IT project management The cost estimating process. The following is an excerpt from Project Management for Business, Engineering, and Technology, written by John. A factored estimate requires that all process equipment must be priced. A factored estimate is produced by taking the cost of individual types of process equipment. Wwwdecracom General Installation DECRA Villa Tile 3 Introduction The instructions and drawings included here are intended only as a guide for the installation of DECRA. Estimating Process Equipment Installation' title='Estimating Process Equipment Installation' />By submitting your personal information, you agree that Tech. Target and its partners may contact you regarding relevant content, products and special offers. You also agree that your personal information may be transferred and processed in the United States, and that you have read and agree to the Terms of Use and the Privacy Policy. Nicholos and Herman Steyn. It is reprinted here with permission from Elsevier Copyright 2. Read the excerpt below to learn about IT project management and the cost estimating process, or download a free. IT project management The cost estimating process. Estimate versus target or goal. Sometimes the word estimate is confused with target and goal. It shouldnt be. An estimate is a realistic assessment based upon known facts about the work, required resources, constraints, and the environment, derived from estimating methods, whereas a target or goal is a desired outcome, commitment, or promise. Other than by chance, the estimate usually will not be the same as the target or goal. That said, once computed the estimate can be compared to a target value or goal, and revised by making hard headed changes to the cost originswork tasks, resources, schedules, etc. The point is, an estimate should be determined independently of any target or goal afterward it can be altered by adjusting the work and resources to bring it as close as possible to the target, but never should the estimate be a simple plug in of the target value. Purchasing Home PagePurchasing is a group of Professionals providing the service of acquiring goodsservices as required by the client Regional departments in a. Accuracy versus precisionAccuracy represents the closeness of the estimated value to the actual value the accuracy of a project estimated to cost 9. In contrast, precision is the number of decimal places in the estimate. An estimate of 7. Accuracy is more important than precision the aim is to derive the most accurate estimate possible. Could anybody tell me where I could find Lang Factors I have read a lot about how they depend on the equipment, the industry and location, but I have not been. A. Allocation of costs is the transfer of costs from one cost item to one or more other cost items. Allowance a value in an estimate to cover the cost of known but. B R Installations Ltd have been trading for 27 years with myself Russell Mace as Managing Director, directly involved from the beginning. Primarily we set out as a. CAMI has conducted over 4 decades of member led collaborative research in Cost Management, Activity Based Costing, Activity Based Management, Target costing, Process. Estimating Process Equipment Installation' title='Estimating Process Equipment Installation' />Classifying work tasks and costs. The cost estimating process begins by breaking the project down into work phases such as design, engineering, development, and fabrication, or into work packages from the WBS. The project team, including members from the involved functional areas and contractors, meets to discuss the work phases or packages, and to receive specific work assignments. The team tries to identify tasks in the project that are similar to existing designs and standard practices and can readily be adopted. Work is classified either as developmental or as an adaptation of existing or off the shelf OTS designs, techniques, or procedures. Because developmental work requires effort in design, testing, and fabrication, cost estimating is more difficult compared to OTS due to the greater uncertainty about what needs to be done. Installing Open Cobol Windows on this page. Overruns for developmental work are common, especially due to inaccurate labor estimates. In contrast, estimating for OTS items or duplicated work is straightforward because it is based upon known prices, or records of material and labor costs for similar systems or tasks. It is thus often beneficial to make use of existing designs and technology as much as possible. Estimated costs are classified as recurring and nonrecurring. Recurring costs happen more than once and are associated with tasks periodically repeated, such as costs for quality assurance and testing. Nonrecurring costs happen once and are associated with development, fabrication, and testing of one of a kind items, or procurement of special items. In the pure project form of organization the project manager delegates the responsibility for the estimating effort, combines the estimated results, and presents the final figures to management. In a matrix organization, estimating is the joint responsibility of the project and functional managers, though the project manager coordinates the effort and accumulates the results. The estimating effort requires close coordination and communication between the estimating groups to avoid redundancies and omissions. Although this typifies the cost estimating process, the actual method used to estimate cost figures will depend on the required accuracy of and the information available to make the estimate. Cost estimates are determined using variants of four basic techniques expert opinion, analogy, parametric, and cost engineering. Expert opinion. An expert opinion is an estimate provided by an expert someone who from breadth of experience and expertise is able to provide a reasonable, ballpark estimate. It is a seat of the pants estimate used when lack of information precludes a moredetailed, in depth cost analysis. Expert opinion is usually limited to cost estimating during the conception phase and for projects that are poorly defined or unique, for which there are no previous, similar projects to compare. Analogy estimate. An analogy estimate is developed by reviewing costs from previous, similar projects. The method can be used at any level overall project cost can be estimated from the cost of an analogous project work package cost can be estimated from other, analogous workpackages and task cost can be estimated from analogous tasks. The cost for a similar project or work package is analyzed and adjusted for differences between it and the proposed project or work package, taking into account factors such as dates, project scale, location, complexity, exchange rates, and so on. If, for example, the analogy project was performed 2 years ago and the proposed project is to commence 1 year from now, costs from the analogy project must be adjusted for inflation and price changes during the 3 year interim. If the analogy project was conducted in California and the proposed project will be in New York, costs must be adjusted for site and regional differences. If the size scope, capacity, or performance of the proposed task is twice that of the analogy task, then the costs of the analogy task must be scaled up. However, twice the size does not mean twice the cost, and the size cost relationship must be determined from analogy or formulas based on physical principles. Example 3 Estimating project costs by scaling an analogy project. So called process industries such as petrochemicals, breweries, and pharmaceuticals use the following formula to estimate the costs of proposed projects Cost proposed Cost analogyCapacity proposedCapacity analogywhere proposed refers to a new facility and analogy to an analogous facility. In practice, the exponent varies from 0. Suppose a proposed plant is to have a 3. Using an analogy project for a plant with 2. Because the analogy method involves comparisons to previous, similar projects, it requires an extant information database about prior projects. Companies that are serious about using the analogy method must rely on good project cost documentation and a database that classifies cost information according to type of project, work package, task, and so on. When a new project is proposed, the database is used to provide cost details about prior similar projects and work packages. Of course, the first assumption in the analogy method is that the analogy to be used is valid sometimes this is where things go awry. Example 4 A case of costly mistaken analogy. In the 1. 95. 0s and 1. USA, General Electric and Westinghouse, the two main contractors, together lost a billion dollars in less than 1.