taxes

4. Variable costs in the manufacture of a product differ from fixed costs in that they____. A. B. C. D.

Can also be termed, “indirect costs.” Increase/decrease in proportion to the quantity of product produced. Cannot be readily estimated. Have unit costs that are variable.

5. Unit cost cost refers to _____________ _______________________ ___________________ ___________________ ________________. ______. A. B. C. D.

The cost of one unit where “unit” refers refer s to a dwelling unit such as an apartment. The cost of a given unit of a product or service. The cost of labor, materials, equipment, and overhead, “united.” The cost of one “unit” of labor.

6. In a manufacturing environment, environment, variable costs are ___________ ____________________ ___________________ ____________. __. A. B. C. D.

Those costs that vary with the value of local curre ncy. Labor costs that can vary with the productivity and e fficiency of the specific workers assigned to complete the task. Those costs that are a function of production and those processing proce ssing costs that varies with plant output. All costs that are not fixed.


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7. The term “unit hours” refers to ___________________________ _____________________________________ _________________. _______. A. B. C. D.

Work hours per unit of production. Hours “on the clock.” Total crew hours expended toward completion of a direct item of work. Overtime spent in completion of an item of work.


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Solutions to Sample Questions for Section 1.1 Elements of Cost

1.

C

Cost elements are a subdivision of a cost category.

2.

D

Esteem value.

3.

C

Supervisory labor.

4.

B

Increase/decrease in proportion to the quantity of product produced.

5.

B

The cost of a given unit of a product or service.

6.

C

Those costs that are a function of production and those processing costs that vary with plant output.

7.

A

Work hours per unit of production.


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Section 1.2 Elements of Analysis Introduction

Statistics and probability are a fundamental basis for analysis of projects and costs in that there are patterns and consistencies that to a certain level can be predicted to have a particular influence on a cost estimate. The learning-curve function and Pareto’s Law are two examples. Economic and financial analysis is a separate process that generally takes a broader view of the project, but can also be used on a case by case basis to help determine desirability. Optimization then, is a judgment of all of the independent variables, costs, quantities, qualities outlined as a basis of project success. Physical measurements can be used to provide feedback on current cost estimates, as well as be archived for historical purposes to be referenced later. Learning Objectives o o o

Be able to explain how statistics and probability are used to facilitate analysis of projects. Understand how elements of cost may be optimized. Develop techniques for using physical measurements to evaluate current status of projects, as well as documenting historical parameters for use in future projects.

Related Study Guide Sections o o o o o o o o o o o

2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.2.4 2.2.5 2.2.7 2.2.9 2.2.10 2.3.4

Cost Estimate Classifications Estimate Variability Estimating Algorithms Code of Accounts Historical Cost Data Costing Pricing Risk Evaluation and Contingency Determination Estimate Reconciliation Estimate Review and Validation Project and Product Costs


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Terms to Know o o o o o o o o o o o o o o o o o o o o o o o o o

Baseline Contingency Cost Estimate Classifications Costing Direct Cost Distributables Equipment Cost Fee Fixed Cost General and Administrative Expense (G&A) General Requirements Home Office Cost Indirect Costs Labor Cost Learning-Curve Function Life-Cycle Costing Management Reserve Mark-up Material Cost Overhead Pareto’s Law Price Profit Schedule of Values Variance


o

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Understand the use of statistics and probabilities to provide insight and direction in analyzing estimates. Be familiar with Pareto 80/20 and how to prioritize the time available to maximize the use of that time. Understand how the learning curve affects estimates.

Summary o

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Statistics, probability, and other analytical tools turn the raw data of databases into data usable in the process of estimating. Proper analysis of data is essential in order to prepare estimates sensitive to the context of the project in terms of scope, time, and place.


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Sample Questions for Section 1.2 Elements of Analysis 1.1

Production rates for placing concrete in wall forms are recorded on several projects and shown in the following table:

Project 1 2 3 4 5 6 7

Crew hours / cubic yard 0.375 0.680 0.420 0.481 0.555 0.621 0.587

Calculate the average production rate experienced on these projects. A. 0.531 crew hours / cubic yard B. 0.620 crew hours / cubic yard C. 0.533 crew hours / cubic yard D. 0.465 crew hours / cubic yard 1.2

If the total yards placed per project are as shown in the following table, calculate the weighted average production rate experienced on these projects.

Project 1 2 3 4 5 6 7 A. B. C. D. 1.3

636.8 crew hours / cubic yard 0.531 crew hours / cubic yard 0.465 crew hours / cubic yard 0.0015 crew hours / cubic yard

What does calculating the standard deviation of production rates tell us about the data? A. B. C. D.

1.4

Cubic yards placed 1,200 426 391 288 61 55 126

It provides a test of whether the average is a valid number to use in calculations. It provides a measure of the variation of the rates. That the production rate decreases as the quantity increases. That there is no correlation between production rate and quantity.

Another way of expressing the accuracy of the production rates is ______________. A. B. C. D.

0.465± 0.110 0.421 to 0.642 To increase the number of digits. To increase the accuracy of timesheets on projects.


21

1.5

If one establishes a standard that one only uses production rate data that lies plus or minus one sigma of the mean, which (if any) data point(s) should be excluded? A. B. C. D.

1.6

What does using methods of statistical analysis accomplish for the estimator in this instance? A. B. C. D.

1.7

0.375 One should exclude the highest and lowest values 0.420 0.680

It allows the estimator to judge that he or she should use the mean cost in the estimate. It provides a 3-sigma range of costs to use in the estimate. It gives the estimator a sense of the variation of data in the cost database and assists him or her in judging the cost to be used in the estimate. It is of no particular value in determining the cost to be used in the estimate.

An estimator is responsible for reviewing her team’s estimate. Pareto’s Law can be a useful tool in that ____________________ ______________________ __ A. B. C. D.

By carefully selecting selecting the items he or she reviews, he or she can review 80% of the cost of the estimate by checking 20% of the items. He or she can be certain that the estimate is 80% accurate. Any 20% of items reviewed will represent 80% of the cost of the estimate. Approximately 80% of the overrun will occur in 20% of the items in the estimate.


22

Solutions to Sample Questions for Section 1.2 Elements of Analysis

1.1

A

0.531 crew hours/cubic yard. rate is calculated simply, as follows: follows: Commentary: The average production rate Project

Crew hours/cubic yard 0.375 0.680 0.420 0.481 0.555 0.621 0.587 3.719

1 2 3 4 5 6 7 Sum

Average = sum / # of occurrences = 3.719 / 7 = 0.531 crew hrs / cubic yard 1.2

C

0.465 crew hours / cubic yard.) Commentary: One can calculate the weighted average average production rate as follows: follows:

Project 1 2 3 4 5 6 7 Sums

Cubic yards placed 1,200 426 391 288 61 55 126 2547

Crew hours/cubic yard 0.375 0.680 0.420 0.481 0.555 0.621 0.587

Total Crew Hours 450 289.68 164.22 138.528 33.855 34.155 73.962 1184.400

The weighted average is calculated by 1,184.4 / 2,547 = 0.465 crew hours / cubic yard. 1.3

B

It provides a measure of the variation of the rates.

1.4

B

0.421 to 0.642 Commentary: This is the range defined by the mean minus the standard deviation to the mean plus the standard deviation.


23

1.5

D

0.680 Commentary: One sigma is one standard deviation and so the range in question 1.5 identifies the limits of the range. range. 0.680 lies outside the range and so under under the defined standard, this value should be eliminated.

1.6

C

It gives the estimator a sense of the variation of data in the cost database and assists him or her in judging the value to be used in the estimate.

1.7

A

By carefully selecting the items he or she reviews, he or she can review 80% of the cost of the estimate by checking 20% of the items.


24

Section 1.3 Enabling Knowledge Introduction

Enabling knowledge is about taking what has been learned and being able to use that information repeatedly for the benefit of society as a whole. A key area is to be able to record estimating information effectively in order for any of that information to be valuable in the present, and more importantly, in the future. Learning Objectives o

o

o

Having a good understanding of estimating terminology and the fundamentals of estimating is as essential to a good estimate as a strong foundation is to a sturdy structure. Organization is essential to the estimating process—well-organized historical data, properly and consistently organized estimates, and the process of reporting estimate results for both current and future use. An understanding of how an estimate is classified helps normalize all stakeholders’ expectations in terms of sources, purposes, levels of accuracy, etc. of the estimate. e stimate.


2.1.1 2.1.2 2.1.5 2.1.6 2.2.2 2.2.11 2.2.13 2.3.2 2.3.3 2.3.4 2.3.5

Cost Estimating Terminology Cost Estimate Classifications Code of Accounts Historical Cost Data Estimating Methodologies Estimate Reporting Building Information Modeling (BIM) Budgeting Project and Lifecycle Costing Project and Product Costs Integrated Project Delivery (IPD)

Terms to Know o o o

Codes of Accounts Databases Historical Data


25


Describe the benefit of having accurate historical data. Understand the benefit of standardization as it relates to historical data. Describe the challenges of incorporating new standards as they emerge.

Summary o

o

o

The AACE Recommended Practices 17R-97, Cost Estimate Classification System and 18R-97, Cost Estimate Classification System: As Applied in Engineering, Procurement, and Construction for the Process Industries , concerning estimate classification provide a framework for identifying the essential parameters and characteristics of estimates. Consistent use of the terminology of estimating and a mutual understanding of that terminology is essential to avoid misunderstandings surrounding the estimate. A well-planned estimate will have had appropriate estimating methodologies identified and executed which will result in an estimate responsive to the needs identified at the outset.


26

Sample Questions for Section 1.3 Enabling Knowledge

1.

The primary benefit of having accurate historical data for estimating purposes is: ________ _________________ __________________ _________________. ________. A. B. C. D.

2.

A chart of accounts acc ounts and a work breakdown bre akdown structure are examples e xamples of __________________. __________________. A. B. C. D.

3.

Not as costs but rather as production rates. By the accounting staff. Periodically throughout the life of the project. In dollars and cents.

One means of facilitating efficient and effective estimates is _______________________ _________________________. __. A. B. C. D.

6.

The organization’s own project experience. A nationally recognized cost service such as R.S. Means. A database of costs experienced in the specific industry. Online.

Labor should always be recorded in a database ________________________ __________________________________ ____________. __. A. B. C. D.

5.

Historical cost databases. Cost element structures used in organizing data. Historical cost data. Cost trending tools.

Historical cost data for use in estimates is best obtained from _________________________ _________________________.. A. B. C. D.

4.

Actual costs can be tracked accurately. The estimate can be based on a work breakdown structure instead of the chart of of accounts. Estimates can be based on costs actually experienced in the past on similar projects. The estimate can be tied to current labor rates.

To separate direct and indirect costs. To use cost indices. To normalize cost databases. To ensure that proper rules are followed for constructing a work breakdown structure.

Inputs to the cost estimating process include: A. B. C. D.

Scope definition, resource requirements, and historical cost information. Scope definition, basis of estimate, and historical cost information. Scope definition, activity-based costing, and historical cost information. Scope definition, historical cost information, and schedule information.


27

7.

The Deming Cycle is ______________________________________________. A. B. C. D.

8.

A cost estimate is a prediction of cost, c ost, ______________________ __________________________, ____, and/or price of resources required by the scope of a project. A. B. C. D.

9.

B. C. D.

The chief estimator, senior estimators, rank and file estimators, e stimators, and entry-level estimators. An example of a work breakdown structure (WBS). Any work breakdown structure (WBS) dictionary. Any coding system that can be represented as a multi-level tree structure in which every code except those at the top of the tree has a parent code.

The term “Work Breakdown Structure” refers to ___________ ____________________ ________________. _______. A. B. C. D.

12.

principal interest escalation contingency

A hierarchical coding structure is ___________ ____________________ ___________________ ____________________ __________.. A.

11.

formulas equations quantities resources

Often a contractor will borrow money for use as operating funds. Another word for cost of capital is ____________________________________________. A. B. C. D.

10.

The cyclical pattern of construction costs, fluctuating with the general economy. Life cycle costing. Also referred to as “plan-do-check-act” cycle. The asset life cycle.

A framework for organizing and ordering the activities that makes up a project. Task analysis for the labor on any project or product team. A framework for analysis of the reasons costs fail to meet the budget. A means of segregating labor costs into similar categories. cate gories.

“WBS dictionary” refers to: A. B. C.

D.

A project glossary. Another term for a directory director y of personnel and controls/management positions on a project or product team. A document that describes each element in the work breakdown structure (WBS) including a Statement of Work (SOW), describing work content of each WBS element, and a Basis of Estimate (BOE). Another term for Basis of Estimate (BOE).


28

Solutions to Sample Questions for Section 1.3 Enabling Knowledge

1.

C

Estimates can be based on costs actually experienced in the past on similar projects.

2.

B

Cost element structures used in organizing data.

3.

A

The organization’s own project experience.

4.

A

Not as costs but rather as production rates. Commentary: Labor costs are a function of labor rates which fluctuate with time whereas production rates should be relatively constant for any given location. Therefore, it is usually deemed more accurate to use labor production rates in a cost database.

5.

D

To ensure that proper rules rules are followed for constructing constructing a Work Breakdown Breakdown Structure.

6.

D

Scope definition, historical cost information, and schedule information.

7.

C

Also referred to as “plan-do-check-act” cycle.

8.

C

Quantities.

9.

B

Interest.

10.

D

Any coding coding system that can be represented as a multi-level tree structure in which every code except those at the top of the tree has a parent code.

11.

A

A framework for organizing and ordering the activities that makes makes up a project.

12.

C

A document document that describes each element in the work breakdown structure (WBS), including a Statement of Work (SOW), describing work content of each WBS element, and a basis of estimate (BOE).


29


30

Chapter 2.0 -Cost Estimating Skills and Knowledge Cost estimating is one of the most challenging endeavors in industry. With judgment sharpened by knowledge of how work has been done and costs have been incurred in times past, the estimator bravely forecasts costs that he or she expects will be incurred during the current project. There is often substantial risk of error. Yet, when reviewing what happens on projects—the actual costs versus those originally estimated—one is often surprised at how accurate the estimates usually are. Only by applying the body of skills and knowledge that has evolved and developed over the years can cost estimators obtain such accuracy. This subdivision subdivision guides the student’s study study of the assorted skills and knowledge that a professional cost estimator must master to assure requisite accuracy.


31

Figure 2.0—Cost Estimating Skills and Knowledge


32

Section 2.1 General Estimating Concepts The following sections, general estimating concepts, focus on the fundamentals required to be able to produce an estimate in a consistent and systematic way so as to maximize efficiency, minimize redundancy, and optimize the project as a whole. This section addresses the fundamental approaches of cost estimating, including terminology, cost estimate classifications, codes of accounts, historical cost data, etc. without getting into specific cost estimating functions covered in the next section of this study guide, (Section (Section 2.2 Estimating Processes and Practices). Practices).

Figure 2.1—Breakdown of Chapter Topics © 2013, AACE International (All Rights Reserved)

33


34

Section 2.1.1 Cost Estimating Terminology Introduction

Cost estimating terminology provides the backbone of effective communication through the use of a common vocabulary. Recommended Practice 10S-90, Cost Engineering Terminology , is the AACE source for just that, cost engineering terminology. 10S-90 contains terminology from all aspects of cost engineering, including planning and scheduling, asset management, etc., and is not limited to just estimating. Further, there are specialized terms from the field of estimating which are not included in 10S-90. The AACE source document document for cost estimating estimating terminology is is the Examinee Format of Definitions , found under the CEP certification tab on the AACE website: www.aacei.org. Learning Objectives o o o

Determine the level of familiarity one has with estimating terminology. Understand why a common understanding of terms is essential to good estimates. Study and understand the terminology included in the Examinee Format of Definitions.

Related Study Guide Sections o o o o o

2.1.2 2.1.4 2.1.5 2.2.8 2.2.13

Cost Estimate Classifications Estimating Algorithms Codes of Accounts Estimate Documentation Building Information Modeling (BIM)

Terms to Know o o o o o o o o o o o o o o o o o o

AACE International, Inc. (AACE) AEC (Architecture, Engineering, Construction) American Society of Professional Estimators (ASPE) Codes of Accounts (COAs) Construction Specifications Institute (CSI) Cost Estimate Classification Design Build Institute of America (DBIA) Direct Cost Escalation Estimating Fees Glossary Indirect Cost Organization Breakdown Structure (OBS) Risk Specifications Standard Work Breakdown Structure (WBS)


35


o

Understand the different sources and political interests within the AEC industry. Describe how standards help to refine cost estimating e stimating terminology. Understand the different industries within the AEC (architectural, engineering, construction) industry that expand basic terminology (e.g. mechanical, MCAA, SMACNA, ASHRAE). The formal definition of a standard is an acknowledged measure of comparison for quantitative or qualitative value; a criterion, or something, such as a practice or a product, that is widely recognized or employed, especially because of its excellence.

Summary o o

o

o

The terminology used in cost estimating comes from a variety of industry sources. Some estimating terminology is specific to particular industries and to certain types of projects. On the other hand, some terms used in cost estimating are standard and are used across industries. Terminology is always changing as the technology, both in projects, as well as in estimating costs, is always advancing. That is why active membership and involvement in a professional professional association such as AACE International is essential to the process of keeping the estimator current.


36

Sample Questions for Section 2.1.1 Cost Estimating Terminology

1. Why is cost estimating terminology an important aspect of estimating? A. It’s not; estimating is more math and science dependent. depe ndent. B. Poor grammar has gotten to be a common ailment internationally. C. It is vital for the diverse stakeholders on a project to have a common understanding of terms. D. It is essential to a better understanding of costing techniques. 2. Why are standards important? A. B. C. D.

Standard is another word for baseline. The process of quantity takeoff is standardized. The process of pricing is standardized. Standards promote consistent communication which aids in mutual understanding.

3. Which of the following is a recent example e xample of significant change in an industry standard? A. The work breakdown structure becoming a replacement replace ment for the chart of accounts. B. “Deconstruction” of structures instead of “demolition” is rapidly becoming the approach to removing deficient infrastructure. C. Substitution of Masterformat for Uniformat. D. Replacement of wool-based carpeting for those utilizing synthetics. 4. What are the challenges with terminology of emerging processes such as Building Information Modeling (BIM)? A. Translating the new terminology into other languages. B. Consistent and accurate communication as the standard vocabulary associated with the process evolves. C. Gaining acceptance of the new terms. D. Incorporation of the new terminology into glossaries and other sources. 5.

The term “battery limit” refers to: A. Geographic boundaries enclosing a plant or unit to specifically identify certain portions of the plant or unit. B. A boundary beyond which any battery-powered equipment will not operate. C. The exterior wall of a processing plant. D. A level plane equal in height to the tallest improvement in the project.


37

Solutions to Sample Questions for Section 2.1.1 Cost Estimating Terminology

1.

C

It is vital for the diverse stakeholders on a project to have a common understanding of terms.

2.

D

Standards promote consistent communication which aids in mutual understanding.

3.

B

“Deconstruction” of structures instead of “demolition” is rapidly becoming the approach to removing deficient infrastructure.

4.

B

Consistent and accurate communication as the standard vocabulary associated with the process evolves.

5.

A

Geographic boundaries enclosing a plant or unit to specifically identify certain portions of the plant or unit.


38

Section 2.1.2 Cost Estimate Classifications Introduction

Cost estimates are important indicators of the quality and value of projects and products under consideration for for execution. However, expectations and understandings of the various parties involved vary widely with respect to the information available to prepare those estimates, the various methods employed during the estimating process, the accuracy level expected from estimates, and the level of of risk associated with estimates. A strong system for classification classification of cost estimates provides a means of unifying the expectations of the various parties interested in the estimates. The AACE system for classifying estimates is identified in Recommended Practice (RP) 17R-97, Cost Estimate Classification System, System, shown in Table 2.1.2.1. It is typical that a series of estimates will be prepared for a project, beginning with ones based on less project definition, and progressing through Classes 5 to 1 as the level of project definition increases. increases. It may very well be that not all of those estimates will be prepared on every project, proje ct, depending on the organization’s defined process.

Table 2.1.2.1—Generic Cost Estimate Classification Matrix

In addition to the generic estimate classification system, a more specific version has been created for the process industries (Table 2.1.2.2). The term “process industries” is intended to include firms involved with the manufacturing and production of chemicals, petrochemicals, pulp/paper and hydrocarbon processing. A subsequent AACE Recommended Practice 18R-97, Cost Estimate Classification System: As Applied in Engineering, Procurement, and Construction for the Process © 2013, AACE International (All Rights Reserved)

39

Industries, Industries, discusses application of the system for engineering, procurement, and construction for the process industries.

