PARAMETRIC COST ESTIMATING

SPEAKER: OTTORINO MAGGIORE VAN BEEST - PMP SAN DONATO MIL.SE - APRIL 9, 2010

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TABLE OF CONTENTS

PARA... PARA... PARA... PARA...

WHAT? WHEN? WHY? START!

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PARA... WHAT?

PMI PMBOK CHAPTER 7 - PROJECT COST MANAGEMENT PARA 7.1 - ESTIMATE COSTS SUB-PARA 7.1.2 - ESTIMATE COSTS: TOOLS AND TECHNIQUES POINT 7.1.2.3 - PARAMETRIC ESTIMATING (PAGE 172) PARAMETRIC ESTIMATING USES A STATISTICAL RELATIONSHIP BETWEEN HISTORICAL DATA AND OTHER VARIABLES (E.G. SQUARE FOOTAGE IN CONSTRUCTION) TO CALCULATE AN ESTIMATE FOR ACTIVITY PARAMETERS, SUCH AS COST, BUDGET AND DURATION. THIS TECHNIQUE CAN PRODUCE HIGHER LEVELS OF ACCURACY DEPENDING UPON THE SOPHISTICATION AND UNDERLYING DATA BUILT INTO THE MODEL. PARAMETRIC COST ESTIMATES CAN BE APPLIED TO A TOTAL PROJECT OR TO SEGMENTS OF A PROJECT, IN CONJUNCTION WITH OTHER ESTIMATING METHODS.

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PARA... WHAT?

PARAMETRIC COST ESTIMATING (PCE) = STATISTICAL OR STOCHASTIC COST ESTIMATE PARAMETER = THE COST DRIVER(S) COST ESTIMATING RELATIONSHIP (CER): COST-TO-COST: ANCILLARIES F(MAIN ITEM)... COST-TO-NO-COST: COST F(WEIGHT, MATERIAL, POWER, FLOW RATE, VOLUME, SURFACE, LENGHT, DWS. N, LINES OF CODE, ...) GENERAL FORM OF CER: Y = F (X) F: FUNCTIONAL RELATIONSHIP X: INDEPENDENT VARIABLE OR PARAMETER

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PARA... WHAT?
TYPICAL CURVES USED FOR CERS: LINEAR SEGMENTED LINEAR POLYNOMIAL POWER LAW LOGARITHMIC EXPONENTIAL RATIONAL POWER SERIES

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PARA... WHEN?
AACEI - RP N 17R-97

ANALOGUS ESTIMATING

TIME & PROJECT DETAILS

FOR ENGINEERING & CONSTRUCTION PROJECTS

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PARA... WHY?
CAN BE ACCURATE AS DEFINITIVE COST ESTIMATES

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PARA... WHY?
IF YOUR BOSS TELLS YOU: WE NEED THE PROJECT COST ESTIMATE BY TOMORROW YOU...

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PARA... WHY?
PARAMETRIC COST ESTIMATING - TOP BENEFITS:

CONSIDERABLY REDUCING COST & TIME CYCLE FOR PROPOSAL PREPARATION, EVALUATION AND NEGOTIATION

ABOVE BENEFITS CAN BE ACHIEVED WHILE MAINTAINING OR IMPROVING THE QUALITY OF THE ESTIMATES PRODUCED

COST AND CICLE TIME SAVINGS UP TO 80%

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PARA... WHY?
PARAMETRIC COST ESTIMATING - MAIN ROADBLOCKS:

CULTURAL RESISTANCE

SIGNIFICANT INITIAL INVESTMENT

LIMITED GUIDANCE HOW TO MANAGE PROPOSALS BASED ON PCE

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PARA... WHY?
PARAMETRIC COST ESTIMATING - OBJECTIVES:

PRODUCTION OF MORE RELIABLE ESTIMATES SHORTER TIME REQUIRED BETTER DATA UNDERSTANDING EASIER TO COMPUTE CONCEPTUAL DESIGNS NO OTHER MEANS TO ESTIMATE EARLY COSTING BILL OF MATERIAL IS NOT REQUIRED MUCH EASIER TO HANDLE SCOPE, TECHNICAL AND PERFORMANCE CHANGES BETTER RISK MODELLING AND UNDERSTANDING

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PARA... WHY?

