Project Cost Estimating (1)

Week 8

Project Cost Estimating (1)

457.657 Civil and Environmental Project Management Department of Civil and Environmental Engineering

Seoul National University

Prof. Seokho Chi shchi@snu.ac.kr

건설환경공학부 35동 304호

Estimating Construction Costs

• Approaches to estimating

• Conceptual / Detailed estimating

• RS Means data and examples

• Estimates

– Necessary to guide decisions, budgets – Hard to do well

– Are performed by several actors

• Owners

• Designers

• Contractors

• Subcontractors

Bid Estimate

Total Project Cost

(총 공사원가)

Construction Cost

(순 공사원가)

Overhead

(일반관리비)

Profit

(이윤)

Material Cost

(재료비)

Labor Cost

(노무비)

Expenses

Accounting/Admin fees, (경비) Advertising, Insurance, Interest, Legal fees, Rent, Repairs, Taxes, Telephone

bills, Travels, etc.

5-6% of construction cost

Construction-related expenses:

Equipment, Maintenance, Electricity, Transportation, Waste control, Consulting, R&D cost, Testing, Inventory, etc.

Maximum 15% of Sum(Labor cost, Expenses, Overhead)

Feasibility Analysis

Design

Procurement

Construction

Turnover (Handover)

Operations &

Maintenance

Disposal (Reuse) Need (desire)

Conceptual Estimating

ROM (Rough-Order of Magnitude)

= cost per unit of capacity, +/- 20%

e.g., # of beds in a hospital,

# of rooms in a hotel

Square Foot/Cubic Foot

= cost per sq/cf of building type, +/-15%

Detailed Estimating

Assemblies

= per WBS component cost, +/- 10%

e.g., foundation (excavation, formwork, reinforcing, concrete, etc.)

Quantity Take-Off

= per unit cost, +/- <5%

Context: Project Timeline

Design

Program- ming

Schematic

Design development

Construction documents

ROM

SF/CF

Assemblies

70% complete

100% complete

Use costs to iterate design concepts

Predict final costs

Unit Pricing

• Preparation Time X Accuracy

Cost Estimating

Conceptual Estimating

• Guide decisions regarding: location, scope, feasibility.

• Very little project information is available

• Size of the project is generally known, although it may be described in terms of capacity (e.g.: number of beds, megawatts)

• Short preparation time

• Estimates prepared for many different program options

Detailed Estimating

• Based on a (near) complete set of documents

• Owner team prepares an estimate to negotiate

• Contractors prepare an estimate to bid (or negotiate)

• Price given by contractors for different work packages

may be based on bids from pre-qualified subcontractors

Conceptual Estimating

• Consideration

– Building type – Location

– Rough size – Material type – Time

• Compare to historical data (similar buildings)

– Apply modifiers as needed

Bid Estimate

• Resources for Estimate

– U.S.

• RS Means Building Construction Cost Data

• RS Means Assemblies Cost Data

• RS Means Square Foot Costs – Australia

• Rawlinsons Construction Cost Guide – Korea

• 표준품셈 (대한건설협회): provide quantity information of activities

• 실적공사비 (한국건설기술연구원): provide historical database

RS Means Building Data

• Compiles info

• Good starting point

• Firm data often better (why?)

Example:

Library - 6,500 sf

RS Means - $97.30/sf

Estimated cost : $632,450 If ¼, 25% of that type of building costs less than the indicated price and 75%

costs more

Building Costs

Location Indices

100 = National Average MAT: Material Cost, INST: Labor Cost

(1) ROM Estimate

• 100-bed dormitory (low rise); median quality; 2003 data; in Nashville, TN; Jan 2003 construction start

– Total cost = Number of units × Unit cost

= 100 units × 36,300 per unit

= $3,630,000 (without adjustments)

• Location Adjustment

– National average city index = 100

– Adjusted cost for a city = Estimated cost × City index / 100 – For Nashville: 86.2

– Adjusted total cost = $3,630,000 × 86.2 / 100

= $3,129,060

(2) SF Estimate – Modeled

• 19,386 ft

fire station; face brick with concrete block back-up; steel joists; 2003 data; in Austin;

January 2005 construction start; 2.5% projected increase per year.