Table 2.1.2.2—Cost Estimate Classification Matrix for the Process Industries

The commonality among this industry (for the purpose of estimate classification) is their reliance on process flow diagrams (PFDs) and piping and instrument diagrams (P&IDs) as primary scope defining documents. These documents are key deliverables in determining the level of project definition, and thus the extent and maturity of estimate input information, and subsequently the estimate class for an estimate for a process industry project. Learning Objectives o o o o o o

Understand the various classifications of estimates. Understand why scope definition is important for any estimate. Understand the basis of the AACE International Inter national system of classifying estimates. Understand the application of accuracy ranges for various estimates and their importance. Recite the factors generating need for some system or organizing estimates. Describe the benefits of an estimate e stimate classification system.


40

Related Study Guide Sections o o o o o o o o o o o o o

2.1.5 2.1.6 2.1.7 2.2.2 2.2.3 2.2.4 2.2.5 2.2.6 2.2.7 2.2.8 2.2.10 2.2.11 2.2.13

Codes of Accounts Historical Cost Data Internationalization Estimating Methodologies Quantification Costing Pricing Conditioning Risk Evaluation and Contingency Determination Estimate Documentation Estimate Review and Validation Estimate Reporting Building Information Modeling (BIM)

Terms to Know o o o o o o o o o o o o o o o o o o o o o o

Accuracy Analogy Type Estimate Assembly Level Bid/Tender Estimate Budget Estimate Capacity Factored Check Estimate Concept Study Conceptual Estimate Control Estimate Cost Estimate Classification System Detailed Unit Costs Deterministic (Detailed) End-Product Units Method Feasibility Parametric Method or Model Physical Dimensions Method Preparation Effort Ratio or Factor Methods Screening Semi-Detailed Unit Costs Stochastic


41


o

o o

Understand the different classes of estimates in the cost estimate classification system and the parameters used in classifying estimates. Understand the differences in the different types of estimating techniques, and for which classes of estimates they are typically used. Understand the use of parametric variables and quantities Correlate the different classes of estimates to preparation time to do those estimates.

Summary

The primary parameter for the classification of estimates within AACE Recommended Practice (RP) 17R-97, Cost Estimate Classification System, System, is the degree of scope definition upon which the estimate is based. Other estimate characteristics differentiating estimates in one classification from those in another include the purpose of the estimate (anticipated end usage of the estimate), methodology used in development of the estimate, the accuracy of the estimate, and the relative effort required to produce the estimate. System, maps the phases AACE Recommended Practice (RP) 17R-97 , Cost Estimate Classification System, and stages of project estimating with a maturity and quality matrix, providing a common reference point to describe and and differentiate various types of cost estimates. The matrix defines the specific input information (i.e., design and project deliverables) that is required to produce the desired estimate quality at each phase of the estimating process. The matrix defines the requirements for scope definition and indicates estimating methodologies appropriate for each class of estimate.


42

Sample Questions for Section 2.1.2 Cost Estimate Classifications

1.

What class of estimate is an order of magnitude? A. B. C. D.

2.

__________ ___________________ _________ is a primary characteristic used in classifying estimates. A. B. C. D.

3.

Equipment list and specifications. Piping spool drawings. Drawings released for construction. Material invoiced costs.

You are preparing a Class 5 estimate. You have obtained an equipment quote of $60,000. The Lang Factor is 3.15 for this type of plant. What is your estimated project cost? A. B. C. D.

6.

Class 2 Class 5 Class 1 Class 3

A good Class 4 estimate can be prepared with the information available at the completion of Phase I design. An example of information at the end of preliminary design is: A. B. C. D.

5.

End usage or purpose of estimate Level of project definition Estimating methodology used in preparation of estimate Expected accuracy range of estimate

What class of estimate is a bid tender? A. B. C. D.

4.

Class 2 Class 5 Class 1 Class 3

$207,900 $256,642 $201,910 $189,000

An argument for a consistent system of classification of cost estimates is: A. B.

C. D.

To comply with AACE International Recommended Practice 17R-97, Cost Estimate Classification System. System. That the system will define the specific input information needed to produce a desired estimating outcome quality and will also define the outcome quality to be expected. To be consistent with the work breakdown structure (WBS). To allow the estimate to be used in the future for cost control on the project.


43

7.

An estimate prepared from very defined engineering data is referred to as a __________ _____________. ___. A. B. C. D.

Range estimate. Preliminary estimate. Conceptual estimate. Definitive estimate.


44

Solutions to Sample Questions for Section 2.1.2 Cost Estimate Classifications

1.

B

Class 5.

2.

B

Level of project definition.

3.

C

Class 1.

4.

A

Equipment list and specifications.

5.

D

$189,000 Commentary: based on an equipment quote of $60,000 and the Lang Factor is 3.15 for this type of plant, the estimated project cost $189,000 (3.15 * $60,000 = $189,000).

6.

B

That the system will define the specific input information needed to produce a desired estimating outcome quality and will also define the outcome quality to be expected.

7.

D

Definitive estimate.


45


46

Section 2.1.3 Estimate Variability Introduction

Estimate variability can be generalized to be a function of two basic differences, one being scope or quantity, and the other being cost. Price is actually the third difference usually being independent of the first two. One of the keys of a good estimator is to be able to have enough experience to understand these differences, as well as being able to recognize them, especially at critical times. One of the prime factors in estimate variability, especially in construction, is the form of contract anticipated for a project. Estimated direct costs may be precisely the same same for a detailed item of work under a cost plus or a lump sum contract. However, the amount of risk the contractor perceives may be considerably considerably more under the lump sum form of contract. Therefore, you would expect the total estimate to be different, even if estimated direct costs are the same. Learning Objectives o o

Be able to describe the factors influencing variability in estimates. Understand realistic steps to be taken to minimize estimate variability, one of which is using regression analysis in the estimating process.

Related Study Guide Sections o o o o o o o o o o o o o o

2.1.5 2.1.6 2.1.7 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.7 2.2.9 2.2.10 2.2.11 2.2.12 2.2.13

Codes of Accounts Historical Cost Data Internationalization Planning the Estimate Estimating Methodologies Quantification Costing Pricing Risk Evaluation and Contingency Determination Estimate Reconciliation Estimate Review and Validation Estimate Reporting Estimate Closeout Building Information Modeling (BIM)


47

Terms to Know o o o o o o o o o o o o o o o

Accuracy Average Codes of Accounts (COAs) Contingency Costing Escalation Minimum Maximum Pricing Quantification Risk Stakeholders Weather Weighted average Work Breakdown Structure (WBS)

Key Points for Review o o o o

Understand the different classes of estimates in the cost classification system. Describe how the use of WBS WB S or Code of Accounts is useful for estimate variability. Describe how rounding of quantities or unit prices affects estimate e stimate variability. Understand how probabilities can affect the accuracy and the variability of estimates.

Summary o o

o

Variations in estimates are most often caused by variations in scope (quantity) or cost. Regression analysis and other probabilistic techniques utilized during estimate preparation can aid in reducing variability. One of the primary causes of estimate variability is is risk. Risk can be represented in a number of ways, one of which is form of contract. c ontract.


48

Sample Questions for Section 2.1.3 Estimate Variability

1.

As the amount of design on a project increases, estimate accuracy should __________ __________.. A. B. C. D.

. 2.

As an estimator responsible for the quantity takeoff for sitework clearing and grubbing, you figure the quantity as 17,500 square square yards at a scale of 1” = 100’. You then discover that the scale of the drawing has been erroneously noted by the designer and is actually 1” = 200’. Calculate a factor for correction of your clearing and grubbing quantity. A. B. C. D.

3.

70,000 square yards 4,375 square yards 8,750 square yards 35,000 square yards

A cube is measured as being 10.50 x 10.50 x 10.50. Round each dimension to two (2) significant digits, and then calculate the difference of the original non-rounded volume vs. the rounded volume calculated as a percentage of the original volume. volume. Remember the rules of significant digits arithmetic. A. B. C. D.

5.

0.25 0.50 2.00 4.00

As an estimator responsible for the quantity takeoff for sitework clearing and grubbing, you figure the quantity as 17,500 square square yards at a scale of 1” = 100’. You then discover that the scale of the drawing has been erroneously noted by the designer and is actually 1” = 200’. What is the correct quantity for sitework clearing and grubbing? A. B. C. D.

4.

Become asymptotic. Increase as well. Remain constant. Decrease

10.9% 0% 15% 13.03%

A cube is measured as being 10.50 x 10.50 x10.50. Round each dimension to two (2) significant digits, and then calculate the percent difference of the original volume vs. rounding each dimension to three (3) significant digits. A. B. C. D.

10.9% 0% 13.03% 15%


49

6.

How many significant figures does the quantity 7.125 contain? A. B. C. D.

7.

4 1 0 3

Which of the following forms of contract places the most risk for overrun of cost on the contractor? A. B. C. D.

Time and materials. Lump sum. Unit price. Guaranteed maximum price.


50

Solutions to Sample Questions for Section 2.1.3 Estimate Variability

1.

B

Increase as well.

2.

D

4.00 Commentary: the ratio of correct to incorrect scales is (200 / 100 = 2.00) (a unit length in the correct scale is two times that of a unit length in the incorrect or used scale). Since the question pertains to area which is a product product of two dimensions, the correction factor is 2.00 x 2.00 = 4.00.

3.

A

70,000 square yards Commentary: The estimator must be careful to multiply multiply the quantity by the factor instead of dividing. By dividing, one one would obtain obtain the erroneous value of 4,375 square yards.

4.

C

15% Commentary: By definition, all non-zero digits are significant as well as zeroes between any two non-zero digits, and trailing zeroes in a number containing a decimal point. The rules of significant digits call for final results of calculations to be rounded after completion completion of calculations, not at intermediate intermediate steps. Rounded to two (2) significant digits, each dimension is 11 and the volume is 11 x 11 x 11 = 1,331.

Rounded to four (4) significant digits, each originally-measured dimension is 10.50 and the volume is 10.50 x 10.50 x 10.50 = 1,157.625. Therefore, the difference difference is (1,331 – 1,157.625) / 1157.625 = 14.98% which contains four (4) significant digits. Significant digits arithmetic rules state that the product or dividend of two numbers should contain the least number of significant digits in any of the numbers being multiplied together together or divided. divided. Rounded to two (2) significant significant digits, the correct correct answer is 15%. Common errors consist of rounding intermediate results, one final result of which would be 10.9%. 5.

D

15% Commentary: Rounded to two (2) significant digits, each dimension is 11 and the volume is 11 x 11 x 11 = 1,331.

Rounded to three (3) significant digits, each originally-measured dimension is 10.5 and the volume is 10.5 x 10.5 x 10.5 = 1,157.625. Therefore, the difference difference is (1,331 – 1,157.625) / 1157.625 = 14.98% which contains four (4) significant significant digits. Significant digits arithmetic rules state that the product or dividend of two numbers should contain the least number of significant digits in any of the numbers being multiplied together or divided. divided. Rounded to three (3) significant significant digits, the correct answer is 15%.


51

6.

A

4

7.

B

Lump sum.


52

Section 2.1.4 Estimating Algorithms Introduction

Estimating algorithms are simply an effective method for solving problems expressed as a finite sequence of steps. Cost estimators, by their very nature, are generally very good at basic math skills and how to apply them effectively, whether to develop quantities or to calculate costs, or to determine pricing. Estimating algorithms are tools tools used generally in the development of conceptual estimates before detailed drawings and specifications are available and use independent variables. These variables are not usually direct measures of the detailed elements of the project due to the early stage of development of the design but rather mathematical models based on relationships between costs and other important parameters of the project. An example of an estimating algorithm is the partition density factor, abbreviated “PDF,” where the density of interior partitions in a certain type of building, in the case of that shown in figure 2.1.4.1, a small office building, can be estimated from a company database or analysis of previous similar projects.

Figure 2.1.4.1 – Small Office Building


53

Type

Count

Length

Total

A

2

18.00

36.0

B

5

11.33

56.7

C

1

6.00

6. 6.0

D

1

24.67

24.7

E

1

20.67

20.7

F

1

7.33

7. 7.3

G

1

53.67

53.7

Total

205.0 Leng ength

GFA

54 Area

PDF

1728.0

Widt idth 32.00

Tota otal 1728.0

Length 205.00

8.4

Table 2.1.4.1—Partition Density Factor (PDF) Calculation Table

The Partition Density Factor (PDF) = total length of interior partitions (Length) / gross floor area (GFA) = 1728 / 205.1 = 8.4 linear feet / square foot Learning Objectives o o o

Understand the role of algorithms in cost estimating. Describe when the use of algorithms is appropriate in the preparation of an estimate. Understand why and when the use of a specific algorithm is inappropriate.

Related Study Guide Sections o o o o o o o

2.1.3 2.1.6 2.2.3 2.2.9 2.2.10 2.2.11 2.2.13

Estimate Variability Historical Cost Data Quantification Estimate Reconciliation Estimate Review and Validation Estimate Reporting Building Information Modeling (BIM)


54

Terms to Know o o o o o o o o o o o o o o o o o o o o o o o

Assemblies Capacity Factor Capacity Method Cost Estimating Relationship (CER) Dimensional Variables Door Density Factor Global Dimensional Variables Global Specification Variables Hand Factor Lag Factor Law of Averages Law of Compensating Factors Master Assemblies Parameter Parametric Partition Density Factor Re-Run Assembly Relational Quantity Relationships Specification Variables Sub-Assemblies Weight Weight Total


o

Understand the differences between assemblies and line items. Describe the different types of quantitative variables that can be used. Understand the importance of being able to interpret the graphical representation (drawings) based on the (written) project specifications. Describe parameters, and parameter based quantification efforts.

Summary o

o o

The process of developing an estimate relies on many different tools, one of which can be broadly described as estimating algorithms. Estimating algorithms exist in many different forms. Most algorithms are appropriate to certain estimating phases and not appropriate to others. For instance, use of the partition density factor is appropriate before the floor plan or partition schedule is developed but would be inappropriate for use in an estimate once that information is available to the estimator.


55

Sample Questions for Section 2.1.4 Estimating Algorithms

1.

Another term for the Capacity Factor Method is _________ ______________.: _____.: A. B. C. D.

2.

The Hand factor elaborated on Lang’s work by what? A. B. C. D.

3.

Normal curves. Contingency. Parametric estimating relationships. Waste allowance.

Given the following information on actual solid process plant costs, what would the Lang factor be? Total Installed Cost $2,000,000 Direct Cost $1,300,000 Equipment Cost $560,000 A. B. C. D.

5.

Expanding cost to total plant installation. Including equipment installation. Including indirect costs. Proposing different factors for each type of equipment.

Estimates that have cost estimating relationships between independent variables can be simplified by developing what? A. B. C. D.

4.

Parametric Method. Scale of Operations Method. End-Product Units Method. Deterministic Method.

3.57 2.32 0.28 1.54

Given the following information on actual project costs, what is the average Hand factor for the given pumps? Total Installed Cost $200,000 $150,000 $300,000 A. B. C. D.

Direct Cost $160,000 $120,000 $240,000

Pump Cost $36,000 $36 ,000 $30,000 $30 ,000 $60,000 $60 ,000

Pump Capacity 2500 gpm 1800 gpm 3500 gpm

5.16 4.13 5.18 4.15


56

6.

Given a partition density factor of 9.2 and an average partition height of 10 feet, estimate the cost of partitions in a medical facility using an average cost c ost of interior partition of $5.50 / square foot of partition. The gross floor area of the medical facility is 4,500 square feet. A. B. C. D.

7.

$2,277,000 414,000 square feet $26,902 $227,700

What is the capacity factor method? A. B. C. D.

A method of estimating the cost of a new facility by use of the formula C 2 = C1 x er where C2 = capacity of the new facility, C1 = capacity of an existing facility, and r = C 2 / C1 An estimating method only applicable to assembly halls. A method for deterministically estimating the cost of a new plant facility. An estimating method by which the cost of a new facility is derived from the cost of a similar existing facility multiplied by a predetermined factor relating the relative capacities of the two facilities.


57

Solutions to Sample Questions for Section 2.1.4 Estimating Algorithms

1.

B

Scale of Operations Method.

2.

D

Proposing different factors for each type of equipment.

3.

C

Parametric estimating relationships.

4.

A

3.57 Commentary: The Lang factor can be derived by taking the Total Installed Costs (TIC) of $2,000,000 and dividing the total equipment cost of $560,000 to get a factor of 3.57 based on the following formula by Hans Lang:

Total plant $ = total equipment $ * equipment factor 5.

D

4.15 Commentary: The Hand Factor Factor is derived by by taking the direct cost of each type of equipment, then calculating the factor, and then averaging the factors themselves.

Total Installed Cost $200,000 $150,000 $300,000

Direct Cost $160,000 $120,000 $240,000

Pump Cost $36,000 $30,000 $60,000

Hand Factor $160,000/$36,000=4.44 $120,000/$30,000=4.00 $240,000/$60,000=4.00

Therefore the average Hand factor (4.44+4.00+4.00 = 12.44/3) equals 4.15 6.

A

$2,277,000 Commentary: 9.2 x 4,500 x 10’ = 414,000 square feet 414,000 square feet x $5.50 / square feet = $2,277,000

7.

D

An estimating method by which the cost of a new facility is derived from the cost of a similar existing facility multiplied by a predetermined factor relating the relative capacities of the two facilities.


58

Section 2.1.5 Codes of Accounts Introduction

Codes of accounts (COAs) exist to facilitate organization of estimate and other cost information. Codes of accounts are tools for standardizing the organization of c ost data and communication of that data between parties involved in the project. A code of accounts contains standardized cost codes in a structure designed to provide consistency in how all parties on a project organize org anize cost data useful to them all. Learning Objectives o o o

o o

Understand the need for and benefit of standard codes of accounts. Understand the need for Work Breakdown Structures (WBS). Be able to distinguish the terms Work Breakdown Structure (WBS) and Code of Accounts (COA). Review the various structural elements used in preparation of codes of accounts. Know how COA dictionaries define the structure of an estimate and, for that matter, all cost data on a project.

Related Study Guide Sections o o o o o o o o o o o o

2.1.2 2.1.3 2.1.4 2.1.6 2.2.1 2.2.3 2.2.4 2.2.5 2.2.8 2.2.9 2.2.10 2.2.11

Cost Estimate Classifications Estimate Variability Estimating Algorithms Historical Cost Data Planning the Estimate Quantification Costing Pricing Estimate Documentation Estimate Reconciliation Estimate Review and Validation Estimate Reporting


59

Terms to Know o o o o o

Alphanumeric fields Codes of Accounts (COA) or Chart of Accounts Cost Category Cost Category Labels Job Cost Job Cost Code Job Cost Codes Job Cost Export Job Cost Name Job Cost Table Note Major Section MasterFormat, See CSI Uniform Construction Index (UCI) UniFormat Work Breakdown Structure (WBS) Work Breakdown Structure Codes • • • • •

o o o o o o

Key Points for Review o o

Describe WBS in general Describe different types of codes of accounts and their particular use.

Summary o

o

AACE Recommended Practice 20R-98 , Project Code of Accounts Accounts provides essential information concerning the role and preparation of codes of accounts. Codes of Accounts provide the essential organization of cost data for an organization.


60

Sample Questions for Section 2.1.5 Codes of Accounts

1.

Which of the following is not a use of codes of accounts in project processes and phases? A. B. C. D.

2.

Which describes the Construction Specifications Institute’s (CSI) MasterFormat? A. B. C. D.

3.

Planning. Reporting. Timing. Execution.

The AEC standard for process plant work breakdown structure. An organizational standard for specifications and other information. The highest level of aggregation and cost estimating coded accounts. The master cost estimating report templates from which project specific versions are developed.

A project code of accounts is _________ ___________________ ____________________ _____________. ___. A. B. C. D.

A means of organizing project costs, resources, and activity categories. A substitute for a work breakdown structure (WBS). For use in lieu of a work breakdown structure (WBS). The same as a work breakdown structure (WBS).

4. Many accounts in a project project code of accounts accounts may appear in one general ledger account, the _________ _________________ __________________ _________________. _______. A. B. C. D. 5.

An essential element of a code of accounts is ________ __________________ ____________________ ___________. _. A. B. C. D.

6.

Construction account. Fixed asset account. Buildings account. Work-in-progress account.

Activity-based costing (ABC). A cross reference. A dictionary. A substitute for a CPM schedule.

Another term for an index to facilitate finding, sorting, compiling, summarizing, or otherwise managing information that the code is tied to is ______________________ __________________________. ____. A. B. C. D.

a code of accounts. cost performance index. criticality index. values index.


61

Solutions to Sample Questions for Section 2.1.5 Codes of Accounts

1.

C

Timing. of accounts in project project processes and Commentary: Timing is not a use of codes of phases whereas planning, reporting, and execution are all organizational processes.

2.

B

An organizational standard for specifications and other information.

3.

A

A means of organizing project costs, resources, and activity categories.

4.

D

Work-in-progress account.

5.

C

A dictionary.

6.

A

A code of accounts.


