This document proposes a modified escalation model for upstream oil and gas projects that accounts for specific project types and cost components. It establishes escalation indices for pipeline, offshore, and onshore projects based on weighted commodity price indices. The model shows that escalation estimated using a consumer price index differs significantly from escalation estimated using this proposed methodology, which is tailored to specific project cost structures.
IRJET- Factor Analysis of the Significant Drivers Causing Cost Variation in B...IRJET Journal
This document discusses cost variation in building construction projects in Tanzania. It identifies 48 drivers that can cause costs to vary from initial budgets and contract amounts. Through factor analysis, these 48 drivers are reduced to 19 significant drivers. The 19 drivers are then grouped into 5 categories based on common factors: 1) designer related drivers, 2) building element drivers, 3) process stage drivers, 4) general drivers, and 5) human/external drivers. The first four drivers in the designer category have high loadings, indicating they are major contributors to cost variation. Financial condition of the owner has the highest loading in the building element category. Unforeseeable ground conditions has a high loading in the process stage category. Therefore, the 5
IRJET- The Study on Evaluation of Cost Escalation in Infrastructure Proje...IRJET Journal
This document summarizes a study on evaluating cost escalation in infrastructure projects and provisions to manage it. The study uses regression modeling to calculate cost escalation over time for infrastructure projects in India. It analyzes factors that influence increased project costs such as delays, weather, material price fluctuations, and scope changes. The regression model predicts escalated costs for the next three years based on historical data. The study aims to help project planners and investors forecast cost escalation to improve budgeting and management of long-term infrastructure projects.
This document describes a stochastic volatility model built for the front month Brent oil futures contracts traded on the Intercontinental Exchange in London. It implements a multifactor stochastic volatility model using Bayesian Markov chain Monte Carlo methods. The model is used to forecast conditional volatility and moments, extract risk measures, and could enable option pricing. Summary statistics show the return data exhibits volatility clustering, fat tails, and is stationary.
The document discusses petroleum project economics and pricing analysis. It covers crude oil pricing factors like location and quality, as well as demand and supply curves. It also examines natural gas pricing dynamics in Trinidad and Tobago, including the prices received by natural gas operators, NGC, and LNG exporters. Netback pricing is used to determine prices to downstream users based on conversion and transportation costs adjusted for product prices.
The document discusses India's regulatory framework for upstream oil and gas exploration and production activities. It covers the following key points:
1) The Constitution of India and various laws like the Oilfields Act and Petroleum Rules give jurisdiction over oil and gas resources to the central government.
2) The Oilfields Act provides the basic framework for licensing oil and gas blocks while the Petroleum Rules lay out specific provisions for exploration licenses and mining leases.
3) There is a need to establish an independent regulator for the upstream sector to avoid conflicts of interest and provide a level playing field for private players.
The document discusses concepts related to interest and the time value of money, including simple vs compound interest, future value and present value calculations, and calculations related to annuities. It provides examples of calculating future and present values for single cash flows and annuities using formulas, and asks questions requiring the use of these formulas.
1) E-360, The Club Economics is a student club at the University of Petroleum and Energy Studies that was established to facilitate all-round learning through extracurricular activities focused on economics.
2) The club aims to expand student knowledge of economic issues through research, reading groups, seminars, workshops and publishing an electronic magazine.
3) It provides a platform for students from different colleges to engage in innovative research on economic problems and share ideas.
Alan nicol institutions and convergenceSTEPS Centre
1) The document discusses the increasing convergence of river basin management organizations (RBMs) and regional economic communities (RECs) in Africa and the implications this has for development.
2) It notes the complex relationships and potential overlap between the many RBMs and RECs in Africa, with 14 major RBMs and 14 RECs covering over 90% of the continent's freshwater.
3) Key issues that could arise from this convergence include changes in patterns of water use and migration, impacts on local livelihoods, and whether new regional institutions adequately incorporate stakeholder needs.
IRJET- Factor Analysis of the Significant Drivers Causing Cost Variation in B...IRJET Journal
This document discusses cost variation in building construction projects in Tanzania. It identifies 48 drivers that can cause costs to vary from initial budgets and contract amounts. Through factor analysis, these 48 drivers are reduced to 19 significant drivers. The 19 drivers are then grouped into 5 categories based on common factors: 1) designer related drivers, 2) building element drivers, 3) process stage drivers, 4) general drivers, and 5) human/external drivers. The first four drivers in the designer category have high loadings, indicating they are major contributors to cost variation. Financial condition of the owner has the highest loading in the building element category. Unforeseeable ground conditions has a high loading in the process stage category. Therefore, the 5
IRJET- The Study on Evaluation of Cost Escalation in Infrastructure Proje...IRJET Journal
This document summarizes a study on evaluating cost escalation in infrastructure projects and provisions to manage it. The study uses regression modeling to calculate cost escalation over time for infrastructure projects in India. It analyzes factors that influence increased project costs such as delays, weather, material price fluctuations, and scope changes. The regression model predicts escalated costs for the next three years based on historical data. The study aims to help project planners and investors forecast cost escalation to improve budgeting and management of long-term infrastructure projects.
This document describes a stochastic volatility model built for the front month Brent oil futures contracts traded on the Intercontinental Exchange in London. It implements a multifactor stochastic volatility model using Bayesian Markov chain Monte Carlo methods. The model is used to forecast conditional volatility and moments, extract risk measures, and could enable option pricing. Summary statistics show the return data exhibits volatility clustering, fat tails, and is stationary.