– Total cost = Size in ft² × Cost/ft²

= 19,386 ft² × $97.95/ft² (approximately)

= $1,898,858 (without adjustments)

(2) SF Estimate – Modeled (Cont’d)

• Add-on Features:

– Combination range, refrigerator, sink, microwave oven &

icemaker (quantity = 1) = 1 × $5,275

– Steel lockers, single tier, 72” (8 openings) = 8 × $200

• Cost with add-on features = $ 1,905,733

• Key point

– Estimates can mix level of detail

• If you find, you can add now

– Danger is to double count

• You need to figure out which one has been included already through itemized building code

• Clearly determine included/not-included items

(2) SF Estimate – Modeled (Cont’d)

• Location Adjustment

– National average city index = 100

– Adjusted cost for a city = Estimated cost × City index / 100 – For Austin

• Adjusted Austin cost = $ 1,905,733 × 79.7 / 100

= $1,518,869

(2) SF Estimate – Modeled (Cont’d)

• Time Adjustment

– 2003 data used for 2005 construction

– Time adjusted cost = (1 + % projected yearly increase)ⁿ × Adjusted Cost

= (1 + 0.025)² * $1,518,869

= $1,595,761

Detailed Estimating

• Scope definition

– Dimensions, specified quality, construction methodology, potential problems and solutions

• Quantity take off

– Packaging of project components’ scope into units that can be priced

• Pricing

– Applying marketplace labor, material, and equipment costing to the quantities

– Factors such as schedule, construction process, productivity, labor agreements, and resource allocation should be considered

• Overhead and profit issues

– Overhead, profit, sales taxes, labor benefits, bond, and contingency

Scope Definition

• Contract documents

– Drawings

– Specifications

– Technical references – Addenda

• Site analysis

– Soil

– Utilities – Access – Neighbors

– Existing structures

• New construction vs. Repair and remodeling

• Bonding and insurance requirements

Basic Detailed Process

• Estimated Cost =

Quantity × Price (material + installation) per unit

• Quantity: by counting

• Price: by time, materials, and crew cost

– Materials: vendor data

– Crew cost: varies by composition of junior and senior members as well as size; also equipment

– Time (duration): by productivity per unit

» Can vary a lot by method, crew size

Estimate Setup

• Format

• Organization of cost items

• Separation of subcontractors from in-house work

• Adjustments

• Overhead and profit (markup) summary

• Estimate summary

}

Quantity Take Off

• Break a project down into work packages (e.g., excavate for spread footings, place concrete for spread footings)

– This can be really hard!

• Determine quantity for work package

– Requires a strong understanding of the work involved – Be careful with details, scales, and units

– Take advantage of repeated project elements

– Make sure you don’t quantify the same element twice – Account for waste, shrinkage, swell, equipment wear

Unit Pricing

• Sources of pricing information

– Publications – In-house data

– Material suppliers

– Equipment rental companies – Subcontractors

– Unions

– Government offices

– Insurance and bonding providers

Unit Pricing (Cont’d)

• Material Costs:

– Specifications (e.g.: model number, color, finish) – Price valid until delivery time

– Delivery

– Warranties and guarantees – Lead time to delivery

– Supplier’s stock

– Supplier’s reputation

– Payment terms Important to control to prevent negative cash flow!

