CM658

CONSTRUCTION TIME
MANAGEMENT

CONTENT:

I.THEORY OF ESTIMATING
II.ESTIMATING PRINCIPLES
III.BASIC ESTIMATING PROCESS AND
PROCEDURE

ABETRIA, JUANA L.
 I. THEORY OF ESTIMATION

One of the major applications of statistics is to estimate the unknown population parameter. For

example, what is Estimation, a poll may seek to estimate the portion of adult residents of a city

who are unemployed. The process of providing numerical values to the unknown parameter of the

population is known as estimation. The theory of estimation was founded by Prof. R.A. Fisher in

a series of fundamental papers round about 1930 and includes some important characteristics and

methods of finding good estimators of the unknown population parameter.

Basic Terminologies

Population: A group of individuals under study is called population. The population may be finite

or infinite. E.g. All the registered voters in India.

Sample: A finite subset of statistical individuals in a population. E.g. Selecting some voters from

all registered voters.

Parameter: The statistical constants of the population such as mean (μ), variance (σ2) etc. E.g.

Mean of income of all the registered voters.

Statistic: The statistical constants of the sample such as mean (X̄), variance (s2) etc. In other

words, any function of the random sample x1, x2, xn that are being observed say, Tn is called a

statistic. E.g. Mean of income of selected voters.

Estimator: If a statistic is used to estimate an unknown parameter θ of the distribution, then it is

called an estimator. E.g. Sample mean is an estimator of population mean.

Estimate: A particular value of the estimator is called an estimate of an unknown parameter. Eg.

Mean income of selected voters is ₹25000 which represents mean income of all the registered

voters.

Sampling Distribution: When the total probability is distributed according to the value of statistic

then the distribution is said to be sampling distribution. Eg. If we want the average height of a

voter, we can randomly select some of them and use the sample mean to estimate the population

mean.

Standard Error: The standard deviation of the sampling distribution of a statistic is known as its

standard error and is denoted by ‘s.e.’ Eg. If we want to know the variability of the height of voters,

then standard error is used.

Now, before discussing about different methods of finding estimates of unknown population

parameter, it is important to know the characteristics of a good estimator. Here, “a good estimator”
is one which is close to the true value of the parameter as much as possible. The following are

some of the criterion that should be satisfied by a good estimator:

1. Unbiasedness

2. Consistency

3. Efficiency

4. Sufficiency

Hence, now you have the basic understanding about the theory of estimation.

FROM: https://stepupanalytics.com/theory-of-estimation-or-what-is-estimation/

II. ESTIMATING PRINCIPLES

The introduction to cost management explored the importance of the differences between the

product and project life cycles. Understanding the total cost of the product life cycle is important

in the decision to initiate the project and in making design decisions.

The project manager's main focus, however, is on developing estimates of project life cycle cost,

meaning all costs related to producing the product, service, or result of the project. Estimates

evolve and are refined as the project proceeds through its phases and stages.

Estimating is challenging, especially in the early stages of planning a project. As noted, cost

estimating, like all of the planning processes, is iterative. Initial estimates for some tasks may have

to suffice until later in the project, when more specific information becomes available.
This new information allows a more detailed estimate to be generated. The evolution of the

estimate as the project unfolds mirrors the refinement of the work breakdown structure (WBS);

initially, WBS components are listed at a relatively high level, and they are further decomposed as

the scope is defined.

It is important for project managers to manage senior management and stakeholder expectations

regarding estimates.

Far from commitments, early in the project estimates may be little more than approximations, but

these approximations will become more precise as the team learns more about the details of future

work from completing more elements of the definition of the project's product or service.

What is an estimate?

An estimate is not the same as a random guess or a bid, but is the derivation of an approximate

value based on one or more rational methods. An estimate uses available data for comparable

activities, components or events, and extrapolates or interpolates to the current situation being

estimated. In contrast, a guess is a value arrived merely by intuition.

In a limited number of instances, duration or resource requirement values may be a given. For

example, a test procedure may be defined as always running for a set number of hours. Another

example is that concrete takes a known amount of time to cure before construction can begin on

it, based on the environmental temperature and the mixture used. In these examples, the values are

givens, not estimates. Estimates are approximations.

