Spring 2003 - MS WORD Format.doc


Published on

Published in: Business, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Spring 2003 - MS WORD Format.doc

  1. 1. PROJECT PLANNING, SCHEDULING & COST Presented to Prof. G. Tararkji, & Engineering Management (ENGR 801) Class of School of Engineering & Computer Science San Francisco State University By Jose Calle Duad Shirzai Kim Phuong Mumtaz Nazir Ricardo Galdamez March 12, 2003 -1-
  2. 2. Table of Contents Page LIST OF ILLUSTRATION...................................................................................................ii INTRODUCTION. By Ricardo Galdamez................................................................................1 PLANNING by Jose Calle......................................................................................................5 SCHEDULING by Kim Phuong............................................................................................10 COST by Mumtaz Nazir.........................................................................................................17 CONCLUSION by Duad Shirzai...........................................................................................27 -i- -2-
  3. 3. List of Illustration Page Figure 1. Gantt Chart.........................................................................................................12 Figure 2. PERT/CPM Flow Diagram.................................................................................13 Figure 3. PERT/CPM Flow Diagram.................................................................................14 Figure 4. Example of forward and backward pass calculation for a network....................16 Figure 5. Estimates at Project Stages.................................................................................18 Figure 6. Ranges of Estimates over Project Cycle.............................................................18 Table 1. Data for the Basic Estimating Techniques...........................................................22 - ii- -3-
  4. 4. INTRODUCTION What is a Project To better understand the general process of planning, scheduling and costing in an engineering project it is important to first have a clear idea and understanding of what a project is and that is the reason why this report first introduces the subjects of project and project management. After the overall idea of project management is introduced, this report then concentrates on the specific areas of the planning, scheduling and costing processes. All of us are constantly undertaking projects in our day to day lives for example: Preparing for a weekend picnic, repairing leaky faucet, fixing up the house for our friends visit, and writing a term paper for a school project. Projects are integral part of our lives and usually we tend to carry out these projects in a disorganized way. For example, we finally get around to fixing the faucet when we can no longer tolerate the noise of the dripping water and we tend to began writing out a term report the day before is due. So, it is now clear that we are surrounded by projects and we work on them daily but we rarely do we strive to manage these projects in an organized way unless of course you are at work. Although humanity have been carrying projects for thousands of years, modern project management is a recent development and to a large degree it is a byproduct of the major projects of World War II when a conscious effort was made to coordinate their enormous budget, schedule and resource complexity as efficiently as possible. The common characteristics that all projects share are the following: • Projects are goal oriented • Involve the coordinated undertaking of interrelated activities • They are of finite duration; meaning that they have beginning and an end. • They are all to a certain degree unique -4-
  5. 5. In general these four characteristics distinguish projects from other undertakings. Each of these characteristics has important implications so we will examine them carefully. Goal Orientation Projects are directed as achieving specific results; that is they are goal oriented. It is these goals that drive the project forward and all planning, scheduling and costing are undertaking so as to achieve them. The fact that projects are goal oriented suggests that an important feature of managing projects is to identify relevant goals, starting at the highest levels and then working down to the grass roots. It also suggest that a project can be viewed as the pursuit of carefully chosen goals and that progress on the projects entails on achieving ever higher levels of goals, until finally we have attained the ultimate goal. Coordinated Undertaking of Interrelated Activities Projects are inherently complex and entail carrying out multiple activities that are related to each other in both obvious and subtle ways. Some activities cannot be executed until other tasks have been completed, some must be carried out in parallel, and so on. Should the tasks get out of sync with each other, the whole project may be jeopardized. When we reflect on this basic characteristic of projects, we realize that a project is a system that is a whole made of interrelated parts. Limited Duration Projects are undertaken in a finite period of time. In other words, projects are temporary. They have well-defined beginnings and ends. Simply put it, when the project goals are achieved, the project ends. A large part of the project effort is dedicated to ensuring that the project is accomplished at the appointed time. To do this, schedules are created showing when tasks should begin and end. The specific subject of schedules is developed in the third part of this report. -5-