Unit Pricing (Cont’d)

• Labor Costs:

– Wage rate

• Trade

• Union vs. Non-Union

• Project location

• Fringe

– Productivity

• Crew efficiency

• Concurrent work

• Weather conditions

• Workspace

• Regular vs. overtime

Washington State Carpenters (sample)

Journeyman

Regular Time

Time & a Half

Rate $27.95 $41.93

Health 2.90 2.90

Pension 3.87 3.87

Apprentice 0.35 0.35

Total Fringe 7.12 7.12

Taxable Wage Rate 35.07 49.05

FICA @ 7.65% 2.14 3.21

State Unem. @ 5.42% 1.51 2.27

Fed. Unem. @ 0.8% 0.22 0.34

Workers Comp @

$2.0859/hr

2.09 2.09

Total Payroll Taxes &

Insurance

5.96 7.91

Labor Burden (fringe + tax

& ins)

13.08 15.03

Total Labor Rate 41.03 56.96

*Total Fringe: Health + Pension + Apprentice FICA: Federal Insurance Contributions Act

Unit Pricing (Cont’d)

• Equipment Costs

– Cost of ownership, lease, or rental

• Interest

• Storage

• Insurance

• License

• Taxes – Operation

• Gasoline/oil

• Maintenance

• Transportation

• Mobilization

• Operator (may be included with labor)

• Item-by-item basis vs. project basis

Overhead and Profit

• Job organization

• Travel expenses

• Engineering support

• Marketing, legal, and accounting fees

• Testing

• Equipment (project basis)

• Field office

• Temporary utilities

• Permits

• Temporary roads

• Insurance and bonds

• Clean up

• Safety

devices/signs/barricades

• Photographs

• Taxes (other than direct costs)

Profit: Markup on above, 3-10% typical (tends to be higher in housing)

In Class Exercise

• In Austin:

1. Find the estimated cost of putting in place 500 lf of 10’

high large columns

2. Find the estimated installation cost of 10 25’x25’ waffle slab bays with a 75 psf load

3. Find the cost of elevated floors on a 5 story (5 stories with 4 elevated floors and a roof) apartment block with

10,000sf/floor. Slab on grade construction.

RS Means

In Class Exercise

1. Find the estimated cost of putting in place 500 lf

(linear foot = regular feet)

of 10’ high large columns

In Class Exercise

2. Find the estimated installation cost of 10 25’x25’

waffle slab bays with a 75 psf load

In Class Exercise

3. Find the cost of elevated floors on a 5 story (5 stories with 4 elevated floors and a roof) apartment block with 10K sf/floor. Slab on grade construction.

5 4 3 2 1

Roof

Slab on Grade

Elevated Floor

Bid Estimate

• 표준품셈

– Provide material quantity, labor hour information for given construction activities in standard construction environment – Yearly updated by 50 review committees

Mixing Ratio (배합용적비) Cement (시멘트, kg) Sand (모래, m³) Labor (인부, 인) 1 : 1

1 : 3 1 : 5

1,093 510 320

0.78 1.10 1.15

1.0 1.0 0.9

(m^3당) Civil 6-1-2 Mortar

Bid Estimate

• 일위대가 (Itemized Unit Cost)

– Quantity identified from ^표준품셈 X Cost from ^일위대가

• Estimate

(m^3당) Mortar 1:1 Mixing Ratio

Item Size Unit Quantity Material Cost Labor Cost Expenses Total

Others

Unit \ \ Unit \ \ Unit \ \ \

Cement KG 1,093 80 87,440

Sand ㎡ 0.78 11,000 8,580

Labor Person 1 57,820 57,820

Total 96,020 57,820 153,840

Activity

(공종) Type Unit Quantity (물량)

Material Cost Labor Cost Expenses Total

Unit \ \ Unit \ \ Unit \ \ Unit \ \

Mortar 1:1 ㎥ 10 96,020 960,200 57,820 578,200 - - 153,840 1,538,400

~

Total 000 000

(단위: 원)

Bid Estimate

• 일위대가 (Itemized Unit Cost)

– Material cost: Government cost info + Market cost info

(조달청 발행 가격정보, 물가자료 또는 물가정보)

– Labor cost: Construction Association of Korea yearly

collects labor cost information from 50-60 construction sites and announces standardized labor cost every 1^st of January

(대한건설협회 고시 노임단가, 50-60개 현장을 대상으로 년1회 실사 후 매년 1월1일 공표)