Prior to the completion of an activity, it is not possible to know what the exact cost, duration or

resource effort will be. The project manager will not be able to account accurately for some factors,

such as large changes in requirements that were not factored into a project's original assumptions.

Who is responsible for cost estimates?

In some organizations, the project manager is not responsible for developing the cost estimates. A

qualified cost-estimating department may develop these instead. In other circumstances, the costs

of certain types of resources, for example, in-house staff labor, are not factored into the project

costs.

Within the general practice of project management, it remains the responsibility of the project

manager to understand and be able to justify the estimated project costs, whether or not he or she

actually developed them.

Estimating range

It is the project manager's responsibility to communicate to the project sponsor the degree of

accuracy in the estimates. A single point number cannot provide sufficient understanding of the

uncertainties at the beginning stages of the project. The accuracy of estimates varies significantly

based on the information available at the time the estimating process is performed and the method

used to generate the estimate.

Preparing cost estimates is an iterative process, performed throughout the project life cycle. As

more information is discovered, the cost estimate should be revised to reflect the most current and

accurate cost data available. Each time a cost estimate is revised, the project manager should
review and evaluate the cost estimate to ensure that the proper technique was applied, based on

the information available.

The information presented below suggests the characteristics of estimates as the project unfolds

and the appropriate accuracy at that point. The subsequent sections further map these

characteristics of estimates to the project phases.

Rough Order of Magnitude (ROM)

When done: Very early in the project life cycle, during initial planning

Why done: Provides estimate of cost for selection decisions

How accurate: -25% to +75%*

Very little information is available to the cost estimator

* The percentages of accuracy indicated for these types of estimates vary within industries and

application areas. The general theme is that the range of accuracy is quite broad for ROM

estimates, even up to -50% to +100% in the identification phase. The accuracy range is tightened

as one moves through the project to develop budgetary and definitive estimates.

Budgetary

When done: Early, during the project definition phase as scope is defined and agreed upon

Why done: Puts dollars in the budget plans and establishes a baseline commitment to the project

sponsor

How accurate: -10% to +25%

More project information is available, but changes may still occur.

Definitive

When done: Later in the project, during project development/execution

Why done: Provides details for purchases, estimates actual costs

How accurate: -5% to +10%

Estimates are done to predict revised project completion dates/costs.

Cost estimates over the project life cycle

Planning estimates

Planning estimates are normally created for a proposed project before the conceptual design is

completed. Planning estimates are used to set cost estimates for early project work involving scope

determination and feasibility study efforts and for a preliminary budget estimate of the total project

costs.

Planning estimates are based on drawing analogies from past cost experience with similar projects,

where available. Rough Order of Magnitude estimates are planning estimates used in the absence

of previous cost experience.

Planning estimates are typically only approximations. It is imperative that the estimator fully

describe and document the basis of the estimate, including how the estimate was prepared and any

items specifically excluded from the estimate.

Budgetary or conceptual design estimates

The fundamental purposes of a budgetary or conceptual design estimate are:

 Ensuring that the project offers sufficient benefit for the estimated cost.

 Developing a reliable project cost estimate consistent with the proposed schedule.

 At a minimum, establishing baseline project costs at the phase summary level.

 Serving as the basis for project funding.

In a software engineering project, the conceptual design estimate tells the customer approximately

what it will cost to complete the project within the scope defined in the project scope statement.

The conceptual estimate will be based on any available conceptual design information, such as

prototypes and functional specifications.

Preliminary design or system design estimates

The preliminary design and system design estimates are intermediate estimates created for two

purposes:

 Verifying that the newly available design details still support the conclusion that the revised

cost budget remains less than the total project funding.

 Breaking down the cost budget to the work package level for the upcoming phase, to

facilitate more complete and accurate cost monitoring and control.

Preliminary design estimates are based on the specifications that have just been developed.
Upon approval of system design and during subsequent delivery stages, system design estimates

become definitive estimates. They are updated during project monitoring and control to predict

revised project completion dates and costs.

Benefits of life cycle costing

The benefits of life cycle costing include:

 Evaluating the competing options in purchasing;

 Improving the awareness of total costs;

 Providing accurate forecasting of cost profiles;

 Forecasting future resource needs;

 Supporting strategic planning and budgeting.

