Cost Estimate

A. Definition

Cost Estimate is an approximation or anticipated cost for specified work scope of a program, project, or operation. The Cost Estimate is the process of predicting the cost of a facility through quantitative analysis of the work required by the design documents to evaluate a single total value and may have identifiable component values. A project underestimation of resources and costs is one of the most common contributors to project failure. A reliable cost estimates are necessary for responsible management at every stage of the project. A main purpose of cost estimations are for a feasibility decision, funding arrangement and making a bid or contract. An accuracy of estimate is depended on the details of input information.

Cost Estimate Classification System will improve communication among all the stakeholders involved with preparing, evaluating, and using cost estimates. The various parties that use cost estimates often misinterpret the quality and value of the information available to prepare cost estimates, the various methods employed during the estimating process, the accuracy level expected from estimates, and the level of risk associated with estimates. The Cost Estimate Classification applies the degree of project definition as the primary characteristic for determining an estimate’s classification. (e.g. Factored Estimate (Capacity or Equipment); Budgetary Cost Estimate; Control Budget: Detailed Estimate, etc.) AACE developed: Level 1 Screening or Feasibility; Level 2 Conceptual Study or Feasibility; Level 3 Budget Authorization or Control; Level 4 Control or for Bid; Level 5 Check Estimate or for Bid. ASTM E2516 - 11 Standard Classification for Cost Estimate Classification System

B. Estimate Classification

Class 5: A Capacity Factored Estimate is a project cost estimate process defined by the AACE as a Class 5 Estimate, Concept Screening Estimate, the estimate method is a cost of a plant is derived from the cost of a similar plant of a different capacity, through the use of an appropriate exponential factor, parametric models, judgment, or analogy, and expected accuracy is Low: ‐20% to ‐50%, High: +30% to +100%.

Class 4: An Equipment Factored Estimate is a project cost estimate process defined by the AACE Class 4 Estimate as the Study or Feasibility Estimate, the estimate method is the Equipment Factored or Parametric Models with specifications for, the major equipment in that facility, through the use of equipment installation factors, and the expected accuracy is Low: ‐15% to ‐30%, High: +20% to +50%.

Class 3: A Project Budgetary Cost Estimate is a project cost estimate process defined by the AACE as the Class 3 Estimate (Budget Authorization or Control), the estimate methodology is semi‐detailed unit costs with assembly level line items, and the expected accuracy is Low: ‐10% to ‐20% and High: +10% to +30%. The Project Budgetary Cost Estimate is normally performed during the FEED and used for the FID (Final Investment Decision).

Class 2: A Control Budget Estimate is a project cost estimate work process similarly defined by the AACE Class 2 Estimate (or Control or Bid/Tender Estimate), the method of control budget estimate is the detailed unit cost with bulk material take‐offs; budgetary or committed cost information from potential bidders and construction subcontractors for equipment and construction direct cost; the detailed and accurately developed project resources mobilisation plan; and the re-defined company guidelines of indirect costs for the specific project. The expected accuracy of control budget estimate is Low: ‐5% to ‐15% High: +5% to +20%. The Control Budget Estimate is one of the project baseline document.

Class 1: A Detailed Estimate (Check Estimate or Definitive Estimate) is a project cost estimate process defined by the AACE Class 1 Estimate as the Check estimate or bid/tender, the estimate method is the detailed unit cost with detailed material take‐off after the detailed engineering is completed, and the expected accuracy is Low: ‐3% to ‐10%, High: +3% to +15%.

Other Definitions
Factored Estimate is a cost estimate method using a reference equipment cost with factors or total installed cost of process and utility units or facilities. (Refer to the Capacity Factored Estimate and Equipment Factored Estimate)
Ball Park Estimate an approximate or rough estimate (Refer to a ROM (Rough Order of Magnitude) Estimate)

C. Project Cost

Cost is an amount of money needed to pay or compensate to buy or take a service or good. A Project Cost consists of Direct costs and Indirect costs.

Direct Cost is a directly involved in a specific task or project, and can be identified a specific cost centre. The project direct cost means that cost of the employees, equipment and materials, and outsourcing contractor's cost, etc. which are directly involved efforts or expenses: project management; engineering; procurement and procurement related cost such as transportation and custom clearance; construction management, construction labour, equipment, and consumable materials; sub-contractor's cost. (the opposite of an indirect cost)

Home Office Cost is a project direct cost, mainly labour and expenses for the project execution or management by office based personnel.

Direct Field Cost (DFC) is a direct cost, consist of equipment, materials, and direct hire or subcontract labour directly associated with a particular item of work or activity at the field for construction of the permanent facility

Indirect Cost means that are not directly involved in a specific task or project, and can not be accurately attributed to a specific cost centre. Main indirect cost of project are company overhead (operating expenses) and profit. (the opposite of a direct cost)

Indirect Field Cost (IFC) is a cost other than direct field costs (DFC) that do not become a permanent part of the project but are required for the completion of the work. The IFC include but not limited to field and home office administration, direct management and supervision, temporary facilities, construction equipment and small tools, start-up costs, insurances and taxes etc.

Overhead (OVHD) Cost is a regular and necessary costs that are involved in operating a company business but are not assignable to a specific task or project such as an office building operation and maintenance; company management and supporting staff; insurance; and involved in whole company operation but cannot be applied or traced to a specific cost centre of a work or project.

Fee is an amount of money paid for a particular work or service. The Fee is usually associated with the Contractor's profit.

D. Estimate Work Process: to be developed

Capacity Factored Estimate (Class 1 Estimate)

Equipment Factored Estimate (Class 2 Estimate)

Budgetary Cost Estimate (Class 3 Estimate)

Control Budget Estimate (Class 4 Estimate)

Detailed Estimate (Class 5 Estimate)

E. Cost Control Management

Cost Control Management includes the process involved in budget cost estimate (planning, estimating, financing and funding assistance), execution (controlling cost), and managing project cost (in order to minimize cost and increase profitability) and ensure efficient operations so that the project can be completed within the approved budget.