# Project Estimation Techniques

## Estimating methods & Techniques

Estimating the surface area of a room or the number of marbles in a jar is relatively easy and can be done quite accurately with simple rules of thumb. However, estimating the total costs of an offshore LNG platform or a high speed railroad is a little more complex.

Luckily, there are numerous methods and techniques that can help you estimate those costs throughout the different phases of such projects.

### Factor Estimating

In the first phases, you can make use of several factor estimating techniques that allow for an estimate with limited accuracy but enough confidence for a go / no go decision. The factor estimating method derives its name from applying derivative factors for the preparation of the investment estimate of a project. The method is sometimes called a top-down estimate and is based on limited project scope. It uses rules of thumb, parametric models or historical databases to provide relevant cost data. It can be used to develop for example cost per square foot for a building or cost for a similar piece of equipment.

Factor estimating is used because of several reasons, amongst which:

- The scope of the project is not yet complete
- Preparing a detailed estimate is time-consuming and therefore more expensive
- Many plans won’t go through, so investing time in estimating a project that might be abandoned later on, can be considered a waste

#### Advantages and disadvantages factor estimating

Advantages:

- Quick result
- Inexpensive

Disadvantages:

- Inaccurate
- Black box idea
- Limited possibilities for adjustments
- Possibility for wrongly use
- Estimating with only historical data
- Labor intensive to develop benchmarks with a similar basis

#### Parametric estimating

Parametric estimating entails the analysis of cost, programmatic and technical data to identify cost drivers and develop cost models. The approach essentially correlates cost and manpower information with parameters describing the item to be costed. This process results in sets of formulae known as “Cost Estimation Relationships” (CERS), which are applied to produce cost outputs for different elements of an estimate. Parametric Method generally involves the use of a regression analysis (linear and nonlinear) to determine the best algorithms for a model.

#### Equipment factored estimating

An equipment factored estimate is produced by taking the cost of individual types of process equipment, and multiplying it by an "installation factor" to arrive at the total costs. In practice, this has proven to be quite a useful method since a substantial part of total project costs are made up of equipment. As a result, it’s the basis for many factor estimating methods.

The installation factor, or total installed cost (TIC) factor, includes subcontracted costs, associated direct labor costs and materials needed for installation of equipment.

### Lang method

A method that is slightly more detailed and therefore needs some more project information, is the so-called Lang method. Its basis is the equipment prices free at site, of which it’s best to have quotations. The method differentiates for solids, liquids and mixed solids/liquids.

In short, the picture below explains how the method works.

### Hand method

This method, developed by W.E. Hand, is an extension of the Lang method and proposes to use different factors for each type of equipment (columns, vessels, heat exchangers and other units) rather than per process type. Hand’s factors exclude indirect field costs (IFC), home office costs (HOC), and the costs for OSBL facilities, all of which must be estimated separately.

### Detailed estimating

Sometimes called bottom-up estimating. With this method, detailed estimates are made at relatively low levels in the work breakdown structure (WBS), typically at work-package or task level. This approach is closely related to scheduling, planning and resource allocation and is both time-consuming and costly. It requires a good knowledge of the activity and there also needs to be a reasonable level of definition for the exercise to be meaningful.

### Page & Nations

Not really an estimating technique but rather a method strictly used for estimating direct labor in man-hours. The direct man-hours of Page & Nations were determined by gathering hundreds of time and method studies coupled with actual cost of various operations, both in the shop and field on many piping jobs located on projects in the US. Ranging in cost from $ 50,000 to $ 20,000,000.

By carefully analyzing these many reports, an average productivity rate of 70% is established. The man-hours or percentages compiled throughout this manual are based on this percentage.

## Cost Engineering

There are many other methods that you might use to develop estimates, but it’s those mentioned above of which its use is most wide-spread. Cost Engineering has experts for all of these methods, and can apply them within your organization for a wide range of projects. Interested in what methods are best suited for your specific situation? Contact us at contact@costengineering.eu