The document discusses petroleum project economics and pricing analysis. It covers crude oil pricing factors like location and quality, as well as demand and supply curves. It also examines natural gas pricing dynamics in Trinidad and Tobago, including the prices received by natural gas operators, NGC, and LNG exporters. Netback pricing is used to determine prices to downstream users based on conversion and transportation costs adjusted for product prices.
The document discusses India's regulatory framework for upstream oil and gas exploration and production activities. It covers the following key points:
1) The Constitution of India and various laws like the Oilfields Act and Petroleum Rules give jurisdiction over oil and gas resources to the central government.
2) The Oilfields Act provides the basic framework for licensing oil and gas blocks while the Petroleum Rules lay out specific provisions for exploration licenses and mining leases.
3) There is a need to establish an independent regulator for the upstream sector to avoid conflicts of interest and provide a level playing field for private players.
The document discusses concepts related to interest and the time value of money, including simple vs compound interest, future value and present value calculations, and calculations related to annuities. It provides examples of calculating future and present values for single cash flows and annuities using formulas, and asks questions requiring the use of these formulas.
1) E-360, The Club Economics is a student club at the University of Petroleum and Energy Studies that was established to facilitate all-round learning through extracurricular activities focused on economics.
2) The club aims to expand student knowledge of economic issues through research, reading groups, seminars, workshops and publishing an electronic magazine.
3) It provides a platform for students from different colleges to engage in innovative research on economic problems and share ideas.
Alan nicol institutions and convergenceSTEPS Centre
1) The document discusses the increasing convergence of river basin management organizations (RBMs) and regional economic communities (RECs) in Africa and the implications this has for development.
2) It notes the complex relationships and potential overlap between the many RBMs and RECs in Africa, with 14 major RBMs and 14 RECs covering over 90% of the continent's freshwater.
3) Key issues that could arise from this convergence include changes in patterns of water use and migration, impacts on local livelihoods, and whether new regional institutions adequately incorporate stakeholder needs.
The oil & gas upstream market in Italy - A quick outlook of opportunities and...Annamaria Pinzuti
In March 2013, the Italian government approved the National Energy Strategy (NES), a paper which sets out the main goals and the top priorities to be pursued in the coming years to support the growth of the Italian economic system and the energy market. According to NES, Italy has significant oil and gas reserves (i.e.: the largest in Europe after the Nordic countries) and development of the hydrocarbon industry is one of Italian goal/top priorities. This presentation includes a quick outlook and summary of the main content of the NES with respect to the upstream oil&gas market .
The document discusses various methods for evaluating petroleum projects, including payback period, discounted cash flow, net present value, and internal rate of return. It provides formulas and examples for calculating each metric. Homework is assigned to calculate cash flows, payback period, net present value, and internal rate of return for a sample oil production project.
The document discusses incremental project analysis for evaluating potential developments for an oil or gas field with multiple scenarios. It describes calculating incremental cash flows for a new development and using net present value and internal rate of return on the incremental cash flows to determine if the project should be recommended to management. It also provides background on primary, secondary, and tertiary recovery methods and types of developments that could increase production or lower costs.
The document discusses risk analysis for uncertain variables in petroleum project economics. It provides examples of calculating expected value when there is uncertainty around outcomes. Expected value is the weighted average of possible outcomes, where probabilities are used as weights. Decision trees can model multiple uncertain outcomes and probabilities to determine the expected value of decisions like whether to drill multiple wells. Binomial distributions apply when there are a fixed number of trials with two possible outcomes and the same probability of success each time.
Lattice Energy LLC - LENRs dramatically expand financing opportunities for o...Lewis Larsen
This document discusses how revolutionary low energy nuclear reaction (LENR) technology could transform the oil and gas industry. It claims that LENR could increase the economic value of fossil fuel reserves like oil and coal by 500 times by enabling their conversion into highly energy-dense, carbon dioxide-free LENR fuels. This would dramatically expand financing opportunities for oil and gas companies through mechanisms like asset-based lending. The document also outlines several potential applications of LENR technology in oil and gas production processes that could significantly reduce costs.
This document discusses the key concepts and economic parameters involved in petroleum project evaluation. It covers the life cycle stages of exploration, appraisal, development, production and abandonment. Decline curve analysis is used to forecast long-term production. Cash inflows come from oil and gas sales while cash outflows include operating and capital expenditures. Operating costs consist of production, transportation and administrative costs while capital costs cover exploration, development and abandonment activities. The net cashflow is calculated by subtracting total cash outflows from cash inflows over the life of the project. Key parameters like recoverable reserves, field life, oil price, CAPEX and OPEX are estimated to evaluate the overall economics. Inflation is also an
The document discusses definitions and categories of petroleum reserves based on probabilities of production. It defines proven, probable, and possible reserves, which have 90%, 50%, and 10% certainty of being produced, respectively. Methods for estimating reserves are described, including volumetric analysis, decline curve analysis, and production forecasting based on projected prices, costs, and other factors.
The document discusses petroleum taxation in Trinidad and Tobago. It outlines various production and profit-based taxes on petroleum operations including royalties, supplemental petroleum tax, green fund levy, petroleum profits tax, and unemployment levy. It also discusses capital allowances and provides an example calculation of taxes for a petroleum project over multiple years.
