Location, Location, Location
No, I am not talking about real estate, I’m referring to location of the project when it comes to project estimating. I was assembling an estimating module for one of my workshops and got into the factors used in estimating. This article will be about some of the factors we use and why. On a day to day basis we use factors for labour productivity. We also take a labour rate from one area and use a factor to get a rate for another area. For conceptual estimates, we may want to evaluate a project by comparing the installed cost in one country / location to a known country / location. We use factors in the conceptual phase as we don’t want to spend too much time or money and usually need a quick number.
Different countries use base labour rates from various published information. The US uses US Gulf Coast (USGC) rates or RS Means. In Canada they use, amongst others, RS Means and Richardson Engineering. These are by no means the only source of information, but estimators will find rates that are the most suitable for their area. We are in the Pacific Northwest and use the USGC rates. We take the USGC rate, and based on what we know about our area, we apply a factor to get the rates for union and non-union labour in our area. We work in several locations in the US and factors are developed for these different areas. In essence what we have done is taken one base set of rates (USGC) and using factors have made several sets of rates we can use in our estimates. The factors are based on our experience and knowledge of what transpires in the different locations. Without the experience you will have trouble developing the factor.
But That’s Not All
With our detailed estimates we need factors for productivity. Each plant we work in has to be looked at since productivity is not the same across the different plants. Things like weather will affect the productivity. Here in the Pacific Northwest we did a project where we ran underground electrical duct bank. Well, we did our estimates based on doing the ground work during the summer months when the weather is dry. However, funding did not happen until late fall which put us into winter work. Winter work here is rain, rain, and more rain. During these cold, wet periods, the productivity falls off by about 20%. Unless the schedule explicitly states winter work, you are going to estimate productivity for summer work. Here, we have rain but I have worked in areas of -40 C (F). Productivity in these temperatures is abysmal.
Hurry Up And Wait
Safety programs within plants require contractors to have permits to do work. The contractors need to let the operators know where they are working in the area and what they are doing. Contractors need various permits including Hot Work, Confined Space, and Excavation. All permits are issued by the Operators. Depending on the plant requirements, obtaining these permits can take a while to get. The contractor foreman usually goes to the Operators to get the permit while the crew stands around and waits. In some cases we are seeing 2 hour waits for permits. Out of a 10 hour day we are getting 7 hours or less work out of a crew which is a big hit to our productivity. We apply a factor to our estimate labour rates to try and cover these types of delays. You have to understand the permitting process wherever you are working to take these delays into account in your productivity factors. Shutdowns are even worse.
Other plants we work in don’t take this long so productivity factors between plants is not consistent. These factors change all the time so you should always be asking your estimators what they used, how it was developed, and why they used the number. Can they back up the numbers since the owner will question the factors. The estimate basis should indicate what labour rate was used, what productivity factor or any other factor was used. With the project noted above, between funding approval in September and January, the permitting process tightened up and was worse than before. In order to maintain productivity, the crews tried to be the first ones in line with the operators. One crew started work at 5:30 am! Even at this time in the morning there were still delays. The contractors continuly looked at other options to try and speed up the process. Our estimate basis included productivity factors based on what we knew at the time. Since we had spelled out what factors we were using for productivity, be had a baseline to manage against. It is extremely important to have a defined baseline as it makes the change management process easier to handle.
How Do They Do That?
Sometimes we have to do estimates for new plants or equipment installations in locations other than where we are located. When projects are being considered, an estimated cost is required to determine if the project is viable. In these early stage estimates, the costs are factored. Say, you are located in the US and the work will be done in France, (for example). How do you figure out what it will cost? First you need to work with someone who has an extensive data base of project costs, productivity, and equipment costs. There are data bases that contain information shown in the following diagram.
This is an example of a log curve plot showing the cost of pumps based on kilowatts for the driver (this is an example only, not for use). Estimators collect this information from past projects and using regression analysis develop a cost line. Estimators will have curves like these for all different kinds of equipment, vessels, towers,structural steel, etc. As part of the project study, the process group will develop preliminary equipment sizes. In this case it would be the pump driver size. Knowing the kilowatts, proceed along the horizontal axis and find the corresponding cost on the vertical axis. These curves are not necessarily transferable between industries. If you are crossing industries, be very careful and make sure it is applicable to your particular industry. This figure is for pumps in the US and will be used to provide an estimated cost for the pumps to be used in France.
For each piece of equipment a factor can be applied to develop an overall, total cost of installation in another location. These factors are based on long term installation costs or developed from published figures. All locations will have different factors as some locations have no manufacturing capability, poor productivity, monetary issues, etc. These factors should be used for conceptual estimates only and NOT for funding estimates.
This is just a short overview of some of the factors used in estimating. Developing these factors takes a lot of experience and background data. This work is best left to experienced estimators. As a project manager you have to understand what is being done, agree on the numbers, and make sure the background information is documented correctly.
Fundamentals of Project Management
February 22-24, 2012 Calgary, Alberta
March 7 - 9, 2012 Houston, Texas
This practical workshop will equip participants with the tools, skills, behavioral attributes, and competencies needed to manage design and construction projects. Using lecture, discussion, and case studies, the focus will be on practical applications and techniques for immediate implementation and project results. Participants learn "what" to do, "how" to do it, and "why" they need to do it. The course is designed for people involved in managing the design and construction of projects in operating facilities, including engineers, technologists, technicians, tradesmen, and maintenance personnel. Participants will receive a copy of the instructor's published book, "Plant Project Engineering Guidebook".
Introduction & Definitions
Project Manager Behaviors
Budgeting & the Staged Gate Process
Project Authorization and Scope of Work
Request For Proposals & the Bidding Process
Contract Administration and Earned Value Analysis
Commissioning & Startup
Information at: www.peice.com