W5_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 well that several estimating methodologies exist.  

Alternatives

In choosing the best cost estimating methodology for the project, three cost estimating methodologies were evaluated:

Alternative 1: Order-of-magnitude estimate

Alternative 2: Budget or semi-detailed estimate

Alternative 3: Definitive or detailed estimate

Outcome of the Alternatives

Alternative 1: Order-of-magnitude estimate

This method involves the use of historical data from similar projects to estimate the cost of the project by modifying those data for changes in inflation or deflation, activity level, location, productivity, cost of labour, dimensions, and other factors.   

    Estimate Accuracy: -30/+50%

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

Estimate Timeline + Pre-work: 2 week

Alternative 2: Semi-detailed estimate

This method will require some preliminary engineering and details and will require the services of a professional. This is usually a factored estimate based on major equipment costs.

    Estimate Accuracy: -15/+30%

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

Estimate Timeline + Pre-work: 4 weeks

Alternative 3: Detailed Estimate

This is a very detailed method of cost estimating and requires breaking down the project into small, manageable units. These unit costs are rolled up into the overall cost estimate. The method requires a high level of project definition including specifications, drawings, site surveys, and vendor quotations and will usually require a professional team to carry it out.

    Estimate Accuracy: -5/+15%

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

Estimate Timeline + Pre-work: 8 weeks 

Selection Criteria

S/N	Criteria	Weight
1	Estimate Accuracy	1
2	Cost of Estimation + Pre-work	3
3	Estimate Timeline + Pre-work	2

Analysis of Alternatives

Alternative	Estimate Accuracy	Cost of Estimation	Timeline	Ranking
	Weight
	1	3	2
Alternative 1	1	3	3	15
Alternative 2	2	2	2	12
Alternative 3	3	1	1	8

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

Alternative Selected

Based on the above analysis, Alternative 1 which is “Order-of-magnitude estimate” had the highest ranking 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

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