CMPROMGT
The Angelite Prayer
Almighty God, we glorify you for giving us the Angelite
Charism. We thank you for the gift of Your Son, Jesus
Christ, who is the Way, Truth and Life. We bless you for
the continuous guidance of the Holy Spirit. Grant us,
we pray, courage and strength that we may give
perpetual praise to you in whatever we do. We ask this
through Christ, our Lord. Amen. Oh, Holy Guardian
Angels, guide us and protect us! Laus Deo semper!
CHAPTER 4
Construction Estimates and
Value Engineering
Intended Learning Outcomes
• Recognize the importance of Estimates in
Construction
• Describe, interpret, and differentiate
methods used to prepare preliminary
estimates
• Define and identify different factors to be
considered in preparing final cost estimate
• Describe value engineering analysis
process
Learning Assessments
• Recitations
• Assignments
• Quizzes
SAFETY AND
RISK
MANAGEMENT
CONSTRUCTION
INDUSTRY
FINANCIAL
MANAGEMENT
TIME
MANAGEMENT
SCOPE
MANAGEMENT
CONSTRUCTION
PROJECT
MANAGEMENT
COST
MANAGEMENT
QUALITY
MANAGEMENT
PROCUREMENT
MANAGEMENT
HUMAN
RESOURCES
MANAGEMENT
In the business of design and construction,
profitability is based on accurate and
complete cost estimation
“Cost estimating is employed as one of the main tools of
successful cost management. Once an initial budget has
been established, it is important to test its assumptions by
employing a series of increasingly precise cost estimating
techniques that coincide with further development of
design and construction details.”
Estimating requires a
talent to predict or
avoid the unexpected.
A good estimator
understands
construction
materials, methods
and systems, as well
as the labor and
equipment required to
complete all tasks in
their correct
sequence, on time and
on budget.
The structure of an estimate
Estimates are typically organized in a work-breakdown structure
(WBS).
A work breakdown structure (WBS) is a hierarchical system used
to define and group discrete tasks or elements, covering the work
scope of the project.
100% Rule:
A WBS must include 100% of the work defined by the project
scope and capture all deliverables – internal, external and
interim.
The structure of an estimate
The Construction Specification Institute’s (CSI) has
created the "de facto" standard for the Construction
Industry (known as MasterFormat).
The CIS has also created the UniFormat, a new designbased structure focusing on early stages of a project
planning.
MasterFormat
also referred as the CSI Format)
(
Created by the Construction Specification Institute CSI,
1961
-
-Used by nearly every business, in specifications and
pricing
-Focus on materials and methods (construction
approach)
- Contains 49 divisions (as of 2008)
- Better suited for pricing & construction
Example:
DIVISION 05 – METALS
05 00 00 METALS
05 01 00 Maintenance of
Metals
05 10 00
METAL FRAMING
STRUCTURAL
05 12 00 Structural
Steel Framing
For more information
http://www.csinet.org/s_csi/sec.asp?CID=1377&DID=11339
Uniformat
First introduced in 1998, Guiding Principles established
in 2007
-
- Functional elements of a project (design approach)
- Organized in nine categories
- Better for conceptual understanding of a building
-Provides a way to compare major components of
different projects
Uniformat
A Substructure B
Shell
C Interiors D
Services
E.Equipment &
Furnishings
F. Special Construction
& Demolition
G.Building Sitework Z
General
CONSTRUCTION CONTRACTS
Types of Construction Contracts
1. STIPULATED SUM / UNIT PRICE
Stipulated sum and stipulated unit price are
grouped together because of the similarity of their
cost control requirements as described separately
from the contractor’s and owner’s view point.
A Contractor in a stipulated sum agrees to
construct project for a fixed amount no matter what
difficulty or expenses he encounters. The
remuneration may be made in a series of partial
payments after acceptance of the contractor’s work.
1. STIPULATED SUM / UNIT PRICE
A “unit-price contract” is one on which
payment for the work is to be based on the
computed quantities of work performed on
specific work items and materials furnished
and used by the contractor on the project,
each such quantities being multiplied by
the contractor’s bid price of the unit.
1. STIPULATED SUM / UNIT PRICE
There are two types
contracts:
of “unit-price”
1. Unit-Price Flat Rate : Rate per unit
remains constant regardless of change
in estimated quantities given.