This document discusses the petroleum industry in Singapore. It outlines that the petroleum industry is an oligopoly comprised of four main companies - Shell, Esso, Caltex, and SPC. These companies engage in price leadership, where one company will initiate a price change and the others will follow. The document also examines factors that influence demand and supply in the petroleum industry such as agreements among producers, changes in income, the number of suppliers, and changes in complementary goods and services.
PetroSync - Upstream Petroleum Economics, Risk and Fiscal AnalysisPetroSync
This 3 day course is a practical petroleum economics course that will provide participants with a complete understanding of the use of the techniques of economic analysis and risk analysis as currently practiced in the oil and gas industry. Participants will receive a thorough understanding of the context of economic analysis as well as practical instruction and an appreciation of the analytical techniques used.
This document provides an overview of the oil and gas industry presented by Puput Aryanto Risanto. It discusses how oil and gas are used as energy sources and raw materials. The upstream, midstream, and downstream sectors of the industry are defined. Key aspects of exploration, appraisal, development and production processes in the upstream sector are outlined. The document also describes different contract types, typical organizational structures, economics over the lifecycle of oil and gas fields, characteristics of the industry, and careers working in oil and gas. Biographical information about the author's experience concludes the presentation.
Introduction to Project Economics in Oil and Gas Exploration and Production (Upstream) Industry, including basic project economics method and example of calculation.
Oil 101: Introduction to Oil and Gas - UpstreamEKT Interactive
Oil 101: Introduction to Oil and Gas - Upstream
What is Upstream? This Midstream content is derived from our Oil 101 Upstream ebook and can be found in our oil and gas learning community.
This Upstream module includes the following sections (use the links below for quick access):
-Introduction to Upstream
-Upstream Business Characteristics
-Oilfield Services
-Reserves – Formation and Importance
-Production – The First Step in Adding Value
-The Unconventional Future of Upstream
Upstream
What is Upstream? Most oil and gas companies’ business structures are segmented and organized according to business segment, assets, or function.
The upstream segment of the business is also known as the exploration and production (E&P) sector because it encompasses activities related to searching for, recovering and producing crude oil and natural gas.
The upstream segment is all about wells: where to locate them; how deep and how far to drill them; and how to design, construct, operate and manage them to deliver the greatest possible return on investment with the lightest, safest and smallest operational footprint.
Exploration
The exploration sector involves obtaining a lease and permission to drill from the owners of onshore or offshore acreage thought to contain oil or gas, and conducting necessary geological and geophysical (G&G) surveys required to explore for (and hopefully find) economic accumulations of oil or gas.
Drilling
There is always uncertainty in the geological and geophysical survey results. The only way to be sure that a prospect is favorable is to drill an exploratory well. Drilling is physically creating the “borehole” in the ground that will eventually become an oil or gas well. This work is done by rig contractors and service companies in the Oilfield Services business sector.
Production
The production sector of the upstream segment maximizes recovery of petroleum from subsurface reservoirs.
Cost Of Increase In Construction Comes – a brand new ApproachIRJET Journal
This document summarizes a research paper on developing a new approach to calculating cost escalation in construction contracts more accurately. It discusses how current methods link escalation to indices like WPI and CPI that do not fully reflect industry price variations. The research proposes using sector-specific and regional indices instead of general indices. It also notes weaknesses in how materials costs are calculated and suggests improvements to the escalation cost formula to obtain more accurate results. The document provides background on causes of cost escalation and inclusion of escalation clauses in contracts to compensate contractors for price increases during the contract period.
IRJET- Developing Cost Prediction Model for Building ProjectIRJET Journal
1. The document discusses developing a cost prediction model for building projects using multiple regression analysis. It aims to identify factors affecting project cost and analyze their significance.
2. Seven major factors were selected for the cost prediction model: design related factors, time or cost related factors, parties experience related factors, financial issues related factors, bidding situations related factors, project characteristics related factors and estimating process related factors.
3. The cost prediction model will be developed using SPSS software by determining the factors governing project cost through a questionnaire survey that examines these seven factors.
Upstream oil and gas projects regularly suffer from cost overruns and delays. The article argues that companies must transform their project management practices by adopting four key principles: 1) Focusing on leaner engineering designs through standardization and reuse; 2) Developing closer long-term collaborations with key suppliers; 3) Tailoring growth strategies to match true capabilities; 4) Implementing robust central governance of large projects. Case studies from other industries and Anadarko show this approach can significantly reduce costs while improving performance if all principles are applied together through cultural change and over multiple project generations.
Forecasting and Rate Analysis of Cost Escalation for Construction IndustryIRJET Journal
This document discusses cost escalation in the construction industry in India. It proposes a new method called the Market Rate Method (MRM) to calculate cost escalation, as an alternative to the traditional Wholesale Price Index (WPI) method. The MRM approach uses actual market prices of materials rather than generalized indices to determine escalation. A case study compares the results of applying the WPI and MRM methods to calculate escalation for steel and cement costs in a building project. The study finds that the MRM yields more realistic results by eliminating uncertainties associated with cost indices.
Forecasting and Rate Analysis of Cost Escalation for Construction IndustryIRJET Journal
This document discusses cost escalation in the construction industry in India. It proposes a new method called the Market Rate Method (MRM) to calculate cost escalation, as an alternative to the traditional Wholesale Price Index (WPI) method. The MRM approach uses actual market prices of materials rather than generalized indices to determine escalation. A case study compares the results of applying the WPI and MRM methods to calculate escalation for steel and cement costs in a building project. The study finds that the MRM yields more realistic results by eliminating uncertainties associated with cost indices.
