Solutions to cost estimating assignment

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Solutions to cost estimating assignment

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Fall 2016

Question 1 Develop a conceptual estimate for a 75,000 m2 student residence complex that is to

be constructed at Concordias Loyola Campus four years from now (i.e. in 2020). University

of Toronto has built a residence complex with a very similar design, having the size of

68,500 m2 back in 2007 at the cost of $8,945,000. Use the data provided in the table below

to develop your cost estimate.

Table 1 Location & time indices for apartment construction in major Canadian cities

2007

2008

2009

2010

2011

Halifax (NS)

123.1

128.9

130.4

131.8

132.1

Montreal (QC)

122

129.9

132.2

134

134.6

Toronto (Ont.)

129.9

139.9

136.8

136.7

137.5

Calgary (AB)

156.8

174.4

160.7

156.6

158.8

Solution:

Estimated cost = previous cost (Toronto 2007)

Size adjustment factor

Lets take:

C1 = Location Adjustment factor

C2 = Time adjustment factor

C3 = Size adjustment factor

Location Adjustment factor (C1):

C1= CCI(Toronto index in 2007)/CCI(Montreal Index in 2007)

C1=122/129.9

C1 = 0.939

Time adjustment factor (C1):

Since project is going to be built in 2020 (future), provided data

in table is not enough for calculating C1 and time adjustment

factor must be calculated from the compound interest rate

formula. Therefore, based on available data (2007-2011) interest

rate in case of Montreal could be calculated:

IMtl.2011 = IMtl.2007 (1+i)n

(n=2011-2007=4)

134.6 = 122 * (1+i)4

134.6/122 = (1+i)4 41.1033 = 1+i

i = 0.02487

C2(Mtl

20072020)

= (1+0.02487)n

(n=2020-2007=13)

C2 = 1.376

Fall 2016

This factor could be calculated by comparing new building size to

previous one; how many times it is larger or smaller.

C3 = 75000/68500

C3 = 1.095

THEREFORE:

Estimated cost = $8,945,000*0.939*1.376*1.094 = $12,655,476.17

Alternative Solution:

Alternatively, you may find the equivalent index for Montreal in 2020 (using compound interest

rate formula) and use it for a direct conversion from To,2007 to Mtl.2020:

Size adjustment factor

iMtl = 0.02487

IMtl-2020 = 167.9

$12,659,854.41

REMEMBER: In each of the two approaches depending on how you round-off i (at what

decimal place) your final answer might be slightly different.

Table 2 Data from historical projects

Project

Total Cost Size (m2)

1

$277,520

3,950

$240,900

5,300

$259,880

4,260

$254,750

4,918

$265,500

4,500

(a) Determine the cost of a similar project with gross area of 4,600m2 by calculating the

weighted unit cost (Ignore the unit cost adjustment).

Fall 2016

Solution:

Project

Total Cost

Size (m2)

$277,520

3,950

$240,900

5,300

$259,880

4,260

$254,750

4,918

$265,500

4,500

SUM

Unit

Cost

$70.26

$45.45

$61.00

$51.80

$59.00

$287.52

Max

Min

Mean

WUC

$70.26

$45.45

$57.50

$57.62

Weighted Unit Cost = ($45.45/ft2 + 4*57.50$/ft2 + $70.26/ft2)/6

Cost for 4600 sf structures=$57.62/ft2*4600*ft2=$265,052

(b) Apply the unit-cost adjustment (assuming a linear relationship between size & unit cost)

for the project data shown above to estimate the cost of the project with gross area of

4,600m2. (You may either use excel for linear regression or hand-calculate the linear

interpolation between end points.)

Solution

First approach (Using the end points only)

(x1=3,950, y1=$70.26) & (x2=5,300, y2=$45.45)

Assuming a first order linear relationship,

(y-y1)/(x-x1) = (y2-y1)/(x-x1)

(y-70.26)/(x-3950)

=(45.45-70.26)/(5300-3950)=-0.01837

(y-70.26) = -0.01837*(x-3950)

x=4600

y=$58.32/ft2(Unit Cost)

The Cost will be: 58.32*4600=$268,272

Linear regression, using all the nodes (with the aid of

Microsoft Excel e.g.):

Fall 2016

80

70

Unit Cost($)

60

y = -0.0175x + 137.6

50

40

30

20

10

0

3800

4000

4200

4400

4600

4800

5000

5200

5400

Size(ft2)

y= -0.0175*x + 137.60

size (x) = 4,600

y = $57.1/ft2(Unit Cost)

The Cost will be: 57.1*4600=$262,660

(c) What does the comparison of answers for parts (a) and (b) show?

Results in part(b) are expected to be more accurate since the

effect of size on unit cost adjustment is included. However,

the comparison between the results for this specific problem

shows only around 1%.

Question 3 The cost of a 630 m3 per hour process unit is $950,000. Use the capacity ratios

raised to an exponent method to determine the estimated cost of a similar process unit with

a capacity of 930 m3 per hour.

Solution

Cost of new process unit = Cost of old process unit

(Capacity of new process/Capacity of old process)m

THEREFORE:

Cost of new process unit = 950,000*(930/630)0.6 = $1,200,077

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