  6. 6. Uniqueness Projects are to a degree, non-recurring, one of a kind undertakings and the extent of uniqueness varies considerably from project to project even if you are an engineer building hundreds of identical MacDonald's restaurant. True the basic plan of a MacDonald’s restaurants may be the same while the principal source of their uniqueness may lie in the special soil conditions surrounding the building, or the requirements for installing a new sewer system for the first time or the need to work with a new team of carpenters and so forth. On the other hand, if you are designing the operating system of a new-generation computer, you are clearly working on a highly unique effort as you may be doing something that has not done before. So, because past experience not always offers you with precise guidance on what you can expect in your new project, it is safe to say that projects are filled with certain degree of risk and uncertainty. The Subject of Project Management If we ask a seasoned engineering professional what is the fundamental objective in carrying out a project one may guess correctly that the answer would be “completing a job” or “to get the job done”. True however, given a few moments to reflect further any professional may amplify their response “My most basic objective is to get the job done, on time, within budget and according to specifications.” These three items are so commonly identified by project professionals as very important parameters in the project management process that they have been given a name; the triple constraints. They constitute the focal point of the project’s professional attention and energy. Indeed, project management entails carrying out a project as effectively as possible in respect to the constraints of time, money and specifications. To deal with the time constraint, project professionals establish deadlines and work with schedules. Some fairly sophisticated computer assisted scheduling tools such as -6-
  7. 7. PERT/CMP, GERT and VERT are available to help them manage the time dimension more effectively. Money constrains are handled with budgets. First cost estimates are made to get an educated idea of what a project tasks will cost. Once the project is under way, the budget is monitored to make sure that expenses are not getting out of hand. Money buys resources and that is the reason that project managers have developed several tools for managing human and material resources such as resource loading charts, resource Gantt charts and linear responsibility charts. Of the three constrains perhaps specifications are the most difficult to handle. Specifications what the final product of our project effort should look like and how it should function. For example, if the project is improving the drainage of a town and want to make sure that it main drainage system will be able to handle a flood that occurs statistically once every 100 year then, the engineer must make sure that the channels and sewers are built to the specified sizes. The Project Life Cycle Projects have beginnings, middle periods and endings. This may seem self evident but it is not trivial if you are concerned with the management of projects since where you are in the project life cycle will have a strong bearing and what one should be doing next and what options are open at that particular point in time. There are different ways to view the project life cycle and one of the most common views is dividing these life cycles into four broad phases: project conception, planning, implementation and termination. Following is a discussion that will walk us through the process of planning, scheduling and costing. -7-
  8. 8. PLANNING A project starts as a need by the owner for the design and construction of a facility to produce a product or service. The owner’s study must conclude with a well-defined set of project objectives and needs, the minimum requirements of quality and performance, an approved maximum budget, and a required project completion date. The procedures used for project management vary from company to company and even among individuals within a company. Although each project manager develops his or her own style of management, and each project is unique, there are basic principles that apply to all projects. This report presents these principles and the basic steps to develop a work plan to manage a project through each phase from conceptual development to completion. A typical project consists of three basic components: scope of work, schedule, and budget. Scope of Work Project planning is the heart of good project management because it provides the central communication that coordinates the work of all parties. Planning also establishes the benchmark for the project control system to track the quantity, cost and timing of the work required to successfully complete the project. It starts at the beginnings of a project, with the scope of work, and continues throughout the life of the project. The establishments of milestones and consideration of possible constraints are major parts of planning. The source of many problems associated with a project is failure to properly define the project scope. Too often the focus is just on budget or schedule. Not only should the scope, budget, and schedule be well defined, but each must be linked together since one affect the other, both individually and collectively. Since the project scope defines the work to be accomplished, it should be the first task in the development of a project, prior to the development of either the budget or the schedule. It is the duty of the PM to ensure that the project scope, budget, and schedule are linked together. -8-