Fundamentally, life cycle costing is important because it helps to ensure that the least expensive

alternative that will meet a project's functional requirements is selected. Initial design and

development costs may constitute only a fraction of a project's overall life cycle costs.

Estimating accuracy

The precision necessary for an estimate depends on its context. For example, the earliest estimate

for a project's cost at the concept evaluation stage may be a rough order of magnitude estimate,

which is good enough to determine whether the project should be pursued or not. Additional

accuracy would not affect the decision, so making the effort to obtain it is not cost-effective.

On the other hand, as an upcoming stage of a project is being planned, the stage’s activities are

defined at sufficient levels of detail to ensure that estimates of duration will have the necessary
accuracy. The resulting project baselines will be effective for measuring performance. Without

this level of detail, the project management team would not have the ability to detect and correct

problems in a timely manner.

As estimates are refined further and at increasing levels of detail, the effect of diminishing returns

comes into play. The project management team must determine when the estimate's accuracy is

not improving sufficiently to justify further analysis.

Influence of scope on estimating errors

Perhaps the most significant factor contributing to errors in estimates is the failure to encompass

the entire technical scope. This comes primarily from two sources: failure to elicit, analyze and

maintain the requirements properly, and incorrect decomposition of the work breakdown structure.

The first is the reason that poor requirements are cited so often as a cause for poor project

performance. The second leads to overlooked work, which often appears later as a scope change

request when it was actually an error, and the scope did not change.

Influence of assumptions on estimating errors

The assumptions about the estimate must be documented. If significant assumptions are not tested,

the estimate may involve substantial error. For example, assumptions regarding productivity,

resource availability, vendor capabilities, and technical feasibility should be reflected in the

resource and duration estimates and spelled out in the basis of estimate (BOE) for the activity. The

BOE describes how the estimates were derived and the information on which they were based.
Influence of risk on estimating errors

When known risks are under- or overestimated, the amount of time or cost allocated to the estimate

will be wrong to some degree. Experience can reduce this kind of error, but it cannot eliminate it

completely.

Influence of time on estimating errors

Estimates must accommodate the budgeting and funding cycles of the performing organization.

When an estimate approaches or spans a boundary between two funding cycles, there is the

inherent risk that during the project the activity may slip at least partially out of the cycle in which

it was planned. This means the cost for the slipped portion will be incurred in the wrong cycle, and

the available funds in both cycles will no longer match the revised cost forecast.

Other factors affecting estimating accuracy

Some other factors that contribute to the error of an estimate include:

 Novelty of the activity and lack of experience estimating it;

 Novelty of the technology used to carry out the activity;

 Unknown skills and productivity rates of the team;

 Unexpected impediments to the progress of the activity;

 Mistakes and/or misunderstandings in the inputs to the activity;

 Changes in the inputs to the activity, particularly in the requirements;

 Uncontrolled changes in working environment that impair productivity;

 Effects of geographic location of work;

  Locations of team members relative to the work;

 Available methods of team communication;

 Quality of support services;

 Availability of appropriate tools; and

 Availability of subject matter experts.

Cost drivers

Cost drivers are project cost elements that heavily impact the overall project costs. They will either

inflate or moderate the base cost estimate that resulted from the measure of the project's scope.

Small changes in cost drivers result in large changes in the overall project costs.

Parametric cost estimating relies on an understanding of these cost drivers. They result in

additional estimating measures that must be used to adjust the cost estimates upward or downward

to account for these factors.

Project managers should be concerned about cost drivers because they represent specific elements

of the project that could potentially become budget busters. Cost drivers are the areas worth

spending extra time on when developing the estimate in order to get more accurate data on quantity

required and unit costs.

When reviewing a cost estimate, recognizing and focusing on cost drivers is more productive than

trying to accurately forecast cost for all project elements.

Environmental factors

The cost estimating process requires the project management team to consider two environmental

factors:

 Marketplace conditions - This involves the products, services, and results that are

available in the marketplace, their sources, and the terms and conditions of their use. These

conditions will affect the choice of resources, and their prices will then serve to establish

their cost estimates. In addition, if fluctuations in these conditions are expected, prices may

change during the project. These price changes will also affect the cost estimates.