62

Section 2.1.6 Historical Cost Data Introduction

Historical cost data is essential to a good cost estimate. Nothing supports the accuracy of an organization’s estimate better than the use of that same organization’s historical cost data in the preparation of estimates of the cost of future activities. Commercially-available estimating estimating databases are available available in several industries. Any user of these databases must take care to evaluate the basis, validate the data and determine its usefulness for t he organization and situation, and calibrate the data to the specific use. Learning Objectives o o o

Identify the potential sources of historical cost data for use in the estimating process. Learn what constitutes accurate historical cost data. Understand how historical cost data should be used and filtered.

Related Study Guide Sections o o o o o o o o o

2.1.2 2.1.3 2.2.1 2.2.4 2.2.5 2.2.7 2.2.10 2.3.1 2.3.2

Cost Estimate Classifications Estimate Variability Planning the Estimate Costing Pricing Risk Evaluation and Contingency Determination Estimate Review and Validation Bidding Budgeting


63


CCI (City Cost Index) City Cost Index (CCI) Contingency Cost/Estimate Job Size Database Formulas Headings Image Item Code Items Units Update Date Editing Databases Escalation Location Location Factors Risk Weather • • • • • • • • •

o o o o o


There are many potential sources of historical cost data. Nothing substitutes for the judgment of an experienced estimator in the application and use of historical cost data in the development of a reliable estimate.

Summary o o

Reliable historical cost data is essential to the production of realistic, reliable co st estimates. This information must be regularly updated and must be in a useful format in order to be of use to the estimator.


64

Sample Questions for Section 2.1.6 Historical Cost Data

1.

You are assigned to prepare an estimate at project selection phase for a hospital building to be constructed four years from now in Location B. You know that a very similar similar project was completed by your company company four years ago for a cost of $17,400,000. The R.S. Means City Index for the location where it was constructed is 0.981 and the City Index for Location B is 0.890. The Engineering-News Record (ENR) Building Cost Index for the year the project was constructed was 4369 and is projected to be 5210 in four four years. Based on the information information provided, what would you estimate the proposed project will cost? A. B. C. D.

2.

A common method of preparing a preliminary estimate for a building is to apply a historical unit cost to the gross area of the building. A potentially more accurate estimate estimate can be derived by _______________. A. B. C. D.

3.

B. C. D.

Unit costs are a factor of labor rates which vary over time whereas production rates are relatively constant. Unit costs are dependent upon the monetary unit in which they are experienced. Unit costs vary with the quantity of work performed. Production rates for an individual item of work will always be identical, regardless of the location or quantity performed.

There are four unit costs for furnishing and installation of 12” diameter, Class III, reinforced concrete pipe in your unit cost database, for quantities ranging from 31 to 370 linear feet. Unit costs range from a minimum of $29.49/linear foot to $125.04/linear foot, with an average unit cost of $71.43/linear foot. Costs in the unit cost database reflect actual bid unit prices on unit price contracts. A logical explanation for the variation in unit prices prices is _________ __________________ __________________. _________. A. B. C. D.

5.

Using the Chilton factor method. Preparing a definitive estimate. Applying historical unit costs to the various building subsystems. Using the Lang factor method.

A primary reason that an estimating database containing labor costs should be centered around production rates and not unit costs is ______________________. ______________________. A.

4.

$22,900,000 $18,800,000 $16,100,000 $17,400,000

One or more of the unit prices reflect errors on the part of bidder(s). Unit prices varying from the mean by more than one standard deviation should be eliminated from the database. One should utilize the mean unit price. Actual bid unit prices reflect the influence of many variables such as depth of bury of pipe, quantity of pipe installed, and unbalancing of bids.

You are an estimator using a historical database to prepare a conceptual estimate. Why is it © 2013, AACE International (All Rights Reserved)

65

important to isolate direct costs from indirects as much as possible in such a database? A. B. C. D.

6.

Data will be more reliable for use in the estimate for a new project, more accurately reflecting its unique conditions. Many direct costs are variable depending on the activity’s duration. Indirect costs are less sensitive to escalation than direct costs. In an activity-based costing (ABC) scenario, direct costs should stand by themselves and not be mixed with indirects.

The Construction Cost Index (CCI) published by Engineering News-Record (ENR) is an example of __________________________________. A. B. C. D.

A constant basket price index. A unit cost index. A cost performance index (CPI). A Producer Price Index.


66

Solutions to Sample Questions for Section 2.1.6 Historical Cost Data

1.

B

$18,800,000 and location of the proposed proposed project are different different Commentary: Since both the date and from those of the historical cost data, the cost of the proposed project can be calculated as the product of the ratio of cost indices, the ratio of the location factors, and the actual cost of the historical cost, as follows: (cost index when historical project was constructed) / (cost index when estimated project will be constructed) x (location factor B / location factor A) x $17,400,000 = (0.890 / 0.981) x (5210 / 4369) x $17,400,000 = $18,824,607 (rounded to $18,800,000).

2.

C

Applying historical unit costs to the various building subsystems.

3.

A

Unit costs are a factor of labor rates which vary over time whereas production rates are relatively constant.

4.

D

Actual bid unit prices reflect the influence of many variables such as depth of bury of pipe, quantity of pipe installed, and unbalancing of bids.

5.

A

Data will be more reliable for use in the estimate for a new project, more accurately reflecting its unique conditions.

6.

A

A constant basket price index.


67


68

Section 2.1.7 Internationalization Introduction

Internationalization is really about being able to seamlessly translate quantities and/or costs for any location in the world. But it is more, the need and corresponding ability ability for a project to be administered and communicated in any location in the world. Learning Objectives o o

o

Learn the specific challenges presented by estimating projects in the global environment. Understand that these include differing cultures affecting work rules, holidays, and customs, variations in measurement systems, and in currency. Learn how changes in exchange rates can affect the accuracy of estimates.


2.1.3 2.1.4 2.1.5 2.2.2 2.2.3 2.2.4 2.2.5 2.2.7 2.2.8 2.2.10 2.2.13

Estimate Variability Estimating Algorithms Codes of Accounts Estimating Methodologies Quantification Costing Pricing Risk Evaluation and Contingency Determination Estimate Documentation Estimate Review and Validation Building Information Modeling (BIM)


69


Alternate Currency Base Currency Constructability Conversion Currencies Currency Default to Metric Hard Metric International Labor Location Factor Metric Metric Conversion Report Currency Soft Metric Stakeholders Systeme Internationale (SI) (metric) Weather


Converting to other measurement systems. Hard Metric vs. Soft Metric. Calculate the effects of changes in exchange rates between two currencies.

Summary o

Preparation of estimates for projects in other than the estimator’s home country takes experience, knowledge of current conditions affecting costs, and anticipation of potential future changes.


70

Sample Questions for Section 2.1.7 Internationalization

1.

If a pump will pump 12 gallons/minute (gpm), what volume in metric units will it pump in the same amount of time? A. B. C. D.

2.

A quantity of 270 cubic meters of concrete will yield a 4” thick slab on grade area of _________ __________________ _________ square square feet. Figure 5% for waste. A. B. C. D.

3.

26 34 84 255

How does fluctuation of exchange rate influence a bid? A. B. C. D.

5.

28,890 square feet 27,514 square feet 30,335 square feet 3,146 square feet

If one (1) meter is equal to 3.28 feet, how many cubic meters of concrete, rounded to the nearest cubic meter, are required to pour a foundation that is 15 feet long by 10 feet wide by 6 feet thick, disregarding waste? A. B. C. D.

4.

45.4 liters/minute 45.4 cubic centimeters/minute 454 cubic centimeters/minute 4,542 cubic centimeters/minute

It makes it more difficult to employ foreign workers. It increases the cost of doing business in foreign countries. The cost of imported goods and services fluctuates with the exchange rate. Labor productivity decreases.

An estimator who resides in Europe is responsible for preparation of a conceptual estimate for a US corporation for the the cost of a new line in a manufacturing plant. Although the estimate of 4,000,000 EUR is prepared in Euros (EUR), the plant is to be built in Australia, where the local currency is the Australian Australian dollar (AUD). (AUD). The US corporation desires to convert the estimate to US. dollars (USD) in order to compare the estimated cost with its domestic (US) plant improvements. The current appropriate exchange rates are as follows: 1 EUR = 1.41372 USD 1 USD = 0.932501 AUD The equivalent costs in Euros and Australia dollars are: A. B. C. D.

2,829,415 USD and 2,638,432 AUD 3,730,004 USD and 5,273,181 AUD 5,654,880 USD and 5,273,181 AUD 6,064,208 USD and 2,638,432 AUD


71

Solutions to Sample Questions for Section 2.1.7 Internationalization

1.

A

45.4 liters/minute Commentary: 1 US gallon = 3.7854 liters. liters/gal) = 45.4 liters/minute.

2.

B

Therefore, (12 gal/min) * (3.7854

27,514 square feet waste, divide the total concrete concrete by 1.05 * (270 / 1.05 = Commentary: To account for waste, 257.14 cubic meters. Since 1 meter = 3.28 feet, convert to cubic feet by 257.14 x (3.28)3 = 9,073.94 cubic feet. Dividing that by 0.33 feet feet (= 4”) gives us the the result, 9,073.94/.33 = 27,514 square feet.

3.

A

26 Commentary: The volume of concrete is 15’ x 10’ x 6’ = 900 cubic feet. feet. Since 1 meter 3 = 3.28 feet, solve the problem by 900/ (3.28) = 25.50 which rounded to the nearest cubic meter is 26.

4.

C

The cost of imported goods and services fluctuates with the exchange rate.

5.

C

5,654,880 USD and 5,273,180 AUD Commentary:

4,000,000 EUR x (1.41372 USD/EUR) = 5,654,880; 4,000,000 EUR x (1.41372 USD/EUR) x (0.932501 AUD/USD) =5,273,181 AUD (rounded to 5,273,180) The incorrect answers involve various incorrect combinations of the correct numbers which represent errors often made by careless candidates who don’t check their calculations during the exam.


72

Section 2.2 Estimating Processes and Practices The following sections, estimating processes and practices, encompass the processes, techniques, and methods used in the process of estimate preparation. This process begins even before before preparation begins, for it is important to properly plan the estimate process to avoid going down the wrong path and, thus, wasting time and and resources. To a large degree, this entails selection of the appropriate estimate methodology (ies) to be used and for this, it is vital to have properly evaluated the level of detail of scope information upon which the estimate is to be based, to fully understand the intended purpose of the estimate, and to have settled on a format for the estimate’s preparation and presentation. Once satisfactory preparations have been made, the process of estimate preparation can begin. Regardless of the stage of estimate, the process relies on quantification at some scale, for the cost of any project or product is dependent upon upon the quantity of something. The estimate plan will have have determined what that “something” is. Once the cost of a product or project has been developed, the price can be determined. It is important important to understand that cost and and price are two different concepts. Finally, there is the evaluation of risk and development of contingency or other means of risk mitigation within the estimate, the process of documenting the estimate and processes utilized in the preparation to aid in reviewers’ and end users’ understanding of the estimate within its context, the important processes of estimate review and validation.


73



74

Section 2.2.1 Planning the Estimate Introduction

Before the estimating process begins with quantity takeoff and detailed review of the scope documents, it is essential that the estimate be planned to ascertain the following: o

o

o o o o

Fully understand the end objective of the estimate so that the estimate will meet those objectives. Matching the estimating level of effort and time available with the processes to be used in preparation of the estimate. Determining the appropriate classification for the estimate. Make certain that planned organization of the estimate meets mee ts all requirements. Ascertaining the eventual use and purpose of the estimate. Identification of resources to be used in preparation of the estimate.

Once the objectives and purpose of the estimate are finalized, the process can proceed with progress being measured against a baseline created during the estimate planning process. Learning Objectives o o o o

Familiarize yourself with the requirements of various types of estimates. Understand each of the individual steps that comprise the estimating process. Understand the objectives in generating an estimate. e stimate. Learn how to match resources with estimating requirements.


2.1.2 2.1.5 2.1.6 2.2.2 2.2.3 2.2.4 2.2.5 2.2.7 2.2.8 2.2.11 2.2.13 2.3.1

Cost Estimate Classifications Codes of Accounts Historical Cost Data Estimating Methodologies Quantification Costing Pricing Risk Evaluation and Contingency Determination Estimate Documentation Estimate Reporting Building Information Modeling (BIM) Bidding


75

Terms to Know o o o o o o o o o o o o o o o o o o o o o o

AIA AIA CAD Layer Guidelines, American Institute of Architects (AIA). See also under AIA Basis Battery Limit Demolition Description Design Build Design Build Institute of America (DBIA) Estimate Info Estimate Information, See Estimate Info Estimate Items Estimate Job Size GFA (Gross Floor Area) Gross Floor Area (GFA) Gross Square Footage (GSF) GSF (Gross Square Footage) Project Duration Project Finish Date Project Start Date Specifications Uniform Drawing System (UDS)


o

It is essential to fully plan the process of preparing the estimate before actual estimating is begun. This will ensure an estimate progresses according to an established baseline and objectives of the estimate are achieved.

Summary o o

o

Estimating involves more than just the process of counting and costing items. A plan must be assembled identifying what is to be counted, in what units of measure, and how these are to be organized. The plan for the estimate yields a baseline against which progress and the end product may be measured.


76

Sample Questions for Section 2.2.1 Planning the Estimate

1.

What is the first process in estimate preparation? A. B. C. D.

2.

Which is not a stage in the estimate process? A. B. C. D.

3.

Only non-union workers are allowed. Only union workers are allowed. Union and/or non-union workers may be working. There are no walls.

A project you are developing will require four types of labor. The type, amount and rate are as follows: Senior Project Manager (Sr. PM) 1,000 hours at $120 per hour; Project Manager (PM) 3,000 hours at $100 per hour; Scheduler (Sched.) 1000 hours at $110 per hour; and a Technician (Tech) 5000 hours at $95 per hour. What should the composite rate be for the contract? A. B. C. D.

5.

Quantification. Pricing. Cash flow. Scoping.

An open shop project refers to what condition? A. B. C. D.

4.

Pricing. Scoping. Quantification. Costing.

$106.25/hour. It cannot be determined from the data presented. $1,005,000. $100.50/hour.

One element of estimate planning is to determine the __________ ______________ ____ desired or required by the requesting stakeholder. A. B. C. D.

Total cost Estimate format Costing data source Estimator


77

Solutions to Sample Questions for Section 2.2.1 Planning the Estimate

1.

B

Scoping. Commentary: The first process in estimate preparation is scoping, understanding the project, then usually followed followed by quantification, costing, and and then pricing.

2.

C

Cash flow. Commentary: Quantification, pricing, and scoping are all estimating activities; however, cash flow is not a stage in the estimate process.

3.

C

Union and/or non-union workers may be working. Commentary: often, one will hear the erroneous statement that the term “open shop” pertains to a non-union project; however, an open shop project refers to where union and/or non-union workers may be working.

4.

D

$100.50/hour. Commentary: The composite rate is is equal to the weighted weighted average rate, calculated calculated as follow:

Sr. PM PM Sched. Tech.

1,000 hrs 3,000 hrs 400 hrs 5,000 hrs

Totals

10,000 hrs

$120/hour $100/hour $110/hour $95/hour

$120,000 $300,000 $440,000 $475,000 $1,005,000

$1,005,000/10,000 hours = $100.50/hour = composite rate. One pitfall which would yield an incorrect answer would be to just average the hourly rates of the four disciplines. Sr. PM PM Sched. Tech.

$120/hour $100/hour $110/hour $95/hour

Totals

$425 / hour

Average hourly rate = $425/4 = $106.25/hour. Another erroneous answer would entail summing the total charges for each discipline discipline and forgetting to divide by the total worker hours to arrive at an hourly rate = $1,005,000. 5.

B

Estimate format.


78

Section 2.2.2 Estimating Methodologies Introduction

As can be seen by your review of the estimating body of knowledge to date, there are many different methodologies used in estimating the cost of a project or, indeed, any endeavor for which cost is an important parameter (and those for which cost is not are few and far between). System lists a AACE International Recommended Practice 17R-97 , Cost Estimate Classification System typical estimating method as a secondary characteristic used in classifying estimates and lists judgment, stochastic, and deterministic methods of developing estimates. Selection of the appropriate methodology (ies) is essential for the estimating process to meet budget and schedule requirements as well as for the estimate to meet the objectives of the project. Listing of judgment as an estimating method in 17R-97 implies that it is an estimating method in and of itself, which could be a little misleading because the application of professional judgment is essential regardless of the estimating methodology used. However, the professional judgment of the estimator or estimating team can, in fact, stand alone as an estimating method for conceptual estimates when little scope development development has taken place. place. The stochastic and deterministic deterministic methods are descriptive of specific types of tools used in preparation of conceptual and definitive estimates respectively. However, at the conceptual phase, it may be be that time and the depth of scope of of information available limit the estimator to the use of judgment in order to develop the estimate. Stochastic or probabilistic methods are most often used in the preparation of conceptual estimates where the scope is less developed and estimators rely on their professional judgment, probabilistic evaluation of historical costs, or a combination of both as methods for preparation of conceptual estimates. More deterministic methods are used when scopes are more more developed, there there are variables which can be measured and costs assigned, and the data will support more deterministic means of estimating the cost of the product or project. Learning Objectives o o o o

Be able to identify estimating methodologies readily applicable to the situation. Understand when specific methodologies are appropriate. Be able to determine quantities/costs via various estimating methodologies. Understand why organizations establish a standard for estimating methodology to be used.


79


2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.2.3 2.2.4 2.2.5 2.2.7 2.2.8 2.2.10 2.2.11 2.3.1

Cost Estimating Terminology Cost Estimate Classifications Estimate Variability Estimating Algorithms Codes of Accounts Quantification Costing Pricing Risk Evaluation and Contingency Determination Estimate Documentation Estimate Review and Validation Estimate Reporting Bidding

Terms to Know o o o o o o o o o o o o o o o o o o o o

o o

Architectural Graphic Standards CAD (Computer-Aided Design) CAD Layer Guidelines CAD Object Calculated Fields Calculator Computer and Software, Computer-Aided Design (CAD) Cost Model DDE (Dynamic Data Exchange) Decimal Places Digitizer Dynamic Data Exchange, See DDE Estimate File Security Functional Use Estimating Filename Input Fields Job Order Contracting (JOC) Parametric Model Production Rates o Quantity/Time o Time/Quantity Spreadsheet Time and Materials (T&M)


80


o

o

o

One chief discriminator to identify estimating methodologies is in the nature of the independent variables used in execution of the methodology. If the chosen method is primarily stochastic (probabilistic) in nature, the variables are usually something other than a direct measure of the units of the item being measured whereas if the subject method is essentially deterministic, those variables can generally be expected to be straightforward counts or other measurements of the units of measure of the item described. A variety of different methodologies is used in the preparation of estimates, often specific to the subject industry. The various methodologies used in preparation of a cost estimate may be stochastic or deterministic or may focus on detailed physical characteristics of the end product or the features of the end product. The user should always be certain that s/he understands the underlying methodologies used in estimating software s/he uses to create any estimate.

Summary o

o

o

The choice of an appropriate estimating methodology is essential to preparation of an estimate that will meet the accuracy objectives of the class of estimate prepared and be prepared within the budgeted cost and schedule. Methods for preparation of estimates can generally be classified as stochastic (probabilistic) or deterministic. Estimator’s professional judgment is an indispensable element of any estimating methodology.


81

Sample Questions for Section 2.2.2 Estimating Methodologies

1.

Which of the following is an example of a parameter in a parametric estimate? A. B. C. D.

2.

An estimate for parking lot lighting is based on the area of the lot. This is an example of a _________ __________________ _________ estimate. estimate. A. B. C. D.

3.

Physical Dimensions Method. Parametric Method. Capacity Factor Method. End-Product Units Method.

Manufacturing indirect costs are those which are independent of the production rate and must be paid regardless regardless of plant output. output. Which of the following following qualify as manufacturing manufacturing indirect costs? A. B. C. D.

5.

Square foot. Parametric. Definitive. Detailed.

A conceptual estimate is needed for the cost of a grocery warehouse. The estimator is given the street address and gross area of the land and building, and has a database which includes historical systems costs (substructure, superstructure, exterior wall, mechanical, electrical, etc.) for various types of buildings. No other information concerning the project is available upon which to base base the estimate. The best approach for the estimator to use in developing the estimate is the: A. B. C. D.

4.

The area of a wall when determining the number of worker hours required to frame the wall. A capacity factor when determining the cost of a facility based on costs of a smaller facility. Number of lines of code in a software application when determining the number of worker hours required to develop that software. The exponent "e" in the formula $B = ($A) (CapB/CapA) e.

Distribution costs. Royalties. Operating supplies. Depreciation.