This document discusses approaches to construction cost estimation. It describes the major cost categories for a construction project, including capital costs like construction, land acquisition, and financing, as well as operation and maintenance costs over the facility's lifetime. It outlines several approaches to cost estimation, including using production functions relating inputs like labor and materials to outputs, statistical cost functions, estimating costs from a bill of quantities by assigning unit costs to project components, and allocating joint costs from existing accounts. An example is given comparing resource requirements and costs for different types of energy projects.
This document discusses cost data and indices used in the construction industry. It defines cost data as the collection, analysis, and use of cost and price information that is important at various stages of construction projects. The document outlines the components of cost, such as materials, labor, equipment, and overheads. It describes the purposes of cost data, which include estimating project costs, controlling budgets, and reconciling schedules of rates. The document also categorizes cost data sources, classifications of primary and secondary data, and indices used to adjust historical cost data for cost planning and comparisons.
A Critical Review of the Causes of Cost Overrun in Construction Industries in...IRJET Journal
This document provides a critical review of the causes of cost overruns in construction projects in developing countries. It begins with an abstract that outlines that cost overruns are a major issue for construction industries in developing nations, with few projects being completed within original estimated costs.
The document then reviews literature identifying common causes of cost overruns. It finds that factors leading to overruns include poor management, inaccurate estimates of materials and costs, and financial issues for contractors. However, it notes that not all factors are identical for every project or country.
The review examines causes of overruns for construction industries specifically in India, Nigeria, and Indonesia. Common causes identified across these developing nations include issues like rising materials prices, inaccurate designs,
The oil & gas upstream market in Italy - A quick outlook of opportunities and...Annamaria Pinzuti
In March 2013, the Italian government approved the National Energy Strategy (NES), a paper which sets out the main goals and the top priorities to be pursued in the coming years to support the growth of the Italian economic system and the energy market. According to NES, Italy has significant oil and gas reserves (i.e.: the largest in Europe after the Nordic countries) and development of the hydrocarbon industry is one of Italian goal/top priorities. This presentation includes a quick outlook and summary of the main content of the NES with respect to the upstream oil&gas market .
The document discusses various methods for evaluating petroleum projects, including payback period, discounted cash flow, net present value, and internal rate of return. It provides formulas and examples for calculating each metric. Homework is assigned to calculate cash flows, payback period, net present value, and internal rate of return for a sample oil production project.
The document discusses incremental project analysis for evaluating potential developments for an oil or gas field with multiple scenarios. It describes calculating incremental cash flows for a new development and using net present value and internal rate of return on the incremental cash flows to determine if the project should be recommended to management. It also provides background on primary, secondary, and tertiary recovery methods and types of developments that could increase production or lower costs.
The document discusses risk analysis for uncertain variables in petroleum project economics. It provides examples of calculating expected value when there is uncertainty around outcomes. Expected value is the weighted average of possible outcomes, where probabilities are used as weights. Decision trees can model multiple uncertain outcomes and probabilities to determine the expected value of decisions like whether to drill multiple wells. Binomial distributions apply when there are a fixed number of trials with two possible outcomes and the same probability of success each time.
Lattice Energy LLC - LENRs dramatically expand financing opportunities for o...Lewis Larsen
This document discusses how revolutionary low energy nuclear reaction (LENR) technology could transform the oil and gas industry. It claims that LENR could increase the economic value of fossil fuel reserves like oil and coal by 500 times by enabling their conversion into highly energy-dense, carbon dioxide-free LENR fuels. This would dramatically expand financing opportunities for oil and gas companies through mechanisms like asset-based lending. The document also outlines several potential applications of LENR technology in oil and gas production processes that could significantly reduce costs.
This document discusses the key concepts and economic parameters involved in petroleum project evaluation. It covers the life cycle stages of exploration, appraisal, development, production and abandonment. Decline curve analysis is used to forecast long-term production. Cash inflows come from oil and gas sales while cash outflows include operating and capital expenditures. Operating costs consist of production, transportation and administrative costs while capital costs cover exploration, development and abandonment activities. The net cashflow is calculated by subtracting total cash outflows from cash inflows over the life of the project. Key parameters like recoverable reserves, field life, oil price, CAPEX and OPEX are estimated to evaluate the overall economics. Inflation is also an
The document discusses definitions and categories of petroleum reserves based on probabilities of production. It defines proven, probable, and possible reserves, which have 90%, 50%, and 10% certainty of being produced, respectively. Methods for estimating reserves are described, including volumetric analysis, decline curve analysis, and production forecasting based on projected prices, costs, and other factors.
The document discusses petroleum taxation in Trinidad and Tobago. It outlines various production and profit-based taxes on petroleum operations including royalties, supplemental petroleum tax, green fund levy, petroleum profits tax, and unemployment levy. It also discusses capital allowances and provides an example calculation of taxes for a petroleum project over multiple years.
This document discusses the petroleum industry in Singapore. It outlines that the petroleum industry is an oligopoly comprised of four main companies - Shell, Esso, Caltex, and SPC. These companies engage in price leadership, where one company will initiate a price change and the others will follow. The document also examines factors that influence demand and supply in the petroleum industry such as agreements among producers, changes in income, the number of suppliers, and changes in complementary goods and services.
