W5.1_Abiola Ojo_Selecting a Cost Estimating Methodology for a School Building Project

Problem Statement

On my proposed school building project, I desire to carry out a cost estimate of the project to enable me predict the final cost of the project. The cost estimate will assist me in making sound investment decision and cash-flow projection. This estimate will also form the basis for my budgets, progress measurement, trending, forecasting, and change management. The school project is just at the conceptual stage and I need to make an investment decision within two months. Before I can proceed with the cost estimation however, I need to decide on the estimating methodology that will best meet my objectives knowing that several AACE classes of estimate exist.  

Alternatives

In selecting the best cost estimating methodology for the project, three (3) AACE cost estimate classes (RP 18R-97) were evaluated:

Alternative 1: Class 5

Alternative 2: Class 4

Alternative 3: Class 3

Outcome of the Alternatives

Alternative 1: Class 5

This method use stochastic estimating methods such as cost/capacity curves and factors, scale of operations factors, Lang factors, Hand factors, Chilton factors, Peter-Timmerhaust factors, Guthrie factors, and other parametric and modeling techniques. Typically, little more than proposed building type, location, size etc are known.

Expected Accuracy Range: -20%/+30%

Cost of Estimation + Pre-work: $1,000

Estimate Timeline + Pre-work: 2 week

Effort to prepare (relative to least cost index): 1

Alternative 2: Class 4

This method use stochastic estimating methods such as equipment factors, Lang factors, Hand factors, Chilton factors, Peter-Timmerhaust factors, Guthrie factors, the Miller method, gross unit costs/ratios, and other parametric and modeling techniques. Typically, engineering is from 1% to 15% complete, and would comprise at a minimum the following: indicated layout, process flow diagrams, block schematics, plant capacity etc.

Expected Accuracy Range: -15%/+20%

Cost of Estimation + Pre-work: $2,500

Estimate Timeline + Pre-work: 4 weeks

Effort to prepare (relative to least cost index): 2 to 4

Alternative 3: Class 3

It uses more deterministic estimating methods such as stochastic methods. It involves a high degree of unit cost line items, although these may be at an assembly level of detail rather than individual components. Factoring and other stochastic methods may be used to estimate less-significant areas of the project. Typically, engineering is from 10% to 40% complete, and would comprise at a minimum the following: process flow diagrams, utility flow diagrams, plot plan, developed layout drawings, complete engineered process & utility equipment lists etc.

Expected Accuracy Range: -10%/+10%

Cost of Estimation + Pre-work: $6,000

Estimate Timeline + Pre-work: 8 weeks 

Effort to prepare (relative to least cost index): 3 to10

Selection Criteria 

S/N	Criteria	Weight
1	Expected Accuracy Range	2
2	Cost of Estimation + Pre-work	4
3	Estimate Timeline + Pre-work	3
4	Effort to prepare	1

Analysis of Alternatives

Alternative	Expected Accuracy Range	Cost of Estimation + Pre-work	Estimate Timeline + Pre-work	Effort to prepare	Ranking
	Weight
	2	4	3	1
Alternative 1	1	3	3	3	26
Alternative 2	2	2	2	2	20
Alternative 3	3	1	1	1	14

Key: Best - 3, Fair - 2, Worst - 1

Alternative Selected

Based on the above analysis, Alternative 1 which is “Class 5” had the highest ranking and is therefore the selected alternative at this stage of the project.

Performance Monitoring

Actual cost of estimation and schedule will be tracked against budget in order to evaluate performance.

Performance based payment (Earned Value Methodology) will be used for paying the contractor.

References

1.     Engineering Economy, 14th Edition. William G. Sullivan, Elin M. Wicks, C. Patrick Koelling, Chapter 1, Page 27 & Chapter 3, Page 91-102

2.     Skills & Knowledge of Cost Engineering, AACE International, 5^th Edition Revised, Appendix F

3.     AACE Certification Preparation Course, Paul D. Giammalvo, Page 72-87