Cost Estimating and Price Analysis
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Questions and Answers

What is the primary purpose of cost estimating in project management?

  • To establish the baseline of the project cost at different stages (correct)
  • To control labor costs
  • To determine the necessary resources for a project
  • To predict profitability
  • What is the definition of cost engineering according to the American Association of Cost Engineers?

  • The application of scientific principles to cost estimation
  • The utilization of engineering judgment and experience to cost estimation and control (correct)
  • The estimation of labor costs in construction projects
  • The use of mathematical methods to predict profitability
  • What is the relationship between output and necessary resources referred to in microeconomics?

  • Cost function
  • Resource allocation
  • Profitability curve
  • Production function (correct)
  • What is the production function in construction expressed by?

    <p>The relationship between the volume of construction and a factor of production</p> Signup and view all the answers

    What is the output of a process represented by in the production function?

    <p>Q</p> Signup and view all the answers

    What methods are used to derive the output of a process in the production function?

    <p>Mathematical and statistical methods</p> Signup and view all the answers

    Why are cost estimates at the beginning stage of a project life cycle less accurate?

    <p>Because they are based on limited information</p> Signup and view all the answers

    What is the primary purpose of a design estimate?

    <p>To establish the financing of a project</p> Signup and view all the answers

    What is the primary function of a bid estimate?

    <p>To solicit bids from contractors</p> Signup and view all the answers

    What is the main difference between screening estimates and detailed estimates?

    <p>The level of design information available</p> Signup and view all the answers

    What is the purpose of an engineer's estimate?

    <p>Based on plans and specifications</p> Signup and view all the answers

    How many major categories of cost estimates can be identified based on their functions?

    <p>Three</p> Signup and view all the answers

    What is the primary objective of a cash flow statement?

    <p>To provide information about the historical changes in cash and cash equivalents</p> Signup and view all the answers

    Why is cash flow considered the life line of a business?

    <p>Because it is the most important resource for a construction company</p> Signup and view all the answers

    From whose perspectives is managing cash flow vital to a successful project?

    <p>From the perspectives of both the owner and contractor</p> Signup and view all the answers

    What do cash flow projections developed from credible project execution plans become the basis of?

    <p>Project controls</p> Signup and view all the answers

    Why do construction companies fail more often due to a lack of liquidity?

    <p>Due to a lack of liquidity for supporting their daily activities</p> Signup and view all the answers

    Where does the project cost meet the schedule?

    <p>In the cash flow</p> Signup and view all the answers

    What is the basis of Friedman's model for predicting the probability of winning a contract?

    <p>Probability of beating each individual competitor</p> Signup and view all the answers

    What is the purpose of aggregating all competitors' bids into a distribution?

    <p>To deal with the bidding situation of known competitors</p> Signup and view all the answers

    What is the criticism of Friedman's work by other writers?

    <p>Theoretical grounds</p> Signup and view all the answers

    What is the basis of Gates' alternative model?

    <p>Collection of historical data and creation of a distribution of competitors' bids</p> Signup and view all the answers

    What is the 'picture' represented by the distribution of all competitors' bids?

    <p>Historical behaviour of a 'typical bidder'</p> Signup and view all the answers

    What is the formula suggested by Friedman to predict the probability of winning a contract against n unknown competitors?

    <p>Probability of beating one 'typical' competitor</p> Signup and view all the answers

    What is the importance of cash flow forecasting in times of high interest rates?

    <p>To reduce the cash deficit in replacing old equipment</p> Signup and view all the answers

    What does the projected Cash Flow Statement help management with?

    <p>Making a cash forecast for the near future</p> Signup and view all the answers

    What does the Cash Flow Statement reveal?

    <p>The cash position of a company</p> Signup and view all the answers

    Why is it essential to make provision for difficult times?

    <p>To avoid embarrassing cash deficit</p> Signup and view all the answers

    What does the Cash Flow Statement help internal management with?

    <p>Determining the financial policy</p> Signup and view all the answers

    Why is cash flow forecasting important for contractors?

    <p>To avoid cash deficit when replacing old equipment at new inflated cost</p> Signup and view all the answers

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