COST
ENGINEERING
MANAGEMENT
ENGR. MICHAEL L. NULLAS
COST ENGINEERING
MANAGEMENT
The processes involved in
planning, estimating,
budgeting and controlling
costs so that the project
can be completed within
the approved budget.
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COST ENGINEERING
MANAGEMENT
1. Resource Planning —
determining what resources
(people, equipment, materials) and
what quantities of each should be
used to perform project activities.
2. Cost Estimating — developing
an approximation (estimate) of the
costs of the resources needed to
complete project activities.
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COST ENGINEERING
MANAGEMENT
3. Cost Budgeting — allocating
the overall cost estimate to
individual work items.
4. Cost Control — controlling
changes to the project budget
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1. Expert judgment. Expert judgment will often
be required to assess the inputs to this process.
Such expertise may be provided by any group or
individual with specialized knowledge or training
and is available from many sources including:
• Other units within the performing organization.
• Consultants.
• Professional and technical associations.
• Industry groups.
2. Alternatives identification. This can be
accomplished in any of the typical ways such as
brainstorming; lateral thinking; reverse thinking
with no feedback; random word association with
critical feedback; metaphors and supportive
feedback; and exaggeration with feedback.
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1. Analogous estimating. Analogous estimating, also called top-
down estimating, means using the actual cost of a previous,
similar project as the basis for estimating the cost of the current
project. It is frequently used to estimate total project costs when
there is a limited amount of detailed information about the
project (e.g., in the early phases). Analogous estimating is a form
of expert judgment (described in Section 7.1.2.1). Analogous
estimating is generally less costly than other techniques, but it
is also generally less accurate. It is most reliable when (a) the
previous projects are similar in fact and not just in appearance,
and (b) the individuals or groups preparing the estimates have
the needed expertise.
2. Parametric modeling. Parametric modeling involves using
project characteristics (parameters) in a mathematical model to
predict project costs. Models may be simple (residential home
construction will cost a certain amount per square foot of living
space) or complex (one model of software development costs
uses 13 separate adjustment factors each of which has 5–7
points on it). Both the cost and accuracy of parametric models
varies widely. They are most likely to be reliable when (a) the
historical information used to develop the model was accurate,
(b) the parameters used in the model are readily quantifiable,
and (c) the model is scalable (i.e., it works as well for a very large
project as for a very small one).
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3. Bottom-up estimating. This technique involves estimating
the cost of individual work items, then summarizing or rolling-
up the individual estimates to get a project total. The cost and
accuracy of bottom-up estimating is driven by the size of the
individual work items: smaller work items increase both cost
and accuracy. The project management team must weigh the
additional accuracy against the additional cost. .
4. Computerized tools. Computerized tools such as project
management software and spreadsheets are widely used to
assist with cost estimating. Such products can simplify the use
of the tools described above and thereby facilitate rapid
consideration of many costing alternatives.
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COST ESTIMATES
❑ DIRECT COST ❑ INDIRECT COST
Employee salaries and Management
benefits
General administration
Labor costs
Building rental
Materials costs
Utilities
Equipment rental costs
Security
Project related travel costs
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Insurance
Legal
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DIRECT COST
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DIRECT COST
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INDIRECT COST
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SAMPLE ESTIMATES
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CSI MASTERFORMAT
❑ MasterFormat is the specifications-writing standard for most
commercial building design and construction projects in North
America. It lists titles and section numbers for organizing data about
construction requirements, products, and activities. By
standardizing such information, MasterFormat facilitates
communication among architects, specifiers, contractors and
suppliers, which helps them meet building owners' requirements,
timelines and budgets.
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MANPOWER LEVELING/RESOURCE LEVELING
❑ "A technique in which
start and finish dates
are adjusted based on
resource constraints
with the goal of
balancing demand for
resources with the
available supply."
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EXAMPLE
MANPOWER/
ACTIVITY DURATION
DAY
1-2 10 5
1-3 6 3
2-4 8 2
2-5 13 8
3-5 12 6
4-5 4 2
5-6 2 1
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S-CURVE
"A display of cumulative costs,
labor hours or other quantities
plotted against time. The
name derives from the S-like
shape of the curve, flatter at
the beginning and end and
steeper in the middle, which is
typical of most projects.
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EXAMPLE
ACTIVITY DURATION COST/DAY
1-2 10 5
1-3 6 3
2-4 8 2
2-5 13 8
3-5 12 6
4-5 4 2
5-6 2 1
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