Costs
I/EC
How to
Measure Estimate Accuracy by H. Carl Bauman, American Cyanamid Co.
Ratings
determined
from quality
and
quantity
available
of
data can be used for estimate
Table I.
evaluation
Code
Four basic estimates were shown by Hackney [Chem. Eng. p. 119-34 (April 4, I960)]. These were related to the kind of information required to produce accuracies de-
Firm
Description
Process equipment Site development Proc. buildings and structures Auxiliary buildings Nonprocess equipment Piping Insulation Instrumentation Electrical Catalysts and chemicals Steam generation Refrigeration Compressed air Effluent systems Water supply Distribution piping Fire protection O.B.L. electrical Materials handling Materials storage Painting Building services Demolition and alterations Warehouse spares Direct M and L = 2 d Engineering Construction exp." Indirects = 2
NR = not required.
58 A
Method of Estimating
fined for each type. His most accurate estimate is the "detailed unit cost method" for which he predicts an accuracy of ± 3 % when the "uncertainty rating" is 50 or less. Uncertainty rating is obtained from a check list of information required for a proposed estimate in which arbitrary weighted values representing degrees of uncertainty are assigned to items in order of cost importance. For instance, raw materials are rated at 100, and draw-
Estimate Accuracy Rating Grass Roots Plant
1 350 400 450 490 500 520 525 530 550 600 610 620 630 640 650 660 670 680 690 750 760 770 840 Subtot. 850 900 Subtot. Totaljob
I N ESTIMATING fixed capital cost, accuracy, of course, depends on validity of data available. But how is the quantity of data weighed and how can it be correlated with the degree of estimate accuracy?
" Including fees.
INDUSTRIAL AND ENGINEERING CHEMISTRY
Estimate Standard Cost Ratio, rc
1 2 21.0 2.0 8.5 5.5 0.5 9.0 1.5 4.0 5.0 0.5 2.5 1.0 0.5 0.5 2.0 2.0 0.5 2.5 1.5 1.0 1.0 0.5 1.0 1.0 75.0 9.0 16.0 25.0 100.0
% of Informotion, IH
100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Rating, R
3 21.0 2.0 8.5 5.5 0.5 9.0 1.5 4.0 5.0 0.5 2.5 1.0 0.5 0.5 2.0 2.0 0.5 2.5 1.5 1.0 1.0 0.5 1.0 1.0 75.0 9.0 16.0 25.0 100.0
Battery Limits Plant Firm Standard Adjusted Cost Standard % of Ratio, Cost Ratio, Informarr. rca Hon, In
4 21.0 — 8.5 — 0.5 9.0 1.5 4.0 5.0 0.5 — — 0.5 — — 2.0 — — — — 1.0 0.5 1.0 1.0 56.0 9.0 16.0 25.0 81.0
5 28.1 — 11.4 — 0.7 12.0 2.1 5.3 6.7 0.7 — — 0.7 — — 2.7 — — — — 1.3 0.7 1.3 1.3 75.0 9.0 16.0 25.0 100.0
6 100.0 NR 90.0 NR 100.0 85.0 95.0 95.0 90.0 100.0 NR NR 100.0 NR NR 90.0 NR NR NR NR 90.0 90.0 90.0 100.0 95 90
Estimate
Rating, R
7 28.1 — 10.3 — 0.7 10.2 2.0 5.0 6.0 0.7 — — 0.7 — — 2.4 — — — — 1.2 0.6 1.2 1.3 70.4 8.6 14.4 23.0 93.4
ings and bills of materials at 45. The higher the uncertainty rating, the less accurate is the estimate. This arbitrary rating limits the usefulness of this technique for most estimates because cost engineers will obviously place varying emphasis on the check list items, depending on their interpretation of importance from past experience. Hackney's three other estimating methods are the "preliminary bill method" for which he indicates accuracies of ± 6 % with uncertainty ratings of 100 or less; the "layout method" for which he shows ± 12% accuracies with uncertainty ratings of 200 or less; and the "equipment ratio method" for which he indicates accuracy of ± 2 5 % for uncertainty ratings of 400 or less. A c c u r a c y Predictions
A technique for predicting estimate accuracy based on a system of pre-
NR = not r e q u i r e d .