  9. 9. As changes occur, additional planning is required to incorporate the changes into the schedule. There are many situations or events that can arise that can impact a project schedule. Examples are changes in personnel, problems with permits, change in a major piece of equipment, or design problems in structures. Good planning detects changes and adjusts the schedule in the most efficient manner. A good planning requires the following: Work Breakdown Structure (WBS) It divides the project into smaller parts that can be managed. The concept of WBS is simple; in order to manage an entire project, one must manage and control each of its parts. The WBS is the cornerstone of the project work plan. It defines the work to be performed, identifies the needed expertise, assists in selection of the project team, and establishes a base for project scheduling and control. A WBS is a graphical display of the project that shows the division of work in a multi- level system. The smallest unit in the WBS is the work package. A work package provides a detailed description of the work required to meet project needs and to match the project manager’s initial plan work. The work package should be assembled by each team member and supplied to the PM within 2 weeks of the kick-off meeting. Planning the Project Team The PM should develop a preliminary WBS that identifies the major tasks that must be performed. A detailed list of tasks should be prepared and grouped into phases that show the sequence of tasks and the interdependences of work. This information will assist the PM in selecting the technical expertise that will be required of the project team. All of this preparatory work is required because the PM can not effectively form the project team until the work to be done is known. All team members represent their respective discipline’s areas of expertise and are responsible for early detection of potential problems that can have an adverse effect on the project’s objectives, cost, or schedule. If a problem occurs, each team member should notify his immediate supervisor and the PM. -9-
  10. 10. It is important that each team member clearly understands the project objectives and realizes his or her importance in contributing to the overall success of the project. A cooperative working relationship is necessary between all team members. Since the initiative and responsibility to meet project objectives, cost, and schedules rests with the PM, he or she should be kept fully advised and informed. The PM must organize, coordinate, and monitor the progress of the team members to ensure the work is completed in an orderly manner. Kick-off-Meeting After the formation of the project team, the PM calls the first team meeting, commonly called the kick-off meeting. It is of the most important meeting in a project and is held prior to starting any work. The kick-off meeting allows the team to set priorities, identify problem areas, clarify member responsibilities, and to provide general orientation so the team can act as a unit with a common set of goals. At the meeting the PM should present the project requirements and the initial work plan, discuss working procedures, and establish communications links and working relationships. Prior to the meeting the PM should prepare general project information data, including the project name, project location, job account number, and any other information needed by the project team. Standards, policies, procedures, and any other requirement should also be presented. Minutes of the meeting must be recorded and distributed to team member. In particular, there should be documentation of the information that is distributed, the agreements among team members, and the identification of team concerns or questions that require future action by the PM or team members. Purposes of the kick-off meeting: to orient team members regarding project objectives and needs, to distribute the project manager’s overall project plan, and assign to each team member the responsibility of preparing work packages for the work required in his or her area of expertise. Work packages should be prepared and returned to the PM with two weeks of the kick-off meeting. - 10 -
  11. 11. Successive meeting should be held weekly throughout the duration of the project. These meetings are necessary to keep the team acting as a unit to ensure a continuous exchange of information. The best way to solve conflicts is through open discussions and compromise. Weekly/Monthly Reports To be meaningful, reports must be issued on a regular basis. Two reports should be prepared, a weekly report, and a monthly report for each project. Much of the weekly report can be obtained from the minutes of the weekly team meeting. The report should include: work completed, work in progress, work scheduled, and special problems. Generally, the weekly report is used by the PM to coordinate the work in progress. The monthly report should contain milestones that have been achieved, a tabulation of costs to date compared to forecast costs, and an overlay of planned and actual time schedules. The Follow-Up Work After the exchange of information at the kick-off meeting and a review of the required work by each team member there may be a need to readjust the work breakdown structure of the initial project plan. These situations should be resolved within two weeks of the kick-off meeting. The team as a whole must then work to find alternative methods of handling the project to keep the estimated cost within the approved budget. If a solution can not be found, the owner must be advised so an agreeable solution can be determined for a scope of work that matches the approved budget. It is important to resolve issues of this nature at the beginning of the project, when choices of alternatives can be made, rather than later when it is too late. - 11 -
