Project Cost Estimating, Budgeting & Value Engineering Skills

Objectives

• Gain knowledge of techniques used in project estimating, from the conceptual stage to the final detailed estimate
• Understand the different types of estimates used to accurately and progressively estimate project costs
• Understand the different types of contracts based on the distribution of risk between contracting parties
• Effectively apply incentive arrangements to get the best results from the contract
• Understand the fundamental concepts of Value Engineering and Analysis
• Understand how value engineering supports effective project management by providing a continuous thread of good practice throughout the project development process
• Appreciate the level and nature of the information needed to develop a project scope
• Gather and organize information and cost relevant to key elements of the project
• Learn how to capture and incorporate stakeholders’ input in the development of the project charter
• Report effectively to top management and project stakeholders in the context of proposing alternatives that improve the overall project value
• Demonstrate proficiency in applying life-cycle costing principles
• Objectively present a convincing case in support of certain project alternative

Outline

 PROJECT COST ESTIMATING SKILLS
 Cost Estimating Basics
• The estimating life cycle
• Phases of the Design Process
 Programming phase
 Schematic design
 Design development
 Construction documents
• Estimating accuracy by phase
• Conceptual Cost Estimates
 Rough Order of Magnitude Estimates (Broad Scope Estimates)
 Assemblies cost estimates
 Cost indices
 Semi-detailed Estimates (Narrow Scope Estimates)
 Definitive Estimates (Detailed Scope Estimates)

• Quantity take-off
 Basic procedures
• Types of construction contracts
 Lump-sum contracts
 Unit-price contracts
 Cost-plus contracts
 Cost-plus contract with guaranteed maximum price (GMP)
 Time-and-materials contracts
• Procurement methods
 Bid method
 Negotiated method
• Pre-construction services
• Risk analysis and contingencies

 Broad Scope Cost Estimating Techniques
• Adjustments to Project Cost for Broad Scope Estimates
• PERT Project Cost Analysis
 PERT Unit Cost Estimates
• Formulae for Cost Estimating
• The Normal Distribution Curve
• Z-Value Table
• The Probability of Project Completion within Budget
• Estimating Project Unit Cost by Using the Standard Deviation
• Estimating the Project Unit Cost at a Required Probability
• The Probability of Completing the Project at a Required Cost
• PERT vs. Standard Deviation & Z-Values
• Adjustments to Estimates Based on Previous Projects
• Adjustments for Time
 Review: Future Value of Money
 Review: Present Value of Money
 Equivalent Annual Interest Rate
 Index to Adjust for Time
 Equivalent Compound Interest
• Adjustments for Location
 Location Index for Construction
• Adjustments for Size
• Combined Adjustments

• Economic Price Adjustment
• Unit-Cost Adjustments
• Learning Curves
 Estimating Durations based on the Learning Curve Effect
 Estimating Costs based on the Learning Curve Effect

 Budget Estimating Process
• Estimating by design phase
 Programming budget estimates
 Schematic design budget estimates
 Design development budget estimates
• Estimating pre-construction services
 Request for proposal
 Development of pre-construction services estimate
 Pre-construction services contract
 Budget control log

 Bid Contract Estimating Process
• Pre-estimate activities
 Estimating process
 Solicitation of lump-sum bids
 Order-of-Magnitude estimates
 Work Breakdown Structure
 Estimating team
 Scheduling the estimating work
 Subcontractors and major suppliers
 Estimating forms
 Accuracy and error prevention
• Pricing self-performed work
 Recap sheet
 Materials
 Labor
 Applying pricing factors
 Summary recap
• Estimating subcontractor work
 Subcontractor work

• Estimating General Conditions
 Project summary schedule
 Alternative techniques
 Elements of the general conditions estimate
• Completing the estimate
 Final document review
 Completing the bid summary
 Final mark-ups
 Sales tax
 Validating the estimate

 Unit Price Estimates
• Unit price bid forms
• Direct cost estimation
 Materials
 Labor
 Indirect labor
 Subcontractors
 Recap summary sheet
 Direct-to-indirect cost factor
• Mark-up determination
• Variation-in-quantity contract provision
• Risk analysis
• Bid finalization

