Percorso di Eccellenza in PROJECT MANAGEMENT. Cost estimating and estimate to completion. Ing. Locatelli Giorgio.

Transcription

1 Cost estimating and estimate to completion Ing. Locatelli Giorgio Cost Estimating The project s costs management evolves during the whole project life cycle and can be distinguished in three phases: 1. Estimating 2. Cost control 3. Estimate to finish 1

2 Estimates Accuracy The cost estimating accuracy is connected to: Project s phase (labour portion not yet performed) Level of the engineering progress (required resources definition) Reliability for the cost data available (database of historical data availability) Estimates Accuracy % Estimate s error Project Life Cycle t 2

3 Cost estimating levels Different cost estimating levels correspond to different grades of belief: Ball Park estimate (preliminary information to the customer) Semi-analytic estimate (feasibility study) Analytic estimate (proposal) Cost estimating levels Increasing the cost estimating levels the estimate s cost exponentially increases in terms of: Resources allocated Time requested From few hours for the lower level to: 5-10% of the total project engineering s hours 1-2% of the whole investment cost 3

4 Cost estimating techniques At different cost estimating levels correspond two cost estimating techniques: Parametric (cost driver) Analytic (cost = quantity x unit cost) Ball Park Estimate The Ball Park estimate presupposes well-known: Plant typology Plant Size The whole cost for same type plants 4

5 Ball Park Estimate Scale Factor On the basis of the previous information, the scale factor is used in the following equation: C C P P C = Cost estimate for the new plant C 0 = Historical cost for the plant in the database P = New Plant size P 0 = Historical plant size M = Scale factor (0.6 < M < 0.9) 0 0 M Ball Park Estimate Scale Factor /MWe Validity Zone MWe 5

6 ACCOUNT Direct costs Ball Park Estimate Scale Factor Example: Values for a Nuclear Power Plant Scale exponent Land and land rights 0 Structures and improvements 0.5 Reactor/boiler plant equipment 0.6 Turbine plant equipment 0.8 Electric plant equipment 0.4 Miscellaneous plant equipment 0.3 Main condenser heat rejection system 0.8 Indirect costs Construction services 0.45 Home office engineering and services 0.2 Field office engineering and services 0.4 Owner's costs 0.5 Ball Park Estimate Corrective Factors It is necessary considering also: Location Factor (LF): Per cent whole plant cost variation connected to the specific environmental conditions presents where the plat is build Escalation Factor (EF): index summarizing the temporal cost trend for the resource used to build the plant 6

7 Ball Park Estimate Corrective Factors Example 1 New plant (1986) Size: T/Y Location: Saudi Arabia Reference plant (1974) Size: T/Y Location: Italy Cost: 14 M (without draining purification plant) Scale Factor: 0.6 Escalation Factor: / = 4.22 Location factor: 2.3 / 2 = 1.15 Ball Park Estimate Corrective Factors Example 1 DESCRIPTION COST Plant build in the x 4.22= M Size reduction: Draining purification plant (estimate): 7 M 0.6 M Total plant cost build in Italy: = M Total p. c. build in Saudi Arabia: x 1,15 = M 7

8 Factorial Estimate It is used to: Estimate using the comparison of the different design choices Perform feasibility studies Estimate the stock in hand allocation (budget) It is based on the cost breakdown and considers: Analytic cost items estimate Other costs estimate by per cent factors Factorial Estimate Equipment Cost ( E ) Fb Bulk factor ( % of E) Materials Cost ( M ) Fc Construction factor (50-80% of M) Erected Cost ( M + L ) Fs Services factor (15-30 % of M + L) Total Base Cost ( BC ) Fk Markup factor (10-20 % of BC) Total Investment Cost ( TIC ) 8

9 Factorial Estimate The Mark up factor considers: Escalation Contingencies Overheads Financial costs Insurances Guarantees Taxes Exchanges Profits Analytic Estimate It is the cost estimate for each account in the breakdown cost: Engineering Materials Transport Construction Supervision + Mark up (in order to determinate the cost) 9

