5.10 Estimate Based on Engineer's List of Quantities
The engineer's estimate is based on a list of items and the associated quantities from which the total construction cost is derived. This same list is also made available to the bidders if unit prices of the items on the list are also solicited from the bidders. Thus, the itemized costs submitted by the winning contractor may be used as the starting point for budget control.
In general, the progress payments to the contractor are based on the units of work completed and the corresponding unit prices of the work items on the list. Hence, the estimate based on the engineers' list of quanitities for various work items essentially defines the level of detail to which subsequent measures of progress for the project will be made.
Example 5-15: Bid estimate based on engineer's list of quantities
Using the unit prices in the bid of contractor 1 for the quantitites specified by the engineer in Table 5-2 (Example 5-3), we can compute the total bid price of contractor 1 for the roadway project. The itemized costs for various work items as well as the total bid price are shown in Table 5-14.
TABLE 5-14: Bid Price of Contractor 1 in a Highway Project
5.11 Allocation of Construction Costs Over Time
Since construction costs are incurred over the entire construction phase of a project, it is often necessary to determine the amounts to be spent in various periods to derive the cash flow profile, especially for large projects with long durations. Consequently, it is important to examine the percentage of work expected to be completed at various time periods to which the costs would be charged. More accurate estimates may be accomplished once the project is scheduled as described in Chapter 10, but some rough estimate of the cash flow may be required prior to this time.
Consider the basic problem in determining the percentage of work completed during construction. One common method of estimating percentage of completion is based on the amount of money spent relative to the total amount budgeted for the entire project. This method has the obvious drawback in assuming that the amount of money spent has been used efficiently for production. A more reliable method is based on the concept of value of work completed which is defined as the product of the budgeted labor hours per unit of production and the actual number of production units completed, and is expressed in budgeted labor hours for the work completed. Then, the percentage of completion at any stage is the ratio of the value of work completed to date and the value of work to be completed for the entire project. Regardless of the method of measurement, it is informative to understand the trend of work progress during construction for evaluation and control.
In general, the work on a construction project progresses gradually from the time of mobilization until it reaches a plateau; then the work slows down gradually and finally stops at the time of completion. The rate of work done during various time periods (expressed in the percentage of project cost per unit time) is shown schematically in Figure 5-9 in which ten time periods have been assumed. The solid line A represents the case in which the rate of work is zero at time t = 0 and increases linearly to 12.5% of project cost at t = 2, while the rate begins to decrease from 12.5% at t = 8 to 0% at t = 10. The dotted line B represents the case of rapid mobilization by reaching 12.5% of project cost at t = 1 while beginning to decrease from 12.5% at t = 7 to 0% at t = 10. The dash line C represents the case of slow mobilization by reaching 12.5% of project cost at t = 3 while beginning to decrease from 12.5% at t = 9 to 0% at t = 10.
Figure 5-9: Rate of Work Progress over Project Time
The value of work completed at a given time (expressed as a cumulative percentage of project cost) is shown schematically in Figure 5-10. In each case (A, B or C), the value of work completed can be represented by an "S-shaped" curve. The effects of rapid mobilization and slow mobilization are indicated by the positions of curves B and C relative to curve A, respectively.
Figure 5-10: Value of Work Completed over Project Time
While the curves shown in Figures 5-9 and 5-10 represent highly idealized cases, they do suggest the latitude for adjusting the schedules for various activities in a project. While the rate of work progress may be changed quite drastically within a single period, such as the change from rapid mobilization to a slow mobilization in periods 1, 2 and 3 in Figure 5-9, the effect on the value of work completed over time will diminish in significance as indicated by the cumulative percentages for later periods in Figure 5-10. Thus, adjustment of the scheduling of some activities may improve the utilization of labor, material and equipment, and any delay caused by such adjustments for individual activities is not likely to cause problems for the eventual progress toward the completion of a project.
In addition to the speed of resource mobilization, another important consideration is the overall duration of a project and the amount of resources applied. Various strategies may be applied to shorten the overall duration of a project such as overlapping design and construction activities (as described in Chapter 2) or increasing the peak amounts of labor and equipment working on a site. However, spatial, managerial and technical factors will typically place a minimum limit on the project duration or cause costs to escalate with shorter durations.
