This difference was then applied to the federal budget to estimate a 9.91% cost increase, or $8.6 billion annually. It cost about $575 for the truck rental, pads, hand truck, rope, boxes, and gas.". John makes a stop at a store that sells moving supplies at discount rates. If a quick estimate is needed, the high-low method may be appropriate. Reconsidering the selection of the project should take into consideration the economic ratings of the competing projects that were not chosen and who the project champions are for the projects that would be affected. It also provides references the manager can use to justify the estimate. Refer to the definitions of estimate to complete (ETC) for typical and atypical variances in AC. How is the scattergraph method used to estimate fixed and variable costs? Saylor Publications. Question: Recall the conversation that Eric (CFO) and Susan (cost accountant) had about Bikes Unlimiteds budget for the next month, which is August. During the project, the manager can evaluate the schedule using the schedule variance (SV) and the schedule performance index (SPI) and the budget using the cost variance (CV) and the cost performance index (CPI). "The Economics of the Davis-Bacon Act." Each method has its advantages and disadvantages. Figure 9.5 Fund Transfers and Expenditures. Total production costs assuming 400 units will be produced are calculated for each method given. Previous page. Estimate of the amount of money needed to complete the unfinished part of the project. Rows 4 and 5 indicate the budgeted cost of work performed and actual cost. The goal of step 3 is to calculate a value for total fixed cost (f). Our experienced team of cost estimators is led by an American Society of Professional Estimators (ASPE) Certified Professional Estimator. On larger projects, software that manages schedules can also manage costs and display costs by activity and by category. It could be an opportunity as well as a challenge. 8.6 Additional Complexities of Estimating Cash Flows. In reviewing the set of data points for January through December, it appears that October and November are relatively extreme points when compared to the other 10 months. It cost about $575 for the truck rental, pads, hand truck, rope, boxes, and gas. Because of the similarity of the projects, Johns initial estimate of the cost of the move was less than $700 and he decided that the cost would be affordable and the project could go forward. A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders. The sum of the budgeted amounts for the tasks that have been performed is the _______ _______ (two words). What is the actual cost (AC) at the end of week seven? Ask them for advice on how to become an acknowledged expert in estimating and then share what you learn with your classmates. He returns with some of the items on his list, but this phase of the job is not complete by the end of day six. Now Susan can estimate monthly production costs (Y) if she knows how many units Bikes Unlimited plans to produce (X). Access the cloud based application 24/7 on desktop or . Give an example of an analogous estimate and a parametric estimate that are different from those described in the text. Get a demo of our construction software. Such alternatives can reduce costs if they are acceptable. The questions in this section refer to the project budget shown below. You can ask your advisor or registrar for more info. If you view the project schedule as a hierarchy where the general descriptions of tasks are at the top and the lower levels become more detailed, finding the price of each item at the lowest level and then summing them to determine the cost of higher levels is called bottom-up estimatingSumming of estimates of each detail of the activity and project.. After evaluating the bids by the moving companies, John decides the savings are worth his time if he can get the packing done with the help of his friends. Dion and Carlita were both trying to lose weight and just wanted a nice salad. 978-1933461304. Accountants who use this approach are looking for an approach that does not simply use the highest and lowest data points. His friend replied, I moved from an apartment a little smaller than yours last year and the distance was about the same. You consider the four principle cost estimation methods to estimate fixed and variable costs. Using the data for Bikes Unlimited shown back in Table 5.4 "Monthly Production Costs for Bikes Unlimited", regression analysis in Excel provides the following output. A schedule of money transfers is created that should match the need to pay for the activities. For over three decades, Lee Saylor, has been a leader in the construction consulting industry, drawing on experience from years in the field, in design offices, and in the courtroom. Because of the similarity of the projects, John's initial estimate of the cost of the move was less than $700 and he decided that the cost would be affordable and the project could go forward. The exercises are more open ended, which means that what you find might be completely different from what your classmates find, and you can all benefit by sharing what you have learned. An estimate that uses standard costs per unit such as price per square foot or price per cubic yard is a ____________ estimate. The $2,000,000 cash outflow must be included in the cash flows of the project for year 4 when calculating the NPV, IRR, and payback period. Complete the exercise by following these instructions: Navigate to the location where the student supplement files are stored and open Ch09EV.xls in a spreadsheet program such as MS Excel. For example, if you ask a construction company how much it would cost to build a standard office building, they will ask for the size of the building in square feet and the city in which the building will be built. Other parameters such as quality of finishes are used to further refine the estimate. Answer: As noted in the chapter, regression analysis uses a series of mathematical equations to find the best possible fit of the line to the data points. The scattergraph method helps with identifying any unusual data points, which can be thrown out when estimating costs. Estimates that are calculated by multiplying measured parameters by cost-per-unit values. 