a
determined component cost weights is herein proposed. The standard cost code for chemical-process capital projects, referred to previously [I/EC 50, 55A-58A (April 1958)] can also be used as a check list to establish the scope of a particular project. Thus the cost code used as a check list can also be employed to measure the accuracy of an estimate to be prepared from a given set of information data. Such a method is illustrated in Tables I and II, in each of which a summary of the standard cost code is used as a basis for establishing information ratings. The figures in column 1, "standard cost ratios," represent average per cent of total installed cost of the respective items calculated from a representative number of grass roots chemical plant projects. Only those projects were selected for this purpose in which all cost items included in the standard code were present. Thus the standard cost ratio is not
an arbitrary weighting factor but one representing, within good estimating tolerances, relative costs of chemical process plant elements. To calculate the probable accuracy of an estimate for a grass roots plant, the information available for each code item must be evaluated quantitatively and expressed as a fraction of 100% knowledge of the cost element involved. Table III shows how information for code 350, site development, was evaluated for the scope estimate example in Table II. F^very cost element making up site development is listed in chronological order. A column is provided which defines the validity of the information available for the item. For instance, a survey had been made from which it was possible to define completely the extent of work involved in clearing the site. Based on this, a firm price had been obtained from a reputable contractor. Naturally, this item would re-
Including fees.
VOL. 53, NO. 4
•
APRIL
1961
59 A
COSTS Table III.
Evaluation of Information on Site DevelopmentRelative
ceive an evaluation of 100%. Roads were defined on drawings prepared from complete surveys. Areas were taken ofT and unit costs obtained from recent similar road contracts were applied. This item received an evaluation of 95%. Code 358, landscaping, however, could not be adequately defined. An evaluation of 50% was applied from past experience to this item. The relative weight figures shown on the table are integers representing cost values relative to the lowest cost item in the group. For instance, if 1, for site clearing, represents $5000, then 11, for roads, would be worth $55,000. These relative weights must be established from previous jobs, as were those in the table. However, the magnitude of the relative weight is not critical, provided a rough relative position in cost value of the item is maintained. In Table III the information for the section was evaluated at 89%. If the relative weight of code 353, roads, had been 6 instead of 11, the per cent information for the section would have been slightly less than 88, a difference well within the best possible estimating accuracy. The per cent information (I n ) obtained in this manner for each 60 A
Evaluation
section is entered in column 2 of Table I. The item rating {R) is obtained by multiplying the standard cost ratio (rc) by the information per cent (/„). The accuracy rating in per cent for the estimate is the sum of all item ratings divided bv 100. Battery Limits Estimates
The method can be applied to "battery limits" plant estimates after adjusting the standard cost ratios for the reduced number of cost elements in such installations. In Table I standard cost ratios are entered in column 4 for only those cost items which arc included in the battery limits plant. A dash is entered against code numbers,
such as 600 for steam generation, which are not required for the proj ect. The adjusted cost ratios (rca) arc computed by prorating the useful standard cost ratios (rc) in the ratio of 75 (the total direct costs for the full grass roots plant) to -r c , the summation of the useful 75rc standard cost ratios, rca = -=—. The 2r c information percentages obtained in the same manner as for the grass roots case arc applied to the adjusted standard cost ratios to calculate the accuracy rating. In this technique of rating estimate accuracy, the total indirect expenses (Si) are assumed always to equal 25% of the total installed job cost. Experience shows this to be a reasonable average value, and also accuracy ratings calculated by this method have shown high correlations with actual cost history. It is because of this assumed constancy of indirect expense ratio that accuracy of the estimate is calculated as the ratio of the sum of the direct ratings to the sum (75) of the adjusted cost ratios (rca). The per cent accuracy for grass roots plants may be calculated: % accuracy = - j g ^ g g g -
- — The per cent accuracy for battery limits plants may be calculated: Vc accuracy = =
^,-=
ZJi _ 2„R 2