1.
Unit-Price Sliding Rate : If
estimated quantities increase or
decreases by stipulated percentage,
then
the unit price is adjusted
accordingly.
2.0 COST-PLUS
“Cost Plus” is another type of contract. The
prime contractor is generally involved prior to
completion of the contract documents, when the
scope of work is not clearly defined. The contractor
is reimbursed for his actual expenditures and is paid
a fee for supervision. The fee paid to him may be
based on a percentage of the cost of the work or a
fixed amount predetermined as compensation for his
services.
3.0 PROJECT MANAGEMENT
CONTRACT
The third type of contract is the Project
Management Contract. It provides a
method for project development where the
owner hires the Project Manager who in turn
employs the services of architects,
engineers, and other consultants. In this
method, the initiation of policy,
programming, budgeting, design, and
construction are controlled by a team of
professionals under the direction of a project
manager.
CONSTRUCTION COST ESTIMATING
An estimate may be defined as a process of
calculating. Forecasting or predicting the costs
and quantities of the different item of work
included in the bid schedule of a certain project
proposed for construction
KINDS OF ESTIMATES
Range in accuracy
1.0 Floor Area Estimate
+/- 40%
2.0 Function Estimate
+/- 30%
3.0 Factor Estimate
+/- 20%
4.0 Parameter Estimate
+/- 15%
5.0 Detailed Estimate
+/- 7%
1. FLOOR AREA ESTIMATE :
Experience showed that for a similar building project, the building
costs are very closely related to floor area. It is based on historical
data.
A minimum of information is used to develop this type of "Ball Park
Estimate." The estimate is prepared from in-house-data available
from past jobs on similar plants. From these actual jobs, the proposed
plant capacity is divided by an existing plant cost. This cost is
multiplied against the new plant capacity or unit to derive new plant
cost and then adjusted for escalation. A cost estimate determined this
way is only valid for a similar plant.
2. FUNCTION ESTIMATE: Measures the cost of
a building relative to its use or function.
Type of Project
School Building
Hospital
Theater
Parking deck
Function Estimates
Cost
Cost
Cost
Cost
per
per
per
per
student
bed
seat
parking space
3.FACTOR ESTIMATE:
A factored estimate requires that all process equipment
must be priced. A factored estimate is produced by
taking the cost of individual types of process
equipment, and multiplying it by an "installation factor"
to arrive at the Total Direct Process Cost.
4.PARAMETER ESTIMATES:
This is an improvement over the floor area estimate
because several parameter measures are used
instead of one. Lump sum cost of trade are related to
component system of construction.
a. Structural steel cost related to gross area covered.
b. Parking area per number of building occupants.
c. HVAC cost per CM of the building.
5.0 DETAILED COST ESTIMATES:
This is a careful calculation of the quantities and costs of
everything that is stipulated in the contract based
on
detailed construction plans, specifications and bid documents.
A detailed estimate of the cost is prepared by
determining the cost of materials, labor, equipment,
subcontract
work, overhead, and profit. Detailed estimates are generally
prepared by the contractors from a complete set of contract
documents prior to submission of the bid to the owner.
Major elements of Detailed Cost Estimate
-Direct costs (may be grouped in systems or
assemblies)
Materials
Labor
Equipment
Major elements of a Detailed Cost Estimate
-
Indirect costs Taxes
Insurance Bonds Operating
costs
- Overhead, profit, other markups
- Contingency
- Time & escalation
- Phasing & mobilization costs
- Geographic index
COMPETITIVE ESTIMATING AND BIDDING
“Bid low enough to obtain the project, yet high
enough to make profit” is the most competitive bidding
Philosophy. Competitive estimating and bidding rely on
the following factors:
1. Accuracy of quantity take-off and unit cost analysis
2. Quotations of Suppliers and Subcontractors
3. Competitors bid price
4. Construction Methodology
5. Direct Labor rates
6. Equipment rental rates
Common estimating options
- Spreadsheets
and manual takeoffs
“Excel is still the king”
- CAD and digital takeoff systems
- Online databases and services BNI
R.S. Means
- Corporate software (modular systems)
- Building Information Modeling (BIM)
Estimating Software - Desirable Features
- Must be able to handle multiple projects (!)