Example 5-16: Calculation of Value of Work Completed
From the area of work progress in Figure 5-9, the value of work completed at any point in Figure 5-10 can be derived by noting the area under the curve up to that point in Figure 5-9. The result for t = 0 through t = 10 is shown in Table 5-15 and plotted in Figure 5-10.
TABLE 5-15 Calculation of Value of Work Completed
5.12 Computer Aided Cost Estimation
Numerous computer aided cost estimation software systems are now available. These range in sophistication from simple spreadsheet calculation software to integrated systems involving design and price negotiation over the Internet. While this software involves costs for purchase, maintenance, training and computer hardware, some significant efficiencies often result. In particular, cost estimates may be prepared more rapidly and with less effort.
Some of the common features of computer aided cost estimation software include:
A typical process for developing a cost estimate using one of these systems would include:
- If a similar design has already been estimated or exists in the company archive, the old project information is retreived.
- A cost engineer modifies, add or deletes components in the project information set. If a similar project exists, many of the components may have few or no updates, thereby saving time.
- A cost estimate is calculated using the unit cost method of estimation. Productivities and unit prices are retrieved from the system databases. Thus, the latest price information is used for the cost estimate.
- The cost estimation is summarized and reviewed for any errors.
5.13 Estimation of Operating Costs
In order to analyze the life cycle costs of a proposed facility, it is necessary to estimate the operation and maintenance costs over time after the start up of the facility. The stream of operating costs over the life of the facility depends upon subsequent maintenance policies and facility use. In particular, the magnitude of routine maintenance costs will be reduced if the facility undergoes periodic repairs and rehabilitation at periodic intervals.
Since the tradeoff between the capital cost and the operating cost is an essential part of the economic evaluation of a facility, the operating cost is viewed not as a separate entity, but as a part of the larger parcel of life cycle cost at the planning and design stage. The techniques of estimating life cycle costs are similar to those used for estimating capital costs, including empirical cost functions and the unit cost method of estimating the labor, material and equipment costs. However, it is the interaction of the operating and capital costs which deserve special attention.
As suggested earlier in the discussion of the exponential rule for estimating, the value of the cost exponent may influence the decision whether extra capacity should be built to accommodate future growth. Similarly, the economy of scale may also influence the decision on rehabilitation at a given time. As the rehabilitation work becomes extensive, it becomes a capital project with all the implications of its own life cycle. Hence, the cost estimation of a rehabilitation project may also involve capital and operating costs.
While deferring the discussion of the economic evaluation of constructed facilities to Chapter 6, it is sufficient to point out that the stream of operating costs over time represents a series of costs at different time periods which have different values with respect to the present. Consequently, the cost data at different time periods must be converted to a common base line if meaningful comparison is desired.
Example 5-17: Maintenance cost on a roadway
Maintenance costs for constructed roadways tend to increase with both age and use of the facility. As an example, the following empirical model was estimated for maintenance expenditures on sections of the Ohio Turnpike:
C = 596 + 0.0019 V + 21.7 A
where C is the annual cost of routine maintenance per lane-mile (in 1967 dollars), V is the volume of traffic on the roadway (measured in equivalent standard axle loads, ESAL, so that a heavy truck is represented as equivalent to many automobiles), and A is the age of the pavement in years since the last resurfacing. According to this model, routine maintenance costs will increase each year as the pavement service deteriorates. In addition, maintenance costs increase with additional pavement stress due to increased traffic or to heavier axle loads, as reflected in the variable V.
For example, for V = 500,300 ESAL and A = 5 years, the annual cost of routine maintenance per lane-mile is estimated to be:
C = 596 + (0.0019)(500,300) + (21.7)(5)
Example 5-18: Time stream of costs over the life of a roadway
= 596 + 950.5 + 108.5 = 1,655 (in 1967 dollars)
The time stream of costs over the life of a roadway depends upon the intervals at which rehabilitation is carried out. If the rehabilitation strategy and the traffic are known, the time stream of costs can be estimated.
Using a life cycle model which predicts the economic life of highway pavement on the basis of the effects of traffic and other factors, an optimal schedule for rehabilitation can be developed. For example, a time stream of costs and resurfacing projects for one pavement section is shown in Figure 5-11. As described in the previous example, the routine maintenance costs increase as the pavement ages, but decline after each new resurfacing. As the pavement continues to age, resurfacing becomes more frequent until the roadway is completely reconstructed at the end of 35 years.
Figure 5-11: Time Stream of Costs over the Life of a Highway Pavement
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