One characteristic of stochastic estimating methodologies is the fact that independent variables used are usually usually not direct measures of the items being measured. measured. An example is _________ __________________ __________________ ___________. __. A. The use of the area of a building or to calculate the cost of the building. B. The use of the area of a building or to calculate the cost of heating, ventilating, and air conditioning (HVAC) system for the building or area. C. The use of empty weight and speed to calculate tooling costs for aircraft airframes. D. Calculating the cost of manufacture of an automobile automobile using weight, wheel base, space in © 2013, AACE International (All Rights Reserved)

82

passenger compartment, and engine horsepower. 6.

For which of the following is the use of cost estimating relationships (CERs) applicable? A. Definitive estimates. B. Parametric estimates. C. Neither definitive nor parametric estimates. D. Both definitive and parametric estimates.

7.

As asset/project scope becomes better defined, estimating methods become more definitive. A resultant is that _______________________________________________. A. B. C. D.

8.

Use of the Lang Factor is an a n estimating methodology which is a member of what is commonly known as the Ratio or ________________ ________________ Method family of estimating methodologies. A. B. C. D.

9.

Estimates become more accurate. It takes less effort and, therefore, is less costly, to prepare an estimate. Estimate cost probability distributions become correspondingly narrower. Project durations generally increase, reflecting a corresponding increase in indirect costs.

Quantitative. Stochastic. Factor. Deterministic.

You have budgeted the total cost of installed equipment for a solid-fluid process plant in the amount of $71,000,000 Euros (EUR). The Lang Factor for this type of plant is 3.63. These variables can be used by the estimator to t o derive an estimate of _______________. _______________. A. B. C. D.

Total plant cost. Inside battery limits cost. Total depreciable equipment cost. Anticipated utility usage cost.


83

Solutions to Sample Questions for Section 2.2.2 Estimating Methodologies

1.

C

Number of lines of code in a software application when determining the number of worker hours required to develop that software is an example of a parametric estimate.

2.

B

Parametric.

3.

A

Physical Dimensions Method.

4.

D

Depreciation.

5.

B

The use of the area of a building to calculate the cost of heating, ventilating, and air conditioning (HVAC) system for the building.

6.

D

Both definitive and parametric estimates.

7.

C

Estimate cost probability distributions become correspondingly narrower. Commentary: Typically, more definitive estimating methods reduce the range of estimate values, and, thus, the correct answer answer is C. While it may be (and hopefully, will be) true that the result is a more accurate estimate, it is not automatic and, therefore, A is incorrect. The opposite of B is actually true and D is is incorrect as well.

8.

C

Factor.

9.

A

Total plant cost.


84

Section 2.2.3 Quantification Introduction AACE Recommended Practice 10S-90 , Cost Engineering Terminology defines defines “quantification” as, “an activity to translate project scope information into resource quantities suitable for costing”. An alternate definition could be describing reality with numbers. 10S-90 also defines the term “takeoff” as “a specific type of quantification that is a measurement and listing of quantities of materials from drawings in order to support the estimate costing process and/or to support the material procurement process.” Learning Objectives o

o o

Be able to evaluate the accuracy ac curacy of quantities depending on the nature and level of development of the scoping documents. Understand what tools are available to assist the estimator in the process of quantification Understand what tools are appropriate under which conditions for quantification


2.1.2 2.1.3 2.1.4 2.1.7 2.2.6 2.2.9 2.2.10 2.2.13 2.3.1

Cost Estimate Classifications Estimate Variability Estimating Algorithms Internationalization Conditioning Estimate Reconciliation Estimate Review and Validation Building Information Modeling (BIM) Bidding

Terms to Know o o o o o o o o o o o o o o

Adding takeoff items, Adding takeoff quantities Adjusted Quantity Assemblies Assembly Bill of Materials (BoM), See BoM Bill of Quantities BoM (Bill of Materials) Calculator Constants Digital Takeoff Digitizer Digitizer Drawing Name Digitizer Mode o Area o Count o Length


85

Perimeter Dimensional Variables Dimensions o constants o evaluators o functions o operators o procedures o variables Formulas Code (creating and editing) Identifying takeoff items If-Then Procedures Image Takeoff (or Virtual Takeoff) Item Takeoff Item Takeoff Calc in Metric Item Takeoff View Logical Operators, Master Assembly, NTS (Not to Scale) On Screen Takeoff Perimeter Planimeter Quantification Quantity Quantity (survey method, and cost estimates) Quantity Surveying Recall Perimeter Rules of Measurement Scalar SMM3 SMM7 Takeoff Takeoff Audit Trail Takeoff (Assembly) (Assembly) Takeoff (Item) Takeoff Calculations Takeoff Calculator Takeoff Details, Checking Takeoff Items Takeoff Pass Editor Takeoff Quantities Takeoff Quantity Takeoff Unit Takeoff Unit Partner Taking off items Type of Unit Virtual Takeoff (or Image Takeoff) o

o o

o o o o o o o o o o o o o o o o o o o o o o o o

• •

• • • • • • • • • •

o o o


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o

o

The process of quantification translates the scope of work into items of work that may be costed. Each industry has its units of measure inherent to the nature of the work within that industry. Technology is rapidly bringing new tools and techniques for quantification to the industry.

Summary o

o

o

o

Takeoff is a specific type of quantification that is a measurement of materials required for a project. A bill of materials (BoM) is a detailed quantity takeoff produced in order to facilitate procurement for a project or product. In takeoff produced by measurement from drawings, it is essential to double-check drawing scales. Because of the advance of technology, te chnology, it is imperative that the cost estimator participate in some type of continuing education to remain abreast with the latest in tools and techniques for quantification.


87

Sample Questions for Section 2.2.3 Quantification

1.

In the event that a drawing is noted, “Not to Scale (NTS)” and no dimensions are given, the drawing scale may be approximated by __________ ____________________ ___________________ __________. _. A. B. C. D.

2.

The gross area of a building construction project entails: A. B. C. D.

3.

1,345,000 gallons. 1,345 m3 or 1,345 liter. 1,345 m3 or 1,345,000 liter. 1,345 gallons.

The metric equivalent of the unit of measure for lumber, board feet, is __________. A. B. C. D.

6

Count, length, time. Count, length, volume. Count, length, area. Length, area, volume.

An above-ground gasoline storage tank is 45 feet in diameter and 30 feet high. What volume of gasoline will it hold, disregarding thickness of tank walls and assuming that the entire height is available for storage? A. B. C. D.

5.

The total floor area plus any covered exterior areas. The sum of all the floor or slab areas of a project that are enclosed by the exterior skin of the building. The area of the site less areas of all paved areas (vehicular and pedestrian) and landscaped areas. The ground floor area multiplied by the number of floors above grade.

Three general basic categories of measurement undertaken during quantification include: ________ _________________ __________________ __________________ ___________. __. A. B. C. D.

4.

Asking the drafter for the scale of the drawing. Throwing up your hands and faking it. Identifying a feature on the drawing of known dimension such as a door and extrapolating the scale. Assuming a scale for the drawing.

The board meter. The cubic meter (m3). The meter. The cubic foot.

An arpent is a unit of length and a unit of area, a historic French unit of measure. A toise is, likewise, a unit of measure for length, area, are a, and volume which originated in early France. Both units of measure have been used for land measurement in early Louisiana, US.


88

Given the following conversions, what is the area of a parking lot of 10,000 arpents area as expressed in square meters? 1 toise = 3.799 m2 1 arpent = 3,400 m2 1 acre = 4,046.825 m2 A. B. C. D.

11,902.43 m2 37,990 m2 15,373.89 m2 8,402 m2


89

Solutions to Sample Questions for Section 2.2.3 Quantification

1.

C

Identifying a feature on the drawing of known dimension such as a door and extrapolating the scale.

2.

B

The sum of all the floor or slab areas of a project that are enclosed by the exterior skin of the building.

3.

C

Count, length, area. Commentary: One might be tempted to list volume, but area is more fundamental. Once you are able to calculate area, multiply by the height and you have volume.

4.

C

1,345 m3 or 1,345,000 liter. Commentary: The area of a circle of 45’ diameter is determined by πr 2. 45 feet x (.3048 meter/foot) = 13.7 meter and r = d / 2 = 45 / 2 = 22.5 feet = 6.86 meter. So the area covered by the tank = A = π x r 2 = 3.14 x 6.86 2 = 147.8 m2. The tank height of 30’ x (.3048 meter/foot) = 9.1 meter. The volume V = A x h = 147.8 m2 x 9.1 m = 1,345 m3. 1,345 m3 = 1,345,000 liters.

5.

B

the cubic meter (m3).

6.

D

8,402 m2 (product of a number with five significant figures and a number with four significant figures).


90

Section 2.2.4 Costing Introduction

Costing is, in the process of preparing a definitive estimate, the process of assigning costs to individual scope items. In the words of the Skills and Knowledge Knowledge of Cost Engineering, 5th Edition, “the process of applying unit costs to the individual quantities quantities of items associated with the estimate.” For conceptual estimates, cost estimating relationships (CERs) and other methods provide means of costing the general elements of a concept. The term “costing” as applied to the estimating process is not to be confused with “job costing” which pertains to the comparison of actual costs of specific activities to budgeted costs of those activities. In many other types of of estimates, costs may be determined utilizing any one or combination of estimating methodologies of which you’ve learned in your review. Learning Objectives o o

o

Be able to differentiate costing from pricing. Understand the difference between “costing” applied to the estimating process and the process of job costing. Describe the process of costing for the different classifications of estimates.

Related Study Guide Sections o o o o o o

2.1.5 2.1.6 2.2.5 2.2.6 2.2.11 2.2.13

Codes of Accounts Historical Cost Data Pricing Conditioning Estimate Reporting Building Information Modeling (BIM)

Terms to Know o o o o o o o

Composite Mix Rates Crew Hour Crew Rate Crews (building up) Daily Rates Double Overtime Rate Equipment Equipment Fleets Equipment Hours Equipment Mix Equipment Pieces Equipment Productivity Equipment Rate Equipment Total Equipment Unit Price Equivalent Labor and Equipment FF&E See Furniture, Furnishings F urnishings and Equipment • • • • • • • •

o o


91

o o o o o o o o o o

Fleets (equipment fleets) Fringe Benefits General and Administrative Expense (G&A) General Requirements Home Office Cost Indirect Costs Item Cost Buildup Item Description Item Details Labor Labor Base Cost Labor Burden Labor Burden Cost Labor Crew Labor Cost Labor Factor Labor Hour(s) Labor Mix Labor Productivity Labor Productivity Factor Labor Rate Labor Rate Table Labor Tables Labor Total Labor Trades Labor Unit Price Location Factor Lump Sum (LS or lsum) Material Material Class Material Factor Material Price Material Price Links Material Quantity Material Reprice Index Material Suppliers Material Class Material Conversion Material Price Material Price Update (user defined) Material Price Update Service Material Quantity Material Supplier Material Total Material Unit Material Unit Price Material Waste Monthly Rates Open Shop • • • • • • • • • • • • • • • •

o o o

• • • • • • • • • • • • • • • • • •

o o


92

o o o o o o

o o o o o o o o o o

Other Total Other Unit Price Preset costs Prevailing Wages Productivity Rate Tables o Equipment o Labor Sales Tax Social Security (SSA) Total Unit Price Union Wage Waste Waste Percentage Weekly Rates Workers Compensation Insurance Workhours (WHS)


o

The process of costing relies on the estimator’s knowledge of the nature of the scope of work and the resources available for production. Cost estimating relationships are effective tools for costing in conceptual estimating situations as are historical cost databases for definitive estimates.

Summary o

o

Costs are “what it’s all all about.” Unfortunately, stakeholders are often unconcerned with the peripheral issues concerning estimates and all they’re interested in is, “the bottom line.” This places considerable emphasis on the process of costing but effective costing relies on accurate scope definition and quantification.


93

Sample Questions for Section 2.2.4 Costing

1.

Which of the following is the best example of handling as a materials management cost? A. B. C. D.

2.

Which of the following is the best example of demurrage as a purchasing cost? A. B. C. D.

3.

$1,600,000 $1,160,000 $1,800,000 $1,700,000

The all-in labor cost of a welder (excluding a welding machine) is $60 per hour. The welding machine rental cost is $220 per hour. A welding crew is comprised of two (2) welders and one (1) welding machine. Assume each weld takes two (2) hours to complete. What is the cost of completing 20 welds? A. B. C. D.

5.

The cost of wasted materials on a project. Indirect costs. Additional charge to customers for container rental beyond a set period in the agreement for unloading. Freight.

A derrick barge will be used to install an offshore platform and the daily rate is $320,000 per day and a mobilization/demobilization cost of $200,000. The installation time is expected to be five days. How much will it cost to install the offshore platform? A. B. C. D.

4.

Waste. Unloading. Freight. Fabrication.

$ 680 $13,600 $3,400 $11,200

A crew consists of three (3) carpenters, two (2) laborers, and a foreman. The burdened hourly rate for a carpenter is $30, for for a laborer, $20, and for the foreman, foreman, $35. What is the composite burdened hourly crew rate? A. B. C. D.

$85.00/hour. $28.33/hour. $27.50/hour. $165.00/hour.


94

6.

An idle construction equipment rental rate or standby rate is the cost of equipment that remains on site ready for use but is placed in standby standby basis. The standby rate includes: A. B. C. D.

7.

Employees are exempt if _________ __________________ ___________________ ___________________ _____________. ____. A. B. C. D.

8.

Some proportion of ownership costs but not operating labor or fuel or maintenance costs. Life cycle cost(ing). Long lead costs. All costs except the cost of capital.

Their duties are such that they are not covered by the minimum wage and overtime provisions of the U.S. Fair Labor Standards Act (FLSA). They are ineligible for health, life, and other fringe benefits. be nefits. They are not required to “clock in.” They are not required to conform to the dress code.

The term “field cost” refers to __________ ____________________ ___________________ __________________ ________________. _______. A. B. C. D.

Costs associated with Greenfield projects. All work within battery limits. The total associated with site work cost. Engineering and construction costs associated with the construction site rather than with the home office.


95

Solutions to Sample Questions for Section 2.2.4 Costing

1.

B

Unloading.

2.

D

The best example of demurrage is as a purchasing cost is freight.

3.

C

$1,800,000 Commentary: The barge has a variable rate based on the number of days required whereas the mobilization/demobilization is a lump sum to be distributed across the number of days or the value simply as a total cost added to the cost of renting the barge itself.

5 days x $320,000/day = $1,600,000 1 lsum x $200,000/each = 200,000 Total Installation $1,800,000 4.

B

$13,600 ((2 x $60) + $220) = $13,600. Typical errors Commentary: 20 welds x 2 hr/weld x ((2 made by candidates include misinterpreting some of the given data, such as erroneously interpreting given data as 2 welds/hour which yields the erroneous answer of $3,400, or forgetting to count two welders which yields another wrong answer of $11,200. Another possible error error is to give the answer for one weld instead instead of 20, yielding the wrong answer of $680.

5.

C

$27.50/hour. Commentary: (3 carpenters x $30 / hour) + (2 laborers x $20) + (1 foreman x $35/hour)/6 workers = ($90 + $40 + $35)/6 $35 )/6 = $165/6 = $27.50/hour.

6.

A

Some proportion of ownership costs but not operating labor or fuel or maintenance costs.

7.

A

Their duties are such that they are not covered by the minimum wage and overtime provisions of the US Fair Labor Standards Act (FLSA).

8.

D

Engineering and construction costs associated with the construction site rather than with the home office.


96

Section 2.2.5 Pricing Introduction Pricing is defined as the process of determining the cost of a product or project to the ultimate user or owner of the item. While there are many tools and techniques available to assist in an analytical analytical approach to pricing, there is also a strong need for a certain amount of “market savvy” in the pricing of any product or improvement.

In a project context, pricing is a term used to describe the process of adjusting estimated costs for specific project terms and conditions and commercial terms or market conditions. conditions. The inputs to the pricing process include individual item costs and knowledge of the organization’s overhead costs and profit requirements as well as the current conditions affecting the competitive market situation. Insofar as product pricing goes, it is important to be able to differentiate fixed costs from variable costs. It is important that the process of pricing is an on-going process in that costs and environmental constraints such as labor rates, competitive situation, and laws and regulations are ever-changing. Clearly from the above, whether pricing products or projects, it is imperative for costs to be known first. That knowledge, along with an understanding of environmental environmental factors such as the competitive situation and regulatory environment, will allow determination of pricing objectives (maximization of short-term profit, maximization of long-term profit, market penetration, etc.), and price determination. Learning Objectives o o o

o o o

o

o

Understand the forces acting on the process of pricing an estimate. Understand the difference between costs and prices. Appreciate the factors acting in the market which influence pricing of products and capital improvements. Be able to describe how costs of resources and profit affect pricing. Be able to explain how various business strategies and marke t forces affect pricing. Understand the effect on pricing different types of contracts impose on the vendor or contractor. Describe the effects of risk, competition, desired rate of return, and cash flow requirements affect pricing. Understand the special challenges in pricing changes to the original contract.


2.1.6 2.2.4 2.2.6 2.2.7 2.2.8 2.2.10 2.2.11 2.3.1 2.3.2

Historical Cost Data Costing Conditioning Risk Evaluation and Contingency Determination Estimate Documentation Estimate Review and Validation Estimate Reporting Bidding Budgeting


97

Terms to Know o o o o o o o o o o o o o o o o o o o o o o o

o o

o o o o o o o o o

Add-ons Breakeven Analysis Breakeven Point Compound Subtotal Consumables Contingency Directs Escalation Fee Fixed Fee Federal Insurance Corporation of America (FICA) Federal Unemployment Tax Act (FUTA) General Conditions Gross Margin Gross Markups Gross Total Costs Gross Unit Price Indirect Costs Labor Total – Gross Labor Total – Net Market Conditions Markup Amount Markups o Compound, o Simple Net Markups Profit o Gross o Net o Operating Profit Margin Pricing Strategy Return on Investment (ROI) Return on Sales (ROS) State Sales Tax State Unemployment Tax Act (SUTA) Tax Taxes Unemployment Insurance


o

Effective pricing relies on detailed understanding of project / product-specific conditions and current or anticipated market conditions. Market conditions of concern in the process of pricing include anticipated competitor approaches and actions, and legal constraints such as required wage rates to be paid, purchase of domestically-produced products, etc.


98

o

Strategies for pricing should be established on an organization-wide basis and then adjusted for time- and context-sensitive situations.

Summary o

Price determination is highly dependent upon several other factors, among them cost, competition, demand, and seller’s objectives.


99

Sample Questions for Section 2.2.5 Pricing

1.

Indirect costs are often estimated as a percentage of direct costs. One disadvantage of this approach is that _________________________________. A. B. C. D.

2.

Your annual home office costs are $3,600,000. Your annual project cost base for general and administrative expense (G&A) is $60,000,000. What is your annual G&A r ate? A. B. C. D.

3.

Indirect costs are mostly a factor of the duration of the project and not readily determined as a percentage of direct cost. Bonds and insurance will not be included. The appropriate percentage can vary widely. An error in calculation of direct costs will result in a corresponding error in indirect cost totals.

3.0% 4.5% 5.0% 6.0%

Your direct cost estimate is $2,000,000. Your organization applies the following markups general and administrative expense (G&A) 5%, contingency 10%, profit 7%. The markups are compounded. What is your total project cost? A. B. C. D.

$2,440,000 $2,630,490 $3,907,136 $2,471,700

8. Given the following, what percentage is the field indirect cost? Direct field cost $200,000. Small tools $10,000; $10, 000; Field Supervision $24,000; Estimate Preparation $6,000; Construction Equipment $16,000; Legal Fees $3,000; Trailer $4,000; G&A 5%; and Profit 10%. A. B. C. D. 5.

22% 27% 32% 33%

Which of the following is most commonly used to figure escalation for a project? A. B. C. D.

Present and future value analysis. Time value of money. Price indices. Monte Carlo risk analysis.


100

6.

The term “deflation” when applied to cost management refers to _________ __________________ _________.. A.

A flat tire suffered in the vehicle in which a courier is riding to deliver a bid to the bid opening. An operation by means of which a current dollar value series is transformed into a constant dollar value series. The opposite of inflation. Negative escalation.

B. C. D. 7.

A purchase order for laboratory fume hoods contains an escalation clause which provides for payment by the purchaser of the quoted price for fume hoods plus an amount for escalation calculated as the ratio of the producer price index (PPI) for laboratory equipment on the scheduled shipping shipping date (December 1, 20XX). Subject PPI was 129.5 on December 1, 20XX and was 127.0 on January January 1, 20XX. The purchase order amount was $241,000. What should the amount of the final invoice for the fume hoods be? A. B. C. D.

8.

Value engineering is: A. B. C.

D. 9.

Is a function that must be performed by a certified value specialist. Limited to product development in the manufacturing industry. A function with the objective to design a facility or item that will yield least life cycle costs or provide greatest value while satisfying all performance and other criteria established for it. Reduction of project scope with the objective of meeting budget.

