Lesson 5: Conceptual

Estimates
Dr. Cho
Georgia Tech
In this Unit …
 Conceptual Estimates
 Cost indexes: Time, Location adjustment

 Cost Capacity factor

Project Life Cycle and Estimating
 Two categories
 Preliminary estimate or Conceptual estimate
 Detailed estimate or Definitive Estimate
Increase in the level of detail

Program Schematic and Construction Bidding Construction

Design Document
Conceptual Preliminary Pre-bid Contractor’s Cost Control
Estimate Estimate Estimate Bid Estimate Estimate
Minimum Info (Designer’s) Establish a Based on Cost Control
Available Establish a budget for drawings and
Prepare
budget owner specs
For “Feasibility change orders
Study” Alternative Alternative Bidding price
designs designs
Planning
3
Example – Feasibility Estimating
Cost records from previous projects show the following
data:
Project Cost No. Units Unit Cost ($/unit)

1 $466,560 150 $3,110.40

2 $290,304 80 $3,628.80
3 $525,096 120 $4,375.80 Max
4 $349,920 90 $3,888.00
5 $259,290 60 $4,321.50
6 $657,206 220 $2,987.30 Min
7 $291,718 70 $4,167.40
8 $711,414 180 $3,952.30
$3,803.94 Avg
Q) Use the above data to estimate a proposed project that
has 135 units?
Example – Feasibility Estimating
 Weighting of the data; accounts for extreme maximum
and minimum values.

 Weighted Average Unit Cost = (A + 4B + C) / 6

 A = Min unit cost
 B = Average unit cost (or Median unit cost)
 C = Max unit cost

 Estimated Cost = # of units x weighted average unit cost

Example – Feasibility Estimating
 Min Unit Cost, A = $2,987.30
 Max Unit Cost, C = $4,375.80
 Avg. Unit Cost, B = $3,803.94

 Weighted Average Unit Cost

= (2987.30 + 4 x 3803.94 +4375.80 ) / 6
= $3763.14 / unit

 Estimated Cost
= 135 units x $3763.14 / unit = $508,024
Cost Indexes
 Show changes of costs over time by upgrading the cost of similar
facilities from the past to the present

Cost indexes show the changes of a certain facility’s costs over time
Year 1913 = 100, …Year 2007 = 4432

If Facility A is similar to my ‘wish’ facility and I know the value of Facility A at 1913,
I can assume my ‘wish’ facility’s value at 2007.

Source: http://www.enr.com/features/conEco/
Cost Indexes
 Used to determine the general construction costs of structures

 Published periodically by Engineering News Record (ENR) and other

publications

 ENR’s Building Cost Index (BCI): Changes of facility’s costs over time
 Facility’s components are:
 1,088 Board Feet of Lumber (2x4, 20-city Average)
 1 Board Feet = 1’ x 1’ x 1” = 144 in3
(e.g., 2×4 - 10 ft long contains [(2×4)×10] × 12] = 960 in3 → 6.67 board feet)
 2500 Pounds of Structural-Steel Shapes (20-city Average, Base Mill Price before 1996,
Fabricated after 1996)
 1.128 Tons of Portland Cement (Bulk, 20-city Average)
 66.38 Hours of Skilled Labor (20-City Average of Bricklayers, Carpenters, and Structural
Ironworkers)

Source: http://www.enr.com/features/conEco/
Time Adjustments: Example
 Warehouse Estimate: Assume you have an estimate to a
similar warehouse located in Dallas and completed in 2006 for
a cost of $4,200,000. We are planning to build a new
warehouse in 2011. What is the expected project cost if you
establish the estimate using ENR’s BCI?
ENR BCI of Dallas,TX (2006 ~ 2011)

Year Index
2006 3212.44
2007 3485.74
2008 3622.90
2009 3614.34
2010 3755.43
2011 (Feb) 3781.36
Time Adjustments: Example
 What Information Do We Need?
 Current Building Cost Index (Feb. 2011) = 3781.36

 Building Cost Index for Year 2006= 3212.44

 Similar Facility’s Cost at Year 2006= $4,200,000

 We Convert From One Base Period to Another

 3212.44 : $4,200,000 = 3781.36 : $X

 $X = (3781.36/3212.44) * $4,200,000 = $4,943,816

Time Adjustments: Example
 Warehouse Estimate: Assume you have an estimate to a
similar warehouse located in Dallas and completed in 2011 for
a cost of $4,943,816. We are planning to build a new
warehouse in 2014. What is the expected project cost if you
establish the estimate using ENR’s BCI?
ENR BCI of Dallas,TX (2006 ~ 2011)

Year Index
2006 3212.44
2007 3485.74
2008 3622.90
2009 3614.34
2010 3755.43
2011 3781.36
Time Adjustments: Example
 Building Cost Index for Year 2014 is unknown.
 No method to predict future cost trend with absolute certainty

 Estimate Building Cost Index for Year 2014.

