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16thAugust

There exists a wide range of different estimating techniques available to the cost estimator. Which are the 4 best you can use? The technique you will use will determine the reliability of the figure that comes out. However, as we will see, not all techniques are possible in each phase of the project.

Factor estimating

The first and most high-level technique available is factor estimating. It derives its name from applying derivative factors for the preparation of the investment estimate of a project. You can use this when the project is not well defined yet: the scope is incomplete and there are possibly still a number of alternatives that need to be worked out in more detail. Since many plans won’t go through anyway, it would be a waste to spend much time on preparing detailed estimates. Factor estimates provide you with that ‘quick and dirty’ number you require to base your decisions on. Common techniques include the Six-tenth rule and the Hand Factor method.

Parametric estimating

Often, companies possess a lot of historical project information that sits unused. Among this might be a collection of previous quotes, contract values and prices. A cost engineer can put this to use by developing parametric estimation techniques. Try to look for relationships between the specifications of previously procured materials or labor. For example, by studying how the size and material type of pumps relates to cost, you might be able to find cost estimate relationships (CERs). To do this correctly, you index all costs to one price level and make the scope comparable. This enables you to setup parametric estimation models for future projects, adding intelligence to otherwise unused procurement data. The graph below shows an example of a CER between pump capacity and its price:

 

Quantitative factor estimating

When the project advances, the scope will gradually be defined with more detail. When you have access to a plot plan or other rough dimensions on site, the cost engineer can use quantitative estimating techniques. With this, you step away from factoring costs to using quantities to determine project costs. You might think right now: “but I don’t have drawings and full MTOs yet to determine the amounts of all labor and materials!” While this is true, this technique makes use of design standards to derive typical quantities for us to use in our estimates. It provides a more detailed estimate that is more accurate and allows us to better control scope growth. It works like this: for each type of equipment you determine the typical amount of piping, valves, instruments, supports, etc. Next time you estimate this equipment, you automatically already have the expected quantities, and thus costs, for all disciplines.

Unit-Rate estimating

After the basis of design is finalized, a more detailed estimate is possible. A unit-rate then contains the amount of costs and hours to install one unit (piece, meter, kg, etc.) of each item on an MTO. For example, a meter of 4” pipe might cost 10 Euros, weighs 2 kg and requires 1 hour to install. By multiplying all unit-rates by the quantities from all MTOs a detailed estimate of the project resources is obtained. The level of detail is good enough to later control the project and load the schedule with resources.

Conclusion 

That’s it: you now know about the 4 best estimation techniques, covering the complete lifecycle of your projects! It is time to start practicing and make them fit your organization. Always keep in mind: the level of project definition determines the technique you can use.