Cost Control During Detailed Engineering-Bulk Materials

8/19/2019 Cost Control During Detailed Engineering-Bulk Materials

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Lecture 8-1CE-591 Cost Engineering and Control

Dr. Farrukh Arif, Assistant Professor, NED UET

CE-591- Cost Engineeringand Control

COST CONTROL DURINGDETAILED ENGINEERING

Bulk Materials



OUTLINE Introduction

Sampling: A Quantity Control Technique

How to Use Sampling Results

Material Takeoffs

Unit Costs

Forecasting Escalations of Bulk Materials

Final Commodity Review

Bulk Material Control

Summary


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Introduction Bulk Materials

− Concrete, rebar, and form lumber.

− Electrical Cable, wire, and conduit.

− Structural Steel.

− Paint and special coatings.

− Piping, etc.

We will learn, how,.

− Budget estimate can be used as a tool for forecasting quantity and costs of bulks.

− Budget estimate can be used as a tool for controlling quantity and costs of bulks.

−

Quantity Control-the factor under the control of the designer.

Cost- the factor under the control if the purchasing agent.




Technique of selecting the first the first few completed drawings arecompared designed quantities to budgeted quantities.

In case of concrete, for example, first few completed foundation

drawings are compared with the designed volume of concrete to thedetailed budget.

If first sample shows trend towards underrun or overrun, CE must

investigate immediately and determine the reasons.

For example; reasons for an overrun in volume of foundation concretemight include following;

− Minimum depth of footing sets well below the predicted in budget.

−Design strength of concrete less than the budget basis.

− Earthquake or wind-loading considerations included in the design but notin the budget.

−Actual soil-bearing capacity less than the budget basis.


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Concrete Example An illustration of concrete sampling is explained in Table 1.

It summarizes group of samples from an actual project.



Sampling: A Quantity Control TechniqueConcrete Example: Analysis

19% underrun in concrete volume, 9% overrun in reinforcing bar.

Rebar normally represents 25% to 33% of the total cost of foundation concrete

materials.

Sample represents financial savings.

Will remaining 94.5% of concrete yet to be designed represent same

savings?

Analysis to determine reasons behind apparent cost underrun:− Underrun was mainly in foundations for towers.

− Combination footings: The estimate considered individual foundation for each equipment. Thedesigner saved appreciable amount of concrete by placing a mat foundation under severalpieces of equipment. Therefore more reinforcement was required that accounted for the over all

overrun in the reinforcing bar.− Allowable soil bearing changed from 3,000 psf to 5,000 psf. Result, overall underrun for allfoundations, specially tower and furnace.

− Small reactors: Overrun was due to setting the bottom of foundation 4 ft below grade. Theestimate assumed 2 ft.

Hence, 19% underrun for remaining concrete would not be correct assumption

unless, there are other designed opportunities for combination footings.


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Sampling Piping Designs

In refineries and chemical plants, piping is the most costly of the bulk

materials.

It will require 25% of the total labor effort.

The detailed budget should list all major lines individually and show;

− Pipe size, pipe schedule, number of valves, estimated length, number of fittings.

The size, schedule, number of valves don’t vary.

Length of pipe, number of welds, and number of fittings are withincontrol of piping detailer, thus require sampling.

As soon as initial group of piping layout drawings are complete, the

length and number of fittings should be compared to the budget on aline-by-line basis.

Generally 25 lines sampling is enough to show significant overdesign

or underdesign.

.



Sampling: A Quantity Control TechniqueSampling Piping Designs

When Sampling is used as forecasting tool, results of each sampleand cumulative results of all samples to date should be plotted on a

graph (Figure 1).


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Sampling Piping Designs-Analysis Individual samples vary widely from budget.

Cumulative trend starts developing at about the 20% complete stage.

Trend becomes stabilized at 80% of the budget by the time 30% of thepiping has been sampled.

A prudent CE may stop sampling and forecast a conservative averageof 10% underrun for all piping, which can be held untill, detailedtakeoff (70% design complete).

Piping samples with large variations should be investigated.

Specially, those of 30 and 36 inch pipes.

Frequently occurring reasons are;− Overconservative allowance (lets say for thermal stress0

−Poor equipment spacing due to overemphasis on accessibility and maintenance.

− Excessive equipment elevation.

− Careless pipe routing.

− Arbitrary changes in elevation with changes in direction, in areas of congested piping.