It is estimated that addition of a new bottling line which will allow production to be increased by a total of $2,750,000/year requires an investment of $14,500,000 which cost includes the capital investment and additional annual operating and maintenance costs over a period of five five years. Calculate the rate of return (ROI) offered by this investment. A. B. C. D.

10.

$241,000 $245,744 $236,347 $370,988

10% -78% 20% 22%

The bottling line from the previous question is capable of producing 4,000 completed units/hour, fixed costs being being estimated at $20,000. Variable costs per unit are are $0.50 and the bottler estimates that he can charge $1.50/bottle. Calculate the breakeven point. A. B. C. D.

5,000 100,000 200,000 400,000


101


102

Solutions to Sample Questions for Section 2.2.5 Pricing

1.

A

Indirect costs are mostly a factor of the duration of the project and not readily determined as a percentage of direct cost.

2.

D

6.0% Commentary: The annual G&A rate is calculated by taking the annual home office costs of $3,600,000 and dividing that by the annual project cost base of $60,000,000 ($3,600,000/$60,000,000 = 0.06) which equals 0.06 or 6.0%.

3.

D

$2,471,700 Commentary: By taking the direct costs of $2,000,000 and then adding each markup separately, subtotaling each and then applying the next markup to the previous subtotal will then result in the grand total project cost.

Direct Costs G&A @5% Subtotal Contingency @10% Subtotal Profit @7% Grand Total

$2,000,000 $ 100,000 $2,100,000 $ 210,000 $2,310,000 $ 161,700 $2,471,700

Another way is to simply add each percentage to a base of 1.00 and then multiply each to get a final factor to multiply against the direct costs. In this case,(1.00 + 5% = 1.05, etc.) 1.05 * 1.10 = 1.115 * 1.07 = 1.23585 * $2,000,000 = $2,471,000 . 4.

B

27% Commentary: To calculate the percentage of the field indirect costs, you must first identify which are field indirect costs vs. home office indirect costs. Field indirect costs include small tools, field supervision, construction equipment, and trailer since these are all site specific.

Direct Costs Small Tools Subtotal Field Supervision Subtotal Construction Equip. Subtotal Trailer Grand Total

$200,000 $ 10,000 $210,000 $ 24,000 $234,000 $ 16,000 $250,000 $ 4,000 $254,000

$254,000/$200,000 = 1.27, which represents 27.0% of direct costs as field indirects, or take the difference of $254,000 and $200,000 to get $54,000 and then divide that against the direct cost of $200,000 to get 0.27, or 2 7%. © 2013, AACE International (All Rights Reserved)

103

5.

C

Price indices Commentary: Price indices are most commonly used to figure escalation for a project as they reflect historical trends and can be used to forecast trends.

6.

B

An operation by means of which a current dollar value series is transformed into a constant dollar value series.

7.

B

$245,744 Commentary: The final invoice amount should be equal to the original purchase order amount multiplied by the ratio of the PPI at the time of invoicing and the PPI at the time of issuance of the purchase order. Final invoice amount = $241,000 x (129.5/127.0) = $245,744.

8.

C

A function with the objective to design a facility or item that will yield least life cycle costs or provides greatest value while satisfying all performance and other criteria established for it.

9.

A

10% Commentary: There is an annual increase in return due to the investment of $2,750,000 over a period of five years which totals $2,750,000 x 5 = $13,750,000. The return on investment (ROI) then is the difference between total return and the total invested divided by the total investment or ($13,750,000 - $12,500,000)/$12,500,000 = 10%.

10.

C

200,000 With fixed costs of $200,000, the breakeven point = 200,000/ (1.50 – 0.50) = 200,000 units. An incorrect answer can be calculated calculated by dividing the total fixed costs by the number of units completed per hour $200,000/4,000) = 5,000 units.


104

Section 2.2.6 Conditioning Introduction

Conditioning is a global term for preparing an estimate for a given purpose or set of “conditions” per se. A good example of conditioning is an estimate for a change order. Change orders (COs) are typically challenged by the amount of work a contractor may be required to do and the usual scope is more on a work package basis with a more finite or limited scope than estimating for an entire project. Also, indirect costs and totals page markups may be defined by specific contract vs. a generic Request for Proposal (RFP). An estimate may need to be conditioned to give proper cost consideration to specific terms and conditions of the contract. For example, a construction construction project may require a remote staging area which will require workers to park remote from the scene where they will work, clock in, be shuttled to the site of the work, perhaps comply with certain security conditions, and only then begin work. At the end of the working shift, a similar situation may arise. As a result, it is possible that workers will have less than the full shift of productive working hours but still be required to be paid for the full shift. A printing project may require a higher volume of output than the printer’s press and staff are capable of producing producing in the required required time period. A contract for furnishing furnishing fabricated reinforcing reinforcing steel for a construction project may require delivery sooner than the fabricator’s shop is capable of providing without special consideration, such as overtime or subcontracting a portion of the work to another shop. Often an addendum addendum to the original bidding bidding documents will contain provisions provisions requiring special considerations considerations in the estimate. Often adjustments will will need to be made to an estimate at the last moment before submission to account for the latest in market conditions or the competitive situation. Or, an adjustment may need to be be made to account for a shortcoming shortcoming in the estimate discovered at the last moment. Terms and conditions of a contract often provide for work required to be performed outside of normal working hours, either after an operating facility closes down, or on weekends or other unusual times. Often, terms of construction or manufacturing contracts, while not specifically requiring overtime or hours outside of regular shifts, allow for a period of performance that is deemed too short to allow for successful completion without overtime work or other considerations that will add to the cost of performance. All of the situations discussed above and many others may be cause for conditioning the estimate. Another good term to describe conditioning would be “adjusting the estimate.”


105

Learning Objectives o o o

Understand what is meant by “estimate conditioning.” Be able to relate what to look for that may result in a need to condition your estimate. Describe the actions that may be taken in order to condition an estimate.

Related Study Guide Sections o o o o o o o o

2.1.3 2.2.4 2.2.5 2.2.7 2.2.8 2.2.9 2.2.10 2.2.11

Estimate Variability Costing Pricing Risk Evaluation and Contingency Determination Estimate Documentation Estimate Reconciliation Estimate Review and Validation Estimate Reporting

Terms to Know o o o o o o o o o o o

Addenda Allowances Alternate Name Alternates Americans With Disabilities Act (ADA) Assumptions in an estimate sheet Balance Category Change Orders Front End Loading Unbalance


Estimates may be conditioned by factoring, modifying escalation, making specific changes to recognize specific conditions, or by a multitude of other means of adjustment.

Summary o

Conditioning an estimate involves making adjustments to the estimate to suit a specific purpose or to meet certain requirements.


106

Sample Questions for Section 2.2.6 Conditioning

1.

The derrick barge used in Section 2.2.4, question #3, will be used to install the same offshore platform. The daily rental rate for the derrick barge is $320,000 per day and a mobilization/demobilization cost of $200,000. The installation time is expected be five days. The equipment rule of 3s is a general rule that is based on the daily daily rate. The weekly rate then is calculated as as 3x the daily rate, and the monthly rate, 3x the weekly rate. How much will it cost to install the offshore platform based on the equipment rule of 3s? A. B. C. D.

2.

An anticipated activity is performed by a worker earning a base rate of $22/hour and labor burden amounts to 45% of the base base rate. The standard production rate for the the activity is 4 units/hour. However, constraints on the activity on a given project result in in the worker only being productive for 6 hours in an 8-hour shift. If the cost for this activity is to reflect that inefficiency and the anticipated quantity is 400 units, what is the estimated unburdened labor cost for the activity? A. B. C. D.

3.

$1,650 $2,200 $2,933 $4,253

Which of the following is the most commonly used to forecast escalation? A. B. C. D.

4.

$1,600,000 $1,160,000 $1,800,000 $1,700,000

Price indices. Monte Carlo risk analysis. Time value of money. Present and future risk analysis.

The fundamental difference between a merit or open shop and a union shop is: A. B. C. D.

Workers in a union shop are not eligible for bonuses. Workers in a union shop are represented by a collective bargaining unit. Workers in a union shop must be members of the union with which the firm has a collective bargaining agreement in order to be considered for employment. Workers in a merit shop are not eligible for overtime.


107

5.

You are an estimator for a concrete reinforcing steel placement contractor preparing a bid on a project in which your team determines that workers will have 5-1/2 hours of productive work during an eight-hour shift. shift. Your company’s historical labor labor production figures for #4 bars in a footing footing are based on working working eight-hour shifts and average 0.0057 hr/lb. If your firm adjusts costs for individual detail items within the scope for production offsets such as this as opposed to allocating the extra costs to a separate account as in activity-based costing (ABC), what adjusted figure should you use in this estimate? A. B. C. D.

0.0057hr/lb. 0.0039hr/lb. 0.0083hr/lb. There is inadequate information provided to answer this question.


108

Solutions to Sample Questions for Section 2.2.6 Conditioning

1.

B

$1,260,000 Commentary: For every project there becomes a threshold that the estimator needs to adjust for based on the size of the project, and also on the sequencing of the work.

5 days * $960,000/week = $960,000 1 lsum * $200,000/each = $200,000 Total Installation $1,160,000 Compare this against the total installation cost in Section 2.2.4, this is an example of where change orders based on valid daily rates on work activities going beyond just j ust a few days will result in a higher higher than expected value. 2.

D

$2,933 Commentary: Since the worker is only productive for six (6) hours in an 8-hour shift then the efficiency is 6/8 = 0.75 of normal, and since the standard production rate for the activity is 4 units/hour, then the revised production is 0.75 * 4.0 = 3.0 units/hour. Thus, 400 units would require 400/3.0 = 133.3 hours. Then, just using the unburdened base rate of $22/hour * 133.3 hours = $2,933

3.

A

Price indices Commentary: Price indices are most commonly used to forecast escalation based on past history and then that information information to predict future values.

4.

B

Workers in a union shop are represented by a collective bargaining unit.

5.

C

0.0083 hr/lb error made by Commentary: 0.0057 hr/lb x 8/5.5 = 0.0083 hr/lb. A common error candidates would be to invert the ratio which would result in an erroneous value of 0.0039 hr/lb.


109


110

Section 2.2.7 Risk Evaluation and Contingency Determination Introduction

Development of any product or capital asset involves certain risks which must be recognized, evaluated, and the estimate conditioned conditioned to manage those risks. Often, that is accomplished accomplished via introduction of contingency, which AACE International Recommended Practice 10S-90, Cost Engineering Terminology defines defines as, “an amount added to an estimate e stimate to allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result, in aggregate, in additional additional costs.” Another term used in the construction industry to describe contingency is a cost allowance for the “known unknowns” experienced during the execution of a project. Learning Objectives o o o o o o

Describe the means of identifying and evaluating risk. Understand what contingency is and how it is used to mitigate risk. Understand the steps that may be taken to manage project risks in an estimate. e stimate. Be able to establish project contingencies in a systematic manner. Understand the methods available for determining appropriate contingency values. Be able to determine the confidence level of an estimate.


2.1.2 2.1.3 2.1.6 2.2.4 2.2.5 2.2.6 2.2.8 2.2.9 2.2.10 2.3.1 2.3.2

Cost Estimate Classifications Estimate Variability Historical Cost Data Costing Pricing Conditioning Estimate Documentation Estimate Reconciliation Estimate Review and Validation Bidding Budgeting


111

Terms to Know o o o o o o o o o

o o o o

o o o o

Accuracy Confidence Level Constructability Contingency Modeling (Risk) Monte Carlo simulation Probability Overrunning (or Underrunning) Probability Distribution o Cumulative o Normal o Skewed Return on Investment (ROI) Risk Risk Analysis Risk Analysis Models o Detailed o Strategic Single Point Estimate Stakeholders Uncertainties Variability


o o o

Risks must be identified, evaluated, evaluated, and managed. The estimate reflects methods developed to manage contingency. Contingency is often determined deter mined using probabilistic methods. However, professional judgment is just as often relied upon. Contingency is expected to be expended. expe nded.

Summary o o

Risks must be evaluated in order to effectively effec tively manage them. Contingency is an effective and often-used means of providing for risk management.


112

Sample Questions for Section 2.2.7 Risk Evaluation and Contingency Determination

1.

The result of using an estimating method that deals with uncertainty and risk will provide a(n) ______________________________. A. B. C. D.

2.

Contingency is an amount added to an estimate in order to _________ ___________________ ______________. ____. A. B. C.

D. 3.

B. C. D.

An amount outside the project scope and cost c ost baseline to allow for discretionary management purposes. Another term for “contingency.” Reserved for work outside the original scope. Usually under the control of the project team.

Which of the following is not a customary means of managing risk? A. B. C. D.

6.

Perform a thorough risk assessment. Include contingency in the estimate using Monte Carlo simulation. Evaluate the risk and include potential costs in unit costs. Model potential costs of omission.

Management reserve is __________ ___________________ ___________________ ___________________ __________________. _________. A.

5.

Avoid the necessity of accurately assessing estimated final cost. Allow for additional scope unforeseen at the time of estimate preparation to be added to the project. Allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result, in aggregate, in additional costs. Avoid the need for management reserve.

As a predictive process, estimating must address risks and uncertainties. One of the ways an estimator addresses risks and uncertainties in her estimate is to ________ _________________ __________________ __________________ _________________. ________. A. B. C. D.

4.

Class 4 estimate. Inaccurate estimate. Conceptual estimate. Range estimate.

Insurance. Contingency. Avoidance. Revisions to the estimate.

Which of the following represents the highest risk of cost overrun to the contractor? A. B. C. D.

Lump sum contract. Lump sum contract with liquidated damages clause. Cost plus contract. Guaranteed maximum price.


113

Solutions to Sample Questions for Section 2.2.7 Risk Evaluation and Contingency Determination

1.

D

Range estimate.

2.

C

Allow for items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result, in aggregate , in additional costs.

3.

B

Include contingency in the estimate using Monte Carlo simulation.

4.

A

An amount outside the project scope and cost baseline to allow for discretionary management purposes.

5.

D

Revisions to the estimate.

6.

B

Lump sum contract with liquidated damages clause.


114

Section 2.2.8 Estimate Documentation Introduction

Estimate documentation is important for a number of reasons. Foremost is that it is vital to communicate the important background information to the user of the estimate surrounding preparation of the estimate. That background information information includes documentation of the scope upon which the estimate is based, the source of that scope information, source of costing data, assumptions, inclusions and, perhaps more important, exclusions, the estimator or estimating team responsible for estimate preparation, and a multitude of other information of value to users of the estimate to understand its breadth, shortcomings inherent in the estimate, and other important information concerning the estimate as described in AACE International Recommended Practice Estimate. A good Basis of Estimate (BOE) will help the user user evaluate the risks 34R-05, Basis of Estimate. involved in the estimate and the steps taken by the estimator to manage the risks. Quality is an integral part part of the organization’s foundation. foundation. The estimator’s ability to perform quality quality work begins with the care with which all project estimates are developed. Because estimates create strong budget and performance expectations, clients will hold the organization accountable in providing cost estimates that are consistent with the project design. The thoroughness and accuracy of estimates will be a factor in determining the extent of the organization’s financial success on every project undertaken. For these reasons, a clear and accurate documentation trail is critically important. In addition to providing background information to the ultimate users of the estimate, documentation of the estimate serves a number of other purposes, one of importance to the estimate preparers themselves. For estimate documentation facilitates review of the estimate by all parties including internal reviewers. A properly constructed Basis of Estimate forms the prime component component of estimate documentation. A review of the Basis of Estimate is the first step in a thorough review of an estimate. Learning Objectives o o o o o

Understand the purposes of estimate documentation. Understand the importance of the Basis of Estimate (BOE). Understand the components of clear and accurate documentation of the cost estimate. Understand the role estimate documentation plays in estimate review. Be able to summarize the estimate documentation into a clear and concise Basis of Estimate (BOE) document.


2.1.1 2.1.5 2.1.7 2.2.4 2.2.5 2.2.9 2.2.10

Cost Estimating Terminology Codes of Accounts Internationalization Costing Pricing Estimate Reconciliation Estimate Review and Validation


115

o o o

2.2.11 Estimate Reporting 2.3.1 Bidding 2.3.2 Budgeting


Audit Trail Backing up estimate files Backup (estimate backup) Basis of Estimate (BOE) Code of Accounts (COA) Comparison Estimate Backup Estimate Item History History Item History Item Memos Item Notes Item Status On Screen Takeoff Unit Cost Development Work Breakdown Structure (WBS) Validation Reconciliation


o

Estimate documentation sets the stage and prepares the audience for presentation of the estimate. An estimate without proper proper documentation is like a sporting event or a musical performance without a program. Not only does the documentation enumerate what is included in the estimate, but it also discusses what is not included and any shortcomings the estimating team found in the scoping documentation.

Summary o

o

o

o

Documentation of the cost estimate is critical because it provides an accurate audit of the project cost history and becomes the basis for change management and dispute resolution. The Basis of Estimate (BOE) is the primary vehicle for estimate documentation. AACE International Recommended Practice 34R-05, Basis of Estimate, describes in detail the contents and composition of a BOE. It is essential that estimate documentation address all inconsistencies with standard practice, conflicts, omissions, and other concerns with scope documents that have not been able to previously be resolved. Review and validation of the estimate is an integral part of the documentation process. AACE International Recommended Practice 31R-03 , Reviewing, Validating and Documenting the Estimate, Estimate, defines the basic elements of and provides broad guidelines for the cost estimate review, validation, and documentation process.


116

Sample Questions for Section 2.2.8 Estimate Documentation

1.

Which of the following is not normally included in the Basis of Estimate (BOE) document? A. B. C. D.

2.

Detailed estimate backup should be organized as follows: A. B. C. D.

3.

The stakeholders will expect it. They are generally part of the estimate submittal. They are closely related to the estimate. Productivities will vary by trade or location within the project boundaries.

What is the most frequently ignored item in a detailed design level cost estimate? A. B. C. D.

6.

Project scope description. Design basis. Planning basis. Methodology.

The project schedule and key milestones should be documented in the estimate because ________ _________________ __________________ __________________ ___________________ _________________. _______. A. B. C. D.

5.

By work breakdown structure. By specification division. By schedule activity. By any of the above, as long as the organization is consistent.

In the Basis of Estimate (BOE), quantity takeoffs should be referenced in: A. B. C. D.

4.

Design basis. Cost basis. Review comments. Scope definition.

General conditions in the specifications. Field supervision (above the level of craft foreman). Project schedule. Local market conditions.

The term “estimate backup” refers to _________ ___________________ ____________________ ___________________ _________.. A. B. C.

D.

The electronic estimate file saved to an alternate storage medium for purposes of archiving and emergency access. A substitute member of the estimating staff who can fill in for the primary author of the estimate in the event of an emergency or unforeseen occurrence. Basic data, project objectives, scope, drawings, quotes, estimating data, qualifications, and assumptions used in preparing the estimate and supporting the basis. An alternate but separately-developed estimate prepared by a different estimating team.


117

7.

A Basis of Estimate (BOE) is _________ ___________________ ___________________ __________________. _________. A. B. C. D.

8.

Estimate documentation is ________ __________________ ___________________ ___________________ ______________. ____. A. B. C. D.

9.

An essential component of a well-prepared estimate. Not required if an estimate is well-prepared. A line item-by-line item description of what is included in the estimate. Signed by the estimator or captain of the estimating team.

Estimate documentation will: A. B. C. D.

10.

A basic required component of any estimate. Not required unless specifically required by the stakeholders. Not necessary except for a Class 1 estimate. A synopsis of the scope documents upon which the estimate is based.

Never hold an independent source of quantities responsible for that contribution. Hold harmless any independent source of quantities used in development of the estimate. Seek to confirm quantities not developed by a member of the estimating team. Identify the source of any quantities not developed by the estimator e stimator or a member of the estimating team.

A Basis of Estimate (BOE) __________ ____________________ ____________________ ____________________ ___________. _. A. B. C. D.

Should not describe the accuracy of the estimate, leaving that up to the independent judgment of the stakeholders. Should not discuss drawbacks or shortcomings of the scoping documents in order not to antagonize their developer. Will describe the primary estimating methodology used in preparation of the estimate. Will not address any anomalies, variances, or other shortcomings of the estimate or scoping documents.


118

Solutions to Sample Questions for Section 2.2.8 Estimate Documentation

1.

C

Review comments. Commentary: The BOE must be updated to reflect changes resulting from the review process, but the detailed comments, comments, while part of the estimate backup, are not required.

2.

D

By any of the above, as long as the organization is consistent. Commentary: Consistency is of primary importance here. Many design teams prefer organization by spec division, while others prefer organization by WBS or process system.

3.

