Topics


 Definition
 Accuracy of Conceptual Estimates
 Liability of Conceptual Estimates
 Preparation of Conceptual Estimates
 Broad-Scope of Conceptual Estimates
 Conceptual Estimate Adjustment
 Narrow- Scope Conceptual Estimates
 Conceptual Cost for Process Industry
 Definition

 A conceptual estimate is also known as a top-down,
order of magnitude, feasibility analogous, or
preliminary estimate. It is the first serious effort
made to predict the cost of the project.
Accuracy of Conceptual
Estimates

 The accuracy of any estimate will depend on the
amount of information known about a project. A
conceptual cost estimate should be identified by the
information from which the estimate was complied.
 Liability of Conceptual
Cost Estimates

 Generally, the designers are not obligated under
standard-form contracts to guarantee the
construction cost of a project. However, as a part of
their design responsibility, designers prepare an
estimate of the probable construction cost for the
project for which they have prepared the design.
 Preparation of
Conceptual Estimates

 There are many variations in the contract
arrangements among the three principal parties in a
project( owner, designer and contractor). The
conceptual estimate is generally prepared by the
owner during the owner’s feasibility study or by the
designer during the design phase. It may be
prepared by the contractor for negotiated work
between an owner and a contractor.
 Request for Estimate


Study and Interpretation of
Information

Collect Additional
Information

Conceptual Cost
Estimating

Report to Management

Not Approved Approved

Decision Making Preliminary
Broad-Scope Conceptual
Estimates

 A broad-scope conceptual cost estimate of a
proposed project is prepared prior to the design of
the project . It is prepared from cost information on
previously completed projects similar to the
proposed project. The number of units, or size of the
project is the only known information , such as the
number of square feet of building area, the number
of cars in a parking garage, the number of 345-kV
transmission line, the number of barrels of crude oil
processed per day, etc.
 
 The unit cost should be developed from a weighing
of the data that emphasizes the average value, yet it
should account for the extreme maximum and
minimum values. Equation (4.1) can be used for
weighing cost data from previous projects.
 
𝐴 +4𝐵+𝐶
 UC =
6
Where UC= forecast unit cost
A= minimum unit cost of previous projects
B = average unit cost previous projects
C = maximum unit cost of previous projects
 Conceptual Estimate
Adjustment

 Adjustment for time
 Adjustment for location
 Adjustment for size
 Combined Adjustment
 Unit-cost Adjustment
 Adjustment for Time


 The use of cost information from a previous project
to forecast the cost of a proposed project will not be
reliable unless an adjustment is made proportional to
the difference in time between the two projects. The
adjustment should represent the relative inflation or
deflation of costs with respect to time due to factors
such as labor rates, material costs, interest rates, etc.
 Adjustment for Location


 The use of cost information from a previous project
to forecast the cost of a proposed project will not be
reliable unless an adjustment is made proportional
that represents the difference in cost between the
locations of the two projects. The adjustment should
represent the relative difference in costs material,
equipment and labor of the two locations. Indices
that show the relative difference in construction costs
with respect to geographical location is usually
published by many organizations.
 Adjustment for Size


 The use of cost information from a previous project
to forecast the cost of a future project will not be
reliable unless an adjustment is made that represents
the difference in size of the two projects. In general,
the cost of a project is directly proportional to its
size. The adjustment is generally a simple ratio of the
size of the proposed project to the size of the
previous project from which the cost data are
obtained.
 Combined Adjustment


 The conceptual cost estimate for a proposed project
is prepared from cost records of a project completed
at a different time and at a different location with a
different size. The estimator must adjust the
previous cost information for the combination of
time, location and size.
 Unit-cost Adjustment


 Although the total cost of a project will increase with
size, the cost per unit may decrease. For example, the
cost of an 1800 square foot house may be $53.50 per
square foot whereas the cost of a 2,200 square foot
house of comparable construction may be only
$48.75 per square foot. Certain items such as the
kitchen appliances, garage, etc., are independent of
the size and project.
 Narrow-Scope Conceptual
Cost Estimates

 A narrow-scope conceptual estimate is prepared in a
manner similar to that for a broad-scope estimate,
except the project is subdivided into parameters. For
a building construction project the parameters might
be square yards of asphalt parking, cubic yards of
concrete foundations, tons of structural steel, square
feet of finished floor, number of doors, etc. For a
steel pole electric transmission line, the parameters
might be acres of clearing land, cubic yards of
concrete foundations, tons of steel pole, linear feet of
conductor wire, number of insulator strings, etc.
 Conceptual Costs for
Process Industry

 Cost capacity curve
 Capacity ratios, raised to an exponent
 Plant cost per unit of production
 Equipment factored estimates
 Computer-generated estimates
 Cost Capacity Curves


 A cost capacity curve is simply a graph that plots
cost on the vertical axis and capacity on the
horizontal axis. Estimates generated by this method
are some times called curve estimates. These curves
are developed for a variety of individual process
units, systems, and services. The minimum
information needed to prepare an estimate by cost
capacity.

 Capacity Ratios Raised to an Exponent


 Capacity ratios raised to an exponent is another
estimating technique for conceptual estimating in the
process industry. This method takes into account the
effect of economy of scale on the total installed cost.
For example, if the cost of Processed Unit B with
capacity B is unknown, then the estimated cost of
Processed Unit A is calculated by multiplying the
cost of Processed Unit B times the ratio of the process
unit capacities raised to an exponent(X), as shown in
the eq:
 
 Cost of Process Unit A = ( Cost of Process Unit B )
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑈𝑛𝑖𝑡 𝐴 𝑥
x( )
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑈𝑛𝑖𝑡 𝐵
 Plant Cost per Unit of Production


 This conceptual estimating method is used to
estimate the total plant cost based on previously
completed projects. This method is a very simple and
approximate estimating technique where the only
information available is the product description and
the plant capacity.
 Equipment-Factored Estimates


 For the process industry, equipment factored
estimates are derived by applying various factoring
techniques to estimated equipment costs. The factors
used are developed and updated utilizing return cost
data from completed.
 Computer-Generalized Estimates


 Numerous commercial computer software systems
exist for estimating capital costs for different types of
industries, including the process industry, building
construction industry, and the heavy/highway
infrastructure industries. These systems can be
simple or very sophisticated. Most of the software
packages can operate on a personal computer and
are furnished with a cost database, which is updated
on an annual basis.
Thank You!!!!
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