  12. 12. Responsibilities of Parties Each of the three principal parties in a project has a role to fulfill in the various phases of design development and construction.. A team approach between the owner, designer, and contractor must be created with a cooperative relationship to complete the project in the most efficient manner. The owner is responsible for setting the operational criteria for the completed project. Owners also need to identify their level of involvement in the project. The owner is also responsible for setting parameters on total cost, payment of costs, major milestones, and the project completion date. The designer is responsible for producing design alternatives, computations, drawings, and specifications that meet the needs of the owner. It is the duty of the designer to produce a project design that meets all federal, state, and local codes, standards, and environmental and safety regulations. In addition a budget for the design should be prepared, along with a design schedule that matches the owner’s schedule. As part of their design responsibility, designers usually prepare an estimate of the probable construction cost for the design they have prepared. Major decisions by the owner to proceed with the project are made from the designer’s cost estimate. The cost and operational characteristics of a project are influenced most, and are easier to change during the design phase. Because of this, the designer plays a key role during the early phase of a project by working with the owner to keep the project on track so the owner/contractor relationship will be in the best possible form. The construction contractor is responsible for the performance of all work in accordance with the contract document that has been prepared by the designer. This includes all labor, equipment, material, and quality. The contractor must prepare an accurate estimate of the project, develop a realistic schedule, and establish an effective project control system for cost, schedule, and quality. The owner’s PM leads a project management team which consists of each Design PM and Construction PM that is assigned a contract from the owner. The owner’s PM is responsible for the accomplishments of all work, even though he or she has limited resources under their direct control because the work has been contracted to various organizations - 12 -
  13. 13. SCHEDULING History of Scheduling Project management is the planning, scheduling, and controlling of project activities to meet project objectives. After goals of the project are defined, it is important to express them in terms of specific tasks, and to break them into a cohesive schedule and plan. The primary reason for scheduling a project is to ensure that an imposed deadline can be met. The ideal schedule is one that provides an effective means for planning, organizing and controlling a project. It should let the manager quickly anticipate financial, material, and personnel requirements, and analyze the effects of temporary delays and suspensions caused by any number of problems, such as labor shortages, funding difficulties, poor subcontractor coordination, late arrival of diagrams, or defective workmanship. When scheduling, project managers should allow enough time to complete the project properly. While it is true that many projects are set up with built- in time constraints, it is important to be as realistic as possible about this. The most effective kind of schedule is a graphic display. Until around 1958, the only tool for scheduling projects was the bar chart developed by Henry Gantt. They are often called Gantt charts. They are simple to construct and easy to read. They are helpful in the early phases of the projects. They remain the best tool for communicating to team members what they need to do in given time frames. As the project progresses and as activities get more complex and detailed, the Gantt chart has certain limitation that makes it desirable to switch to some other scheduling tool. In the late 1950s and early 1960s, two methods of scheduling were developed that used arrow diagrams to capture the sequential and parallel relationships among project activities. One method was called Critical Path Method (CPM); the other was Performance Evaluation and Review Technique (PERT). Gantt Chart Gantt chart is a chart that uses timelines and other symbols to illustrate multiple, time- based activities or projects on a horizontal time scale (Baker, p312.) Gantt charts are the most commonly used scheduling charts in business because they are easy to produce and - 13 -