PetroSync - Upstream Petroleum Economics, Risk and Fiscal AnalysisPetroSync
This 3 day course is a practical petroleum economics course that will provide participants with a complete understanding of the use of the techniques of economic analysis and risk analysis as currently practiced in the oil and gas industry. Participants will receive a thorough understanding of the context of economic analysis as well as practical instruction and an appreciation of the analytical techniques used.
This document provides an overview of the oil and gas industry presented by Puput Aryanto Risanto. It discusses how oil and gas are used as energy sources and raw materials. The upstream, midstream, and downstream sectors of the industry are defined. Key aspects of exploration, appraisal, development and production processes in the upstream sector are outlined. The document also describes different contract types, typical organizational structures, economics over the lifecycle of oil and gas fields, characteristics of the industry, and careers working in oil and gas. Biographical information about the author's experience concludes the presentation.
Introduction to Project Economics in Oil and Gas Exploration and Production (Upstream) Industry, including basic project economics method and example of calculation.
Oil 101: Introduction to Oil and Gas - UpstreamEKT Interactive
Oil 101: Introduction to Oil and Gas - Upstream
What is Upstream? This Midstream content is derived from our Oil 101 Upstream ebook and can be found in our oil and gas learning community.
This Upstream module includes the following sections (use the links below for quick access):
-Introduction to Upstream
-Upstream Business Characteristics
-Oilfield Services
-Reserves – Formation and Importance
-Production – The First Step in Adding Value
-The Unconventional Future of Upstream
Upstream
What is Upstream? Most oil and gas companies’ business structures are segmented and organized according to business segment, assets, or function.
The upstream segment of the business is also known as the exploration and production (E&P) sector because it encompasses activities related to searching for, recovering and producing crude oil and natural gas.
The upstream segment is all about wells: where to locate them; how deep and how far to drill them; and how to design, construct, operate and manage them to deliver the greatest possible return on investment with the lightest, safest and smallest operational footprint.
Exploration
The exploration sector involves obtaining a lease and permission to drill from the owners of onshore or offshore acreage thought to contain oil or gas, and conducting necessary geological and geophysical (G&G) surveys required to explore for (and hopefully find) economic accumulations of oil or gas.
Drilling
There is always uncertainty in the geological and geophysical survey results. The only way to be sure that a prospect is favorable is to drill an exploratory well. Drilling is physically creating the “borehole” in the ground that will eventually become an oil or gas well. This work is done by rig contractors and service companies in the Oilfield Services business sector.
Production
The production sector of the upstream segment maximizes recovery of petroleum from subsurface reservoirs.
Cost Of Increase In Construction Comes – a brand new ApproachIRJET Journal
This document summarizes a research paper on developing a new approach to calculating cost escalation in construction contracts more accurately. It discusses how current methods link escalation to indices like WPI and CPI that do not fully reflect industry price variations. The research proposes using sector-specific and regional indices instead of general indices. It also notes weaknesses in how materials costs are calculated and suggests improvements to the escalation cost formula to obtain more accurate results. The document provides background on causes of cost escalation and inclusion of escalation clauses in contracts to compensate contractors for price increases during the contract period.
IRJET- Developing Cost Prediction Model for Building ProjectIRJET Journal
1. The document discusses developing a cost prediction model for building projects using multiple regression analysis. It aims to identify factors affecting project cost and analyze their significance.
2. Seven major factors were selected for the cost prediction model: design related factors, time or cost related factors, parties experience related factors, financial issues related factors, bidding situations related factors, project characteristics related factors and estimating process related factors.
3. The cost prediction model will be developed using SPSS software by determining the factors governing project cost through a questionnaire survey that examines these seven factors.
Upstream oil and gas projects regularly suffer from cost overruns and delays. The article argues that companies must transform their project management practices by adopting four key principles: 1) Focusing on leaner engineering designs through standardization and reuse; 2) Developing closer long-term collaborations with key suppliers; 3) Tailoring growth strategies to match true capabilities; 4) Implementing robust central governance of large projects. Case studies from other industries and Anadarko show this approach can significantly reduce costs while improving performance if all principles are applied together through cultural change and over multiple project generations.
Forecasting and Rate Analysis of Cost Escalation for Construction IndustryIRJET Journal
This document discusses cost escalation in the construction industry in India. It proposes a new method called the Market Rate Method (MRM) to calculate cost escalation, as an alternative to the traditional Wholesale Price Index (WPI) method. The MRM approach uses actual market prices of materials rather than generalized indices to determine escalation. A case study compares the results of applying the WPI and MRM methods to calculate escalation for steel and cement costs in a building project. The study finds that the MRM yields more realistic results by eliminating uncertainties associated with cost indices.
Forecasting and Rate Analysis of Cost Escalation for Construction IndustryIRJET Journal
This document discusses cost escalation in the construction industry in India. It proposes a new method called the Market Rate Method (MRM) to calculate cost escalation, as an alternative to the traditional Wholesale Price Index (WPI) method. The MRM approach uses actual market prices of materials rather than generalized indices to determine escalation. A case study compares the results of applying the WPI and MRM methods to calculate escalation for steel and cement costs in a building project. The study finds that the MRM yields more realistic results by eliminating uncertainties associated with cost indices.