- Hierarchical/WBS organization
- Detailed view per item
- Take-off system (screen-based or digitizing devices)
- Handling of complex systems and assemblies
-
Items linked to cost of products & resources
(labor, materials, subcontractors, etc)
- Automated calculations
- Indirect costs, markup & overhead
Estimating Software - Desirable Features (cont.)
- Purchasing & contracting
-Cost comparisons (between different systems &/or
providers)
-Closeout capabilities, (Manual overrides &
customization)
- Reporting (links to scheduling)
To Be or not to Be(IM)
BIM Advantages
- Better coordination
- Problems identified earlier
-Hidden conflicts are discovered more easily (Structural
vs MEP)
- Reduction of RFIs
- 2D Drawings are an output of model
- Produce takeoffs (debateable)
To Be or not to Be(IM)
-BIM Challenges:
-Heavy requirements (processing power, storage, net
traffic)
- Adoption of same technology across different
disciplines
- Existing legacy of 2D CAD
- No standards to date
- Does not replace knowledge of materials & systems
- Misconception that BIM will do the work for you
Sample Problem 1
The labor and material cost for a riprapping work is as follows:
Labor:
1 Foreman @ P50.00/hr
1 Skilled worker @ P40.00/hr
5 Unskilled workers @ P35.00/hr
Materials:
Cement = 3 bags @150.00 /bag
Sand = 0.25 cu. m. @ P300.00/cu. m. Boulder = 1 cu. m. @
P250.00/cu. m.
The accomplishment of the above laborers is 0.45 cu. m. per hour.
Profit, overhead, and miscellaneous expenses is 30% of the labor
and material cost. VAT is 10% of the labor cost.
Sample Problem 1
Questions:
1. Determine the labor cost per cubic meter.
2. Determine the cost of materials per cubic meter.
3. Determine the total cost of riprapping per cubic meter.
Problem 2
For a given project, it is estimated that 4m of 610mm diameter
reinforced concrete pipe can be installed in one hour using the
following.
Rate/hour 1
backhoe……………..P800.00
1 plate compactor……..P120.00
1 foremen……………...P50.00
2 skilled laborers………P80.00
10 unskilled laborers…...P55.00
The pipe cost P570.00/m. For every meter of pipe, the following
materials are required:
0.07 bag of Portland cement @ P130.00/bag
0.15 cu. m. of sand @ P300.00/cu. m.
Problem
2
VAT is 10% of the cost of equipment and labor. Profit,
overhead, contingency, miscellaneous, and insurance is
30% of the cost of equipment, labor and materials.
Questions:
1. Determine the labor cost and equipment per meter.
2. Determine the cost of materials per meter.
3. Determine the unit price for installing the pipe per
meter.
4. Determine the total length of the pipe if the budget
is P300,000.
What is Value Engineering
• Value Engineering (VE) is a management technique that seeks
the best functional balance between Cost, Reliability and
Performance of a product , project , process or service.
• VE is generally conducted by an experience multi-disciplinary
team with varied specializations.
• The whole perspective of the VE team is to analyse the
project from a functional/cost standpoint. Therein VE team
would work out alternative design options that may improve
the performance, build-ability and life-cycle cost.
Value Engineering Team
Value
Engineering
team is generally
independent of
the design team,
but its members
must have
experience in the
particular field of
the project in
question.
Origin of Value Engineering
Value Engineering began during the World War II at
General Electric.Co (GE)
Value Engineering came into effect to maximize the
limited labour, raw material and component parts
otherwise being utilize for the war.
Due to the scarcity of resource Lawrence Miles, Jerry
Leftow and Harry Erlicher at GE, look for substitutes.
They realize that substitution they came up with often
reduced costs, improved product or both. What
started as an accident of necessity was turned into a
systematic process which they called ‘Value Analysis’.
Evolution of concept Value Engineering
• Initially Miles and Co at GE observed that
many of the substitute were providing equal
or better performance at a lower costs; thus
the first definition of Value Engineering
became focused on the Cost ; i.e. costs
validation exercises.
• Initial definition of Value Engineering;
– It is an organized approach to providing the
necessary functions at the lowest costs
Evolution of the concept of Value Engineering
(Contd.)