PARAMETRIC COST ESTIMATING - USE OF OUTPUTS:

PROPOSAL PRICING ROUGH ESTIMATES ECONOMIC STUDIES ACTIVE PROJECT MANAGEMENT - SUPPORTS EARNED VALUE RISK ANALYSIS

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PARA... OWNER-CONTRACTOR...? OWNER screening or feasibility concept study or feasibility budget, authorization, or control control or / bid / tender check estimate or bid / tender stochastic or judgement primarly stochastic mixed, but primarly stochastic primarly deterministic deterministic
POSSIBLE COMMON UNDERSTANDING & INVESTMENTS

CONTRACTOR

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PARA... FORMULA?
EXAMPLES: COST CAPACITY FORMULA INDUSTRIAL PLANTS

C2 = C1 (Q2/Q1)
Y = A +

LOG C

LOG C2 = LOG C1 - K LOG Q1 + K LOG Q2 KX

0.2 K AVERAGE = 0.6

LOG Q

COMMERCIAL JET AIRPLANES LOG C = F (LOG MAX TAKE-OFF WEIGHT) LOG C = F (LOG NUMBER OF SEATS) LOG C = F (LOG LENGHT) K = 1.90 K = 0.85

K = 1.10

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PARA... FORMULA?
EXAMPLES: PLANT EQUIPMENT SHELL & TUBE HEAT EXCHANGER BEU TYPE - CARBON STEEL CHE = EXP [A + B LN (W)] 4400 <W< 77400 KG 7 <P< 85 BARG A = -2.910474 B = 1.016550 R2 = 0.98 OIL INJECTED SCREW COMPRESSORS CSC = EXP [A + BW + CW0.3] 7 <W< 315 KW 7 <P< 85 BAR A = 2.193159320 B = -0.01059287 C = 0.450875824 R2 = 0.98 COST IN MILLION RIALS
STUDY BY MOHAMMED REZA SHABANI, REZA BEHRADI YEKTA

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PARA... FORMULA?
ENTIRE PLANT

CE1

CE2

CE3

CE4

CE5

CE..

CEN

OTHER FORMULAS OR FACTORS TO ACCOUNT FOR ANCILLARIES AND SURROUNDING PARTS

CET1

CET2

CET3

CET4

CET5

CET...

CETN

BASE COST = I CETI TOTAL COST = BASE COST + ESCALATION + CONTINGENCY

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PARA... FORMULA?
EXAMPLE: OFFSHORE PLATFORM DECOMMISSIONING PLUG AND ABANDONMENT C1 = K0 + K1 CT + K2 JOB + K3 NW + K4 RIG + K5 WB + K6 SEASON + K7 WOW
CT = CONTRACT TYPE (=0 X RATE CONTRACT; = 1 TURNKEY CONTRACT) JOB = JOB SPECIFICATION (=0 TEMPORARY PLUG & ABANDON; =1 PERMANENT P&A) NW = NUMBER OF WELLS RIG = RIG DEPLOYMENT (=0 RIGLESS OPERAT.; =1 RIG OPERATION) WB = WORKBOAT DEPLOYMENT(=0 WORKBOAT NOT EMPLOYED; =1 WORKBOAT EMPLOYED) SEASON = SEASON WHEN THE WORK BEGAN WOW = WAITING ON WEATHER (=NO WEATHER INTERRUPTION; =1 WEATHER INTERRUPTION)

STRUCTURE REMOVAL C2 = H0 + H1 ST + H2 WD + H3 CF + H4 MW + H5 TW + H6 REEF + H7 TOW

ST = STRUCTURE TYPE (=0 CAISSON; =1 OTHERWISE) WD = WATER DEPHT CF = COMPLEXITY FACTOR = NC (NUMBER OF CONDUCTORS) + NPL (PIPELINE ATTACHMENTS) + NP (PILES) + NSP (SKIRT PILES ASSOCIATED WITH THE STRUCTURE) MW = MAXIMUM COMPONENT WEIGHT TW = TOTAL STRUCTURE WEIGHT (DECK + JACKET + EQUIPMENT + PILING AND CONDUCTORS) REEF = STRUCTURE DISPOSITION (=0 ON-SHORE REMOVAL; =1 ARTIFICIAL REEF DONATION) TOW = REEF REMOVAL METHOD (=0 TOPPLED-IN-PLACE OR PARTIALLY REMOVED; =1 TOWED TO SITE)

SITE CLEARANCE AND VERIFICATION C3 = W0 + W1 AGE + H2 WD + H3 ND + H4 N

AGE = AGE YEARS UPON REMOVAL WD = WATER DEPHT ND = NUMBER OF DAYS N = NUMBER OF ITEMS COLLECTED

STUDY BY MARK J. KAISER

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PARA... POWER FORMULA?

