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Role of estimation in cost planning.

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  1. 1. .Role of estimation in cost planningWhat is estimation The definition of estimation according to dictionaries is known as "an approximate calculation of quantity" ;or "A judgment based on ones impressions opinion". Estimation is the process that provides the benefit , funding and resorting figures that required for a variety of decision – making purposes.What is project estimation According to John Smyrk: "Estimation has meanings at two levels of discussion: • A general definition: Estimating is the process of establishing values for the critical parameters in analytical model of a project. • A specific definition : Estimation is the process of establishing values for critical parameter in an analytical model of a project. According to Rory Burke: "Estimate is a quick method for pricing a project based on incomplete parts list of materials". Estimation is used to • underpin benefit –cost analysis • set expectation of timeframes. Unexpected changes in the projects variables will impact , usually adversely , on the project . It is important for good estimation to be provided , otherwise there may not be enough allocated time and money to execute the project successfully. Will discuses the role of estimation in cost planning within the structural steel fabrication industry ,estimation play an important role on cost planning for any steel fabricator because cost is important to all clients , there are different methods used on estimation will discuss some of these .Detailed Estimate Detailed estimate is commonly used for medium size and small steel projects, method is based on the following 1. Steel member length take off from tender drawings 2. Classify members by type (beam, column, rafter, purlin, bracing, tie, post, lintel, canopy). 3. Multiply each member by unit rate, which is varying according to member type. 4. Add a risk factor depends to cover any contingencies. 1
  2. 2. Single rate estimate method It is only based on the tonnage rate or price per ton for cost of steel fabricating and erecting , it is preferred by the engineers and clients based on the fabricator rate per ton figure they can plan the project budget. Simply the estimation method role is to know the structure type if portal frame, multistory building, house, bridge, stadium, truss, stairs, handrails, light structures.What is cost Cost is defined as detailed price based on a complete parts list of material, costing requires • The design . • The scope of work • The parts list. • The detailed planning. • Firm prices from sub-contracts and suppliers. •Benefit of cost planning • Greater satisfaction with end results • Better value for money • Improved building quality and performance • Budget and value accountability • Improved relationships between all project participants • Design problems identified and solved earlier • Early identification of high-cost elementFactors in Successful Cost Planning • Confirm that all project team members are speaking, and understand, a common language • Manage expectations. Acknowledge change is inevitable and establish contingencies and escalation in cost planning • Establish and document a solid base of prioritized needs • Study as many feasible site and building alternatives as possible • Establish well defined, manageable project schedules • Insure the budget has the confidence and acceptance of all project team members 2
  3. 3. Cost Management Cycle Planning & Preliminary Budgeting Pre-Design Post & Construction Programmin g &Design ConstructionCost planning based on detailed estimate. Project is broken down into tasks each task has a specific duration and resources, these tasks extracted from project estimate according to the tender drawings these tasks are • Shop drawing preparation 3
  4. 4. • Ordering materials • Component fabrication • Fabricating and welding • Painting • Transporting • Erection Using Microsoft project feed all date calculated during estimation process into the program, which will automatically calculate the CPM and provide accurate cash flow during the project , compare actual cost to estimated budget for each task and identify any change. At what stage of design is used • At tender stage only . Advantages 1. The most accurate method Accuracy about 1 to 5% 2. Quantity servier prefers this way it works the same way he work. 3. Provide accurate competitive cost. 4. The lower risk margin. 5. Can be sued to any type of project. Disadvantages 1. Time consuming. 2. Require height skilled estimator. 3. Only used at tender stage and depends on drawings information. 4. Estimator has to revise his tender with each revised set of documents. 5. Require meeting with client and engineers to discuss any documents quires.Cost planning based on single rate estimate. Based on the client requirement will work out how many tons of steel involved in the project ,then project is broken down into tasks each task has a specific duration and resources, these tasks extracted from historical recorded information from similar projects Using Microsoft project feed all data calculated during estimation process into the program, which will automatically calculate the CPM and provide accurate cash flow during the project At what stage of design is used • At brief design stage. Advantages 1. Clients prefer this method they can easy understand it. 2. The quickest method. 3. Very simple. 4. Do not require skilled estimator. 4
  5. 5. Disadvantages 1. Difficult to make allowances for building location, shape, drawing revisions, lack of information, poor documentation and so on. 2. Do not know the cost of each item. 3. Accuracy about 15 to 20% 4. Cannot used for minor variation or special projects.Conclusion There is no easy way to produce accurate estimations, except with experience and using better practice from other projects, comparing both methods on regard to the cost planning effect it is obvious that the detailed estimate is more accurate and provide a small It is not always possible to have the required information for the detailed estimation at planning time especially for small projects so fabricator should deal with a both methods According to the available information in fact they use the single rate method if not possible to make a detail estimate due to time or document limitation. Estimation is a major effecting factor in successful cost planning the closer the estimate the better and efficient will be the cost planning. Which if fails might cause cost overrun effecting on the company financial stability. There are different ways of improving estimation such as recoding actual costs for all projects and compare it with the current applied rates, implement lesson learned from past to new projects , up skill estimators by providing training , keep new technology to a minimum . References: • Ten step project management process ( • Project management fact sheet: project estimation version 1.0 • Burke, R. Project management planning and control. 5
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