B

Design basis. Commentary: It may be useful to document specific quantity metrics for specific projects, such as overall quantities quantities for excavation, concrete, piping, piping, etc. as part of the design basis.

4.

D

Productivities will vary by trade or location within the project boundaries.

5.

A

General conditions in the specifications. Commentary: Design teams often either ignore the general conditions or use a percentage of the direct costs costs to cover it. The constraints placed placed on the contractor by the owner, and field supervision above the level of craft foreman are the two items within the GC’s that have the greatest effect on project costs.

6.

C

Basic data, project objectives, scope, drawings, quotes, estimating data, qualifications, and assumptions used in preparing the estimate and supporting the basis.

7.

A

A basic required component of any estimate.

8.

A

An essential component of a well-prepared estimate.

9.

C

Seek to confirm quantities not developed by a member of the estimating team.

10.

C

Will describe the primary estimating methodology used in preparation of the estimate.


119


120

Section 2.2.9 Estimate Reconciliation Introduction

The process of estimate reconciliation consists of resolving or otherwise reconciling variances between the estimate and any previous versions of the estimate, any alternative expectations of the value of the estimate, or any competing estimates based on the same scope of work. The process of reconciliation identifies any cost differences due to changes in scope (i.e., quantity), pricing, methods of accomplishment, or risk between the two versions of the estimate. Reconciliation also may occur between an estimate and the final costs of a project; in fact, that is the best way to update an historical cost database. Another example of reconciliation might be as simple as reconciling an estimated utility meter reading with an actual reading made at another time. Reconciliation should occur when the differences between two estimates for the same scope of work are greater than or less than an established threshold; i.e., 10% of Total Estimated Cost. Learning Objectives o o o

Be able to describe the goals of estimate reconciliation. Understand the process of estimate reconciliation. rec onciliation. Describe how to report on the results of estimate reconciliation.


2.1.3 2.1.5 2.2.2 2.2.3 2.2.4 2.2.5 2.2.8 2.2.10 2.2.11 2.2.12 2.3.1

Estimate Variability Codes of Accounts Estimating Methodologies Quantification Costing Pricing Estimate Documentation Estimate Review and Validation Estimate Reporting Estimate Closeout Bidding


121

Terms to Know o o o o o o o o

Audit trail Boolean Search Code of Accounts (COA) Memos Notes Parametric Search Variance


o

A well-prepared estimate variance report will describe in general any differences in scope, pricing, or risk resulting in differences between any two estimates or an estimate and an accounting being reconciled. Estimate reconciliation should take place with the estimate, as well as all supporting information including the Basis of Estimate (BOE), the schedule upon which it is based, the risk assessment, etc.

Summary o

o

Reconciliation is an essential process which can add to the reliability and accuracy of any estimate. Estimate reconciliation can occur between estimates on the same project prepared at different phases of development, between estimates on similar but different projects, or between an estimate and a final accounting of actual costs. In each case, much can be learned by a rigorous comparison of costs between t he two.


122

Sample Questions for Section 2.2.9 Estimate Reconciliation

1.

Estimate reconciliation identifies differences between two estimates resulting from: A. B. C. D.

2.

An estimate variance report describes differences in __________ ______________ ____ between two estimates on a single project. A. B. C. D.

3.

The estimator has made a mistake. Different estimating software was used in preparation of the two estimates A change has been made in the scope of the project. The estimates were prepared at different points in time

The main benefit of reconciling an estimate on a project with an accounting of the final costs incurred on the project is: A. B. C. D.

5.

Quantities. Costs. Total cost. All of the above.

A logical explanation of differences between two estimates is: A. B. C. D.

4.

Changes in scope or pricing from one estimate to the other. Different estimators in charge of the two estimates. Differences in labor and/or equipment unit costs. Differences in labor and/or equipment production rates.

It provides a basis for reward or penalty for the estimator. It provides a basis for reward or penalty for the project manager. The lessons that can be learned from the comparison of actual costs with those estimated that can then be applied to future estimates. All of the above.

An effective tool for reconciliation of two estimates is: A. B. C. D.

The Basis of Estimate (BOE). A comparison of the totals of the two estimates. A table of variances between detailed quantities and costs in the two estimates. A comparison of the scopes of the two estimates.


123

Solutions to Sample Questions for Section 2.2.9 Estimate Reconciliation

1.

A

Changes in scope or pricing from one estimate to the other.

2.

D

All of the above.

3.

C

A change has been made in the scope of the project.

4.

C

The lessons that can be learned from the comparison of actual costs with those estimated that can then be applied to future estimates.

5.

C

A table of variances between detailed quantities and costs in the two estimates.


124

Section 2.2.10 Estimate Review and Validation Introduction

Estimate review and validation are critical elements of the estimating process as an estimate generally represents a vital factor in the project’s success and the success of each project is important to the mission of the organization. An estimate, no matter how large or small, will never be solely the product of one estimator in a well-run organization. Review of all of the the elements of an estimate by others not associated with preparation of the estimate is essential. In addition, management of the organization organization will probably review the estimate to determine that it effectively meets the purpose for which it was prepared. It is not the responsibility of the estimator to validate the scope of work for accuracy but obviously this is something that must be done by other stakeholders. Learning Objectives o o o

Understand the importance of estimate reviews and validation. Be able to relate the essential steps in review of an estimate. Describe what is meant by estimate validation.


2.1.3 2.1.5 2.2.2 2.2.3 2.2.4 2.2.5 2.2.8 2.2.9 2.2.11 2.3.1 2.3.2

Estimate Variability Codes of Accounts Estimating Methodologies Quantification Costing Pricing Estimate Documentation Estimate Reconciliation Estimate Reporting Bidding Budgeting


125

Terms to Know o o

o o o o o

Basis of Estimate (BOE) Estimate Status o Approved o Denied o Pending Pareto, See Pareto Law Pareto Chart Pareto Cost Model Pareto Law (80/20 Rule) Part Number


The essential steps in review of an estimate include: o o

o

Review of the Basis of Estimate (BOE). Thorough cost review of the estimate, especially in the context of the anticipated project schedule. Validation of the estimate, comparing the cost against other project baselines and performing “sanity checks” of the components and total of the estimate.

Summary o

o

Review of an estimate is an primary concern of management and of the ultimate user or client of the estimating process. Validation is the process of confirming fitness for use of the estimate.


126

Sample Questions for Section 2.2.10 Estimate Review and Validation

1.

A common approach to an estimate is to leave review of the frontends of contracts until after the direct costs have been estimated. One result is that __________________ __________________.. A. B. C. D.

2.

If you suspect a contractor’s bid estimate is unbalanced, which of the following best describes what to look for in an estimate review? A. B. C. D.

3.

400 hours. 1,000 hours. 2,000 hours. 4,000 hours.

An obvious place to begin a review of the second version of an estimate is: A. B. C. D.

5.

Items that will be purchased or installed early that seem to have very high cost values. Errors and omissions concentrated in only a few elements of the work breakdown or cost account structure. Allowances for overtime that on balance appear to be excessive. Extremely high escalation costs, particularly for those items installed later in the project schedule.

If steel beams are typically installed at 20 labor hours per ton, how many labor hours would be estimated to install 20 beams, each weighing 10 tons? A. B. C. D.

4.

It is immaterial as direct costs are independent of terms and conditions. Estimated costs do not reflect the terms and conditions of the contract. Indirect costs are overestimated. Terms and conditions are ignored by the contractor.

A cost review of individual items of work. A review of where the estimate has changed from the last version. Comparison of the total value of this version of the estimate compared to the last. A review of the Basis of Estimate.

The primary purpose of an estimate review is to: A. B. C. D.

Verify that the total cost is correct. Absolve the estimator of responsibility for the validity of the estimate. Present the estimate and supporting information in such a manner as to allow the reviewer to verify that the estimate e stimate fulfills its chief purpose. Allow the review to ascertain that individual costs are in line with previous historical costs.


127

Solutions to Sample Questions for Section 2.2.10 Estimate Review and Validation

1.

B

Estimated costs do not reflect the terms and conditions of the contract.

2.

A

Items that will be purchased or installed early that seem to have very high cost values.

3.

D

4,000 hours. Commentary: 20 beams x (10 tons/beam) x (20 labor hours/ton) = 4,000 labor hours.

4.

B

A review of where the estimate has changed from the last version.

5.

C

Present the estimate and supporting information in such a manner as to allow the reviewer to verify that the estimate e stimate fulfills its chief purpose.


128

Section 2.2.11 Estimate Reporting Introduction

Estimate reporting is an essential element of estimate preparation, as an estimate provided without an explanation as to what is included, excluded, assumptions made, what the source of the scope information was, who participated in preparation of the estimate, and other details is an estimate out-of-context and a poor reflection on preparers of the estimate. AACE International Recommended Practice 34R-05 , Basis of Estimate Estimate describes in detail the requirements and composition of a Basis of Estimate (BOE), which is the primary component of a report to accompany an estimate. In fact, a complete and well-written BOE should should eliminate the need to include much of anything else in an estimate report.

As important as a written estimate report is, all estimators should be prepared to present an estimate in person as well, discussing the essential elements of the estimate and being prepared to defend it if necessary and to answer questions concerning its contents and the details of its preparation. That verbal report may be to the the project team, to internal organization management, or to an external client. This is where one of the not-so-obvious not-so-obvious benefits of membership in AACE International and presenting papers at AACE Annual Meetings and other functions of the association have benefitted many members over the years in that they have not had the opportunity at work or in other settings to develop the essential personal presentation skills but have achieved a level of competence and confidence in presenting at AACE functions. Learning Objectives o o o

Describe the essential components of estimate reporting. re porting. Be able to prepare a Basis of Estimate (BOE). Learn to present an estimate in person.


2.1.5 2.2.2 2.2.4 2.2.5 2.2.8 2.2.9 2.2.10

Codes of Accounts Estimating Methodologies Costing Pricing Estimate Documentation Estimate Reconciliation Estimate Review and Validation


129


o o o o o o o o o o o o o o o

Company Information Company Shipping Information Comparison Reports Conditional Reporting Conditions Cover Page Information Criteria DIN 276 Extensible Markup Language (XML), See XML Final reports Grid Lines o Horizontal Lines o Vertical Lines Gridlines Header and Footer Heading Code Heading Totals Level Headings Level Major Section - Summary Page Footer Page Header Page Setup Page Style Page Style Attachments Preparing reports Report printing Reports Tabular


o

The Basis of Estimate (BOE) forms the centerpiece of estimate reporting. Estimate summary and, if applicable, detail reports are also appropriate to an estimate report. As important as what is included in the estimate is a specific description of what is not included.

Summary o

A well-written and comprehensive estimate report is an essential element of any estimate.


130

Sample Questions for Section 2.2.11 Estimate Reporting

1.

Which of the following is not included in the burdened labor rate base wage? A. B. C. D.

2.

Which of the following is not an an essential element of a Basis of Estimate (BOE)? A. B. C. D.

3.

B. C. D.

It verifies the elevation datum upon which the estimate scoping documents are based. It identifies methodologies used in preparation of the estimate. It compares costs of similar projects and provides a context for the estimate. It provides data upon which other estimators can benchmark their estimates.

With respect to management reserve, a Basis of Estimate (BOE) should ________ _________________ __________________ __________________ ___________________ __________________ ________.. A. B. C. D.

5.

A list of activities on the schedule critical path. Names of individuals involved in preparation of the estimate. Benchmarking data. Summary estimate report.

A benchmarking report is important as an element of an estimate report because ________ _________________ __________________ __________________ __________________. _________. A.

4.

Profit. State Unemployment Insurance. Social Security. Health Insurance.

Only contrast it with contingency. Not address it as it is not a part of the estimate. Identify the specific purpose and use for which it is intended. Describe it as a part of contingency.

If a previous estimate totaled $55,000,000 and a current estimate, $52,500,000, it can be said that the $2,500,000 is ________ _________________ ___________________ ____________________ _______________. _____. A. B. C. D.

Evidence that a mistake was made on one or the other of the estimates. To be disregarded an inconsequential. Not to be discussed to avoid embarrassment of the estimators. To be evaluated and explained in a reconciliation section of the estimate report.


131

Solutions to Sample Questions for Section 2.2.11 Estimate Reporting

1.

A

Profit.

2.

A

A list of activities on the schedule critical path.

3.

C

It compares costs of similar projects and provides a context for the estimate.

4.

C

Identify the specific purpose and use for which it is intended.

5.

D

To be evaluated and explained in a reconciliation section of the estimate report.


132

Section 2.2.12 Estimate Closeout Introduction

The term “estimate closeout” has multiple multiple meanings. In the context of project closeout, the process of estimate closeout consists of verifying final actual costs and organizing those costs for entry into the organization’s historical cost database for use in future estimating efforts. In much the same way, “estimate closeout” often refers to the process of arranging final costs and adding them to the cost basis of a fixed asset in the organization’s balance sheet to allow them to be included in the basis for depreciation. Others refer to the process of posting last minute adjustments in a “cut and add” bid sheet to the estimate in order to begin creation of an “as-bid” estimate as “estimate closeout.” Regardless of the meaning you apply to the term, it is important to understand the typical evolution of an estimate. •

• • •

•

•

•

Conversion of scope of work into measurable elements or development of quantities (quantity takeoff). Incorporation of those quantities into a draft estimate. Development of resource requirements necessary to accomplish those quantities. Refinement of the estimate incorporating comments of associates and reviewers and adding basis and other supporting documentation. Depending upon the purpose of the estimate, finalization of estimate and application to the purpose for which it was created. Periodic adjustment and modification of the estimate to account for changes in scope, timing, or use. Transformation of estimated values and format into other formats to facilitate secondary purposes of the estimate, such as a control estimate against which actual costs will be tabulated and measured. o

An example of this type of transition is conversion of an estimate originally produced in the format of the project work breakdown structure into a format consistent with the organization’s code of accounts; a transition from a project accounting-friendly format into an accounting-friendly format.

Of course, some of the above topics are more or less applicable to a particular classification of estimate, within the topics described above are represented several instances of estimate closeout. Learning Objectives o

o

Understand the many processes of estimate closeout and what occurs in any of those processes. Recognize the importance of a “lessons learned” session at estimate closeout in order to capitalize on important estimating elements to be carried car ried forward to future efforts.


133

Related Study Guide Sections o o o o o o o o o o

2.1.2 2.1.5 2.1.6 2.2.4 2.2.5 2.2.8 2.2.9 2.2.11 2.3.1 2.3.2

Cost Estimate Classifications Codes of Accounts Historical Cost Data Costing Pricing Estimate Documentation Estimate Reconciliation Estimate Reporting Bidding Budgeting


As-Built Estimates Buyout Code of Accounts (COA) Control Estimate Schedule of Values


o

o o

As the process of buyout progresses, the estimate transitions from an estimate upon which a bid or budget is based (an “as-bid” estimate), to an “as-bought” estimate, to a control estimate. As the actual amounts of subcontracts or material or or equipment purchase orders replace estimated values, the estimate moves closer to a control estimate, a document upon which cost control of the project is based. An estimator working for a contractor will modify his/her estimate by posting last minute adjustments (“cuts” or “adds”) to the estimate to create an “as-bid” estimate. An “as-bought” or control estimate forms the basis for cost control on the project. A final control estimate forms the basis for posting capital costs to the organization’s balance sheet to “capitalize” the costs and begin beg in the process of depreciation.

Summary o

o

Regardless of the meaning, estimate closeout is a vital process in the evolution of cost control on a project. Estimate closeout is an excellent opportunity to capture actual costs, to learn lessons from the variances between estimated and actual costs, and to update historical cost databases with actuals from the estimate.


134

Sample Questions for Section 2.2.12 Estimate Closeout

1.

An estimate at a stage of development to form the basis for project cost control is a(n) _________ __________________ __________________ __________________ _______________. ______. A. B. C. D.

2.

The process of posting costs from an estimate to the cost basis of a fixed asset in the organization’s balance sheet is known as _________ __________________ ___________________ _______________. _____. A. B. C. D.

3.

Estimate reconciliation. Estimate validation. Estimate reporting. Estimate closeout.

The process of converting an estimate prepared to comply with a format required for bid submission into the preparing organization’s code of accounts is known as _________ __________________ __________________ __________________ ____________. ___. A. B. C. D.

5.

Cost control. Cost capture. Capitalization. Amortization.

The process of verifying final actual costs and organizing those costs for entry into the organization’s historical cost database for use in future estimating efforts is known as _________ __________________ __________________ ________________. _______. A. B. C. D.

4.

Budget estimate. As-bought estimate. Control estimate. As-bid estimate.

Estimate consolidation. Estimate closeout. Estimate recapitulation. Estimate reconciliation.

The process of posting last minute adjustments in a “cut and add” bid sheet to the estimate in order to begin creation of an “as-bid” estimate is known as _________ __________________ __________________ __________________ _________.. A. B. C. D.

Estimate closeout. Estimate reporting. Estimate consolidation. Estimate reconciliation.


135

Solutions to Sample Questions for Section 2.2.12 Estimate Closeout

1.

C

Control estimate.

2.

C

Capitalization.

3.

D

Estimate closeout.

4.

B

Estimate closeout.

5.

A

Estimate closeout.


136

Section 2.2.13 Building Information Modeling (BIM) Introduction

Building Information Modeling (BIM) refers to a digital representation of the physical and functional characteristics of a facility. A BIM is a shared knowledge resource for information information about a facility forming a reliable basis for decisions during the facility’s facility’s life-cycle. A BIM is a shared resource for stakeholders to insert, extract, update or modify information in the BIM to support or reflect the roles of that stakeholder. A comprehensive representation of a facility includes multiple dimensions of data rich intelligent objects. The dimensions dimensions for for modeling modeling the information and geometry about a facility facility are: 3D graphical modeling, 4D time modeling, modeling, and 5D cost modeling. modeling. Graphical representations with associated object information are combined combined for the 3D content of a BIM. A facility’s 4D view includes includes 3D plus time. 5D is the 4D view plus cost. As with traditional facility information, cost estimating a project in BIM begins with classifying the cost estimate to be completed. This activity relies on the level level of project definition, which in BIM is is known as the Level of Detail/Level of Development (LOD). (LOD). The LOD is a taxonomy that includes includes the design model content and subsequent authorized uses for 4D scheduling and 5D cost estimating. LOD 100 is the lowest and is authorized for 4D total project construction duration and 5D conceptual cost allowance. LOD 500 is the as-built as-built BIM and is authorized for 5D record costs. BIM is evolving in both the technology and methodology aspects, especially in terms of how a facility’s cost estimate is produced from a BIM. As a result the estimator’s role in BIM is evolving as capabilities expand across the dimensions in BIM. Learning Objectives o

o o

Identify the multiple dimensions of BIM and the interrelationship of each with cost estimating in BIM. Cross reference the cost c ost estimate classification by BIM Level of Detail. Recall key terms associated with BIM.


2.1.2 2.1.3 2.1.6 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.6 2.2.8 2.2.10 2.3.1 2.3.2

Cost Estimate Classifications Estimate Variability Historical Cost Data Planning the Estimate Estimating Methodologies Quantification Costing Pricing Conditioning Estimate Documentation Estimate Review and Validation Bidding Budgeting


137


3D models 4D models 5D models Building Information Modeling (BIM) Intelligent objects Integration Interoperability Level of Detail Cost Estimate Classifications Assembly BIM methodology


o o

What are the dimensions in BIM and how does each impact cost estimating in BIM? What does the term “intelligent object” mean and how do intelligent objects affect a cost estimate using a BIM? How does each Level of Detail in a BIM relate to the cost estimate? How is object information exchanged from the design model to the estimating model?

Summary o o

o

o

BIM is 3D, 4D, and 5D data rich representations of a facility created create d with intelligent objects. Information for cost estimating in BIM is extracted directly from the design model through technology that is either interoperable or it is integrated between the technologies. The Level of Detail in a design model guides the cost estimating activities for which that BIM may be used. The classification of a cost estimate in BIM is associated with the level of project definition as defined by the Level of Detail.

References

The following references are suggested for your study of Building Information Modeling: 1. Bedrick, Jim (2009).

Organizing the Development of a Building Information Model,

http://www.ipd-ca.net/IPD%20Tools%20and%20Publications.htm 2. National Institute of Building Sciences (2007), National Building Information Modeling Standard,

Version

1-

Part

1:

Overview,

Principles,

and

Methodologies,

http://www.buildingsmartalliance.org/index.php/nbims/ 3. National Institute of Standards and Technology (NIST), NISTIR 7417 (2007). General Buildings Information

Handover

Guide:

Principles,

Methodology

and

Case

Studies.

http://www.wbdg.org/pdfs/nistir_7417.pdf © 2013, AACE International (All Rights Reserved)

138

Sample Questions for Section 2.2.13 Building Information Modeling (BIM)

1.

A cost estimate generated from a LOD 400 BIM is authorized for ___________ ________________. _____. A. B. C. D.

2.