10 Analytic Estimate For each account it is necessary to point out the single resources allocated (quantity x unit cost) Labour Material Means of production Services Analytic Estimate - Design It consists in the accounts relative to the base and detail engineering. The project cost on the whole plant cost is a very variable component and depends on the plant type and size. 10

11 Analytic Estimate - Materials It is possible to distinguish: Items Bulk materials (piping, instrumentation, electrical material, metallic structures etc.) Various material (Spear parts, ) Analytic Estimate Transport It includes the following accounts: PACKING: like percentage of materials costs TRANSPORTS: special (unit price) normal ( /Kg) The local transportation could be very risky and difficult to evaluate: INSURANCE: percentage of the material and transport cost CUSTOMS AND PORT FEES 11

12 Analytic Estimate Construction It is the cost component with major uncertainty and evaluation risks, particularly for plants in foreign countries: Two, not alternative, ways are available: Market research through preliminary subcontractor proposal Internal evaluation through: o Standard Man Hours (SMh) o Effective Man Hours Estimated (EMh) Analytic Estimate Construction INTERNAL EVALUATION Q = Physical quantities SMh = Standard Man hour EMh = Effective Man hour Is based on the ideas of: Yield: Productivity: P Where: Y Q SMh SMh EMh 12

13 Analytic Estimate - Contingency It includes the major cost for: Project indeterminateness and incompleteness Costs uncertain grade Delays Forgetfulness and estimate s errors Unexpected and incidental facts etc. Analytic Estimate - Contingency It not includes great risk from: Socio-economical upheaval, wars and revolutions Geothermic surprises Legislations changes Supplier bankruptcy Failure to pay 13

14 OBJECTIVES Times Costs Quality WORK DESCRIPTION WBS, OBS, CBS Developments control RESOURCES ALLOCATION Planning ACTIVITIES SCHEDULING CPM, Gantt RESOURCES LEVELLING Series and parallel approach BUDGETING Costs, Cash Flow CORRECTIVE ACTIONS PERFORMANCE ANALYSIS AND ESTIMATES TOFINISH Times, Costs Control MONITORING AND REPORTING Variances Analysis Partial balance-sheet PROJECT REALIZATION OUTPUT 27 The Project control phase that is possible to separate in the two phases of: monitoring and reporting of the parameters necessary to the project control; estimate at completion for project costs and times. Two method for the system management: feedback method (difference between forecasted and obtained values) feed forward method (performance realized until the time now and hypothesis about future performance C/SCS) The performance analysis and the estimate at completion can be realized for: the whole project Each project WP 14

15 Steps: 1. Choose the calculation method 2. Choose the most suitable typology of performance index 3. Individualize the most suitable modality to estimate the previous index 1. Calculation method 1.1 Future performance index (portion of work that needs to be done) EAC ACWP c BAC BCWP c Indice di perf. futuro ACWP c BCWR c Indice di perf. futuro 1.2 Final index of performance for the whole project EAC Indice BAC di perf. globale 15

16 2. Typology of performance index 2.1 CPI = BCWP / ACWP (Cost Performance Index) Cost efficiency 2.2 SCI = SPI CPI (Schedule Cost Index) Where SPI = BCWP / BCWS Cost and scheduling efficiency 2.3 Weighted SCI = W1 SPI + W2 CPI (Weighted Schedule Cost Index) con W1 + W2 = 1 Cost and scheduling efficiency 3. Modality to estimate 3.1 extrapolation on the basis of the time now value for the considered index 3.2 extrapolation on the basis of the trend analysis for the considered index 3.1. It is possible to estimate the time now value for the considered index as: the actual period index value mean value of the index related to x most recent period index cumulated value 3.2 Future index of performance estimation is performed by the extrapolation (for example using regression techniques), on the basis of the index value trend. The index can be the CPIm type also in this case. 16

17 Therefore the EAC depend on: the calculation method (future index of performance or global index of performance); the typology of the index of performance selected (CPI, SCI o WSCI); the criterion adopted for its evaluation (extrapolation on the basis of actual values or the trend analysis); The modality of the index calculation (CPI m, CPI mmx and CPI c ). Applicative case: To consider a project with start date at November 97 and estimate finish date at October The initial Budget At Competition (BAC) is equal to 859 M. The time now is the end of June 1999 It is asked to evaluate 1. The time now situation compared with the situation forecasted at the project beginning 2. The (EAC) through the extrapolation on the basis of the actual values 3. The (EAC) through the extrapolation on the basis of the trend analysis 17