• However, Miles initial definition, i.e. value
engineering to be a cost validation exercise
completely ignored the quality and the enduse of the product/project.
• Value Engineering is not a cost cutting
exercise by sacrificing the quality of the
product of services.
Evolution of the concept Value Engineering (Contd.)
• The original definition therefore transformed
to as Value Engineering is;
• A organized approach for the identification
and elimination of unnecessary costs.
• Unnecessary costs implies to cost which
provides neither use , nor life, nor quality, nor
appearance and nor customer features.
Value Engineering & Value Management
– Value Engineering and Value Management
often means different things to different
people.
Value Engineering & Value Management
Value Management (VM)
 Value Management can be defined as a
structured process through which the various
elements and functions of a project are
critically analyzed to ensure maximum value
for money.

Value Engineering & Value Management
Value Engineering (VE)
 Value Engineering can be defined as a
externally facilitated process through which
the owner/client can demonstrate that the
overall design objectives of the project are
being provided at a minimum costs whilst
maintaining the stated quality.

Value Engineering & Value Management
• What is the difference ?
• One of major difference between VM and VE is that
VM considered from the strategic point of view
whereas VE considered from a tactical point of view.
• In simple terms VM address WHY ? And VE address
HOW?
Why owner/client pursue on Value Engineering
• The client could be concern of the escalation of the
estimated cost for the project.
• The client could be concern due to the tenders received were
in excess of the budget.
• The client may be loosing confidence in the design team
and/or project.
• The client may require an independent audit of the project
before it is submitted for approval.
• The client may seek to minimize the capital and/or
operational costs and maximize profits
• The client may genuinely wish to pursue an innovative/better
solution for his/her project.
Value Engineering Study
• A VE study to identify the lowest life cycle costs for
the function required by the owner/client of the
development.
• The relationship between value, function
(worth),quality and cost can be symbolized as
follow:
Value = Function + Quality
Cost
• Function – the specific worth that a
design/item must perform
• Quality – The owner’s or user’s needs, desire
and expectation
• Cost – The life cycle cost of the
product/projects.
Value Engineering Study (Contd.)
• Forgoing the above equation. i.e.
• Value = the most cost effective way to reliably
accomplish a function that will meet the user
needs, desires and expectations.
• As such value can be increased by the
following approach(s);
• Value (V) = (F) + (Q)
--------------------------------------(c)
Value Engineering Study (Contd.)
• VE methodology is based on three(3) specific
phases:
• Phase 1 - The Pre-study preparation phase
• Phase 2 – The Project Study Workshop Phase
• Phase 3 – The Post Workshop Phase
Value Engineering Study (Contd.) – Phase 1

Phase 1 - The Pre-study preparation phase

This is the beginning of the VE process.
The process often commences with a meeting between the
owner, designer and VE team leader to attain a common level
of understanding of the study.
During this phase the team shall appraise the schedule of
events for the study and the information required to carry
out the study.
During this meeting strategies will be discuss the progress
with the study and data may exchange.



Value Engineering Study (Contd.) – Phase 2









Phase 2 – The Project Study Workshop Phase
The Project Study Workshop phase is generally conducted at
a location convenient to the owner/the client and the
designer, mostly at the owner’s premises near the project
site.
The first stage of the phase 2 will have an agenda including;
Introduction to the process
Briefing on Value Engineering
Presentation of project design by project designer
Outline of the project constraints
Questions by VE team members for the designer
Following the above the VE team will follow with the Basic
Job Plan
Value Engineering Study (Contd.) – Phase 2 – Basic
Job Plan
• Information Phase
• Speculation Phase
• Judgment Phase
• Development Phase
• Presentation Phase
Value Engineering Study (Contd.) – Phase 2 –
Basic Job Plan (Contd.)
• Information Phase
• Further familiarization of the project by the
team; all team members participate in a function
analysis of the project as a whole, and then of its
component part, to determine the true needs of
the project.
• Areas of high costs or low worth are also to be
identified during this phase.
• Information phase of the Value Engineering
Study is a never ending process as it keeps on
adding as the study progress.
