Project Budgeting and Estimating Basics

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Questions and Answers

What is the range of the multiplier used when calculating salary costs where the scope is difficult to define?

2 to 3 (correct)

4 to 5

3 to 4

1 to 2

Which compensation method typically involves reimbursing the designer for actual costs plus a fixed fee?

Percent of construction costs

Salary cost times a multiplier

Cost plus fixed payment (correct)

Fixed price (lump sum)

What is the typical percentage range for a compensation method based on construction costs?

15%-25%

5%-12% (correct)

10%-20%

2%-7%

What principle should be used to facilitate design budgets effectively?

A work breakdown structure (WBS) Signup and view all the answers

In which scenario is the percent of construction costs method most likely used?

When the design services are insufficiently outlined Signup and view all the answers

What does the budget consist of in project budgeting?

Base Estimate and Contingency Signup and view all the answers

What is a key requirement for effective budgeting?

A well-defined scope Signup and view all the answers

Who is responsible for estimating the total project costs during the design process?

The designer Signup and view all the answers

What type of estimates does a contractor prepare based on detailed design?

Detailed estimates Signup and view all the answers

What is an important factor that estimators must consider when preparing budgets?

Required project information Signup and view all the answers

What is the role of the contractor in project budgeting?

To calculate costs for labour, materials, and equipment Signup and view all the answers

Which of the following reflects the accuracy level in budgeting?

Percentage (± %) based on estimators judgment Signup and view all the answers

What are order of magnitude estimates typically used for?

Rough initial cost predictions Signup and view all the answers

What is the primary purpose of the owner's estimate in budgeting?

To assist in decision making Signup and view all the answers

Which method is used for determining a unit cost for future forecasting?

Weighted unit cost estimating Signup and view all the answers

In weighted unit cost estimating, what does 'B' represent?

Average cost of previous projects Signup and view all the answers

Which factor is NOT considered in making time adjustments for cost estimation?

Weather conditions Signup and view all the answers

What do location adjustments in cost estimation primarily account for?

Labor costs Signup and view all the answers

What variables do indexes help estimate?

Present and future costs Signup and view all the answers

In the formula for weighted unit cost estimating, what is the total number of weights used?

6 Signup and view all the answers

What does the variable 'C' represent in the weighted unit cost estimating formula?

Maximum cost of previous projects Signup and view all the answers

What is the purpose of parametric estimating in project engineering?

To relate the total cost of a project to measurable items. Signup and view all the answers

Which of the following is a common cost driver for construction projects?

Floor space Signup and view all the answers

Which characteristic is essential for data used in parametric estimating?

Current and applicable to the specific project. Signup and view all the answers

Which index can be created in capital investment estimations?

For multiple items or services. Signup and view all the answers

What does the power-sizing technique primarily assist with?

Estimating costs for industrial plants and equipment. Signup and view all the answers

Which of the following should be a consideration when estimating unit costs?

The size and location of the project. Signup and view all the answers

In parameter cost estimates, what is typically included in the site work costs?

Preparation and underlying work for the project. Signup and view all the answers

Which of these items is NOT a parameter used for estimating costs of electrical power plants?

Max thrust Signup and view all the answers

What is included in the contractor's bid for a lump sum contract?

All costs, including overhead and profit Signup and view all the answers

What are direct costs in project estimation?

Costs directly attributed to specific work tasks Signup and view all the answers

Which compensation method allows the owner to make changes without substantial contract modifications?

Cost reimbursable Signup and view all the answers

What does a unit-price contract entail?

Costs are based on a fixed price per unit of work Signup and view all the answers

What is a key feature of the cost reimbursable method?

Encourages completion under a defined budget Signup and view all the answers

Which of the following is NOT a component of indirect costs?

Labor costs Signup and view all the answers

Why might a lump sum contract be preferred?

The scope of work is well defined Signup and view all the answers

Which of the following is a benefit of using a cost reimbursable contract?

It provides flexibility in project management Signup and view all the answers

Study Notes

Project Budget

The amount of money the owner is willing to spend on a project.
Requires estimating.
Budget = Base Estimate + Contingency.

Project Estimates for Budgeting

Done before work begins.
May not have all the required information.
Requires a well-defined scope.
Need to consider project risks.
The estimate is based on information known when it was prepared.