2014 CURRENT CONSTRUCTION COSTS: Saylor Publications: 9781933461304 The estimator knows the average cost per square foot of a typical office building and adjustments for local labor costs. Enter formulas in cells E20 and E21 to calculate the CPI and SPI. Excluding course final exams, content authored by Saylor Academy is available under a Creative Commons Attribution 3.0 Unported license. A positive CV indicates the project is under budget. If the costs of the activities up to the present vary from the original estimates, it will affect the total estimate for the project cost. Sum of budgeted expenses up to a particular point in the schedule. She responded with the following information: Using the previous equation, simply substitute 400 units for X, as follows: Thus total production costs are expected to be $578,428 for next month. Step 2. You can take any Saylor Direct Credit exam up to 3 times total. Read more below in the Proctoring section. Step 5. If certain data points seem unusual (statistics books often call these points outliers), we can exclude them from the data set when drawing the best-fitting line. For Johns move, he has a one-bedroom apartment, so he chooses the fourteen-foot truck. With hundreds of projects estimated each year, from small remodels to billion dollar building programs, LSA has the most accurate, up to date cost information for your type of project and geographical location. (Try this using the high activity level of 5,900 units and $380,000. The high and low data points may not represent the data set as a whole, and using these points can result in distorted estimates. Location: Oakland, CAProject Cost: 700,000,000Client: Bovis Lend Lease (PM) Oakland USD (Owner). Calculate the total fixed cost (f). An activity can have costs from more than one vendor plus costs for labor and materials from internal sources. Use the Decrease Decimal or Increase Decimal buttons as needed to display two decimal places. This project has three completed activities whose durations are indicated by the blue bars in row 2. Type 30 and then, on the Formula bar, click the Enter button. There are factors for market, building type, prevailing wage, etc. Saylor Academy The budgeted cost of work scheduled that has been done. Use the solutions you prepared for Note 5.15 "Review Problem 5.2", Note 5.17 "Review Problem 5.3", Note 5.19 "Review Problem 5.4", and Note 5.21 "Review Problem 5.5" to do the following: The cost equations for each of the four methods used in Note 5.15 "Review Problem 5.2", Note 5.17 "Review Problem 5.3", Note 5.19 "Review Problem 5.4", and Note 5.21 "Review Problem 5.5" are shown here. Costs are broken down by task, material, and multiple labor rates. The high-low method varies significantly from the other three approaches, likely because only two data points are used to estimate unit variable cost and total fixed costs. , life cycle cost, material selection and specification research to give architects, engineers, contractors, developers, lenders and owners complete command over project cost control, quality and on-time completion. Once the data points are plotted as described in step 1, draw a line through the points touching one data point and extending to the y-axis. Bottom-up estimating determines the cost of each detail and aggregates them to determine activity cost estimates. . For example, the subtotal feature could be used in Excel and collapsed to show the subtotals for the two categories of costs, as shown below. Take the course! In this example, the sum of packing materials and truck expenses is estimated to be $661.25. Meets a standard of reliability and capability. Saylor Academy is a nonprofit initiative working since 2008 to offer free and open online courses to all who want to learn. Normally, this judgment is based on many years of experience estimating projects, including incorrect estimates that were learning experiences for the expert. Similarly, the cost variance is the difference between the EV and the actual cost (AC). A method of cost analysis that uses a series of mathematical equations to estimate fixed and variable costs; typically done using computer software. Saylor Publications Inc. - Construction Resources A project is about a third of the way through its scheduled activities, and an earned value management report has been prepared. Less experienced managers who are required to make analogous estimates can look through the documentation that is available from previous projects. Notice that during most of the project, there were more funds available than were spent except at activity 6 when all the available funds were spent. Thus organizations must estimate their fixed and variable costs. In Johns move, John was able to buy most of the items at a discount house that did not have a complete inventory and, he chose to buy an extra pair of lift straps. It combines the scheduled activities with detailed cost estimates of each activity. Each method has its advantages and disadvantages, and the choice of a method will depend on the situation at hand. The RFP is sent to a list of vendors who