A 4D BIM is 3D plus __________ ____________________ __________.. A. B. C. D.

3.

Intelligent. Simple. Scaled. Unique.

The Model Progression Specification includes __________ ______________ ____ Levels of Detail. A. B. C. D.

6.

Integrated software applications for BIM. Complex computer code for representing geometric properties in BIM. Achieved with a network server coordinating multiple models. Seamless data exchange between BIM software applications.

3D BIM is a digital representation created using data rich __________ ______________ ____ objects. A. B. C. D.

5.

Cost. Data. Time. Geometry.

Interoperability is _________ ___________________ ___________________ ______________. _____. A. B. C. D.

4.

Conceptual cost allowance purposes. Buyout purposes. Record cost purposes. Preliminary cost purposes.

Ten. Seven. Three. Five.

5D modeling includes the following, _________ __________, _, as well as the traditional X, Y, and Z dimensions. A. B. C. D.

Cost and price. Cost and time. Time and effort. Time and resources.


139

7.

A cost estimate generated from a LOD 200 is a cost estimate based on __________ __________________. ________. A. B. C. D.

8.

According to the National BIM Standard, a BIM serves as a shared resource for information about a facility for decision during its ________________ ________________ from inception forward. A. B. C. D.

9.

Construction. Design. Life-cycle. Closeout.

BIM is a critical element in reducing industry _________ ___________________ ____________. __. A. B. C. D.

10.

Validated design model. Measurement of generic elements. Conceptual cost allowances. Complete and specific assemblies.

Overhead and profit. Time for construction. Lack of innovation. Waste due to inefficiencies.

4D scheduling models are authorized for use in fabrication and assembly detail, including construction means and methods, at a LOD of ______. A. B. C. D.

400 100 500 300


140

Solutions to Sample Questions for Section 2.2.13 Building Information Modeling (BIM)

1.

B

Buyout purposes.

2.

C

Time.

3.

D

Seamless data exchange between BIM software applications.

4.

A

Intelligent.

5.

D

Five.

6.

B

Cost and time.

7.

B

Measurement of generic elements.

8.

C

Life-cycle.

9.

D

Waste resulting from inefficiencies.

10.

A

400


141


142

Section 2.3 Other Estimating Issues While the previous sections of this Certification Study Guide have dealt with the specific processes, techniques, and methods used in preparation of estimates, the following sections discuss the application of application of those processes, techniques, and methods and the variations in those methods which allow one to produce estimates for the purposes of bidding and budgeting, as well as preparation of estimates focusing on lifecycle or product costs.



143


144

Section 2.3.1 Bidding Introduction

Bidding is the process of submitting a formal proposal to enter into an agreement to provide a service, product, or project in return for an identified identified price. The term “bid” is known as a “tender” in some countries. The The estimate plays a prime role in the process of bidding. bidding. Other factors include strategies to be the successful succ essful bidder as well as to structure the bid to the advantage of the bidder. The process of assembling a bid can be quite complex, depending on the project, the terms of the bidding documents, the available resources, and the timeframe. In addition to the decision as to whether to submit a bid, there is the necessity to study and understand the bidding documents, the estimate must be assembled, qualified sources of supply for labor, materials, and equipment must be identified and solicited, and bids for those commodities as well as subcontracts must be encouraged, accepted, and analyzed. The decision to bid can involve much much inquiry and analysis. Factors involved include the nature of the prospective project and how closely the organization’s resources, abilities, and experience match its requirements, other expected bidders, experience with the owner, architect / engineer, and other parties expected to be involved, the availability of qualified subcontractors and vendors, and what is usually a subjective evaluation of the risk factors of undertaking the project and how well the organization can manage those risks. Quite a lot of energy and analysis generally is spent on putting the organization in a position to submit a bid on a project. Often the organization must make a convincing convincing argument that it is qualified to perform on the project and gain approval from the owner or other enabling authorities in order to be placed on the the approved bidder list. list. Bonding and insurance insurance requirements must be met and a variety of of other requirements studied, studied, understood, and met. From the owner’s standpoint, standpoint, prospective bidders’ qualifications must be examined, references checked, and decisions made as to which prospective bidders are likely to be able to perform and do the best job. In formulating its bid estimate, a bidder must not only prepare a bid meeting all of the requirements of the bidding documents but also often include various items in addition to the actual bid such as numerous certifications, bid security (bid bond or other security acceptable to the owner), a list of proposed subcontractors, resumes and other qualifications of proposed project staff, and a variety of other submittals. The bid usually must be submitted on a form and in a format prescribed by the bidding documents, often quite voluminous and not necessarily in the format in which the bidders’ estimate would normally be prepared. Since there generally is much riding on a bid and its accuracy and ability to achieve the goals of the bidder, it is important that the estimate supporting the bid be reviewed by the appropriate stakeholders in the organization in accordance with Section 2.2.10 Estimate Review and Validation of this study guide.


145

Learning Objectives o o

Understand the advantages and disadvantages for both parties of various forms of contract. Be able to repeat the activities necessary from various parties’ perspectives on preparing a bid (or a project for bid).


2.1.2 2.1.5 2.1.6 2.2.3 2.2.4 2.2.5 2.2.6 2.2.7 2.2.8 2.2.9 2.2.10 2.2.11

Cost Estimate Classifications Codes of Accounts Historical Cost Data Quantification Costing Pricing Conditioning Risk Evaluation and Contingency Determination Estimate Documentation Estimate Reconciliation Estimate Review and Validation Estimate Reporting


Allowance American Institute of Steel Construction (AISC) American National Standards Institute (ANSI) American Society of Testing Materials (ASTM) Analyzing bids and quotes Assigning bid items Bid Bid Adjustments Bid Day Bid Item Bid Shopping Bidder Bids Change Order Liquidated Damages (LDs) Quotes Request for Quotation (RFQ) Subcontractor Supplier Unbalanced bid • • • • • •

o o o o o o o


146


o

o o

o

Among the key factors relating to an estimate for the purposes of submitting a bid is a complete and accurate assessment of the scope of work of the proposed project, most commonly represented by a quantity takeoff or bill of materials. In addition, accurate costing contributes to an estimate in which the bidder can have confidence that quantities and cost are not major elements of risk to be managed. An accurate assessment of market conditions c onditions and other risks is also an important ingredient. Once those factors have been thoroughly evaluated, markups can be determined and applied. An owner’s estimate serves a similar similar but different purpose. purpose. The owner’s estimate attempts to predict that the lowest responsible bid submitted will be within the funds available whereas the bidder’s estimate attempts to be that lowest responsible bid.

Summary o o

Bidding is a complex action for all parties. There is a lot riding on the bidding process, again for all parties.


147


148

Sample Questions for Section 2.3.1 Bidding 1.

You are the chief estimator for a contractor preparing a fixed price/unit price bid for a civil construction project. project. In a unit price bid, the price for each bid item in the bid schedule schedule is a function of its direct cost plus its pro-rata share of indirect costs and overhead overhead and profit. For the bid item, Embankment – In Place, the engineer’s quantity is 420,000 cubic yards and the total of your direct estimated costs is $4,400,000. $4,400,000. The total of all direct estimated costs including the embankment is $17,500,000. $17,500,000. The total of indirect costs you have estimated at $2,100,000 and your overhead and profit amount to $980,000. $980,000. What should your bid unit cost for Embankment – In Place be if you distribute indirect costs and overhead and profit against direct costs in straight pro-rata fashion? A. B. C. D.

2.

Bidding documents require you to include in your estimate an allowance of $700/thousand for the material cost of brick including tax and freight. freight. In a pre-bid conference, the architect states states that he has calculated that that a total of 32,000 brick will will be required. However, you estimate that the project will require 34,000 brick including waste and allowance for damaged and nonconforming brick. What total for the material cost of brick should you include include in your estimate? A. B. C. D.

3.

It is required to interface with existing equipment/systems. equipment/systems. The specification was written around the technical parameters of one manufacturer. Only one vendor can meet the specification. Only one vendor can meet the schedule.

Bid shopping is __________________________ _______________________________________ ______________. _. A. B.

C. D. 5.

$23,800 $23,800,000 $22,400 $22,400,000

Which of the following is NOT a usually-justifiable reason for a sole-source bid? A. B. C. D.

4.

$12.32 $5,174,400 $10.48 $12.81

The procurement of materials for a project. The unethical practice of a prime contractor providing the low price for a scope of work to other subcontractors or suppliers in an attempt to get the other subcontractors or suppliers to underbid the original price quoted. The practice of requesting subcontractors’ and vendors’ quotations on a project. Illegal.

An unbalanced bid is ___________ __________________________ __________________________. ___________. A. B. C. D.

A bid submitted without adequate preparation. A bid in which costs are front-end loaded. A bid in which costs are allocated disproportionately to various accounts to achieve an unfair advantage over the other party. A bid much different in total from the other bids submitted.


149

Solutions to Sample Questions for Section 2.3.1 Bidding

1.

A

$12.32 of direct costs costs of embankment to total direct direct costs is Commentary: The ratio of $4,400,000/$17,500,000 or 25.14%. 25.14% of the sum of total indirect costs and total overhead and profit is $774,400 which, added to embankment direct costs is $5,174,000 and that divided by 420,000 cubic yards is $12.32/cubic yard. $5,174,400 is incorrect for an answer even though it is the correct total price for embankment. Candidates need to take care to read all questions questions carefully; in this instance, the question asks for the correct correct UNIT price, not TOTAL price. While it may seem like a minor point, in practice, management or a client may ask similar questions. Likewise, $10.48, the embankment direct unit cost, is incorrect as well as $12.81, the embankment direct unit cost with prorated OHP (overhead and profit).

2.

A

$23,800 Commentary: The estimated direct cost is ($700/1000) * 34,000 34 ,000 = $23,800.Forgetting to divide by 1,000 yields the incorrect answer answer of $23,800,000. Similarly, an erroneous decision to use the architect’s quantity of 32,000 brick yields the incorrect $22,400 and $22,400,000.

3.

B

The specification was written around the technical parameters of one manufacturer. for the estimator to carefully study the specifications Commentary: It is important for and fully understand any “or equal” clauses. clauses. The most frequent justification justification for a sole source specification is the requirement to interface with existing equipment or systems. However, the estimator should should research all all potential vendors in order to obtain the “best” price meeting the requirements of the specifications.

4.

B

The unethical practice of a prime contractor providing the low price for a scope of work to other subcontractors or suppliers in an attempt to get the other subcontractors or suppliers to underbid the original price quoted.

5.

C

A bid in which costs are allocated disproportionately to achieve an unfair advantage over the other party.


150

Section 2.3.2 Budgeting Introduction AACE International Recommended Practice 10S-90 , Cost Engineering Terminology defines defines “budget” as “a planned allocation of resources” and “baseline” as “the budget and schedule that represent approved scope of work and work plan.” The AACE International TCM Framework refers to “budgeting” as, “a process to develop a cost plan by allocating estimated costs or prices to controllable cost accounts or activities and time phasing the cost in accordance with the schedule.”

As it is for the bidding process, budgeting for projects is a necessary process for all parties to the project, those submitting bids on goods and services, as well as the party developing the project. Regardless of the part a party may play in a project, it is vital for that party to develop a budget for its participation. That budget may begin as a worker-hour budget and then be translated into dollars. For the owner or developer, cash flows or the schedule upon which funds will be available and required is a critical issue. Whether the project is a capital infrastructure improvement, a new manufacturing line, or a new drug or medication, the developer’s goal is to produce a budget which will help in meeting the organization’s mission while it develops a plan for capital that meets its needs and abilities and creates a cost baseline against which actual a ctual costs can be controlled. Much the same is of concern to the vendor or contractor, for an exterior source of working capital is often required for any type of capital project or manufacture of a product. product. In order for the project to be undertaken or manufacture to begin on a new product, financing financing may be necessary. Funds must be replenished by sales, cash inflows generated by sale of the product or progress and periodic payments received on the project. From the owner or developer’s perspective, the goal is usually to develop a budget that accurately reflects all anticipated costs to develop the project. These include, in addition addition to construction costs, all other costs it is likely that the owner will incur in completing the project. These might include land acquisition, rezoning costs, research and development costs, design, testing and other quality assurance costs, the costs of moving to a new facility, and legal and real estate fees associated with the development among others. It is not unusual to see a Class 1 to Class 5 estimate at the budget budget stage but obviously Class 3 estimates are the most common.


151

Learning Objectives o o o

Understand the role budgeting plays in project development and in cost control. Be able to describe the value of estimating in the budget development process. Understand how to estimate appropriate contingency as a means of dealing with risk.


2.1.2 2.1.5 2.1.6 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 2.2.7 2.2.10 2.3.1

Cost Estimate Classifications Codes of Accounts Historical Cost Data Planning the Estimate Estimating Methodologies Quantification Costing Pricing Risk Evaluation and Contingency Determination Estimate Review and Validation Bidding


Accuracy Allowances Budgetary Contingency Escalation Risk Year to Date (YTD)


Be clear on the various classifications of estimates and what classification, level of development, and accuracy are appropriate to a budget.

Summary o

o

Estimates form the basis for budgets and budgets along with schedules in the form of baselines, form the basis for for project control. The timing of inflows and outflows is essential for a budget to be of value in managing and controlling all aspects of the project. Budgets may be prepared in worker-hours, dollars, or other units, but eventually, they will inevitably end up in currency units.


152

Sample Questions for Section 2.3.2 Budgeting

1.

Escalate $10,000,000 at an annual rate of 5% for a period of four years and eight months. A. B. C. D.

2.

Two essentials for an effective project control baseline are ___________ ___________________. ________. A. B. C. D.

3.

3 1 5 4

Which of the following is not not likely to be an element of a maintenance budget for an apartment complex? A. B. C. D.

5.

Cash flow and the estimate. A resource-loaded schedule and value engineering plan. The schedule and budget. The Actual Cost of Work Performed (ACWP) and an updated schedule.

A budget estimate is typically but not always a Class ___ estimate. A. B. C. D.

4.

$12,335,000 $12,558,970 $12,657,394 $12,608,086

Painting costs. Lawn mowing costs. Land acquisition costs. Cost of a data/telephone wiring maintenance contract.

What role do historical costs play in budgeting? A. B. C. D.

None. Historical costs have nothing to do necessarily with a current endeavor. Budget estimates should be based on historical costs. Budgeted costs should be based on historical costs adjusted for escalation. They provide a sound basis for forecasting and budgeting costs of future activities and assets.


153

Solutions to Sample Questions for Section 2.3.2 Budgeting

1.

B

$12,558,970

2.

C

The schedule and budget.

3.

A

3.

4.

C

Land acquisition costs.

5.

D

They provide a sound basis for forecasting and budgeting costs of future activities and assets.


154

Section 2.3.3 Project and Lifecycle Costing Introduction

Total Cost Management (TCM) is defined as, “the effective application of professional and technical expertise to plan and control resources, costs, profitability, and risk”; in other words, “a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product, or service.” While many members of of AACE International are specifically involved involved in the process of developing capital improvement projects, intelligent decisions cannot be made regarding any investment without consideration of all costs of the the improvement. It is important not to disregard those costs involved after the initial development of the project, the costs of operating, maintaining, and eventually eventually disposing of the improvement. That is especially true true since often the operation and maintenance costs of a facility far exceed exce ed the costs of its initial development. It is important that the estimator not lose track of the fact that there are generally other costs associated with any project project or product other than those with which s/he is directly directly concerned. For the construction contractor’s estimator, there are costs that the project’s owner will incur outside those directly associated with with construction. They might include land land acquisition, legal fees, design, and furnishings and/or equipment other than that included in the construction contract. contract. For the construction contractor, there are also the home office overhead expenses such as office rent and utilities, home office salaries, income and real estate taxes, etc. that must be distributed as a share to each of the projects the firm executes. For the manufacturer, there is an analogy. For any product, a child’s toy, toy, an article of clothing, or an aspirin tablet, there are the direct costs of manufacture—the materials and other components that go into fabrication of the article itself, but there are also the costs of marketing, packaging, and distributing the product. The subject of life cycle costs brings to bear the costs of any capital development over its lifetime— not only the costs of its initial development, but also costs of operating, maintaining, upgrading and otherwise prolonging its functional utility over the life of the improvement, and then the costs of demolition, salvage, or otherwise disposing of the asset at the end of its functional life. Learning Objectives o

o o

Understanding the “broader” aspect of costs beyond those with which the estimator may be immediately concerned. Be able to describe what is meant by the life cycle of any enterprise. enter prise. Be able to apply life cycle cost principles to the selection of system alternatives.


2.1.1 2.1.4 2.1.5 2.1.6 2.2.3 2.2.4 2.2.5

Cost Estimating Terminology Estimating Algorithms Codes of Accounts Historical Cost Data Quantification Costing Pricing


155

o

2.3.2

Budgeting

Terms to Know o o

Life Cycle Costing (LCC) Project Costing


o

o

There is often a full range of costs associated with any endeavor, many of which are outside the scope with which the estimator is currently concerned. For instance, the estimator concerned only with the cost of electrical systems needs to have an appreciation for the fact that there are other systems such as mechanical and equipment contributing to the cost of a product or project. The nature of the mechanical mechanical system can have have a direct bearing on the cost of the electrical system. It is helpful for the estimator to understand that all costs have a role in the ultimate cost of the endeavor. The estimator needs to have an understanding of the time value of money in order to be able to estimate life cycle costs.

Summary o

o

The cost estimator, in addition to his or her area of expertise, must have a working knowledge of all costs associated with an endeavor. Initial costs of development of a project are often a fraction of the total cost of ownership and operation over the lifetime of the improvement.


156

Sample Questions for Section 2.3.3 Project and Lifecycle Costing

1.

An estimate update entails __________ ___________________ ___________________ ___________________ ___________. __. A. B. C. D.

2.

Which of the following is not a capital cost insofar as life cycle costing is concerned? A. B. C. D.

3.

4.

Revision of the estimate to reflect the most current information on the project. Updating the estimate to reflect current anticipated schedule. Correction of any errors found in the original estimate. Conversion of the budget estimate into a control or baseline estimate.

Salvage value of an asset during the retirement re tirement and disposal phase. Architectural and engineering design costs for the original asset. Construction costs, including costs of materials, equipment, labor, and miscellaneous. Labor and material costs for maintenance and repairs.

The discount rate to be used in life cycle cost calculations is _________ ___________________ ________________. ______. A.

The asset owner’s minimum acceptable rate of return (MARR).

B.

The best rate of return available to the owner of the asset.

C.

The rate of discount the asset’s owner is credited for early payment of accounts due the interest rate charged to commercial banks on loans they receive from the US Federal Reserve Bank.

The difference between a life cycle cost analysis expressed in constant dollars and one expressed in current dollars is __________________________ _________________________________. _______. A.

Irrelevant.

B.

The difference between being able to convert an investment in dollars to a different currency.

5.

C.

Independent of the nation’s gross domestic product (GDP).

D.

The amount due to inflation.

A project cost estimate includes ________________________ _________________________________. _________. A. B. C. D.

6.

The construction cost as well as other non-construction costs. All costs up to the time construction of the project is started. Only the costs related to the original development or construction of the project. The construction cost and contingencies.

If the “real” discount rate is 3.0% and the “nominal” discount rate for the same period is 6.6%, what can be said about the difference? A. B. C. D.

It represents an annual inflation value of -3.6%. The difference is an expression of general inflation. The “nominal” rate represents the owner’s minimum acceptable rate of return (MARR). It represents overhead and profit available in the transaction.


157

Solutions to Sample Questions for Section 2.3.3 Project and Lifecycle Costing

1.

A

Revision of the estimate to reflect the most current information on the project.

2.

D

Labor and material costs for maintenance and repairs.

3.

A

The asset owner’s minimum acceptable rate of return (MARR).

4.

D

The amount due to inflation.

5.

A

The construction cost as well as other non-construction costs.

6.

B

The difference is an expression of general inflation.


158

Section 2.3.4 Project and Product Costs Introduction AACE International Recommended Practice 10S-90 defines project as, “a temporary endeavor with a specific objective to be met within the prescribed time and monetary limitations and which has been assigned for definition or execution.” A product is one of many outputs outputs from the execution of a project. Those outputs can be in tangible tangible or intangible form, a product being one of the possible tangible forms.

Project and product costs share many characteristics. A project cost reflects all costs attributable to the project, including its share of home office overhead costs and any costs not directly attributable to the project (indirect costs). Product costs entail all costs attributable to delivery delivery of the product including all direct costs plus overhead costs. Some product costs are fixed; in other words, costs such as the cost of land and improvements which do not vary with the number of units produced. Other product costs are variable, such as material and labor associated specifically with production of the item, that vary with the number of units produced. Learning Objectives o o o

Be able to distinguish between “construction costs” and “project costs. Be able to distinguish between “product direct costs” c osts” and “indirect costs.” Understand what is meant by the “cost-to-serve” channel.

