Cost Estimating – Part 1 of 3

In this episode, the first in a series of three podcasts on costing, Ricardo talks about the types of analysis that we can do during the project cost estimation.

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Episode transcript

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Hello everybody welcome to the five minutes BM podcast today. I like to start the series of podcasts about cost estimation and why I'm doing this a couple of months ago, I got the credential certified Cost professional from the AACC association for the advancement of Cost engineering in a great friend of mine out of, from Brazil. He wrote a blog in his Brazilian blog about this. And I said, look, I need to talk more about cost estimation and not only for engineers or for Cost, but for everybody because people do not understand properly.

What do we want to do when we are doing Cost Estimating. So basically when we are estimating the cost, we want to fail casts, the cost of a project. What is it on the scope? Most of his people do not know the difference between Cost estimation and cost budgeting. They think it's all the same thing. It's not Cost budgeting is a deterministic process. You do the budget of your project based on all the detailed information.

So let's suppose you are building a house. So you count the number of bricks you need. You make the calculation of the numbers of doors, the number of cables, electrical cables, and then we all do a detail. You calculate the unit cost, and then you forecast your final cost during the budget off the bat. But look, when you are budgeting the project, sometimes this process is very, very heavy.

You need to do a lot of work. Many times, you do not have this information and you do not want something. So sharp my times. You just want something that is an approximation. And this is exactly what Cost estimation is about. Estimation means an approximation, it's not a sharp number or it's some kind of simplification on the process that allows you to make decisions without all the burden, without all the Fort of the budgeting process.

I will talk to you about five basic processes. And this week I will start explaining two of them. The first one is a physical diamond. This is probably the easiest one to do. And to explain, for example, you calculate the cost of a property based on the square feet. So you'll say, okay, this house cost $300 square feet and it has a thousand square feet.

So the Cost is 300,000. So it's very basic and it's very easy, very straightforward. Of course, you need to be aware that when you were doing this simplification, you consider that every square meter is identical to the altar, that there is no more complex is square feet. Let me give you a second example. If you calculate the cost of a road, a basic road, base it on the length.

So you tell me, Ricardo, one mile off the road costs 3 million hours. This road is 10 miles. So $30 million. So it's very, very simple, you have some physical dimensions and then you just multiply the two of them. The second process, the second way, it's what we call units of the final product. So let's suppose that you are building a hospital and then you can Czech.

He started calling formation and you can see the cost of one bed. So let's suppose that your time database or external database, you can find us in many books, they provide this information. So the cost of a bad lead suppose is $50,000 and you are building a hundred bats hospital. So what do you do? You take 50,000 and move on to play by 150,000 buy a hundred or 10 is 500 hundred is 5 million So you can estimate that this cost is around 5 million.

You can. And for example, let's suppose that you are a writer. okay. You were a restaurant being a very big Chiang and you want to open a new restaurant and you want to estimate the cost. You can estimate the cost basis on the number of clients in you say, okay, each client cost $10,000. So how many clients do I want to have in the restaurant? And then I just moved to why, again, this is a very BZ simplification, but this is a way to help us to estimate the cost.

And there are many, many, many tables. So we are, it's very common in civil construct to do that. And if you do not have this, you can build this database from your previous projects, you can say, okay, we already built 25 restaurants. So how was the actual, Cost of the number of guests? Can we simplify and try to create something like an indicator on that many times you can get this information from the market.

Many times you need to develop this, but in both ways, you need to understand that this is not a sharp number, but this will give you an estimation that will help a few to decide. Next week. I want to talk to you about the three order ways of calculating the Cost. One is the capacity factor. Do you order? One is the proper senility factor and order. The last one is parametric modeling and neural networks.

These trees are more complex, but many times more effective. So it's always a tradeoff on the amount of You 40. You need to put in on the estimation and the quality of the results. So let's think about that the next week we'll continue talking about Cost estimation.

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Cost Estimating – Part 1 of 3

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