This document discusses approaches to construction cost estimation. It describes the major cost categories for a construction project, including capital costs like construction, land acquisition, and financing, as well as operation and maintenance costs over the facility's lifetime. It outlines several approaches to cost estimation, including using production functions relating inputs like labor and materials to outputs, statistical cost functions, estimating costs from a bill of quantities by assigning unit costs to project components, and allocating joint costs from existing accounts. An example is given comparing resource requirements and costs for different types of energy projects.
This document discusses cost data and indices used in the construction industry. It defines cost data as the collection, analysis, and use of cost and price information that is important at various stages of construction projects. The document outlines the components of cost, such as materials, labor, equipment, and overheads. It describes the purposes of cost data, which include estimating project costs, controlling budgets, and reconciling schedules of rates. The document also categorizes cost data sources, classifications of primary and secondary data, and indices used to adjust historical cost data for cost planning and comparisons.
A Critical Review of the Causes of Cost Overrun in Construction Industries in...IRJET Journal
This document provides a critical review of the causes of cost overruns in construction projects in developing countries. It begins with an abstract that outlines that cost overruns are a major issue for construction industries in developing nations, with few projects being completed within original estimated costs.
The document then reviews literature identifying common causes of cost overruns. It finds that factors leading to overruns include poor management, inaccurate estimates of materials and costs, and financial issues for contractors. However, it notes that not all factors are identical for every project or country.
The review examines causes of overruns for construction industries specifically in India, Nigeria, and Indonesia. Common causes identified across these developing nations include issues like rising materials prices, inaccurate designs,
This document discusses a proposal to simplify administrative procedures and forms for Taiwan's National Health Insurance scheme. It notes that the current system requires over 30 forms and leads to errors that waste time and resources correcting. The proposal develops a novel administrative system that classifies insurance holders into a confidential database and reduces over 30 forms down to 3 core forms. It creates a restricted online system to streamline the process while protecting customer data privacy. The simplified system aims to reduce costs, personnel needs and paperwork while improving the efficiency of the National Health Insurance administration.
Cost Overrun Causes Related to the Design Phase in the Egyptian Construction ...World-Academic Journal
This document summarizes a research paper that aimed to identify and evaluate the most significant causes of cost overrun related to the design phase of construction projects in Egypt. Through a literature review and expert interviews, the researchers developed a list of potential cost overrun causes. They then conducted a survey with 101 industry professionals to quantitatively assess the frequency and impact of each cause. The results showed that the most important causes were design changes/variations and unrealistic construction time estimates. The degree of agreement between owners, contractors, architects, and project managers was also analyzed to identify any conflicting perspectives on the causes.
Cost Forecasting of Construction Materials: A reviewIRJET Journal
This document reviews different methods for forecasting construction material costs, including artificial neural networks. It discusses vector error-correction models, various time series models like an automated time series cost forecasting system using ARIMA modeling, and 5D BIM. The main goal is to provide reliable tools for predicting future prices of construction materials to help stakeholders like contractors and project owners with cost estimation and management on construction projects. Artificial neural networks and other AI methods could provide more accurate forecasts than traditional methods used in India by incorporating economic factors that influence material prices.
cost control analysis as effective tools in construction industry in nigeriaNewman Jonathan
Nevertheless, the construction industries require cost estimation techniques/analysis scheme like other similar schemes aimed at foreseeing the future of the projects to accomplish the profitability targets.
Due to large operations inherent in the construction industries, managers needed to imbibe the culture of forecasting activities in terms of costs control techniques in order to see future at the beginning of the project. These therefore justify the establishment of Project Control Department were cost controllers and cost estimators are domicile in the company
Construction cost data 2017 and beyond white paperPeter Cholakis
The document discusses the OpenCostTM approach to collecting, using, sharing, and maintaining detailed construction cost data. Some key points:
- OpenCostTM incorporates improvements over traditional methods by using locally researched labor, material, and equipment costs and leveraging continuous feedback among project participants.
- It provides objective, transparent unit price cost data for common renovation and construction projects organized using CSI MasterFormat.
- When combined with collaborative project delivery methods like IPD and JOC, OpenCostTM can deliver over 90% of projects on time and on budget by reducing cost variability to +/-5%.
IRJET- Prediction Model of Factors Causing Increase in Overhead Cost in C...IRJET Journal
This document discusses factors that cause increases in overhead costs in the Indian construction industry. It aims to identify the main factors through a literature review and expert opinions. A prediction model will then be developed using regression analysis to help construction firms assess overhead costs as a percentage of total project costs. The factors identified from previous studies and expert questionnaires will be analyzed for their impact on overhead costs. Real construction project data from various Indian companies will also be collected and analyzed to inform the model. The goal is to improve cost estimation accuracy and help firms bid competitively while reducing unexpected costs.
IRJET- A Study on Factors Affecting Estimation of Construction ProjectIRJET Journal
This document discusses factors that affect the accuracy of construction project cost estimation. It begins by outlining the importance of accurate cost estimation for construction projects. It then reviews previous literature that has identified various factors such as ineffective planning, design changes, weather, and material cost fluctuations.
The document describes the objectives of the study, which are to explore common cost estimation practices and identify significant cost estimation factors. It then provides more detail on the literature review, outlining several previous studies that examined factors like demand, time effects, use of rough set theory and neural networks in cost models, and factors relevant at different project stages.