18 BCW Si ACW Pi BCW P BCW Sc ACW Pc BCW Pc CVi SVi CVc SVc i nov ,00 0,00 0,00 0,00 dic ,45 15, ,45 31,30-0,15-0,70-0,15-0,70 gen ,03 24, ,48 55,95 0,62-2,35 0,47-3,05 feb ,41 23, ,89 79,71-1,65-3,24-1,18-6,29 mar ,29 22, ,18 102,06-0,93-4,64-2,11-10,94 apr ,40 22, ,58 124,56-2,90-4,50-5,01-15,44 mag ,02 23, ,59 148,08-1,50-3,48-6,51-18,92 giu ,00 23, ,59 171,78-3,30-3,30-9,81-22,22 lug ,98 21, ,58 193,28-3,48-5,50-13,30-27,72 ago ,90 23, ,48 216,48-2,70-3,80-16,00-31,52 set ,00 22, ,48 239,18-2,30 1,70-18,30-29,82 ott ,10 19, ,58 258,18-2,10-2,00-20,40-31,82 nov ,47 19, ,05 277,33-4,32-1,85-24,72-33,67 dic ,80 19, ,85 296,73-1,40-1,60-26,12-35,27 gen ,20 19, ,05 316,53-3,40-22,20-29,52-57,47 feb ,77 24, ,82 340,53-6,77-6,00-36,29-63,47 mar ,80 37, ,62 377,83 2,50 7,30-33,79-56,17 apr ,00 27, ,62 405,43-1,40 4,60-35,19-51,57 mag ,30 27, ,92 433,36-1,37 4,93-36,56-46,64 giu ,57 21, ,48 454,96-2,97-1,40-39,52-48,04 lug ago set ott nov dic gen feb mar apr mag giu lug ago set ott Actual Situation [M ] Cost [M ] BCWSc ACWPc BCWPc 0 nov-97 may-98 nov-98 may-99 nov-99 may-00 Months 18

19 1. Actual Situation [M ] Cost [M ] BCWSi ACWPi BCWPi nov-97 may-98 nov-98 may-99 nov-99 may-00 Months Project performance at the time now CPI c SPI c SCI A e A p c BCWPc ACWPc BCWPc BCWSc CPI c BCWPc BAC BCWSc BAC SPI 454,13 494,48 454, c ,83 454, ,92 0,90 52,86% 58,56% CVc = BCWPc - ACWPc = -40,35 M SVc = BCWPc - BCWSc = -48,87 M 19

20 2. (EAC) on the basis of the actual situation BAC - BCWPc EAC = ACWPc + Future index of performanc e BCWRc = ACWPc + ACWPc ETC future CPI 2.1 CPI related to the most recent actual period (June 99): = EAC = ACWPc BAC - BCWPc + CPIm = = Most recent value for the CPI moving average related to 3 period (therefore centered on may 99) BCWPm 3 CPImm3 = 0.93 ACWPm EAC = ACWPc 3 BAC - BCWPc + CPImm3 = Cumulated CPI at the time now (June 99): CPIc BCWPc CPIc = ACWPc 0.92 BAC - BCWPc EAC = ACWPc + CPImm3 = = 935 =

21 Using as future index of performance the CPIc, the relation of linear projection can assume the following streamlined version EAC = ACWPc BAC - BCWPc + CPIc BCWPc ACWPc + BAC - BCWPc ACWPc CPIc ACWPc CPIc + BAC - BCWPc = = CPIc BAC = CPIc This consideration are based on the hypothesis that the CPIc at the project conclusion has the same actual value (value at the time now) 3. (EAC) through the extrapolation on the basis of the trend analysis The trend analysis allows to individualize a general tendency about the proceeding of a certain variable. Steps: 1. to identify the trend of the selected index; 2. future values forecast (monthly or moving average in the period from the time now to the end of the project) or the future value (cumulated of the end of the project) of the selected index 3. EAC calculation 21

