1 / 60

Project Selection, Economics, Estimating

Project Selection, Economics, Estimating. Dr. Perkins CE 438 6 February 05. Today. 40 Minute Lecture ESM 401 ESM 450 General Project Selection Concepts Economics Estimating Your Projects. Remember. Remember Project Life Cycle Organizations. Project Selection.

lena
Download Presentation

Project Selection, Economics, Estimating

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Project Selection, Economics, Estimating Dr. Perkins CE 438 6 February 05

  2. Today • 40 Minute Lecture • ESM 401 • ESM 450 • General Project Selection Concepts • Economics • Estimating • Your Projects

  3. Remember • Remember Project Life Cycle • Organizations

  4. Project Selection

  5. “Projectized” organization, all work is a project. • But may have some special issues see below • Functional organization • Must decide if can be done within the functional area. • If so, project might not be needed, but see below

  6. Project Selection • Values, Vision, and Mission • Objectives and Goals • Strategy • Programs and Projects

  7. Project SelectionGeneral Concepts • Will there be a customer? • Will the project survive competition? • Internal projects • External • Is the need for the project recognized as supporting company strategy? • Can company handle the risk and uncertainty?

  8. Note!! • The following applies to components and engineering decisions within a project as well. • If they warrant it

  9. Ultimately provide return on investment? • How about the future?

  10. Project Selection • Criteria for PS Models • Nature of PS Models • Types of PS Models • Uncertainty Analysis and Risk Management • Information Base for PS Models • Project Proposal

  11. Overview of PS Process • Decision Makers: Who will align corporate needs and project goals • Project Selection: Chose candidate project using Evaluation Criteria • Dealing with Uncertainty: Risk Analysis • Strategically selecting best Projects: Project Portfolio Process (PPP) • Locking up the deal: Writing a Project Proposal

  12. Nature of PS models:Caveats • Project decisions are made by managers --- NOT by PS model! • A PS model APPROXIMATES, but does NOT DUPLICATE reality!

  13. Nature of PS Models:Method • Start with detailed list of firm’s goals • Create list of project evaluation factors (PEF’s) • Weigh every element in PEF list • Compute an overall score for project based on weighted PEF’s • Select project that has the closest alignment with firm’s goals

  14. Project Evaluation Factors (PEFs) • Who decides?? • Production Factors • Marketing Factors • Financial Factors • Personnel Factors • Administrative and Misc. Factors

  15. Nonnumeric PS Models: • Sacred Cow • Operating Necessity • Competitive Necessity • Product Line Extension • Comparative Benefit Model

  16. Numeric PS Models:Profit / Profitability • Average Rate of Return • Discounted Cash Flow (NPV) • Internal Rate of Return • Benefit/Cost (Profitability Index) • Other Profitability Models

  17. Choosing the PS Model • Dependent on wishes and philosophy of management • 80% of Fortune 500 firms choose “nonnumeric” PS models • Firms with outside funding often chose scoring PS models • Firms without outside funding often chose profit / profitability PS models

  18. Management of Risk:Terminology • Risk: Decision based on complete information about the probability of each possible outcome. • Uncertainty: Decision based on incomplete or insufficient data. • Game: Decision based under conditions of conflict.

  19. Areas of Uncertainty • Project timing & expected cash flow. • Direct outcome of project, i.e. what exactly will the project accomplish • Side effects and unforeseen consequences of project

  20. PS Models • Idealized view of reality • Representing the STRUCTURE of the problem, not the detail • Deterministic or stochastic

  21. Unweighted 0-1 Factor Model Unweighted Factor Scoring Model Weighted Factor Scoring Model Constrained Weighted Factor Scoring Model S = ∑(x) S = ∑(s) S = ∑(s·w) S = ∑(s·w) ∏(c) [Handout] Numeric PS Models:Scoring

  22. General Cost Terms • Handout

  23. Estimating Main types of construction?

  24. Buildings Commercial Offices Stores Residential Single Multi-family, Hi-rise • Public Occupancy Schools Hospitals Police/fire Transportation terminals

  25. Heavy Construction Roads Bridges Ports and Airports Tunnels Pipelines • Industrial Manufacturing Plants Process Oil and Gas Chemicals Agricultural Power Generation

  26. Specialties Hazardous Waste Military Facilities Communication Golf Courses Demolition Arctic

  27. Also might divide New construction Renovation/remodel/upgrade Demolition • Or by • Owner State Federal Local Private

  28. Location • Near industrial centers • Off highway • Off shore • Remote (Bush) • Foreign • Various Locations

  29. By project contracting plan • Traditional • Design-construct • Turnkey • Fast-track • Owner’s forces

  30. By contract type • Lump sum (AKA hard dollar) • Cost plus • Cost reimbursable (fixed fee) • Unit price

  31. Contractor’s Organization • No sub-contractors • All sub-contractors  • Labor Force • Union (closed shop) • Non-union (open shop) • Mixed • (Double-breasted) • Local vs. Expat (expatriate)

  32. Who’s doing the estimate? • Owner • A/E • Contractor • Subcontractor • Government • Consultant

  33. When (what phase) • Concept • A/E Components • 15%, 35%, 65%, 95% • Is the budget fixed? • Cast in concrete • Contactor’s Bid • Post bid negotiations • Usually non-government • Changes

  34. Non-construction Estimates • Owners estimate of owners expenses Contract administration Insurance Lost or interrupted work Permits and fees Housing and travel

  35. A/E estimate of A/E’s expenses (Contract type) Hours Other expenses Sub-consultants Soils Travel Construction phase? Inspection Testing

  36. Types of estimate • Guess • Educated guess • SWAG With or without lanyap • Historical, similar project • Historical, unit prices • Estimating guides • Crew size and production rate

  37. Cost Items • Labor • Supervision • Installed Materials • Installed equipment • Supplies and Consumables

  38. Subcontractors • Home Office Expense • Overhead • Bonds, Insurance, Permits • Job Office Expense • Mobilization • Travel • Demobilization

  39. Operating Equipment • Capital cost • Operation costs • Fuel • Permits • Insurance

  40. Project Selection Estimates • Usually based on conceptual • Estimate of costs • Estimate of benefits • “The future, cloudy it is.” • Master Yoda

  41. Engineering Design Estimates • Selecting materials Insulation thickness Heat loss Fuel expense • Design life • Economic analysis • Careful with “free money” Never call it that

  42. Change Orders • Type I and Type II • Extra labor, materials, etc. • Delays • On critical path? • Delay job. • Extra overhead • Legal and consulting

  43. Steps in contactor’s estimating process

  44. Preliminary • Get resources to bid the job • Decide if you will bid • Get plans, get on bidders list • Engineer’s estimate reasonable • Broad brush estimate, schedule • Subcontracting strategy • Consider your resources • Call your bonding company • Do you still want to bid?

  45. Attend the pre-bid meeting!

  46. Estimate • Manager allocates work • Be sure subs will bid • Take off major installed equipment Check delivery times Barge schedules Schedule for quote Check delivery options, FOB • Take off quantities • Special matters • Pre-bid fly over • Hire consultants • Do your own borings?

  47. Historical unit prices • Escalate? • CPI, ENR • Felix work

More Related