Related Study Guide Sections o o o o o o o o

2.1.2 2.1.5 2.1.6 2.2.2 2.2.3 2.2.4 2.2.5 2.2.10

Cost Estimate Classifications Codes of Accounts Historical Cost Data Estimating Methodologies Quantification Costing Pricing Estimate Review and Validation


159

Terms to Know o o o

Activity-Based Costing Management (ABC/M) Procurement Standard Costs


o o

Arbitrary cost allocations allocations are the output of contemporary contemporary cost accounting accounting systems. The allocations do not not yield accurate records of actual total costs. One possible solution solution is implementation of activity-based cost management (ABC/M). Product costs are the output of business processes. Project costs are the output of the direct work for which the project was developed, as well as those support activities which result in indirect costs.

Summary o

o

A key element of product or project cost estimating is the ability to envision those costs that don’t contribute directly to the cost of the product or project. Construction cost is a subset of project cost. c ost.


160

Sample Questions for Section 2.3.4 Project and Product Costs

1.

What is the relationship between the product cost and the cost of quality (COQ)? A. B. C. D.

2.

What is the relationship between project cost and construction cost? A. B. C. D.

3.

Product cost plus the increase in cost due to inflation is equal to the cost of quality (COQ). The difference is depreciation. The cost of quality should be within six standard deviations (6-sigma) of the product cost. As the cost of quality (COQ) decreases, product cost can be reduced and/or the manufacturer’s margin can be increased.

There is no relationship between project cost and construction cost. Construction cost only includes direct costs. Construction cost is a subset of project cost; i.e., project cost includes construction cost. Construction cost is equal to project cost less indirect costs.

Cost drivers are an important concept to the understanding of __________ ________________. ______. A. B. C. D.

Earned value management (EVM). Parametric estimating. Estimate/schedule coordination. Activity-based cost management (ABC/M).

4. In production of Product A, a manufacturer incurs a total of $4,500,000 for direct direct materials in the course of a year. Total direct labor expended in manufacture of Product Product A for the same period totaled $4,000,000. Total variable manufacturing overhead expenses allocated to Product A total $2,200,000 and fixed manufacturing overhead expenses for Product A total $11,650,000. Total output for the year of Product A was 100,000 units, of which 90,000 were sold. What is the total product cost per unit of Product A? A. B. C. D.

$248.33/unit $107.00/unit $223.50/unit $118.89/unit

5. Which of the following cost categories is included included in project cost but not in construction cost? A. B. C. D.

Contingency. Prime contractor’s markups. Architectural and/or engineering fees. Contractor’s allowances.


161

Solutions to Sample Questions for Section 2.3.4 Project and Product Costs

1.

D

As the cost of quality (COQ) decreases, product cost can be reduced and/or the manufacturer’s margin can be increased.

2.

C

Construction cost is a subset of project cost; i.e., project cost includes construction cost.

3.

D

activity-based cost management (ABC/M).

4.

C

$223.50/unit Commentary: Product cost totals direct materials, labor, and manufacturing overhead, as well as fixed manufacturing overhead attributed to the product divided by the total number of units units produced. ($4,500,000 + $4,000,000 + $2,200,000 + $11,650,000)/100,000 units = $223.50/unit. A common error error would be to mistake the number of units sold for the number produced which would result in the erroneous number of $248.33/unit. The other erroneous answers answers result from failing failing to include the fixed manufacturing overhead costs.

5.

C

Architectural and/or engineering fees


162

Section 2.3.5 Integrated Project Delivery

Introduction

Integrated Project Delivery (IPD) is an approach to executing a project in which increased cooperation and communication between all parties leads to timely involvement of those parties in project activities and can lead to efficiencies in production, cost, and schedule in project execution. e xecution. Driving the move to innovative approaches to project development are statistics indicating that, while other non-farm industries have increased productivity by nearly 200% since 1964 while that of the construction industry industry has actually actually decreased. Couple that with project stakeholders’ need to increase the value of their projects by decreasing the amount of time it takes and the cost to develop their projects and add to that the quantum increases in the capabilities of software tools for project development and the potential benefits of IPD are very attractive. Learning Objectives o

o o

Understand how a more collaborative approach to planning, designing, and completing a project can yield more effective results for all parties. Be able to explain both the challenges and benefits associated with implementing IPD. Identify the specific challenges of and benefits possible in implementation of Integrated Project Delivery (IPD).


2.1.2 2.1.5 2.1.6 2.2.2 2.2.3 2.2.4 2.2.5 2.2.10 2.2.13

Cost Estimate Classifications Codes of Accounts Historical Cost Data Estimating Methodologies Quantification Costing Pricing Estimate Review and Validation Building Information Modeling (BIM)


163


Accounting Activity Activity Based Costing (ABC) Building Information Modeling (BIM) Collaboration Data Fields Integration Lean Construction Procurement Schedule Scheduling


o

o

o

Technology offers tools to enhance the goals of IPD – software which facilitates team collaboration and communication as well as improves team visualization of project details such as computer-aided design/manufacturing (CAD/CAM), 3-D CAD, etc. Timely involvement in project activities by all appropriate parties is essential to gaining their special expertise at a time when it can best be put to use by the project team. Contracting methods appropriate to IPD will reward each party in proportion to the risk that it shares and the extent to which project objectives are matched by actual outcomes. Lean production (lean manufacturing, lean construction, etc.) is a term denoting tec hniques.

Summary o

o

o

Teamwork is an often-abused term. But truly effective team operation in which which all project stakeholders have the opportunity for input in their areas of expertise, share in appropriately-proportional risk, and have the opportunity to share in a corresponding portion of the reward is essential to effective application of IPD. Tools conducive to use in IPD are those that enhance team communication, collaboration, and productivity. Timing is everything in IPD so that the parties with the knowledge of their specialties are involved when decisions are being made concerning those areas.


164

Sample Questions for Section 2.3.5 Integrated Project Delivery

1.

Which of the following best describes Integrated Project Delivery (IPD) as a concept? A. B. C. D.

2.

Integrated Project Delivery (IPD) is characterized by: A. B. C. D.

3.

B. C. D.

Project

Delivery

(IPD)

requires

A schedule allowing for the increased time required by IPD thus affecting all duration-sensitive items of cost. A complete Basis of Estimate (BOE) to allow thorough communication with the remainder of the project team. An historical cost database which includes costs of similar items to those contained in the project. A definitive estimate.

Integrated Project Delivery (IPD) can best be characterized by __________ ____________________ __________.. A. B. C. D.

5.

Critical path scheduling and parametric estimating. Fast-track design and construction. Expedited procurement and delivery of all materials and equipment. Early involvement in the project decision making process of parties with expertise in specific areas of project development.

From an estimating standpoint, Integrated ________ _________________ ___________________ __________________ ______________. ______. A.

4.

A project strategy in which involvement is equal and not subject to discrimination on the basis of race, color, religion, re ligion, sex, or national origin. Strategies in which a variety of contract styles is used. A project strategy in which collaboration between all parties is essential. A project strategy in which required materials and equipment are delivered to the site in a just-in-time (JIT) manner.

Collaboration, communication, and technology. Fast-track design and construction, building information modeling, critical path scheduling. A work breakdown structure integrated with the organization’s code of accounts. A cost and resource-loaded schedule.

Which of the following is not usually a feature of Integrated Project Delivery (IPD)? A. B. C. D.

Traditional design, bid, build. Design/build. Construction manager at risk (CMAR). Open book pricing.


165

Solutions to Sample Questions for Section 2.3.5 Integrated Project Delivery

1.

C

A project strategy in which collaboration between all parties is essential.

2.

D

Early involvement in the project decision making process of parties with expertise in specific areas of project development.

3.

B

A complete Basis of Estimate (BOE) to allow thorough communication with the remainder of the project team.

4.

A

Collaboration, communication, and technology.

5.

A

Traditional design, bid, build.


166

Appendices


167


168

Appendix A: Complex Problems Sample Questions Example: Scenario Questions #1

You are an estimator for Leaky Tub Moving and Storage, a commercial relocation contractor. You estimate that it will take a packing/unpacking packing/unpacking crew a total of 22 crew-hours crew-hours to pack the contents of a home for a move. move. The packing/unpacking packing/unpacking crew consists of one foreman foreman and three journeyman journeyman packers. Signatory to a collective collective bargaining agreement with the United Group of Lackeys and Yokels (UGLY), you employ journeyman packers at a base rate of $17.40/hour. Foremen earn journeyman’s journeyman’s wages wages plus $2.10/hour. $2.10/hour. Fringe benefits and and payroll taxes and insurance amount to 45% of the base rate for journeymen and foremen. Your company has an estimating standard for the cost of shipping supplies (boxes, sealing tape, and miscellaneous supplies) of $75/crew hour for the packing/unpacking crew. Leaky Tub transports its packing/unpacking crew from the office to the site of work in a crew van and charges the project $20/crew hour for the total duration of packing, loading, unloading, and unpacking for the van, fuel, insurance, and maintenance and repairs. Loading is estimated at four hours and is performed by a packing/unpacking crew with the substitution of a moving van driver for a foreman. The driver is paid a base rate of $27.50/hour and fringes, payroll taxes, and insurance for the driver amount amount to 28% of the base rate of pay. The estimate must include the cost cost of the moving van during the loading and unloading operations and is charged at a rate of $75/hour. The actual moving of the household is expected to take a total of 3.5 days based on an estimated distance of 1,750 miles and an assumption assumption of 500 miles/day. The driver is prohibited by regulation to be behind the the wheel more than eight hours in any 24-hour 24-hour period. The driver is paid an allowance allowance for meals and lodging of $100/ $100/ day for any day or fraction thereof while behind the wheel. wheel. Required permits are estimated to add a total of $475 to the moving cost. Unloading is estimated at four hours and unpacking is estimated to take 75% of the amount of time loading is estimated for. The same crews are used for unloading as for loading, and for unpacking as for packing. Leaky Tub will add 4.75% of its total costs for overhead and profit. 1.

What is the fully-burdened hourly labor rate for a packer? A. B. C. D.

2.

$25.23/hour. $17.40/hour. $26.43/hour. $18.23/hour.

Would state unemployment insurance normally already be included in this estimate or does it need to be added? A. B. C. D.

No, it would not be included and would need to be added. It depends upon the state. It would already be included in the estimate as a part of labor burden. Insufficient information is given in order to be able to answer.


169

3.

What AACE estimate classification would this estimate fall into? A. B. C. D.

4.

Which category of resource cost (labor, material, equipment, and miscellaneous expense) is typically the most volatile (most susceptible to under/over estimating of its quantity)? A. B. C. D.

5.

Labor. Material. Deterministic Method. Miscellaneous expense.

If the driver were awarded a premium of $0.55/hour for the moving part of this move only, what would be the total impact on the contractor’s bid? A. B. C. D.

7.

Labor. Material. Deterministic Method. Miscellaneous expense.

Which category of resource cost in this estimate bears the most risk as a percentage of total estimated cost? A. B. C. D.

6.

Class 2. Class 1. Class 3. Definitive.

+$15.40 +$19.71 +$20.65 No impact

What is the total bid for this move? A. B. C. D.

$13,057.87 $11,475.31 $12,934.56 $13,898.10


170

Solutions to Sample Questions

1.

A

th

$25.23/hour. (S&K 5 Ed., p11.4) Commentary: The fully burdened rate for packers is the base rate of $17.40 + 45% for fringes, payroll taxes, and insurance insurance or $17.40 $17.40 x 1.45 = $25.23/hour.

2.

C

It would already be included in the estimate as a part of labor burden.

3.

B

Class 1. Commentary: A Class 1 estimate is a bid/tender estimate.

4.

A

Labor.

5.

A

Labor.

6.

C

+$20.65 Commentary: The moving part of this move consists of 3.5 days x 8 hours/day x ($0.55/hour x 1.28) x 1.0475 = $20.65.

7.

D

$13,898.10

Commentary: Burdened packing/unpacking crew cost = ((3 x $17.40) + ($17.40 + $2.10)) x 1.45 = $103.97/hour. $103.97/hour. Burdened loading/unloading loading/unloading crew cost = ((3 x $17.40 $17.40 x 1.45) + ($27.50 ($27.50 x 1.28) = $110.89/hour. $110.89/hour. Burdened driver cost = $27.50 x 1.28 = $35.20/hour. $35.20/hour.

Labor : Packing – 22 hrs x $103.97 = Unpacking – 16.5 hrs x $103.97 = Loading – 4 hrs x $110.89 = Unloading – 4 hrs x $110.89 = Moving – 28 hrs x $35.20 =

$2,287.23 $1,715.42 $443.56 $443.56 $985.60

Total labor

$5,875.37

Equipment : Moving van – 36 hrs x $75 = Crew van – 46.5 hrs x $20 = Total equipment Expenses: Expenses: Meal allowance – 4 days x $100 = Permit Supplies – 38.5 hrs x $75 = Total expenses Total cost Overhead and profit @ 4.75% Total bid


$2,700.00 $930.00 $3,630.00

$400.00 $475.00 $2,887.50 $2,887.50 $3,762.50 $13,267.87 $13,267.87 $630.22 $13,898.10

171


172

Appendix B: Recommended References and Resources Primary Reference Materials th Estimating, Chapter Skills and Knowledge of Cost Engineering , 5 Edition. (See especially Chapter 9, Estimating, 10, Process Product Manufacturing, Manufacturing , and Chapter 20, Discrete Product Manufacturing.) Manufacturing .) Amos, S. (Ed.). (2004).

Total Cost Management Framework: A Process for Applying the Skills and Knowledge of Cost Engineering.Hollman, J. (Ed.). (2006).

AACE International Recommended Practices : Note: AACE International Recommended Practices evolve over time, please refer to www.aacei.org for the latest revision. AACE Recommended Practice (RP) 10S-90 , Cost Engineering Terminology . (2010).

Engineering . AACE Recommended Practice (RP) 11R-88 , Required Skills and Knowledge of Cost Engineering. (2006). AACE Recommended Practice (RP) 13S-90 , Recommended Method for Determining Building Area . (1990). AACE Recommended Practice (RP) 17R-97 , Cost Estimate Classification System. System. (1997). AACE Recommended Practice (RP) 18R-97 , Cost Estimate Classification System—As Applied in Engineering, Procurement, and Construction for the Process Industries. Industries . (2005). AACE Recommended Practice (RP) 19R-97 , Estimate Preparation Costs—As Applied for the Process Industries. Industries. (1998). AACE Recommended Practice (RP) 25R-03 , Estimating Lost Labor Productivity in Construction Claims. Claims. (2004). AACE Recommended Practice (RP) 28R-03 , Developing Location Factors by Factoring—As Applied in Architecture and Engineering and in Engineering, Engineering, Procurement, and Construction. Construction . (2006). AACE Recommended Practice (RP) 11R-88 , Required Skills and Knowledge of Cost Engineering. Engineering . (2006). AACE Recommended Practice (RP) 31R-03 , Reviewing, Validating and Documenting the Estimate. Estimate . (2009). AACE Recommended Practice (RP) 34R-05 , Basis of Estimate. Estimate. (2007). © 2013, AACE International (All Rights Reserved)

173

Principles. (2008). AACE Recommended Practice (RP) 40R-08 , Contingency Estimating: General Principles. AACE Recommended Practice (RP) 41R-08 , Risk Analysis and Contingency Determination Using Range Estimating. Estimating. (2008). AACE Recommended Practice (RP) 42R-08 , Risk Analysis and Contingency Estimating Using Parametric Estimating. Estimating. (2009). AACE Recommended Practice (RP) 46R-11, Required Skills and Knowledge of Project Cost Estimating. Estimating. (2013). CCC/CCE Certification Study Guide, 3rd Edition, AACE International, 2009.

Secondary Reference Materials Professional Practice Guides (PPGs) : Professional Practice Guide #6: Construction Cost Estimating, 2nd Edition, Douglas D. Gransberg PE CCE and Carla Lopez del Puerto CCC. AACE International. (2006). rd Professional Practice Guide #8: Contingency , 3 Edition,Kul B. Uppal PE. AACE International. (2010).

Professional Practice Guide #13: Parametric and Conceptual Estimating, 2nd Edition, Douglas W. Leo CCC, Larry R. Dysert CCC, and Bruce Elliott CCC. AACE International. (2004). nd Cost Estimating, 2 Edition, Rodney D. Stewart, Wiley-InterScience.

Cost Estimator’s Reference Handbook, 2nd Edition, R. Stewart, R. Wyskida, R. Johannes, John Wiley & Sons. The Engineer’s Cost Handbook , R. Westney, Marcel Decker. Project and Cost Engineer’s Handbook, 4th Edition, McGraw-Hill. Parametric Estimating Handbook , Department of Defense.2nd Ed. (1999). Construction Cost Estimating for Project Control. Neil, J., Prentice-Hall. (1981). (Book is out of print, but a limited number are available at Amazon.com). Construction Cost Analysis and Estimating . Ostwald, P., Prentice-Hall. (2001). Estimating Construction Costs. Peurifoy, R. and Oberlender, G., McGraw-Hill. (2001). nd Control and Management of Capital Projects , 2 Edition, AACE International. rd Jelen’s Cost and Optimization Engineering, 3 Edition, McGraw-Hill (Out of print, used copies available at Amazon.com).


174

Appendix C: Estimating Professional Terminology and Definitions As described in this study guide in Section 2.1.1 Cost Estimating Terminology , the terminology of any discipline defines the essential communication vehicle through the use of a common vocabulary. Cost estimating is no exception and as is often the case, many terms are used primarily in the discipline of cost estimating or in project controls. While Recommended Practice 10S-90, Cost Engineering Terminology includes the essential terminology of project controls, many of those terms are not directly related to the practice of estimating. Likewise, cost estimating uses uses some terms that are are pretty much the domain domain of the estimator and are not commonly used by other disciplines in the projec t environment. AACE International has developed a glossary of cost estimating terminology which includes the vocabulary used by most cost estimators. The definitions included in that glossary are those upon which the examination for the CEP is based and can be found on the website at http://www.aacei.org/educ/cert/CEP/CEP_Examinee_Format-of-Definitions.pdf.


175


176

Appendix D: AACE International Canons of Ethics AACE members and those certified by AACE International agree to be bound by the terms of the AACE International Canons of Ethics, a criterion that says all individuals will practice their profession in a manner that meets fundamental ethical standards. standards. The Canons of Ethics can be found at the association website at www.aacei.org.


177


178

Appendix E: Certified Estimating Professional Professional Sample Application The application for the Certified Estimating Professional (CEP) certification is available on the AACE International website at http://www.aacei.org/educ/cert/CEP/CEP_Brochure.pdf.


179


180

Appendix F: CEP Exam Part IV Example Part IV of the CEP Exam requires the candidate to demonstrate writing skills and general knowledge around an estimating competency. The candidate is required to write a memorandum demonstrating their ability to communicate effectively their knowledge on a selected estimating subject. Below you will find a sample question and an example of a memorandum that might be prepared for Part IV of the CEP examination. Question: You have been assigned as the lead estimator on a project to replace a fire-training tower used for educational purposes at a local community college. As part of the estimate, you are responsible for documenting risks and calculating costs associated with the removal of the existing fire tower. A site visit is necessary to accomplish this task. Prepare a memorandum to the project manager regarding your request for access to the site. MEMO

To:

Jane Gebhardt, Project Manager

From:

John Sweeney, Estimate Team Leader

Date:

August 10, 2007

Subject: Site Access Required for Fire Tower Replacement Project The estimate for the replacement of Fire Tower #1 is moving forward as planned and is scheduled for completion on September 5. As you know, the scope of the project will include the demolition and disposal of the existing fire tower. In order to understand the cost risks associated with this part of the project, our estimating team requires access to the site. The purpose of our visit is to ensure that all potential items of cost have been documented in the scope, verify that the proper quantities and associated costs have been included in the estimate, and assess costs risks attributable to the demolition scope. In addition, our team will attempt to expose any scope that may have been overlooked. Here is what we plan to do during our assessment: 1. Evaluate existing fire tower for potential environmental hazards. 2. Identify any utilities that must be disconnected. 3. Confirm interferences that are included in the scope and identify interferences that are not included in the scope. 4. Survey the surrounding area to identify potential damage that may occur during demolition. 5. Verify accessibility of heavy equipment required for demolition and refuse removal.


181

Please note that the estimate review is scheduled for three weeks from today (September 1). A comprehensive risk analysis must be prepared to help determine the appropriate contingency costs prior to review of the completed estimate. Therefore, it is imperative that this site assessment occur no later than next Tuesday (August 18). As always, thank you for your help in meeting the objective of a safe and cost effective solution. You can reach me at anytime during working hours at (987) 654-3210 to arrange this activity. John Sweeney, Estimate Team Leader for Fire Tower Replacement Project


182

CEP_Study_Guide.pdf

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