Project Selection, Economics, Estimating

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Project Selection, Economics, Estimating

• Dr. Perkins
• CE 438
• 6 February 05

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Today

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

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Remember

• Remember Project Life Cycle
• Organizations

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Project Selection
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• 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

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Project Selection

• Values, Vision, and Mission
• Objectives and Goals
• Strategy
• Programs and Projects

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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?

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Note!!

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

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

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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

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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

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Nature of PS modelsCaveats

• Project decisions are made by managers --- NOT by
  PS model!
• A PS model APPROXIMATES, but does NOT DUPLICATE
  reality!

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Nature of PS ModelsMethod

• Start with detailed list of firms goals
• Create list of project evaluation factors (PEFs)
• Weigh every element in PEF list
• Compute an overall score for project based on
  weighted PEFs
• Select project that has the closest alignment
  with firms goals

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Project Evaluation Factors (PEFs)

• Who decides??
• Production Factors
• Marketing Factors
• Financial Factors
• Personnel Factors
• Administrative and Misc. Factors

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Nonnumeric PS Models

• Sacred Cow
• Operating Necessity
• Competitive Necessity
• Product Line Extension
• Comparative Benefit Model

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Numeric PS ModelsProfit / Profitability

• Average Rate of Return
• Discounted Cash Flow (NPV)
• Internal Rate of Return
• Benefit/Cost (Profitability Index)
• Other Profitability Models

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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

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Management of RiskTerminology

• 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.

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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

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PS Models

• Idealized view of reality
• Representing the STRUCTURE of the problem, not
  the detail
• Deterministic or stochastic

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Numeric PS ModelsScoring

• Unweighted 0-1 Factor Model
• Unweighted Factor Scoring Model
• Weighted Factor Scoring Model
• Constrained Weighted Factor Scoring Model

• S ?(x)
• S ?(s)
• S ?(sw)
• S ?(sw) ?(c)
• Handout

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General Cost Terms

• Handout

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Estimating

• Main types of construction?

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

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

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• Specialties
• Hazardous Waste
• Military Facilities
• Communication
• Golf Courses
• Demolition
• Arctic

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

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Location

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

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• By project contracting plan
• Traditional
• Design-construct
• Turnkey
• Fast-track
• Owners forces

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

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

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• Whos doing the estimate?
• Owner
• A/E
• Contractor
• Subcontractor
• Government
• Consultant

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When (what phase)

• Concept
• A/E
• Components
• 15, 35, 65, 95
• Is the budget fixed?
• Cast in concrete
• Contactors Bid
• Post bid negotiations
• Usually non-government
• Changes

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Non-construction Estimates

• Owners estimate of owners expenses
• Contract administration
• Insurance
• Lost or interrupted work
• Permits and fees
• Housing and travel

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A/E estimate of A/Es expenses

• (Contract type)
• Hours
• Other expenses
• Sub-consultants
• Soils
• Travel
• Construction phase?
• Inspection
• Testing

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Types of estimate

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

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Cost Items

• Labor
• Supervision
• Installed Materials
• Installed equipment
• Supplies and Consumables

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

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

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Project Selection Estimates

• Usually based on conceptual
• Estimate of costs
• Estimate of benefits
• The future, cloudy it is.
• Master Yoda

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Engineering Design Estimates

• Selecting materials
• Insulation thickness
• Heat loss
• Fuel expense
• Design life
• Economic analysis
• Careful with free money
• Never call it that

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Change Orders

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

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Steps in contactors estimating process
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Preliminary

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

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 Attend the pre-bid meeting!
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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?

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Historical unit prices

• Escalate?
• CPI, ENR
• Felix work

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Estimating guides

• Production rate
• See next
• Unit Price
• Read the front!
• Factors
• Crew size and production rate
• Size crew and supervision
• Equipment

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All methods

• Is production rate average or high?
• Where do you put you operating factor?
• Read the front!
• Check contract for delays, risk
• Liquidated damages
• Experience with owner, location, etc.

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Do you still want to bid??!!

• If so, secure bonding and financing
• Prepare bid documents with prices blank

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• Check subs and major suppliers again?
• When, to the minute, will they give you the
  price?
• How?
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• Develop plan for bid delivery.
• Communications
• Time

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Post bid

• Protest?
• Negotiations
• Intelligence?
• When is a deal a deal?

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Plan for changes

• Pre-job photos and videos
• Documenting changes
• Know the contract
• Document everything

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Ethics

• Never lie, cheat, or participate in any dishonest
  act
• Admit your mistakes forthrightly, if they are
  mistakes
• More often, just state the facts, without blaming
• anyone, yourself included
• Dont trade on the specifications unless it is
  in writing
• Nothing unethical about asking for what you have
  coming!
• Or demanding, if the situation warrants it.