 Commercial databases - Resource cost rates are often available from commercial

databases that track skills and human resource costs and standard costs for material and

equipment. With adjustments for local variation, these may serve as the base prices for the

cost estimates.

Sources of information

Organizational assets that should be considered when estimating include:

 Cost estimating policies - If the organization has established mandatory approaches for

cost estimating in various circumstances, the project management team must comply with

them;

 Cost estimating templates - Often the finance function or previous project teams have

developed templates that are based on previous projects. These templates can be reused

and tailored for use on new projects to suit their characteristics;

  Historical information - Often the performing organization maintains a repository of

information about work that has been performed in the past that was similar, or that used

the same resources planned for the current project. In this case, there may be available

historical information that the project management team can leverage in developing the

cost estimates;

 Project files -Records from prior projects that have performed similar work can help with

developing cost estimates;

 Team knowledge - Frequently the team members will have been selected because of their

previous experience with similar work. This usually provides a base of knowledge about

similar efforts that can be used to guide cost estimates;

 Lessons learned - If previous cost estimates are available from a previous project that was

similar in scope and size, there will often be lessons learned about how to (and how not to)

generate and tailor the estimates to be even more accurate than those used on the previous

project.

III. BASIC ESTIMATING PROCESS AND PROCEDURE

A “structured estimating process” should produce:

• Quality Estimates

• Consistency – Checks & Balances

• Improve Accuracy/Confidence

• Improve Competency/On-boarding new staff

• Align all Parties

• Reduce uncertainty
• Reduce Costs

• Save Time

Input to the Estimating Process

Basic Question Process (Heading) Input needed to Output

established
What Scope Definition • PDF/P&ID
• Equipment data
• Layout
• MTO’s
•Engineering Standards Standard list of
How Execution Strategy • Project organization deliverables
• Contracting strategy for each
• Constraints type of estimates
When Schedule • Market
• Escalation
• Currencies
Where Location (project) • Supply sources Cost Engineering
• Import regulations activity
specifies • Cost local supplies supported by
• Productivity Project
• Engineering standards Engineering
• Etc.
Table 1. Four Basic corresponding headings and activities of estimating process.

Key Procedures:

• Overview total estimating process

• Review estimating requirements

• Planning the estimate

• Structuring the estimate

• Developing the estimate

• Analyzing cost risk and contingency allocation

• Documenting

• Review and issue estimate

Estimating Process Flowchart

Figure 1. Estimating Process Flowchart

Quality System Flow Diagram

Figure 2. Quality System Flow Diagram

DEVELOPMENT OF NORM PROCESS

Figure 3. DEVELOPMENT OF NORM PROCESS

ESTIMATE VALIDATION

Options :

• Witness whole estimating process

• Participate/ witness the review/verification steps

• Benchmarking (IPA)

• Counter Estimate
• Verification deliverables

Structured Approach:

 Quality supporting documents (accuracy)

 Estimating process

 Consistency of project scope

 Estimating tools/data

 Completeness of the estimate (exclusions)

 Risks and contingency

 Schedule and escalation

Cost Check:

Overall Cost Reference plant

Cost per unit of product

Cost ratios Statistical breakdown

Equipment vs. bulk
Material vs. labour
Indirects vs. directs

Detail Equipment Number / Bulk Quantities

Unit rates
Labour rates (HO office, Direct Labour)
Norms
MTO basis

From:
theestimatingprocess-121228074538-phpapp01. Applied Cost Engineering Group. December
28,2012
ESTIMATION PROCESS (IN CONSTRUCTION)

Overview of the Construction Estimation Process

Understanding cost estimation requires you to have a basic grasp of the construction process. (If

you’re interested in learning more about the construction process, Pearson’s Building

Construction: Principles, Materials, and Systems is an excellent resource.) Here are the nine basic

phases of a building project:

1. Commissioning a Project: Commissioning is essentially a verification process that ensures a

builder designs, constructs, and delivers a project according to the owner’s requirements. It begins

early in the construction process and can last until up to a year of occupancy or use. A

commissioning provider carries out commissioning, usually a firm with experience in

commissioning buildings that serve particular functions.