 Negotiated Contract Estimating
• Guaranteed Maximum Price Estimates
 Contract procurement process
 Documents
 Strategies
 Estimating process
 Contingencies
• Fee determination for negotiated contracts
 Reimbursable versus Non-reimbursable costs
 Home office overhead
 Risk evaluation
 Fee structure
 Cost savings split

• Cost proposals for negotiated contracts
 Strategies for responding to the Request for Proposal
 Documents to be included with the Request for Proposal
 General Contractor interview and selection process
 Negotiated subcontracts

 Contract Types and Compensation Arrangements
• Risk distribution in contracting
• Project risk profiles
• Contract types according to risk distribution
• Fixed Price Contracts
 Firm Fixed Price
 Fixed Price with Economic Adjustment
• Incentive Contracts
 Fixed Price Incentive
 Cost Plus Incentive
• Cost-Plus Contracts
 Cost Reimbursement
 Cost Plus Award Fee
 Cost Plus Fixed Fee
• Time-and-Materials

Narrow Scope Cost Estimating Techniques
• Power-sizing techniques (Capacity Ratios)
• Factor estimates
• Cost estimating relationships (CER)
• Design-to-cost-estimates
• Target cost estimates
• Adjusting for Project Type and Quality Level
• Features Determining the Quality Level (Grade) of a Structure
• Adjusting for Quality Level by Using a Costing Publication
• Economic Constraints
• Parametric Cost Estimating
• Analysis of Estimating Accuracy

VALUE ENGINEERING SKILLS
Framework for Applying Value Engineering in Projects
• What is Value Engineering? Why is it important?
• Defining Value Engineering concepts and principles
• Purpose of Value Engineering and Value Analysis
• Strengths and Weaknesses of Value Engineering
• How and When is Value Engineering applied?
• Project definition and initiation
• Project scope and charter development
• Life-cycle costing techniques
• Project stakeholders analysis and management
• Identifying relationships between Value, Cost and Worth
• Initiating Value Engineering Process
• Overview of Different Value Engineering Phases
• The Information Phase – steps and procedures
• Developing Value Engineering Job Plan
 The Function Analysis Phase – Expressing Project Functional Needs and Constraints
• The needorn Analysis in projects
• Defining project constraints – relationships and tradeoffs
• Conceptual project cost estimating techniques
• Function-Cost-Worth Analysis
• Developing FAST Diagrams to identify critical project components
• The Technical FAST Model to perform project value analysis
• Case Study
• Cross-Functional Project Team Approach
 The Creative Phase – Inspiring Creativity in Your Project Team
• Creativity and Creative thinking within the project environment
• Individual vs. Group thinking to improve the quality of project decisions
• Creativity techniques as applied to optimize project value
• Blocks to creativity within the project team
• Brainstorm project solutions
• Reaching consensus and leveraging the power of project team collaboration
• Project risk perception and identification
• Project prioritization process using the Delphi technique
• The use of Force-field analysis in project problem solving
• Output of the Creative Phase

The Evaluation Phase -Making Informed Project Decisions
• Project ideas screening
• Project evaluation methods
• Quantitative evaluation using objective data
• Subjective evaluation – project-related criteria weighting
• Revisiting project life-cycle costing analysis
• Incorporating inflation in project economic analysis
• Performing project risk and scenario analyses
• Risk Life-cycle simulation modeling – best and worst project cost scenarios
• Pitfalls associated with the use of existing economic models
• Incremental benefit-cost analysis for project evaluation
• Effective Decision-making in project environment
• Output of the Evaluation Phase

The Planning and Reporting Phases -Getting Results through Effective Communication
• Develop and assess VE proposals to optimize project value
• Develop action plans and assign project roles and responsibilities
• Reporting VE findings to Senior Management and project stakeholders
• Mastering oral presentation techniques & interpersonal skills
• Strategies for project plan execution
• Incorporating VE into the early project phases
• Integrating VE with Continuous Improvement Techniques
• Wrap-up

Who Should Attend ?

This course is designed for all those responsible for making significant decisions concerning costs, plans and budgets for large and complex projects. Project managers, project cost estimators, cost controllers, project planners, contract professionals, and project procurement staff will find this course highly relevant.

The course should also be of interest to anyone involved in project initiation, project estimating and budgeting, and development as well as critical assessment of project cost proposals in client and contracting companies.