Value Engineering Study (Contd.) – Phase 2 –
Basic Job Plan (Contd.)
• Speculation Phase
• During this phase the VE team will list
creative ideas generated from it’s review of
the project with the aim of obtaining a large
number of ideas through “brainstorming”.
Value Engineering Study (Contd.) – Phase 2 –
Basic Job Plan (Contd.)
• Judgment Phase
• During this phase VE team will analyze the
creative ideas generated during the previous
stage.
• Ideas found to be impractical and to be
irrelevant, or not worthy of additional study shall
be regarded.
• Ideas with the potential of cost saving or
improvements to the project shall be identified
for further development.
Value Engineering Study (Contd.) – Phase 2 –
Basic Job Plan (Contd.)
• Development Phase
• During this phase VE team shall prepare
alternative designs with capital and/or life
cycle cost comparison of original design and
proposed alternatives.
• All recommendations are supplemented with
written descriptions, sketches, basic concepts
, technical information and cost summaries.
Value Engineering Study (Contd.) – Phase 2 –
Basic Job Plan (Contd.)
• Presentation Phase
• During this phase VE team shall present an
oral summary of it’s finding to the owner and
the designer, explaining the basic ideas of
alternatives, it’s cost-saving implications and
their attendant rationales.
Value Engineering Study (Contd.) – Phase 3



Phase 3 – The Post Workshop Phase
In the Post Workshop Phase the VE team will
prepare a report for the owner incorporating their
findings discuss in previous phases.
The owner and the designer shall then consider the
VE recommendation , and jointly decide which
recommendations have merit for implementation in
the revised design.
Value Engineering Study (Contd.) – Five Step of the
Job plan
• The five (5) steps of the job plan are shown in the diagram above. The
significance of the arrows is that whilst a cascade system is used, with
each phase flowing on from and using the output of the preceding phase,
there is a frequent reversion to the previous phase.
Value Engineering – What are the
benefits
• Solve immediate and high priority
problems
• Reduce Time
• Establish low cost goals
• Reduce commercial risks
• Identify and define stakeholders aims
and objectives
• Help to increase cooperation between
departments
• Optimize the unit/component cost
• Encourage fresh thinking
• Produce unique solutions
• Spread cost-consciousness
• Increase the market potentials
• Develop hidden abilities
• Improve communication
• Help to provide better appreciation of
the ‘other man’s job’ – Alternative
Perspective
• Improve quality
Value Engineering – What are the benefits
- Some Facts
• A recent study carried out in United States shown that typical
VE study may realize saving of over 5% of the capital costs of
the project and achieve a return of over ten dollars (US $
10.00) per dollar (US$ 1.00) expended.
• VE study costs are approximately 0.4 % of the total
construction costs, which is relatively low compared to the
potential benefit.
When to Apply Value Engineering
• Value Engineering can take place at any stage
of the Project.
• However, it is acknowledged that there is a
greater Return of Investment (ROI) if VE is
used at a very early stage of a project, as
illustrated in the following figure. (See next
slide).
• Ideally VE should be carried out even before
allocating funds for the project.
When to Apply Value Engineering – Pictorial
Illustration
Value Engineering as per the Provision of FIDIC
Value Engineering as per the Provision of FIDIC –
Why Sub Cl. 13.2 in the Contract
• For the Contractor profits are derived from
the contract costs; therefore, reducing the
costs will reduce the profits.
• Therefore, after the Contract was awarded
there is little reason for the Contractor to
reduce the acquisition or life cycle costs.
• Sub-Cl. 13.2 dramatically neutralize this
advantage.
Quantity Surveyor’s role in Value Engineering
• Following task undertaken by Quantity Surveying
practitioners are deemed to be form part of Value
Engineering;
•
•
•
•
•
•
•
•
•
•
•
•
Forecasting expenditure flow
Cost planning and cost controlling
Advising on cost limits and preparing budgets
Advising on cash-flow forecasting
Advising on life cycle costing
Cost analysis
Cost benefit analysis
Estimating
Evaluating alternative designs
Undertaking feasibility studies
Investment appraisal
Measuring and describing construction work but only in terms of cost planning
References:
• Juanzon, B. Construction Cost Estimates
• Fernando, U. Value Engineering and Value Management
Value Engineering