22 Nov-97 Dec-97 Jan-98 Feb-98 Mar-98 Apr-98 May-98 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 CPIm 1 0,99 1,03 0,94 0,96 0,89 0,94 0,88 0,86 0,90 0,91 0,90 0,82 0,93 0,85 0,78 1,07 0,95 0,95 0,88 CPImm3 1,008 0,982 0,973 0,926 0,928 0,901 0,892 0,878 0,888 0,901 0,875 0,880 0,865 0,845 0,914 0,940 0,997 0,931 CPIc 1 0,995 1,008 0,985 0,980 0,961 0,958 0,946 0,936 0,931 0,920 0,927 0,918 0,919 0,915 0,904 0,918 0,920 0,922 0,920 1,10 1,05 CPIm 1,00 0,95 0,90 0,85 0,80 0,75 0,70 aug-97 nov-97 feb-98 Jun-98 sep-98 dec-98 mar-99 jul-99 22

23 1,1 1,05 CPImm3 1 0,95 0,9 0,85 0,8 0,75 0,7 aug-97 nov-97 feb-98 jun-98 sep-98 dec-98 mar-99 jul-99 23

24 Regression line b = n Y = a + b X X Y X Y 2 n X X 2 a = n Y b n X r 2 n X Y X Y X X n Y 2 n Y 2 Therefore there are two possibilities: a) to compute the monthly values b) to compute the cumulated value a) Monthly values 1,050 1,000 0,950 0,900 0,850 0,800 CPImm3 Line 0,750 dec-97 apr-98 aug-98 dec-98 apr-99 24

25 Observations: the work is late (compared to the forecasted schedule) costs for the future will be greater than how much is expected (related to the work not yet done) Steps: 1 SV BCWSi * i SVc ( Jun.99 ) Oct BCWSi Jul BCWRi = SVi + BCWSi Oct BCWRi = SVi * + Jul. 99 Oct Jul. 99 Oct Jul. 99 BCWSi 3 The obtained BCWR are divided in accordance to the corresponding CPIp-mm3 individualized with the regression line. In this way it is possible to obtain the real monthly cost foreseen (projected cost). Their sum represents the ETC (Estimate To Complete) value 4 The sum of ETC and ACWP (June 99) is the Estimate at Completion In this case: EAC = ACWPc(Jun 99) + ETC = = 961 M The EAC individualized value allows to individualize the foreseen CPIc for the whole project (Project Completion) CPIc(Project Completion) = BAC/EAC = 859/961 =

26 1,02 1 0,98 0,96 0,94 0,92 0,9 b) Cumulated value If the CPIc value is used CPIc (Y) 0,88 nov-97 mar-98 jul-98 nov-98 mar-99 jul-99 Line Regression line coefficients: a = b = -0,005 r 2 = CPIc = = 0.81 EAC = BAC/CPIc = 859 / 0.81 = 1060 M Variation of trend toward September 98 or November 98, that allows to exclude from the regression analysis the values before that period The regression line obtained without considering the first 10 months has the following coefficients. a = b = r 2 = In this case the CPIc final value is: CPIc = = EAC = BAC/CPIc = 859 / = 953 M 26

27 If it is necessary to obtain also in this case the PCIi monthly value is possible to compute ETC as: ETC = EAC AWCPc (Jun. 99) = = M And distributing it proportionally to the BCWR future values (as has been previously done for the SV) Consideration about the competition time SPI index expression EAC ACWP BAC BCWP CPI f BAC ACWP BAC ACWP EAC ACWP BAC ACWP CPI f BAC ACWP BAC BCWP ACWP BAC ACWP CPI f CPI O BC T BAC AC T SPI BAC f BCWP BCWS BC T T SPI SPI f O 27

28 Exercise: A project is started on June 99 and absolutely must be finished before the end of January 2000 (overall duration 18 months). The monthly data related to the past performances (first 11 months of the project execution), in K$, are summarized in the table. 3.1 To estimate the project competition total cost, justifying carefully eventual hypotheses and used methodology 3.2 To determine a plan showing how is possible to recover for the period July January

29 Month Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99 Aug-99 Sep-99 Oct-99 Nov-99 Dec-99 Jan-00 29