How to Use Sampling Results

Information obtained from sampling and subsequent investigation canbe used for following three purposes:

1.

Corrective Action2. Cost Forecasting

3. Budget Adjustments

Deviations Actions Required

< 5% Considered Normal

> 5% and < 10% Bear watching, further sampling required

> 10% Investigated with corrective action


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How to Use Sampling Results Corrective Action: Sampling information frequently leads to

− Relaxation of designed assumptions.

− Revisions to arbitrary office standards.

− Relaxation of restrictive specifications requirements.

− Clarification as to interpretation of specifications.

− Identifying isolated design errors.

− Misunderstandings among design disciplines.

Cost forecasting: Sampling provides early indications of quantity overruns orunderruns. If sampling is not done, CE will forecast only when the engineering

takeoffs are complete. Which might be very late.− Carefully select representative samples.

− Investigate underlying reasons for deviations.

− Plot sampling results and establish trends.

Budget adjustment: Sampling uncovers budget deficiencies orerrors. When this happens,

− Make every effort to minimize the overrun.

− Adjust designer’s quantity budget through change order.

− Advise all concerned of the additional expenditures and reasons for the budget deficiencies.



Material Takeoff

Designers and material takeoff (MTO) engineers usually make bulk takeoffs

at fixed stages of design completion say, 20,70 and 95%.

Necessary for obtaining approximate quantities suitable for the early orderingof bulk materials.

20% takeoff implies 20% of the takeoff quantity is from completed drawingsand 80% is estimated or prorated from past projects.

Takeoff made between the 60 and 75% completion points is reliable.

CE can use it to replace his sampling data.

If sampling information differs widely from the takeoff, CE should do somereconciliation.

−The MTO reflects the most recent drawings and changes.

− The takeoff methods used will produce reliable results.

− The personnel involved are experienced and competent.

When CAD based take-offs using software are taken, CE must check some ofthe takeoffs randomly.


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Unit Costs

Bulk materials is made up of two parts: quantity and unit price.

Unit prices are generally established, before final design quantities are known.

Usual practice is to predict quantities from budget or sampling data and thenask for unit price quotations.

Vendors state that their bid prices under the condition that final quantities bewithin some range (say ±10%) of the predicted quantities.

The probability of quantity variation must be evaluated on the bid tabulation.



Forecasting Escalation of Bulk Materials

Price at the time of shipment, which is the vendor's favorite approach to

escalation, should be resisted by customers.

the buyer should negotiate for a firm base bid to be escalated by a formula,and the escalation should be invoiced separately.

If the customer has leverage and is willing to use it, he can normally negotiatean acceptable escalation clause.


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Final Commodity Review

As the design of each bulk commodity approaches 95% completion a finalengineering commodity review should be held.

These reviews is to provide a firm cost forecast based on a near final materialtakeoff for each bulk commodity.

The data presented in these reviews are also used to forecast constructionlabor work hours and to prepare construction schedules.

The results or each review be presented at a formal meeting attended by bothcontractor's and owner’s project managers.

Each lead commodity design engineer should be responsible for the economyof his designs and that his work will be measured and compared to the control

estimate.

The final commodity review wraps up each quantity/cost forecast.

It includes allowances for designs not yet complete, field losses, and takeoff

inaccuracies.



Bulk Material Control

The control or bulk materials is not a direct responsibility of the cost engineer,

but it is an allied function.

The problems associated with bulks (i.e., quantity takeoffs, procurement,delivery, construction site warehousing, and retrievals as required) begin early

in engineering and do not terminate until final turnover.

The CE should be concerned with 6 points while with the following in regard to

bulk material control− Assure that a workable control system and good records exist.

− Confirm that good experienced people are involved.

− Make periodic appraisals to confirm that the procedures are followed and that the reporteddata is accurate.

−Confirm that proper allowances have been reflected in material takeoffs.

− Compare material takeoff (MTO) quantities to information gathered from sampling.

− At the conclusion of each commodity review, the CE should insist that every open order berevised with a specified maximum quantity and that authority to place requests to the vendor belimited to one responsible individual.


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Summary

Both quantity and price require careful management andcontrol.

Sampling is the technique used by the CE to get an earlyidea as to whether design quantities are trending over orunder the budget.

Formal, final commodity reviews are important controltools needed to firm up material cost forecasts, estimatesof field work hours, and schedules.

Bulk material control can have a decisive impact on

project costs.

Cost Control During Detailed Engineering-Bulk Materials

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