are qualifiedMeets a standard of reliability and capability.meet standards of reliability and capabilityto perform this type of work. If the project consists of activities that are common to many other projects, average costs are available per unit. He is not sure if any companies offer this option, so he decides to ask three moving companies for bids. National Estimator Cloud Decisions based on incomplete information made by people who have extensive personal experience. You must wait at least 14 days between any two attempts. See detailed licensing information. The ratio of earned value to planned value gives an indication of how much of the project is completed. The Relevant Range and Nonlinear Costs - GitHub Pages Regression analysis performed using Excel resulted in the following output: The cost equation using the data from regression analysis is: Thus total production costs are expected to be $577,891 for next month. Schedule variance is the ____ minus the _____ and cost variance is the ____ minus the _____ (use acronyms). Estimating Oakland USD 90 School Building Program Saylor's work on the 90 school Building Program included constructability analysis, project management, conceptual and final design phase cost estimates, and change order estimates. Difference between the earned value (EV) and the planned value (PV). Figure 5.6 Estimated Total Mixed Production Costs for Bikes Unlimited: Scattergraph Method, The total fixed costs are simply the point at which the line drawn in step 2 meets the y-axis. of experienced managers who can make accurate estimates with less detailed information. This course is eligible for college credit through Saylor Academy's Saylor Direct Credit Program. Some government organizations are required to use the qualified vendor with the lowest bid. Based on the scattergraph prepared, all agreed that the data was relatively uniform and no outlying data points were identified. What is the schedule variance (SV) at the end of week seven? In the project budget profile shown in Figure 9.5 "Fund Transfers and Expenditures", there is no margin for error if the total of the first six activities exceeds the amount of funding at that point in the project. For example, if a contractor is pouring concrete for a large project, their contract may call for partial payment after 25 percent of the total volume of concrete is poured as determined by cubic yards of concrete. Account analysis requires that a knowledgeable employee (or group of employees) determine whether costs are fixed, variable, or mixed. Simply use the data point the line intersects (July: 3,500 units produced and $230,000 total cost), and fill in the data to solve for v (variable cost per unit) as follows: We know from step 3 that the total fixed costs are $45,000, and from step 4 that the variable cost per unit is $52.86. It cost about $575 for the truck rental, pads, hand truck, rope, boxes, and gas. Because of the similarity of the projects, Johns initial estimate of the cost of the move was less than $700 and he decided that the cost would be affordable and the project could go forward. What methods do organizations use to estimate fixed and variable costs? Save the file on your computer as Ch09EVStudentName.xls. The budgeted cost of work scheduled (BCWS)All the items in the cost estimate. Learn more . The process of matching the schedule of transfers with the schedule of activity payments is called reconciliationMatching funds provided with funds spent.. Prevailing wages and government contracting costs For example, if labor costs on the first part of a project are estimated at $80,000 (EV) and they actually cost $85,000 (AC), the cost variance will be 0.94. Refer to Figure 9.5 "Fund Transfers and Expenditures" that shows the costs of ten major activities in a project. Once the size is determined, other parameters, such as distance and days, are used to estimate the cost of the truck rental. John wants to find out how much it would cost to hire a skilled crew to load and secure the furniture in the truck and then have another crew from the same company meet him in Atlanta to unload the truck and help him unpack. Cost Estimating | Sunland Group, Inc. From pre-construction coordination to recognize potential problems before they occur, to on-site supervision of scheduling, cash flow, milestone updates, and change orders, LSA helps agencies deliver high quality projects on time and within budget. If the manager decides that the cost variance up to this point in the project is atypicalOpposite of typicalnot typical.not typicalthen the estimate to complete is the difference between the original budget for the entire projectthe budget at completion (BAC)Budget for the entire project.and the earned value (EV) up to that point. What does the cost equation look like for each approach at Bikes Unlimited? This process of subtotaling costs by category or activity is called cost aggregationSum of component costs.. Because the costs are associated with activities and each activity has a start date and a duration, it is possible to calculate how much money needs to be spent by any particular date during the project. Funding transfers are arranged to reconcile money spent to money from funding sources in a timely manner. You get access to 10 Craftsman estimating costbooks for one low monthly cost. Describe the method of combining cost estimates with a schedule to create a budget. Funds allocated for this purpose are called contingency reservesMoney held to pay for predictable but unspecified extra costs..Project Management Institute, Inc., A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th ed. Step 3.

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