Owner/Sponsor Needs

Realistic maximum and minimum project cost.

Designer Needs

Determine the cost of design tasks & production of contract documents.
Estimate the total project costs as part of the design process.

Contractor Needs

Determine the cost of all labor, materials, and equipment.
Does not typically know the owner's expected cost.

Levels of Accuracy

A percentage (± %).
Based on estimator's judgment.

Building Projects

Approximate estimates based on past projects and project design.
Detailed estimates prepared by the contractor based on a detailed design. This is the bid price.

Industrial Projects

Order of magnitude estimates.
Equipment factored estimates.
Approved for expenditure (AFE) estimate.

Owner's Estimate for Budgeting

Needed by the owner for decision-making.
Used for economic analysis (NPV, capital recovery, payback, benefit cost).
Estimate needs to be frozen and converted to a project budget at some point.
Data from company records or commercial databases is used.

Weighted Unit Cost Estimating

Uses historical cost data to determine a unit cost for future forecasting.
Emphasizes the average value but accounts for extreme values.
Unit Cost Formula: (A + 4B + C)/6
- A = Minimum cost of previous projects
- B = Average cost of previous projects
- C = Maximum cost of previous projects

Adjustments for Time, Size, and Location

Time adjustments account for inflation or deflation, interest rates, etc.
Size adjustments might use indexes to account for sizing.
Location adjustments account for labor, equipment, and material costs.

Indexes

Used to develop present and future cost and price estimates from historical data.
k = Reference year for which the cost or price is known.
n = Year for which the cost or price is to be estimated (n>k).
Cn = Estimated cost or price of item in year n.
Ck = Cost or price of item in reference year k.
Indexes can be created for a single or multiple items.

Power Sizing

Used to develop capital investment estimates for industrial plants & equipment.

Parametric Estimating (Unit Cost)

Relates the total cost of a project to a few measurable items (e.g., gross floor area, weight, volume, power).
Unit costs can be determined from company records or pricing manuals.
Data must be current.
Unit cost data may need to be adjusted for time, size, and location.

Parameter Cost Estimate

Costs are estimated for each parameter (e.g., site work, foundation, floors, walls, roof, plumbing, electrical, mechanical).

Economic Feasibility Study

Considers monetary return, capital recovery, payback period, rate of return, and benefit/cost.

Design Budgets

Compensation for design can be:
- Fixed price (lump sum)
- Salary cost times a multiplier
- Cost plus a fixed payment
- Percent of construction costs

Design Budgets - Salary Cost Times a Multiplier

Scope is difficult to define.
Multiplier between 2 and 3.
Provide the owner with a fee schedule.

Design Budgets - Cost Plus Fixed Payment

Scope is not well-defined.
Designer is reimbursed for actual costs and receives a fixed fee.
Fee is typically 10-25%.

Design Budgets - Percent of Construction Costs

Less common now.
Percentage varies based on the level of design services.
Percentage typically between 5-12% of anticipated construction cost.

Final Cost Estimate

Completed when the project design is complete.
Includes a quantity survey to determine the nature and quantity of each work type.
Considers supervision requirements and equipment needs.
Includes summary sheets for costs, resources, and materials.

Final Cost Estimate - Direct Costs

Costs directly attributed to each task.

Final Cost Estimate - Indirect Costs

Overhead costs, management costs, insurance, etc.

Final Cost Estimate - Mark Up

Profit and contingency.

Contractor's Bid

Largest component of the overall cost.
Several compensation methods used:
- Fixed price
  - Lump sum
  - Fixed unit price
- Cost reimbursable
  - Cost plus a fixed fee
  - Cost plus a percentage
May include incentives.

Lump Sum

Well-defined scope.
Contractor's bid includes all project costs, overhead, and profit.
Only the final number (overall cost) matters.

Unit-Price

Similar to lump sum.
Contractor submits a fixed price per unit of work.
Final cost dependent on the quantity of work completed.

Cost Reimbursable

Allows for earlier project start.
Allows the owner to make changes without contract modifications.
May be used for unique or complex projects.
Often has an incentive to complete the project under budget.

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Description

This quiz covers the key concepts of project budgeting and estimating, focusing on the roles of owners, designers, and contractors. It highlights the importance of accurate estimates and understanding project costs. Test your knowledge on how to prepare and manage budgets effectively in a building project context.