  14. 14. simple to understand. Gantt charts have a list of dates at the top and a list of tasks down the left side. A line to the Gantt chart shows the date where each task begins and ends on the chart based on its precedence and duration. The level of scheduling detail you display in our Gantt charts will be determined by the time periods you use on the top: daily, weekly, hourly, monthly, or whatever is appropriate for your project. Gantt charts are best used as visual overview of project timelines. Gantt charts are useful for envisioning the entire project through time. Although Gantt charts are easy to construct and simple to understand, they have serious drawbacks. Gantt charts do not show the effect of a delay in a phase because they do not show the interdependencies among tasks. If an activity falls behind, it is difficult to tell how it will affect the rest of the work. They do not indicate the existence of a network of activities. Gantt charts do not indicate the percentage of total work that each phase represents. They do not show which phase are critical to the completion of the project within an allotted time. Gantt charts also do not reflect the revisions of the planning activities. Constructing a Gantt Chart The general procedure is to break the overall project down into its separate but interrelated subprojects. List each phase, each effort that produces some specific result. Looking at the whole project, and "exploding" or subdividing it into discrete, manageable units is called "Work Breakdown Structure" (WBS). When the list of subproject is complete and in proper sequential order, each having a specific and verifiable character and a specific time of completion, estimate the duration of each phase and decide which can be carried out concurrently. It will turn out that some can while others must wait upon the completion of the previous phase. Below is an example of a Gantt chart. - 14 -
  15. 15. Figure 1 Network Diagram A network diagram is a graphic representation of a series of activities and events depicting the various aspects of a project and the order in which these activities and events must occur. A network is also called an “arrow diagram”. It reflects all activities and events from the beginning to the ending of the project. The few rules of networking may be classified as those basic to all arrow networking systems. Before an activity may begin, all activities preceding it must be completed. Arrows imply logical precedence only. Neither the length of the arrow nor its “compass” direction on the drawing has any significance. Event numbers must not be duplicated in a network. Any two events may be directly connected by no more than one activity. And lastly, networks may have only one initial event (with no predecessor) and only one terminal event (with no successor). An example of a network is represented in the below figure - 15 -
  16. 16. Figure 2 PERT/CPM The two most common forms of networking systems are PERT and CPM. In 1958, the U.S Navy needed a way to monitor and control the Polaris missile program. It especially needed a method for minimizing the conflicts, delays, and interruptions that so frequently plague government projects. To accomplish this, the Navy developed PERT. PERT enabled the Navy to determine time schedules and resource requirements for each activity. PERT facilitated the rescheduling and reassignment of resources with a minimum delay to projects. PERT emphasizes the control of the time element of program performance and treats explicitly the uncertainty in the performance times of the activities. The PERT system is based on three time estimates of the performance time for each activity: an optimistic (minimum) time, a most likely (modal) time, and a pessimistic (maximum) time (Moder & Phillips P.10). Optimistic time (a) Most likely time (m) Pessimistic time (b) Expected time (te) te = (a + 4m + b)/6 The PERT system gives the probability of meeting given scheduled dates without having to expedite the project activities. On the other hand, programs comprised primarily of deterministic activities utilize CPM, which omits the statistical considerations and is - 16 -
  17. 17. based on a single estimate of the average time required to perform the activity in question. Projects using PERT usually faces fewer constraints than projects using CPM. PERT is often used in government projects, especially research and development ones, like those related to space program, military defense, and medical research. CPM is more applicable to construction projects. It works best when time can be estimated accurately and costs can be determined in advance. Below is a partial network diagram in a construction project using CPM. Figure 3 PERT/CPM Problems Unfortunately, PERT and CPM are not without their disadvantages. PERT networks are based upon the assumption that all activities start as soon as possible. Regardless of how well we plan, there almost always exist differences in performance times and scheduled times. Unless the project is repetitive, there usually exists a lack of historical information upon which to base the cost estimates of most optimistic, most pessimistic, and most likely time. There exists a distinct contrast in PERT systems between planners and doers. This human element must be accounted for in order to determine where the obligation actually lies. In most organizations, PERT planning is performed by the program office and functional management. Yet once the network is constructed, the planners and managers become observers and rely on the doers to accomplish the job within the time and cost limitations. Management should convince the doers that they have an obligation toward the successful completion of the established PERT/CPM plans. Basic Scheduling Computations - 17 -
