Project Cost Estimation, Budgeting, and Value Engineering Techniques

Introduction

Before starting a project, it's crucial to assess the initial financial projections made by project appraisers. Inaccurate cost estimates can lead to significant budget overruns, impacting the project's financial efficiency throughout its lifecycle. Management is not only concerned with accurate estimates but also with reducing total lifecycle costs, improving budget adherence, and enhancing overall project value. Choosing the right estimation technique at each project stage depends on available information and desired precision. Effective cost optimization does not compromise quality or functionality but applies processes and techniques to enhance project value.

Participants will learn efficient cost estimation methods, manage expenses to avoid wasteful spending, align cost estimates with procurement methods, and maximize project delivery value. The course covers various estimation processes, including price estimates, budget estimates, pre-construction services, contractor and subcontractor work, general conditions, self-performed work, negotiated contracts, and lump sum and unit price estimates.

Additionally, the course introduces value engineering techniques, focusing on return on investment for lifecycle costs during planning, purchasing, and execution phases. Value engineering proposes alternatives to meet client needs effectively throughout the project lifecycle.

Completing this course will enhance participants' skills in cost estimation, budgeting, creativity, problem-solving, and decision-making in project management.

Objectives

On completion of this Project Cost Estimation, Budgeting, and Value Engineering Techniques course, the trainee will be able to:

• Apply various project estimating skills from early conceptual to detailed final estimates.
• Recognize different estimate levels for optimal cost forecasting.
• Identify contract types based on risk distribution.
• Use incentive structures to improve project performance.
• Understand core principles of Value Engineering and Value Analysis.
• Utilize value engineering to enhance project management practices.
• Identify necessary information to prepare a detailed project scope.
• Collect and structure relevant information and expenses for key project components.
• Incorporate stakeholder input into project scope development.
• Communicate project value enhancements to management and stakeholders.
• Apply life cycle costing principles effectively.
• Propose favorable project alternatives with sound justification.
• Provide itemized project costs in a comprehensive structure.
• Estimate budgets to evaluate project feasibility.
• Balance costs between implementation strategies or technical solutions.
• Prepare tendering rules and define payment methods to incentivize timely project completion.
• Manage budgeting during different design phases.
• Provide accurate estimates during programming, schematic design, and design development.
• Compare alternative costs to prevent unnecessary expenditures while maintaining quality.
• Determine ideal contractor structures for enhanced project delivery.
• Conduct risk assessment and allocate risks cost-effectively, setting appropriate reserves.
• Strategize and execute the bidding process.
• Prepare lump-sum, unit price, cost-plus, and time-and-materials estimates and contracts.
• Track progressive budgeting through various design stages.
• Control non-value-adding management phases and meet management expectations.
• Employ a systematic and interdisciplinary approach to enhance value and minimize costs.

Training Methodology

• Case Studies
• Interactive Sessions
• Simulations
• Group Discussions
• Software Tools

Course Outline

Unit 1: Introduction to Cost Estimating

• Life cycle considerations for estimation
• Design stage structure and phases
• Estimating accuracy by phase
• Conceptual design estimates
• Preliminary and broad concept estimates
• Cost indexes and partial estimates
• Complete construction estimates
• Basic procedures and contract types
• Competitive bidding and procurement methods
• Contingency and risk assessments

Unit 2: Broad Scope Cost Estimating Techniques

• Broad scope cost adjustments
• PERT cost analysis and unit cost estimation
• Standard deviation and Z value table
• Estimation accuracy and revisions
• Cost of labor and materials adjustments
• Learning curves and unit price adjustments

Unit 3: The Dynamics of Budget Preparation

• Estimation by design phase
• Budgetary estimates in programming and design phases
• Estimating construction support services
• Bidding documents and pre-construction services
• Budget control measures

Unit 4: The Process of Estimation for Bid Contract

• Pre-estimating activities and process
• Cost of work performed in-house
• Estimation validation and subcontractor hiring
• Bid summary and final mark-ups

Unit 5: Unit Price Estimates

• Unit price bid forms
• Direct cost estimation and mark-up schedules
• Provision for variation-in-quantity contracts
• Risks and bidding conclusions

Unit 6: Negotiated Contract Estimating

• Guaranteed maximum price estimates
• Procurement process and documentation
• Miscellaneous fees and cost evaluation
• Fee policies and bid submission

Unit 7: Types of Contract and Method of Compensation

• Contractual risk sharing and risk matrix
• Firm fixed price and performance-based contracts
• Cost reimbursement and award fee contracts
• Construction management on a percent fee-basis

Unit 8: Estimation Using Narrow Scope Estimating Techniques

• Scrambling estimating themes and factor methods
• Cost estimation relationships (CER)
• Design-to-cost estimates and target costs
• Parametric estimating and performance assessment

Unit 9: Approach to Bringing Value Engineering into Projects

• Fundamental concepts and principles of value engineering
• Aims and advantages of value engineering
• Project definition and scope development
• Lifecycle costing techniques and stakeholder management

Unit 10: The Function Analysis Phase

• Function analysis significance and project constraints
• Cost-value analysis methodology
• FAST diagram and technical FAST for project management

Unit 11: The Creative Phase

• Creativity in project management
• Individual vs. group thinking and creativity techniques
• Brainstorming and problem-solving methods

Unit 12: The Evaluation Phase

• Project screening and assessment methods
• Quantitative and subjective assessments
• Risk analysis and feasibility studies
• Benefit-cost analysis and decision-making

Unit 13: The Planning and Reporting Phases

• Creating and evaluating VE opportunities
• Work breakdown structures and communication
• Reporting VE results and continuous improvement