Engineering Design Cost Analysis

𝑨𝒅𝒗𝒂𝒏𝒕𝒂𝒈𝒆𝒔 & 𝑫𝒊𝒔𝒂𝒅𝒗𝒂𝒏𝒕𝒂𝒈𝒆𝒔 𝒐𝒇 𝑪𝒐𝒔𝒕 𝑷𝒍𝒂𝒏𝒏𝒊𝒏𝒈 𝐂𝐨𝐬𝐭 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠 (𝐂𝐏) is a statement of how design team proposes to distribute available money among building elements & can be adjusted to design requirement. Starts with development of a figure (or cost) to allow client to decide whether project is feasible. Early cost planning has major benefits for construction projects. Is used to monitor & control estimated project construction costs to ensure you get accurate expenditure & progress information at every stage. Cost Planning is the use of 𝐂𝐨𝐬𝐭 𝐌𝐨𝐝𝐞𝐥 𝐟𝐨𝐫 "𝐒𝐡𝐨𝐮𝐥𝐝-𝐂𝐨𝐬𝐭" 𝐅𝐨𝐫𝐞𝐜𝐚𝐬𝐭𝐢𝐧𝐠 to make informed decisions for: •Budget Requirement Requests •Cost Estimations •Output Quantities •Capacity Management •Risk Analysis •Various Time Frames •Standard Rates •Defining Targets to Measure Efficiency & Effectiveness Quantity Surveyors prove there is added value in getting them involved on ground level of new project, rather than at the end of design process. 𝐀𝐝𝐯𝐚𝐧𝐭𝐚𝐠𝐞 𝐎𝐟 𝐂𝐨𝐬𝐭 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠 •Early cost checks ensure preliminary estimate is more accurate. •Better understanding of market conditions. QS has an in-depth understanding of property market & access to historical information which can assist developers in evaluating various feasibility options for a particular site or project. •Saves time & money if architect of redrawing, quantity surveyor creating budgets & contractor on agreeing amendments. •Balanced expenditure distribution may produce more rationalized design •Rational expenditure distribution throughout design is achieved •Closer alliance between design team assist in understanding each other. •QS is familiar with design at earliest stags •Better chance of comparing different projects •Working drawings are likely to be available sooner •Cost consideration will be given more attention since QS is involved in early stage of design process. •Since there is checking system on cost, there is a possibility that fewer changes will be made to BQ. Discussions among designers can be made before production of final design saving time in making an adjustment to any changes to cost & design. •Cost planning provides basic information on cost comparison between different projects. 𝐃𝐢𝐬𝐚𝐝𝐯𝐚𝐧𝐭𝐚𝐠𝐞 𝐎𝐟 𝐂𝐨𝐬𝐭 𝐏𝐥𝐚𝐧𝐧𝐢𝐧𝐠 •More preparation is necessary for early stages of design •Architect is likely to be more restricted in his method of working •QS requires greater knowledge of design factors pricing that affect cost •Architect & QS are likely to be involved in more work •Designers may have some limitation in their work style •QS need to be equipped with past experience & knowledge pertaining to cost & factors influencing cost •Both designer & QS are involved with a lot more work at design stage as compared to when no cost planning is used. https://lnkd.in/dgxz3S3z #Sawy_Says

Budgeting in EPC (Engineering, Procurement, and Construction) Projects: *Budgeting Process:* 1. Define project scope and objectives 2. Identify cost elements (labor, materials, equipment, services) 3. Estimate costs using historical data, industry benchmarks, or expert judgment 4. Develop a detailed budget breakdown (WBS - Work Breakdown Structure) 5. Establish budget contingencies for risks and uncertainties 6. Review and approve budget with stakeholders *Budget Components:* 1. Engineering costs (design, drafting, engineering services) 2. Procurement costs (equipment, materials, services) 3. Construction costs (labor, equipment, materials) 4. Project management costs (PMO, coordination, oversight) 5. Quality control and assurance costs 6. Safety and environmental costs 7. Commissioning and startup costs 8. Contingency funds (unexpected expenses) *Budgeting Methods:* 1. Bottom-up estimating (detailed estimates for each activity) 2. Top-down estimating (high-level estimates based on similar projects) 3. Parametric estimating (using historical data and statistical models) 4. Analogous estimating (comparing to similar projects) 5. Expert judgment (using experienced professionals' opinions) *Budgeting Tools:* 1. Spreadsheets (e.g., Microsoft Excel) 2. Project management software (e.g., Primavera, MS Project) 3. Cost estimation software (e.g., CostOS, Esticom) 4. Earned Value Management (EVM) systems *Budget Monitoring and Control:* 1. Regular budget reviews and updates 2. Variance analysis (identifying deviations from budget) 3. Cost reporting and tracking 4. Change management (approving and documenting changes) 5. Forecasting and re-estimation *Challenges in Budgeting:* 1. Uncertainty and risks 2. Complexity and scope changes 3. Inaccurate estimating 4. Inflation and currency fluctuations 5. Stakeholder expectations and communication *Best Practices:* 1. Develop a comprehensive budget plan 2. Use multiple estimating methods 3. Establish clear budget responsibilities 4. Monitor and control costs regularly 5. Communicate budget changes and variances to stakeholders By following these guidelines and best practices, EPC project teams can develop accurate and comprehensive budgets, ensuring successful project delivery.