Bid Estimate

• Estimate U-Type Side Gutter

Cost

Bid Estimate

• 표준품셈 vs 실적공사비

Rebar Installation

Formwork

Concrete

(Contract Cost DB)

Life Cycle Costing – Overview

• Background

– Context, need

– Definitions: LCC, LCA – Range of practice

– Resources

• Refresher: Discounting

• LCC Methods

– Steps/overview methodology – Inputs/considerations

– Calculation methods

• Examples/Extensions

Background

• Life-cycle approaches

– Estimate projects through the entire project life-cycle

– Grew from a need to better understand and approach costs holistically

• Owners didn’t know what expenses they were committing to when making capital investments

– Augment traditional investment decisions with considerations of future expense flows such as maintenance, environmental costs, etc.

– Are practiced

• Ex: Building donors often now solicited for maintenance funds as well as capital costs

Total Building Costs

Capital Energy Security

Maintenance &

Replacement

Adapted from Life Cycle Assessment – A Primer, Paladino Consulting LCC, July 2000, Seattle, WA, www.palcon.com

LCC & LCA

• LCC – Life Cycle Costing

– Considers all costs pertinent to the acquisition, operation, maintenance and disposition of a facility

• LCA – Life Cycle Assessment

– Encompassed LCC considerations but also the performance and environmental burdens and costs associated with a given facility

LCA

• Life Cycle Assessment is a process to evaluate the

environmental burdens associated with a product, process, or activity by identifying energy and materials used and

wastes released to the environment;

– to assess the impact of those energy and materials used and releases to the environment; and

– to identify and evaluate opportunities to affect environmental improvements.

• The assessment includes the entire life cycle of the product, process or activity, encompassing, extracting, and

processing raw materials; manufacturing, transportation and distribution; use, re-use, maintenance; recycling and final

disposal.

LCA vs LCC

• LCA is truly holistic

• LCC more clearly identified as costs impacting a single organization (typically an owner)

• LCC is an established methodology

– Uses investment analysis to compare costs over a defined period

• Boundary between LCC and LCA unclear

– e.g., How do you incorporate additional investment in facility quality on staff productivity improvements?

LCC Practice

• LCC methodology encompasses:

– Capital costs – O&M costs

• Energy in particular – Salvage costs

• Contains methods to obtain, collect, and process input data for the above

• Is extensible to allow assessment of any

considerations with quantifiable costs

LCC Practice

• Federally mandated for new and leased buildings

– National Energy Conservation Policy Act (1978)

– Federal Energy Management Improvement Act (1988)

• Moved to most states and municipal governments

– e.g., Wisconsin (1982)

• Now practiced in some form by most major

corporations and institutional owners for major

capital investments

LCA Practice – LEED Standards

• LEED (Leadership in Energy and Environmental Design) Green Building Rating System

– LEED provides a complete framework for assessing building performance and meeting sustainability goals

• define "green building" by establishing a common standard of measurement

• promote integrated, whole-building design practices

• recognize environmental leadership in the building industry

• stimulate green competition

• raise consumer awareness of green building benefits

• transform the building market

Korea: 친환경 건축물 인증 _by 국토해양부_, 환경부 since 2005 (greenbuilding.re.kr)

LCA Practice – LEED Standards

• LEED Green Building Rating System

– Categories

• Sustainable sites: erosion control, urban redevelopment, reduced site disturbance, landscape, etc.

• Water efficiency: wastewater management, water use reduction, etc.

• Energy and atmosphere: minimum energy performance, renewable energy, ozone depletion, green power, etc.

• Material and resources: building reuse, resource reuse, renewable materials, certified wood, etc.

• Indoor environmental quality: CO2 monitoring, ventilation, indoor chemical and pollutant sources, thermal comfort, etc.

• Innovation and design process: innovation in design, LEED professional, etc.

Net Present Value (NPV) Analysis

• Discounting: $ tomorrow is worth less than $ today

– Why?