2. Determining Requirements: The first real step in constructing a project is a pre-design phase

or planning phase. The pre-design phase involves defining a project’s requirements: what its

function(s) will be, how much it should cost, where it will be located, and any legal requirements

it must comply with.

3. Forming a Design Team: The project owner contracts with an architect who will then select

other specialized consultants to form a design team. Complex projects and projects which require

meeting specific design requirements — such as acoustics or housing hazardous materials — will

have more specialized consultants on board to ensure the design meets requirements. The architect

is generally responsible for overseeing and coordinating the design process, though for some

projects (such as industrial construction), an engineer may be one of the people overseeing design.
4. Designing the Structure: This step deals with the architect creating a series of designs. The

architect works first with the owner to decide on the broad strokes of the design and then

increasingly closely with the other members of the design team to flesh out the structure’s design

in accordance with requirements. Designing thus progresses from a schematic design phase, when

the architect presents a high-level design to the owner for approval, to a design development phase,

when the architect works with the design consultants to decide on specifics of the construction

design. The last step is the construction documents phase, i.e., creating construction drawings and

specifications from which the contractor will build. The specifications, which various participants

in the construction process read, appear in a standard format called the MasterFormat, which the

Construction Specifications Institute developed. Estimators produce and revise cost estimates for

the project as the architect fleshes out the design.

5. Bidding Based on the Scope of Work: Once the construction documents are finalized, they

are released to contractors who wish to bid on the project. Along with these bidding documents,

they include instructions on how to submit bids, a sample of the contract agreement, and financial

and technical requirements for contractors. These documents, which effectively define the scope

of the work, are the basis on which contractors prepare their estimates. For more on how to develop

a statement of work, consult this guide. To ensure fair bidding, all contractors receive the same

information, and the project owner usually selects the lowest qualified bidder. This bid tabulation

template can help you compile your estimate.

6. Signing the Contract: Once the contractor has been selected, they execute a set of contract

documents with the owner. The contract documents encompass the bidding documents, which now

function as a legal contract between owner and contractor. Contracts can follow a number of

models, depending on how complete the construction design is and how the owner and contractor
bear risks. One of the basic models is a lump sum (also called a stipulated sum or turnkey) contract,

which involves the contractor bidding a fixed sum for the total project and agreeing upon it when

the project’s design is virtually complete. A unit price contract allows for more flexibility in design

by having the owner pay the contractor per number of units they build. A cost-plus contract, signed

when the design is incomplete, has the owner pay for all costs plus a predetermined fee for the

contractor. A variation of this is cost plus a fee with a guaranteed maximum.

7. Construction: During the construction phase, the contractor oversees building in accordance

with the construction documents. A general contractor will hire specialized subcontractors for

different sets of construction tasks, such as plumbing or foundation work. Throughout the

construction process, the contractor engages in careful cost control, comparing actual expenditure

with forecasted expenditure at multiple points in the construction process. Cost control ensures

that the contractor is actually able to turn a profit. This budget template can help you compare

actual costs to estimated costs.

8. Close-Out: When the builder comes close to finishing a structure, the contractor requests the

architect perform a substantial completion inspection in which the architect verifies the near-

complete status of the project. At this stage, the contractor provides the architect with a document

called the punch list, which lists any incomplete work or needed corrections. After the architect

inspects the structure, they will add any additional incomplete items to the punch list.

9. Completion: After the contractor completes all the incomplete work detailed on the punch list,

the architect performs a final inspection. If the contractor has completed the structure according to

construction drawings and specifications, the architect will issue a certificate of final completion,

and the contractor is entitled to receive the full payment.

An alternative method of project delivery is the design-build process, which integrates building

design and building construction. Instead of contracting first with a design team and then with a

contractor, the owner contracts with a design-build firm, which handles both functions. The main

strength of this approach is greater alignment and coordination between design and construction

and a reduction of construction missteps. Accountability rests with a single party, which owners

may appreciate. It can also save time and increase efficiency, and design-build processes are likely

to be significantly cheaper than conventional design-bid-construct processes like the one detailed

above.

From:

https://www.smartsheet.com/construction-cost-estimating