CIVL1810 Chap.2 Estimating Cost and Controlling Change
Estimating Cost and Controlling Change
The second half of Week 1 turns management vocabulary into money. Costs get classified twice over, as variable or fixed and as direct or indirect, and an estimate is assembled from named elements running from materials and labour through to an optional profit.
Four estimating methods trade precision against the effort of producing them, and how accurate any of them turns out depends first of all on how fully the work has been set out, which is why estimates improve as a job advances through its life cycle. Integrated change control then protects the baselines that variance is later measured against.
What this chapter covers
- 01
Variable and fixed costs, and the separate direct and indirect classification
- 02
The elements of a cost estimate, from materials and labour to overhead and an optional profit
- 03
Analogous top down estimating: less costly and less precise
- 04
Parametric estimating, which predicts cost from a statistical fit between past records and other variables
- 05
Bottom up estimating: work packages rolled up, more accurate and more costly
- 06
Three point estimating and the weighted expected cost
- 07
Why estimate accuracy increases as a project moves through its life cycle
- 08
The bill of materials, material take offs and the bill of quantities
- 09
Site factors that move a price, from access restrictions and working hours to weather and geotechnical data
- 10
The eight steps of integrated change control
- 11
Corrective action, preventive action, defect repair and updates
- 12
Closing outputs: the closure report, results assessment, lessons learned and document archiving
A three point estimate and what it tells you
- +1Write the relation with the weighting made explicit: the expected cost is the optimistic value plus four times the most likely value plus the pessimistic value, all divided by six.
- +1Substitute. 240,000 plus four times 265,000, which is 1,060,000, plus 400,000, gives 1,700,000.
- +1Divide by six to obtain an expected cost of 283,333 dollars.
- +1Interpret. First, the expected cost sits only about 18,000 dollars above the most likely value even though the pessimistic case is 135,000 above it, because the most likely value carries four times the weight of either extreme. Second, the distribution is skewed to the downside, since the pessimistic tail is more than five times as far from the most likely value as the optimistic one, so the package deserves a risk response rather than simply a larger number.
Key terms
- Variable cost
- A cost that changes with the amount of production or work, such as material, supplies and wages. It answers a different question from the direct and indirect split, so a cost can be variable and direct at the same time.
- Indirect cost
- Overhead, or cost incurred for the benefit of more than one project, such as taxes, fringe benefits and cleaning services. The test is whether the cost serves a single project or several.
- Analogous estimating
- A top down estimate that uses the actual cost of a previous similar project. It arrives as a management expectation, and it is described as less costly and less precise than the alternatives.
- Bottom up estimating
- Pricing individual activities or work packages and rolling them up to give the estimate for the whole component. It is the most accurate method and also the most costly to produce.
- Bill of quantities
- A schedule that lists, line by line, how much material, equipment and labour has been measured. A take off counts what the drawings contain; a bill of quantities is the itemised document a trade tenders against.
- Integrated change control
- Looking at every request to change something, deciding on it, managing the resulting changes to deliverables, documents and the plan, and telling everyone what was decided. Its purpose is to keep the baselines that variance is measured against meaningful.
- Preventive action
- A change request that ensures the future performance of the work stays aligned with the plan. It is separated from corrective action by tense, not by severity: corrective deals with divergence that has already happened.
Estimating Cost and Controlling Change FAQ
Why does an estimate get more accurate later in a project?
Because what governs is how fully the work has been set out, and that account grows sharper as the job advances. Early estimates are not careless; they are estimates of a project that has not been fully described yet. That is also why the estimating method is chosen to suit the decision at hand, with a top down figure at the business case gate and a rolled up figure once the design is fixed.
How does a work breakdown structure change the number?
It decides which numbers exist. A bottom up estimate prices individual work packages and rolls them up, so any package the breakdown fails to identify is not an underestimate of a known cost but an omission that no contingency was sized for. A complete breakdown also makes variance traceable to the package that produced it, which is what lets a closure report state planned against actual with reasons.
Why can the same building cost different amounts on two sites?
Because the estimating considerations differ. Site conditions, the availability, type and wage rates of labour, access restrictions, restricted working hours, proximity to available facilities, equipment and material logistics, weather, community impacts, health and safety and environmental regulation, and geotechnical data all move real lines of cost.
A city block stresses access, hours and logistics; a remote site stresses labour, proximity and weather.
What actually gets produced when a project closes?
Closing works through every process group to bring a project, phase or contract formally to an end, leaving behind a closure report, an assessment of the results, a record of what was learned, and an archive of the documents. The final report compares planned against actual for scope, schedule and cost and gives the reasons for each variance, which is only possible if the baselines were maintained through change control.
Exam move
Split your revision between classification and mechanism. For classification, drill the two independent questions on the same dollar: does it move with the quantity of work, and can it be attributed to one project. For mechanism, learn the estimating methods as a trade between precision and the cost of producing the estimate, and be able to say which one suits which stage.
Memorise the three point weighting and practise interpreting the result rather than just computing it. Finally, learn the change control sequence in order and be ready to explain why executing an unapproved change destroys the baseline that variance is measured against, because that single sentence answers most change questions.
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