Cash Flow Mapping

P

0 1 2 3 4 5…. n

F A

P: present value (year 0) F: future value at year n

A: annual return (at year’s end) i: interest rate per period

n: number of years/periods Rule 1: Always start at year 0!

(present time or start of study period)

Rule 2:

Ignore expenses before study period (sunk costs).

Rule 3: always compare alternatives using the same study period

Rule 4: use a common sign convention

+ _

If you can get the cash flow diagram straight, you have the problem mostly solved!

Discounting or NPV Formulas

F|P

F = P(1+i)

P|F P = 1/(F|P)

F|A

F = A[((1+i)

)-1)/i]

A|F A = 1/(F|A)

P|A

P = A [((1+i)

)-1)/(i(1+i)

)]

A|P A = 1/(P|A)

P

0 1 2 3…. n

A F

NPV = Net Present Value

NPV Example

• Repair vs Replace HVAC system

– If repair current HVAC,

• no upfront costs (P=0), but O&M costs are $100k/yr

– If replace with new HVAC,

• upfront costs are $300k and O&M costs are $50k/yr

– Assume 10 year lifespan, i = 7%

NPV Example (Cont’d)

• Repair

• Replace

P=0

0 1 2 3 4 5…. 10

A=-$100k/yr

NPV = 0 + P|A = 0 + (-$702k) = -$702k

P=-$300k

0 1 2 3 4 5…. 10

A=-$50k/yr

NPV = -300 + P|A = -$300k + (-$351k) = -$651k

Makes sense to invest in the new system!

P|A = A [((1+i)ⁿ)-1)/(i(1+i) ⁿ)]

Inflation Happens

…and it adds up

Source: US Dept of Labor Bureau of Labor Statistics www.bls.gov

CPI (Consumer Price Index) All items/Urban: 1913-2004

The Corrosive Effect of Inflation

• Suppose 3% inflation for 30 years

– $1 purchasing power today à

F|P, 3%, 30 yrs à Need $2.43 tomorrow

• Suppose 4% inflation for 30 years

– $1 today à Need $3.24 tomorrow

What does this do to your estimate for retirement savings?

Discount Rates and Inflation

• Discount rate accounts for time value of money

– Real interest: Rate after inflation

– Nominal interest: Rate inclusive of inflation – Nominal ≈ Real + Inflation rate (approximate)

• Cash flows

– Constant dollars: No inflation, dollars expected to be same as base date (time=0, thinking from Present)

e.g., $100 O&M costs: In 2030, actually pay $100+α – Current dollars: Account for inflation in each period

e.g., $1,000 home mortgage: In 2030, actually still pay $1,000

*Real interest rate 4%: inflation^{이 있어도4%의 이자}

*O&M Cost of $400: 현재로 봤을 때400불이란 얘기지 실제로 그때가 되면 더 낼 수가 있다.

Discount Rates and Inflation

• Use

– Real interest rate with constant dollars

– Nominal interest rate with current dollars

– Example: real rate = 4%, inflation rate = 3%, annual income of $100k/yr in constant dollars

0 1 2 3 4 5…. n

0 1 2 3 4 5…. n

current,

nominal ≈ 7%

If n = 10, NPV ≈ $810

constant, real = 4%

If n = 10, NPV ≈ $810

103

109 113 106

116 100*(1.03)^n 100

PV’s are Same!

Exponential Gradient Series Cash Flow

P|EG

P = EG[(z

-1)/(z

(z-1))], z=(1+i)/(1+g)

cf. Uniform Gradient Series Cash Flow P|G

P = G[((1+i)

-1)/(i

×(1+i)

)-n/(i×(1+i)

)]

0 1 2 3 4 5…. n

103

109 113 106

116 100*(1.03)^n

Cool about Real Interest

• You can ignore inflation!

– Make estimates in constant dollars – Everything is scaled to today’s prices

– Is more accurate: inflation varies, but real returns more stable

*Real return: Real interest provides increase in money in the future after taking account of inflation increase

e.g., $100 O&M costs: In 2030, actually pay $100+α