PROJECT PLANNING, SCHEDULING & COST
Prof. G. Tararkji, &
Engineering Management (ENGR 801) Class
School of Engineering & Computer Science
San Francisco State University
March 12, 2003
Table of Contents
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
List of Illustration
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
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
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
In general these four characteristics distinguish projects from other undertakings. Each
of these characteristics has important implications so we will examine them carefully.
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.
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.
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
PERT/CMP, GERT and VERT are available to help them manage the time dimension
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.
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
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
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.
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.
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.
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
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.
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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
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
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.
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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
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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
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
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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.
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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
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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
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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.
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
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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
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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.
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
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Figure 5 Estimates at Project Stages
Figure 6 Ranges of Estimates over Project Cycle
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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
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
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
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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
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
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)
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:
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
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• 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
• Market factors
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.
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Table 1 Data for the Basic Estimating Techniques
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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
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
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
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.
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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
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
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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
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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
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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.
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