The literature review discusses previous research identifying factors such as experience, project complexity, scope definition, cost data
IRJET- Analysis of Cost Overrun in Construction ProjectsIRJET Journal
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Similar to Modeling International Escalation Factors (20)
IRJET- Effects of Project Cost Analysis and Factors Affecting Inflation
Modeling International Escalation Factors
1. Asset Performance Networks
MODELING INTERNATIONAL ESCALATION
FACTORS FOR UPSTREAM E+P PROJECTS
- AN ECONOMICS PERSPECTIVE -
By
Jan A. Jackson, MBA, MIB, PMP, CCC
(Senior Consultant – Project Consulting
Services (2007))
Washington D.C. Office
3 Bethesda Metro Center
Suite 925
Bethesda, MD 20814
Tel: +1 (240) 683-1001
Fax: +1 (240) 683-1009
2. Table of Contents
ABSTRACT
KEYWORDS
ABSTRACT
This paper is focused on establishing a method for a modified escalation model that
produces more specificity for project cost comparisons among certain types of upstream
projects. Many escalation models fail due to either lack of appropriate detail or
requirements to maintain too many complex routines. In short, any model needs to
deliver the appropriate amount of information without becoming a burden. This study
will also address the concept of location factors and the challenges in dealing with
sourcing issues for respective commodities. Within the last five years several major
commodities such as steel or cement have experienced exorbitant price increase on the
global markets due to increased demand from developing economies. The demand pull
exerted by China’s expanding economy has broken the continuity of slow but steady
project cost increases for global capital projects. This paper presents considerations
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regarding escalation indices for projects like pipelines, offshore, and onshore to enable
reasonable economic comparisons.
KEYWORDS
Escalation, inflation, producer price index, commodity, sourcing, location factor
1. INTRODUCTION
1.1 Background
Currently used escalation factors for comparisons of E+P (Exploration and
Production) projects often appear to produce disproportionate and questionable
results in comparison to project costs from different time periods. More
specifically, the driver behind this exercise is the apparent understatement of the
amount of cost escalation calculated based on the (Consumer Price Index) CPI
index used in many costing systems. This document recommends a more
accurate approach and set of indices to escalate costs and demonstrate the
differences to currently used models.
1.2 Objectives
Efforts here are focused on detailing a method or structure for a modified
escalation model that may produce more specificity for project cost comparisons.
Further, but to a lesser degree, this study will address the concept of location
factors and the challenges in determining sourcing issues for respective
commodities. Within the last five years several major commodities such as steel
or cement have experienced exorbitant price increase on the global exchanges
due to increased demand from developing economies in general and China in
specific. The demand pull exerted by China’s expanding economic activity has
broken the continuity of moderate but steady cost increases for capital projects
around the world.
This document presents a set of escalation indices for pipelines, offshore, and
onshore projects to allow for a reasonable project-to-project comparison and
account for the unusual escalation within the last several years.
2. THEORETICAL CONTEXT
2.1 Escalation defined
In recent years drastic price changes for certain commodities, such as steel
and cement have upset not only financial markets, but integrated economic
entities along the value chain as well. China’s appetite for resources to feed its
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4. rapidly expanding (and transitioning) economy is possibly the most dominant
factor in observed commodity price hikes and spikes of late. Escalation is a
pronounced and continued increase in the cost basis of certain, specific economic
production factors over time. It is frequently tied to one commodity or industrial
sector and initially impacts producers of goods whereas inflation represents a
general price increase across the broad spectrum of an economy.
In the long run however cost escalation is passed on to the end consumer in
form of higher prices and thus ultimately ‘bleed’ into inflation and the CPI. In
order to adequately capture project cost information over time and ensure
comparability among projects some E+P companies have established proprietary
projects systems to track costs according to an established Cost Breakdown
Structure (CBS) by ‘Project Type.’ The following simplified figure uses both of
these elements in developing appropriate indices to track escalation:
Figure (1) – Index Development Chart
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E+P projects systems may define several major project categories, such as
‘Pipelines’, ‘Offshore’, and ‘Onshore’ to capture type-specific information (see
above figure, Level 1). Currently, cost escalation is often accounted for in many
costing systems by applying a common, yearly inflation factor across all project
categories. However, each project category is characterized by a unique cost
composition, which therefore will produce different escalation profiles.
In the above figure, Level 2 depicts one possible distribution of common cost
types for each project category. Level 3 is a further refinement of the previous
level to break down broad cost types such as ‘material’ into distinct sub-
categories (steel, concrete, etc.). In order to present an alternative to currently
used CPI-based escalation models, this paper has defaulted to escalating only the
‘dominant’ sub-category for each cost type (e.g. steel pipe being the dominant
materials item for ‘pipelines’). Level 4 then assigns the appropriate (commodity
or producer) price index to each cost type.
The Bureau of Labor Statistics of the United States (BLS) compiles weekly,
monthly, and annual data on a wide variety of economic issues [1]. As an
additional feature, it is feasible to consider the impact of ‘local content’
procurement on project cost, as some commodities may show significant
differences in market price by locality if it is not traded globally as such. These
considerations must be balanced with potentially higher freight and delivery
costs when ordering from foreign markets. The model used in this document
does consider issues of domestic v. foreign sourcing as displayed on Level 4 in
Figure (1).
2.2 Definitions and Economics
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6. Producer Price Index (PPI) data are commonly used in escalating purchase
and sales contracts. These contracts typically denominate specify dollar amounts
to be paid at some point in the future. It is often desirable to include an escalation
clause that accounts for changes in input prices. For example, a long-term
contract for steel may be escalated for changes in scrap metal prices by applying
the percent change in the PPI for wheat to the contracted price for steel.