  18. 18. In order to know how long the project will take and when activities may be scheduled, we can look at the arrow diagram and the estimated durations of the individual activities. These estimates may be based on a single time value (CPM), or it may be based on a system of three time estimates (PERT). The basic scheduling computation first involves a forward and then a backward pass through the network. The forward pass computations give the earliest (expected) start and finish times for each activity and the earliest occurrence time for each event. The backward pass computations will give the latest allowable start and finish times for each activity and the latest allowable occurrence time for each event. After the forward pass and backward pass computations are completed, the slack (or float) can be computed for each activity, and the critical and subcritical paths through the network determined. The critical path is the longest route through a network that contains activities absolutely crucial to the completion of the project. - 18 -
  19. 19. Figure-4 - 19 -
  20. 20. COST When considering a project, one of the earliest requirements is to obtain an estimate of the likely budget for the project. At the inception of the project, Price data are not available and appropriate techniques of cost estimating have to be adopted. The purpose of this article is to indicate the theory, techniques and practical applications of project cost estimating throughout the stages of the project cycle. Cost Estimating The record of cost management in engineering especially construction industry is not good. Many projects show massive cost and time over-runs. These are frequently caused by underestimates rather than failures of cost management or contract administration. Estimates of cost and time are prepared and revised at many stages throughout the development of a project. (Figure 5) They are all predictions or approximations. The object is to predict the most likely cost of the project. The degree of realism and confidence achieved will depend on the level of definition of the work and extent of risk and uncertainty, giving a range of most probable costs. This range can be plotted against time to give an idealized cost envelope, as illustrated in Figure 6. Generally, such envelopes show that there is a narrowing range and increasing certainty as the project progresses. The band is wider when the project commences because information is at a minimum (time and cost data, scope and organization) and many risks are latent, unrecognized by the project team. Project risk decrease over the life of the project, but not in a continuous way and from time to time there may be increasing risks, or new risks that arise during the projects’ development. Any estimate should be presented as a most probable value with a tolerance; particular areas of risk and uncertainty should be noted and, if necessary a specific contingency allowance should be included in the estimate It is commonly reported that the requirements of an estimate are to predict the cost and schedule for the work identify and quantify potential problems and risks and forecast expenditure. - 20 -
  21. 21. Figure 5 Estimates at Project Stages Figure 6 Ranges of Estimates over Project Cycle - 21 -
  22. 22. The two key points at which estimates are prepared in the project life cycle are at sanction, when the client becomes committed and at tender when the contractor becomes committed Cost and Price It is important, when reviewing estimating techniques, to be clear as to the definition of Cost is the cost directly attributed to an element of work, including direct overheads; for example, supervision. Price is the cost of an element of work, plus allowance for general overheads, insurance, taxes, finance and profit (sometime known as ‘ the contribution’) Price = Cost estimate + Risk + Overheads + Profit + markup The first aim is to estimate most probable cost of the works. The cost of an element of the works comprises quantity proportional, time related and fixed costs. Quantity proportional costs are the direct costs of materials in the permanent works, with some exceptions: for example the cost of concrete may vary whether or not it is batched. Time related cost typically relates to plant and labor. The cost of operating an excavator is a time-related cost. It needs an operator. Maintenance and fuel, whatever volume of rock is excavated. The cost of bringing the excavator to site and taking it away is lump sum start and finish costs. Payment of a specialist subcontractor is another example of fixed cost. These costs usually have to be translated into quantity proportional unit rates in bill of quantities, confusing control, because if the time taken to carry out the work is longer, the cost will increase but the payment due will remain the same as quantity remain the same. It should be noted that plat and labor could not be varied daily, again emphasizing the fact that the cost is related to provision of resource, not the quantity of work completed. Finally, the direct overhead costs of management, establishment, and consumables that can be charged against a project should be asses and spread over the other cost centers, giving the total cost top perform the work. The price of the work is derived from the cost and is sometimes described as cost plus mark-up. The price must cover general overheads incurred by an organization which - 22 -