OPTIMIZATION STUDIES FROM CONCEPT

TO ALTERNATIVE PROJECTS

ALTERNATIVES EVALUATED THROUGH COST ESTIMATES OF DIFFERENT PRODUCT SCOPE

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PARA... FROM?
PARAMETRIC COST ESTIMATING - BUILDING CERS: CERS ARE BUILT UPON STATISTICAL DATA ANALYSIS SIGNIFICANCE OF CERS IS QUANTIFIED BY SEVERAL PARAMETERS; MOST IMPORTANT: COEFFICIENT OF DETERMINATION R2 : REPRESENTS THE PORTION OF VARIATION IN THE INDEPENDENT VARIABLE THAT HAS BEEN EXPLAINED BY THE REGRESSION LINE 0R21 R2 ACCEPTABLE 0.70

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PARA... WHY?
PARAMETRIC COST ESTIMATING - ARE YOU SURE COST DRIVERS YOUR ORGANIZATION IS USING ARE CORRECT? AN EXAMPLE - STUDY ON SAUDI ARABIAN RESIDENTIAL VILLA COST = F (PARAMETER)
TYPICAL: GROSS FLOOR AREA 600 M2 EXTERIOR DIMENSION 15 X 20 M N 2 FLOORS STORY HEIGHT 3 M

TYPICAL

COST DRIVER = PERIMETER TO FLOOR RATIO = WALL AREA (M2) / PLAN AREA (M2)
STUDY BY A.D. IBRAHIM, A.A. SHASH, S.A. ASSAF, O.A. JANNADI

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PARA... CURVES?
PARAMETRIC COST ESTIMATING - BUILDING CERS:

LINEAR RELATIONSHIPS ARE VERY RARE AND OF LIMITED VALIDITY

CURVES USUALLY PROVIDE MORE CREDIBLE AND ACCURATE RELATIONSHIPS

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PARA... PROCESS!
PARAMETRIC MODEL BUILDING PROCESS
MODEL REQUIREMENTS

NO
DATABASE DEVELOPMENT DATA SUPPORT MODEL REQUIREMENTS?

YES

YES

MODEL DEVELOPMENT

NOT OK
DOCUMENT RESULTS

OK

UPDATE REQUIRED?

CALIBRATION AND VALIDATION?

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PARA... START!
DATABASE DEVELOPMENT - DATA NORMALIZATION NORMALIZATION = DATA CORRECTION FROM DISSIMILARITIES, SUCH AS: SOURCED FROM DIFFERENT ORGANIZATIONS CHANGES IN ORGANIZATION LEARNING / FORGETTING EFFECT CURRENCY FLUCTUATION ESCALATION UNUSUAL EVENTS ETC. MAIN LIMITATION: UNRECORDERED DATA / INFO UNAVAILABILITY

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PARA... START!

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PARA... START!

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PARA... START!

SOME IDEAS TO WORK ON OWNER - CONTRACTOR RELATIONSHIP: PCES BASED BIDS CONTRACT STRUCTURE CONTRACT SCOPE AND PRICE OWNER & CONTRACTOR COMMON INVESTMENTS SHARE INFO & DATA ESTABLISH COMMON TEAM DEVELOP REAL PARTNERSHIP ...

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PARA... START!
CONCLUSIONS REQUIRES MANAGEMENT SUPPORT NEEDS COMPANY CHAMPIONS REQUIRED CONSTANT SELLING CONSIDERABLE START-UP COST TEAM REQUIRES TRAINING REQUIRED CULTURE CHANGE IMPLEMENTATION IS A CHALLENGING EFFORT DATABASE DEV. AND DATA NORM. ARE THE MOST CHALLENGING EFFORTS EFFORT: 95% DATABASE DEV. & DATA NORM., 5% CALIBRATION REQUIRED PROJECT FULL UNDERSTANDING

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PARA... START!

CONTACT: OTTORINO MAGGIORE VAN BEEST E-MAIL: OTTORINO_MAGGIOREVANBEEST@KEYST1.CH

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