The PPI is a family of indexes that measures the average change over time in
selling prices received by domestic producers of goods and services. PPIs
measure price change from the perspective of the seller. This contrasts with other
indices that measure price change from the purchaser's perspective, such as the
Consumer Price Index (CPI). Sellers' and purchasers' prices may differ due to
government subsidies, sales and excise taxes, and distribution costs.
3. ESCALATION INDICES
3.1 Required Index Components
Many models fail due to either lack of appropriate detail and applicability to
the business case or too many complex routines for maintaining the escalation
model. In other words, the model needs to deliver the appropriate amount of
information without becoming a burden and outweighing its benefits. The
following chart is taken from several E+P projects studies on upstream projects to
show their relevant cost composition.
Figure (2) – Cost Composition by Project Type
100%
5.5%
11.7%
90% 20.7%
13.1% Other Indir ec t
10.2%
80% 2.6% Owner s
3.0% 7.6% 5.7%
4.9%
70% 1.5% PM
6.5% 6.2% 10.4%
60% 6.7%
Engineer ing
9.5%
Other Dir ects
50% 9.3%
Installation
40% 33.8% 43.5%
Const / Fab
25.0%
30%
Mater ials
20% Equipment
9.6%
10% 23.2% 20.1% Equip. & Mat. *
0.0966
0%
Pipeline Offshor e Onshor e
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The previous chart identifies about ten (10) distinct project cost types.
Clearly, each of these cost types could be broken down further into very specific
categories. However, the desire for specificity should be weight against the
perceived benefit that is gained from applying a more detailed set of escalation
indices to an increasing number of cost types. In fact, several main cost types
may actually be combined if the nature of their sub-costs suggests strong
congruency.
Figure (3) – Simplified Index Development Model
ESCALATION INDEX DEVELOPMENT
PROJECT TYPES COST TYPES INDEX WEIGHT FACTOR
PIPELINE (B1) EQUIP. MACH (a1) BLS INDEX a1 IN % B1
MATERIAL (a2) BLS INDEX a2 IN %
ONSHORE (B2) B2
LABOR/CONTRAC
BLS INDEX a3 IN %
T (a3)
OFFSHORE (B3)
ENGINEERING/IND. B3
BLS INDEX a4 IN %
(a4)
DETERMINE DETERMINE IDENTIFY BLS MULTIPLY BLS
COMBINE .
PROJECT APPLICABLE INDEX PER COST INDICES BY
WEIGHTS
CATEGORIES COST TYPES TYPE WEIGHT
For example, for our model we have combined ‘Installation’ with
‘Construction/Fabrication’ (labor possibly being the main common sub-cost
type). In the following figure the basic sources to arrive at escalation factors are
displayed. It is recommended however to consider adjustments to this model
based upon specific requirements.
Figure (4) – Tabular Index Weights and Source
COST PIPELINE ONSHORE OFFSHORE INDEX
50% MAT. IC 332312-5
EQUIP. MAT + O.D.C. 30% 30% 30% For pipeline (331210-0)
50% EQP. IC 333132
CONST.INST. BLS Index of hourly compensation
33% 42% 33%
FABRIC. costs for production workers
ENGINEERING 05% 06% 06% BLS IC 54133
INDIRECTS 32% 22% 31% Same as ‘ENGINEERING’
TOTAL 100% 100% 100%
The indices in the above table are displayed in the following chart. Clearly, a
significant directional change occurred in 2004 with cost increases in many major
cost components but most visibly in steel- or metals-related commodities. The
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8. CPI index does not display a considerable change in degree of escalation for that
particular time period, which may be the cause for disproportionate comparative
results when assessing multiple time periods.
Figure (5) – CPI v. Component PPI
The comparison of escalation factors according the weights determined per the
specific project type is displayed in the following chart:
Figure (6) – Project Types v. CPI
Despite the already significant disparity in escalation development between
the CPI and the above displayed project type indices, a comparison to the
overall BLS ‘Crude Petroleum + Natural Gas Extraction Index’ reveals a even
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.drastic differential and suggests significant overheating of this sector in the
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last few years. Consequently, even the factors calculated in this document may
understate the true extent of escalation.
Figure (7) – Comparison to Overall Industry Index
370.00
350.00
CRUDE PETROLEUM + NATURAL GAS EXTRACTION
330.00
310.00
290.00
270.00
250.00
230.00
ENGINEERING SERVICES
210.00
190.00
170.00
150.00
130.00
STEEL PIPE
110.00
90.00
70.00
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6
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9
0
2
3
0
1
2
3
4
5
6
1
4
5
6
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98
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98
98
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Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
3.2 Other (Industry) Escalation Indices
The following chart contrasts various commonly used industry indices for
comparison. The Nelson-Farrar Refinery Inflation Cost Index [2] is a composite
of three sub-components (Material, Labor, and Misc. Equipment).
Figure (8) – Common Industry Indices Comparison
Even though the Nelson-Farrar Index appears to be significantly lower than
the developed ‘Pipeline’ index as well as the CPI, it features however an up-tick
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10. in 2003-2004 similar in trending to the ‘Pipeline’ index, which corresponds with
cost escalations experienced in a variety of commodities during the same
timeframe.
Endnotes
[1] See www.bls.gov and www.fedstats.gov
[2] The Nelson-Farrar Series of Indices is published in the Oil & Gas Journal,
www.ogjonline.com
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