  23. 23. cannot be charged directly to a particular project (administrative staff, senior management, office maintenance, insurance etc.) and the payment of taxes, interest charges on monies borrowed and contingencies allowances for risk and uncertainties, and finally the profit of organization. There are some other factors which influence the overall cost and hence price of engineering works. These may include the location, the degree of innovation, the type of contract, the method of measurement and payment conditions and risk surrounding the projects. Importance of Early Estimate Particular care should be taken when preparing the first estimate for the project as it provides a basis against which further funds will be released and future estimates will be compared with it. It is also at this point that the capital cost for the project will be considered as part of a full financial appraisal of the project and the decision whether or not to proceed with the project will be taken. The promoter(s) of the project should not base the sanctioning decision on the first estimate but this has to be balanced by the extra costs incurred as more detailed design is completed and more detailed estimate are undertaken. The earliest estimate is primarily quantification of risks. Effective estimating at this stage requires that the estimator not only has access to comprehensive historical data, and is capable of choosing and applying the most appropriate technique, but also has the experience to make sound judgement regarding the levels of (largely unquantifiable) risks. Estimating Techniques The five basic estimating techniques available to meet the project needs summarized together with the data required for their application, in Table 1 these are: a. Global This term describes the ‘broadest brush’ category of technique, which relies on libraries of achieved costs of similar projects related to the overall size or capacity of the asset provided. - 23 -
  24. 24. Examples are: • Cost per megawatt capacity of power stations. • Cost per mile of road/freeways cost per square feet of building floor area. • Cost per ton of output for process plants. The technique relies entirely on historical data and therefore must be used in conjunction with inflation and a judgement of trends in levels of price (i-e market influence) to allow for the envisaged timing of the project. The use of this type of ‘rolled up’ historical data is beset with dangers, some more specific of them are: • Different definitions of what costs are included • Different definitions of measurements of the unit of capacity • Not comparing like with like • Inflation • Market factors b. Factorial These techniques are typically used for process plants and power stations where the core of the project consists of major items of plant, which can be specified relatively easily and have current price obtained from suppliers. This technique provides factors for a comprehensive list of peripheral costs, such as pipework, electric instruments, structure or foundations. The estimate for each peripheral will be the product of its factor and the estimate for the main plant items. The technique does not require a detailed program, but nevertheless one should be prepared to identify problems of construction, lead times for equipment deliveries and planning approval which will go undetected if the technique is applied in a purely arithmetical way. The technique has the considerable advantage of being predominantly based on current costs, thereby taking account of market conditions and placing little if any, on inflation indices. Factorial techniques are not normally reliable for site works, including most civil and building and mechanical and electrical installation work, except in a series of projects where the site circumstances are closely similar. - 24 -
  25. 25. Table 1 Data for the Basic Estimating Techniques - 25 -
  26. 26. c. Man-Hours This is probably the original estimating technique. It is most suitable for labor- intensive construction and operations such as fabrication and erection and instrumentation work where there reliable records of productivity of different trades per man-hour. The total man –hours estimated for a given operation are then costed at the current labor rates and added to the cost of materials and equipment. The advantages of working in current costs are obtained. The technique is similar to operational technique. However in practice, it is often used without a detailed program, on the assumption that the methods of construction will not vary from project to project. d. Unit Rates This technique is based on the traditional ‘ bill of quantity’ approach to pricing construction work. In its most detailed form a bill of quantities will be available containing the quantities of work to be constructed, measured in accordance with an appropriate method of measurement. The estimator selects historical rates or prices for each item in the bill, using information from recent similar contracts, or published information. As the technique relies on historical data it is subject to the general dangers outlined above. The technique is most appropriate to building and repetitive work where the allocation of costs to specific operations is reasonably well defined and operational risks are more manageable. It is less appropriate for civil engineering, where the method of construction is more variables and where the uncertainties of ground conditions are more significant Despite its shortcomings, unit rate estimating is probably the most frequently used technique. It can result in reliable estimates when practiced by experienced estimator with good intuitive judgement, access to a reliable, well managed data bank of estimating data and the ability to assess the realistic program and circumstances of the work. - 26 -
