Cost Estimating and Price Analysis

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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?

The relationship between the volume of construction and a factor of production (D) Signup and view all the answers

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

Q (C) Signup and view all the answers

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

Mathematical and statistical methods (C) Signup and view all the answers

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

Because they are based on limited information (A) Signup and view all the answers

What is the primary purpose of a design estimate?

To establish the financing of a project (B) Signup and view all the answers

What is the primary function of a bid estimate?

To solicit bids from contractors (C) Signup and view all the answers

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

The level of design information available (A) Signup and view all the answers

What is the purpose of an engineer's estimate?

Based on plans and specifications (C) Signup and view all the answers

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

Three (B) Signup and view all the answers

What is the primary objective of a cash flow statement?

To provide information about the historical changes in cash and cash equivalents (A) Signup and view all the answers

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

Because it is the most important resource for a construction company (D) Signup and view all the answers

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

From the perspectives of both the owner and contractor (B) Signup and view all the answers

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

Project controls (A) Signup and view all the answers

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

Due to a lack of liquidity for supporting their daily activities (C) Signup and view all the answers

Where does the project cost meet the schedule?

In the cash flow (B) Signup and view all the answers

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

Probability of beating each individual competitor (B) Signup and view all the answers

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

To deal with the bidding situation of known competitors (D) Signup and view all the answers

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

Theoretical grounds (D) Signup and view all the answers

What is the basis of Gates' alternative model?

Collection of historical data and creation of a distribution of competitors' bids (A) Signup and view all the answers

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

Historical behaviour of a 'typical bidder' (B) 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?

Probability of beating one 'typical' competitor (C) Signup and view all the answers

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

To reduce the cash deficit in replacing old equipment (B) Signup and view all the answers

What does the projected Cash Flow Statement help management with?

Making a cash forecast for the near future (A) Signup and view all the answers

What does the Cash Flow Statement reveal?

The cash position of a company (B) Signup and view all the answers

Why is it essential to make provision for difficult times?

To avoid embarrassing cash deficit (C) Signup and view all the answers

What does the Cash Flow Statement help internal management with?

Determining the financial policy (D) Signup and view all the answers

Why is cash flow forecasting important for contractors?

To avoid cash deficit when replacing old equipment at new inflated cost (A) Signup and view all the answers