Should-cost methodology is emerging as one of the most reliable solutions to help #upstream players address their current challenges, providing the granular cost transparency needed to deal with the changing landscape. So how does it work? After breaking down the total cost of a project, product, or service into granular components and assessing the #cost drivers for each, companies can determine the reasonable should-cost of a service or product based on its constituent elements. Compared to traditional solutions (which limit the benchmark to a finite number of past projects), should-cost can estimate the costs associated with any combination of design, geographic footprint, and commercial agreement. Initially developed, fine-tuned, and deployed at scale in the automotive sector, the #shouldcost methodology uses bottom-up modeling of all supply chain costs through a four-step approach: ➡️Step 1: Analyzing the design choices and 2D or 3D drawings of the project to derive a bill of quantities for raw and bulk materials. ➡️Step 2: Mapping the end-to-end value chain to identify all the manufacturing steps required to produce each component. ➡️Step 3: Costing the required quantities and value chains to calculate direct costs, leveraging proprietary databases and productivity models tailored to each country, technology, and sector. ➡️Step 4: Completing the bottom-up should-cost calculations to define should-cost components, including all elements of suppliers’ cost structures. Through its flexible, unbiased, and fact-based methodology, a should-cost analysis can, therefore, provide up-to-date, end-to-end transparency on the entire supply chain cost structure for an upstream project’s tenancy in common (TIC) investment. To illustrate, we performed a deep dive should-cost analysis for #LNG tanks, providing full transparency on key cost drivers for further negotiation with the supplier. This analysis enabled a fact-based negotiation with the supplier and led to an 8% cost reduction on the final negotiated price compared to the initial bid. #capitalexcellence #mckinsey #lngtanks #oilandgas #procurement #projectmanagement #labor #materials

How Every $1 Invested in Design Development Phase Saves Multiple Times More in Construction Phase: An Empirical Analysis of a Transportation Infrastructure Project Empirical studies on nine fast-track industrial projects show that construction rework can escalate costs by up to 12.4% of the contract value—an avoidable expense that can be minimized through early investment in design development process. In line with the above, a study by the Kentucky State University in the U.S. examined the impact of design errors on construction performance and emphasized the role of effective design Quality Assurance (QA) during design development phase in improving project cost and schedule performance. The research analyzed biweekly cost data and change order records from a small road transportation project to assess the effects of design quality on construction efficiency. The attached figure illustrates the changes in overall project cost when the effectiveness of design QA varies from -25% to 25%, compared to the base case values. As shown, improvements in QA result in negative cost deviations, indicating cost savings. For example, in the studied case, it was found that a 12% increase in design costs due to higher investment in design quality control could theoretically lead to a 17.4% reduction in construction costs and a 13.5% overall improvement in total costs compared to the base case. In large-scale projects, such improvements can yield significant cost savings. For instance, assuming a $1B project where design accounts for 7% of the total cost, based on the above conclusion, this suggests that an additional $9M investment in the design phase could result in savings of up to $125M in construction. This demonstrates that every dollar spent in the design phase in this numerical example can save up to $13 in the construction phase (Note: this value may not apply to all projects and should be adjusted based on the specific characteristics of each project). As we look at today’s market, there is a race for both public and private sector to invest in innovative and creative solutions that enable them to reach the market faster, more affordably, and more safely. Market trends indicate that investors are increasingly willing to take on higher levels of risk. However, experience shows that taking risks without fully understanding the potential consequences is akin to gambling. To move faster and more cost-effectively, it is essential to continuously and carefully analyze the investment risk profile—an ongoing task that requires specialized expertise. In your view, how can investors meet their business objectives faster and cheaper without compromising the fundamentals, and what role does risk management play in achieving these objectives? Your thoughts would be appreciated. Source: https://lnkd.in/gknrey6z #costsaving #riskmanagement #quality #assurance #transportation #Infrastructure Hatch #innovation