 Calculate a compound interest rate (price inflation rate) based on
the change in the cost index over the 3-yr period:
 Building Cost Index for Year 2011 = 3781.36
 Building Cost Index for Year 2008 = 3622.90 , Let’s say this is present.
 F= P (1 + i ) n
3781.36 / 3622.90 = ( 1 + i )3
i = 0.0144

 Cost for Year 2014 (3 years from 2011), Present is 2011

= $4,943,816 ( 1+ 0.0144)3 = $5,160,479
Location Adjustments: Example
 A warehouse project in Dallas is estimated to cost
$4,943,816 as of 2011. What is the expected cost for
a similar project in Chicago, if you establish the
estimate using ENR’s BCI?
ENR BCI (2011) in major cities

Dallas 3781.36
Atlanta 3757.69
Boston 6068.00
Chicago 6251.73
St.Louis 4828.97
San Franciso 5860.77
Location Adjustments: Example
 What Information Do We Need?
 Building Cost Index in Dallas = 3781.36

 Building Cost Index in Chicago = 6251.73

 Similar Facility’s Cost in Dallas = $4,943,816

 We Convert From One Base location to Another

 3781.36 : $4,943,816 = 6251.73 : $X

 $X = (6251.73/3781.36) * $4,943,816 = $8,173,621

Cost-Capacity Factor
 Apply to changes in size, scope, or capacity of projects of
similar types
 Reflect the nonlinear increase in cost with size
(economies of scale, learning curves)
 C2 = C1 (Q2/Q1) x
 Where
 C2 = estimated cost of the new facility w/capacity Q2
 C1 = known cost of facility of capacity Q1
 x = the cost-capacity factor for this type of work
Cost-Capacity Factor
 Q is a parameter that reasonably reflects the size of the
facility (e.g., barrels per day produced by a refinery, tons of
steel per day produced by a steel mill, gross floor area for a
warehouse)

 X is the Cost-Capacity Factor:

 Derived from historical records from completed projects
 Represents the nonlinear relationship between cost and
size of unit
 Typically exponent range is between 0.55 and 0.88,
depending on the type of unit
 A standard exponent of 0.6 is commonly used for typical
process plants
Cost-Capacity Factor: Example
 Warehouse Estimate:
Assume you have an estimate to a similar warehouse located in
Chicago for a cost of $8,173,621. We are planning to build a
new warehouse with a different size. What is the expected
project cost?
 The above warehouse has a usable area of 120,000 square feet
 The prospective owner for the new warehouse wants a structure with a
usable area of 150,000 square feet
 Consider the cost-capacity factor x = 0.8 for a warehouse.
Cost-Capacity Factor: Example
 What Information Do We Need?
 Q2/Q1 = 150,000/120,000 = 1.25
 Cost-capacity factor x = 0.8
 Known cost = $8,173,621

 C2 = $8,173,621 * (150,000/120,000)0.8 = $9,771,078

 A 25% more capacity implies only 20% more costs

Combining Cost Indexes & Cost-
Capacity Factor

 Combine Cost Indices & Cost Capacity Factors to take into

account changes in both time & capacity
 Cb = Ca (Ib / Ia) (Qb / Qa)x
 Where
 Cb = estimated cost of the new facility w/capacity Qb
 Ca = known cost of facility of capacity Qa
 Ib = Index number for the new facility (time & location)
 Ia = Index number for the referenced project (time & location)
 x = the cost-capacity factor for this type of work
Example: Combining Cost Indexes &
Cost-Capacity Factor
 Warehouse Estimate:
Assume you have an estimate to a similar warehouse located in
Dallas and completed in 2006 for a cost of $4,200,000. We are
planning to build a new warehouse with a bigger size in Chicago
in 2011. What is the expected project cost?

 The above warehouse has a usable area of 120,000 square feet

 The prospective owner for the new warehouse wants a structure with a
usable area of 150,000 square feet
 Consider the cost-capacity factor x = 0.8 for a warehouse.
 Building Cost Index in Chicago for Year 2011 = 6251.73
 Building Cost Index in Dallas for Year 2006 = 3212.44
Example: Combining Cost Indexes &
Cost-Capacity Factor
 Ib = Building Cost Index in Chicago for Year 2011 = 6251.73
 Ia = Building Cost Index in Dallas for Year 2006 = 3212.44
 x = 0.8
 Qb = 150,000, Qa = 120,000
 Ca = Similar Facility’s Cost in Dallas for Year 2006 = $4,200,000

 Cb =
 4,200,000 * (6251.73/3212.44) * (150,000/120,000)0.8 =
$9,77,188,731