  27. 27. e. Operational Cost (Resource Cost) This is the fundamental estimating technique, as the total cost of the work is compiled from consideration of the constitute operations or activities revealed by the method statement and program and from the accumulated demand for resources. Labor, plant and materials are costed at current rates. The advantage of working in current costs is obtained. He most difficult data to obtain are the productivity of labor and construction plant in the geographical location of the project and especially the circumstances of the specific activity under consideration. The operational technique is particularly valuable where there are significant uncertainties and risks because the technique exposes the basic source of costs. It also provide a detailed current cost/time basis for the application of inflation forecasts and hence the compilation of a project cash flow It is the most reliable estimating technique for civil engineering work and it is frequently used by major contractors and an increasing number of consulting engineers Suitability of Estimating Techniques to Projects Stages The objective should be to evolve a cost history of the project from inception to completion with an estimated total cash cost at each stage near to the eventual out-turn cost. This can be achieved if the rising level of definition is balanced by reducing tolerances and contingency allowances that represent uncertainty. There is some correlation between the five estimating techniques, which have been described, and the estimating stages, which have been defined. This is related to level of detail available for estimating. a. Preliminary Stage: This is an initial estimating at the earliest possible stages, there are likely to be no design data available and only a crude indication of the project size or capacity, and the estimate is likely to be of use in capital expenditure programs - 27 -
  28. 28. At this stage Global estimating technique can be used, which is a crude system that relies upon the existence of data for similar projects assessed purely on a single characteristic such as size, capacity or output. Widely used on process plant is the Factorial method, where the key components can be easily identified and priced, and all other works are calculated as factors of these components b. Feasibility Stage: Sometimes known as an appraisal estimate, this comprises directly comparable estimates of the alternative scheme under consideration. It should include all costs that will be charged against the project to provide the best estimate of anticipated total cost, and if it is to be used to update the initial figure in the forward budget then it must be escalated to a cash estimate. A price can be defined as Price = Cost estimate + Risk + Overheads + Profit + markup Cost estimate largest of all these elements, often accounting for more than 90% of the total price usually is derived from the Unit Rate or Operational assessment of the labor, plant, material and subcontract work required. The cost of labor usually calculated per hour per shift or per week. c. Design Stage: This is an estimate for the selected scheme. It usually evolves from a conceptual design until immediate pre-tender definitive design is completed. A man –hours method is most suitable for labor-intensive operation, like design, maintenance or mechanical erection, and work is estimated in total man-hour and costed in conjunction with plant and material costs. The design budget estimate should confirm the appraisal estimate and set the cost limit for the capital cost of the project. d. Construction / Execution Stage: This is the further refinement to reflect the prices in the contract awarded. This would require some re-distribution of the money. The unit rate method is a technique based on - 28 -
  29. 29. the traditional bill of quantity approach (Unit rate) where the quantities of work are defined and measured in accordance with a standard method of measurement. Realism of Estimates The use of the word ‘realism’ in this context, rather than ‘accuracy’, is important. As noted above, estimate are not accurate in accounting sense, and the make-up of the total must be expected to change. The realism of estimate will depend greatly on the nature and location of the work, the level of definition of the project, and particularly on the extent of the residual risk and uncertainty at the time, as discussed above. Studies have shown that a standard deviation ranges from 4% to 15% in process industry. However the ranges of accuracy for high-risk projects, and in particular development projects, may be much greater. Many estimating problems can be addressed by adopting: • A structured approach • Choice of the appropriate technique • Use of the most reliable data • Consideration of the risks - 29 -
  30. 30. CONCLUSION To have a successful project there are several things that needs to be coordinate from the start. There are three major things for a successful project; one is to have the project done on time, second thing is to have the project under budget and the last thing is throughout the whole project planning is the key. The project planning is the key to a good project management simply it provides the central communication that coordinates the work of all the different trades. The estimating of cost is very important to make the project profitable. The cost estimate should be presented as a most probable value with the tolerance by, identifying areas of risk & uncertainties and adopting the best suitable techniques, so that it should not over run or under run the final project cost. In order to be successful estimating and purchasing departments becomes a big contributor. There are several common characteristics that all projects share are the following: • Projects are goal oriented • Involve the coordinated undertaking of interrelated activities • They are of finite duration • They are all to a certain degree unique. - 30 -