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Engineering Economics

Engineering Economics

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Published by Syed Muneeb
Economics
Economics

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Published by: Syed Muneeb on Feb 19, 2013
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03/06/2015

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Module 2.6: Engineering Economics
 Contents
1.0 Introduction.......................................................................................12.0 Schedule of Rate (SOR) & Rate Analysis............................................1
 2.1 Need for SOR...................................................................................22.2 Rate analysis...................................................................................22.2.1 Excavation................................................................................32.2.2 Brick Masonry...........................................................................32.2.3 Stone Masonry..........................................................................42.2.4 Steel Work................................................................................52.2.5 Concrete Work..........................................................................52.2.6. Sample Rate Analysis for Material Carriage for a Road Project.........72.3 Consolidated Rates and Block Cost....................................................152.3.1 Consolidated Rate for RCC Roads...............................................152.3.2 Summery of cost of road network..............................................162.3.3 Consolidated Rate for Sewerage and Storm water Drainage...........162.3.4 Block Cost for Water and Waste Water Treatment........................172.3.5 Cost Estimate for Solid Waste Management.................................20
3.0 Bill of Quantity (BOQ).....................................................................214.0 Financial Analysis of Infrastructure Projects...................................25
4.1 Cost of Project...............................................................................254.1.1 Technical Know-how and Engineering Fees..................................254.1.2 Miscellaneous Fixed Assets........................................................264.1.3 Preliminary and Capital Issue Expenses......................................264.1.4 Pre-operative Expenses............................................................264.1.5 Provision of Contingencies........................................................274.1.6 Margin Money for Working Capital..............................................274.1.7 Initial Cash Losses...................................................................274.1.8 Sample Cost Estimate for Head Works........................................284.2 Project Cash Flow...........................................................................294.2.1 Net Present Value Method.........................................................304.2.2 Internal Rate of Return Method (IRR)........................................314.2.3 Discount Cash Flow Method (Present Value Return on InvestmentMethod).........................................................................................344.2.4 Pay Back or Pay Off Period Method............................................364.2.5 Rate of Return on Investment Method (R & I)..............................374.2.6 Profitability Index....................................................................38
5.0 Financial and Economic Analysis: Case of Jammu Sewerage Project40
5.1 Cost Estimates...............................................................................415.2 Financial Analysis...........................................................................46Annex I: Sample Block Cost of Material and Labour in Water Supply Projects
i
 
1.0 Introduction
 
All municipal engineers and managers involved in urban infrastructure projects,frequently face problems in terms of cost estimates, economic and financialanalysis, rate analysis, project benefit cost analysis etc. The question is how totackle these aspects to predict or assess cost, how to minimize the risk andimpact of overspends against budgets, and how to ensure that there is anappropriate balance between technical aspects and the related costs.Therefore this module has been structured to include the following components
 
Overview of SOR and Rate analysis
 
Sample infrastructure project cost estimates
 
Key concepts of project viability
 
Project financial and economic analysis
2.0 Schedule of Rate (SOR) & Rate Analysis
Estimation of the project cost is necessary for evaluation of the requiredinvestments in any project. The construction industry is an ocean of activities anddetails, too many items descriptions and tiny technical differences but even theseapparently tiny and miniscule detail differences change and affect the analysis,application of these activities.The item when is translated into a monetary value through a technical analysis of the composition of its constituent activities is termed as analysis of Rates. This isto arrive at a rate based on unit which can subsequently be multiplied with thequantity of units is called as the item-rate.A composition of the body made with all the item description, specifications andrates is commonly termed as the Schedule of Rates. Since the subject of Schedule of Rates has been raised it is important to understand that wheneverterm SOR is applied it indirectly or directly is inferred that one is talking about anactivity or a set of activities pertaining to construction.Therefore, to understand and interpret a Schedule of Rates (herein after referredto as the SOR) means working at the various aspects of the item description,specifications and Rate analysis template.The SOR forms the basis for most of the developmental works carried out by theGovernment. All Government projects use SOR either specific to a particulardepartment or developed by some other department. The SOR is taken as thedatum for estimation, selection of most competitive bidder, extra itemsettlement, cost escalations, dispute redressed, arbitration and award of work.
1
 
 
Module 2.6: Engineering Economics
Like all other states in the country, various state departments all use SORs fordiverse developmental activities. Although, the Schedule of Rates (SOR) preparedby The Public Works Department (R&B) forms the basis for all other SORs, manyof the departments and organizations have developed their own SORs, at varioustime intervals and for divergent needs.
2.1 Need for SOR
The SOR is the single most important factor in the preparation of the tenders andestimates of various developmental works carried out under various departments.The entire estimates and the projections, awards and arbitrations are based onthese rates that are applied to the items under the development. The costs andestimates of the various projects and developmental works such as roads,buildings, bridges, culverts, irrigation, water supply and sewerage projects,maintenance works depends mainly on the quality and accuracy of the SOR.
2.2 Rate analysis
Rate analysis for different activities / items under a project is one of the mostimportant steps towards estimation of project cost. Comprehensive approach torate analysis is given in the table2.1 below.
Chart 2.1 Comprehensive Approach to Rate Analysis
Basic Rates of materialsContractor’s ProfitLead & LiftOverheadChargesLabour InputSundriesWastage MachineryConveyance Material CostT & PLump sumCostW .C
RateAnalysis
JnNURM - Rapid Training ProgrammePreparation of DPRsCEPT, Ahmedabad 2

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