W19_SRN_Estimating Cost Savings using Learning Curves

Opportunity Recognition:
Using the case in W18 Blog, I’d like to estimate cost saving of the project.

Feasible Alternatives:

  • Unit Learning Curves: Linear or Cumulative Average Linear
  • Proper Slope: 80%, 85%, 90%, and 95%
  • Cost of first km pipeline

Tools and Techniques:
Learning Curves using Microsoft Excel spreadsheet and Goal Seek option in the Data/What If Analysis menu.
Selection Criteria:
Management will use cost savings profile to commence the project.

Calculation and Analysis:
Following are parameter used for this Learning Curve:

  • Cumulative Average Method, it is much easier to calculate total cost for conceptual estimate stage.
  • 90% slope, it requires manual effort to support project during installation stage (machine-controlled with some manual).
  • $100 as cost of first km pipeline, for easy checking in Step-1.
  • Very few line items are likely to experience learning curves. Labor should benefit from it, but the only other area that will surely benefit is engineering. Use of very similar drawings will obviously be a cost savings for series of installation. While material costs may also experience cost savings because of a larger order, that is not a learn savings; it is a volume purchase savings.

 

Cost Savings:


Conclusion:

There will be cost saving of $ 1.3 million from learning curve process in this project. I suggest the management to consider this potential opportunity to make decision of approval.

Performance Monitoring and Post-Evaluation:
There would be additional savings because the location adjustment and material volume purchasing would be applied to a smaller total base.

References:

  1. Humphreys, Gary C. (2011). Project Management Using Earned Value Second Edition, Section 3 – Estimating. USA, CA: Humphreys & Associates, Inc.
  2. AACE International. (2010). Skills and Knowledge of Cost Engineering 5th Edition Revised – Section 2 – Cost Estimating. USA, Morgantown WV: AACE International Inc.
  3. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2012). Engineering Economy 15th Edition, Chapter 14 – Decision Making Considering Multiattributes. Singapore: Prentice Hall, Inc.
  4. Paul D. Giammalvo. (2012). AACE Certification Preparation Course (2012, 16 – 20 January). Indonesia, Jakarta: PT. Mitratata Citragraha.
  5. Liu, Henry (2003). Pipeline Engineering. Boca Raton, Fla: Lewis Publisher
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W18_SRN_Conceptual Estimate for Pipeline Project

Opportunity Recognition:
A 8-km long, 12″ pipeline is being installed. It requires pipe and a control valve at each end. It assumes 5% allowance of total direct costs for project construction indirect cost. The project will be in North Sumatera.

I’d like to develop a quick conceptual estimate of project cost.

Feasible Alternatives:

  • Pipe only
  • Pipe with Control Valve w/ Isolation Valve and Hydrostatic testing
  • Cost risk allowance

Tools and Techniques:
Parametric Estimating Methods
Selection Criteria:
Management will use cost profile reasonable to continue the project.

Calculation:
1. Pipe only

2. Pipe with Control Valve w/ Isolation Valve and Hydrostatic testing

3. Cost risk allowance

Management did not mention an allowance for cost risk. Then I should aware that a conceptual estimate contains significant uncertainty. Therefore, I assume an assumption of at least 20% for cost risk allowance would be appropriate.

Conclusion:
I recommend Option-2 since it provides company a wider technical scope of work and cost estimate the conceptual estimate for this option is US$ 2,700,000.

Performance Monitoring and Post-Evaluation:
I should consider company assets strategy based on actual and future business condition.

References:

  1. Humphreys, Gary C. (2011). Project Management Using Earned Value Second Edition, Section 3 – Estimating. USA, CA: Humphreys & Associates, Inc.
  2. AACE International. (2010). Skills and Knowledge of Cost Engineering 5th Edition Revised – Section 2 – Cost Estimating. USA, Morgantown WV: AACE International Inc.
  3. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2012). Engineering Economy 15th Edition, Chapter 14 – Decision Making Considering Multiattributes. Singapore: Prentice Hall, Inc.
  4. Paul D. Giammalvo. (2012). AACE Certification Preparation Course (2012, 16 – 20 January). Indonesia, Jakarta: PT. Mitratata Citragraha.
  5. AACE International Recommended Practice (2003). Recommended Practice No. 16R-90 Conducting Technical and Economic Evaluations – as Applied for the Process and Utility Industries. AACE International.
  6. Liu, Henry (2003). Pipeline Engineering. Boca Raton, Fla: Lewis Publisher.

W17_SRN_Market Valuation of Used Equipment

Opportunity Recognition:
I’d like to illustrate the basis for some subcategories of market value (how is equipment bought and sold). The equipment is a 10-year-old metal lathe.

Feasible Alternatives:

  • Fair Market Value-in-Place
  • Fair Market Value-in-Exchange
  • Orderly Liquidation Value

Tools and Techniques:
Market Value Subcategories

Selection Criteria:
The market value option must align with company strategy on assets management.

Calculation:

Conclusion:


Since the company assumes that all assets will be sold upon completion of the allotted time period, then market value of the metal lathe will use the Orderly Liquidation Value of $5,500. It is also called wholesale value.

Performance Monitoring and Post-Evaluation:
I should consider other company assets strategy based on actual and future business condition.

References:

  1. AACE International. (2010). Skills and Knowledge of Cost Engineering 5th Edition Revised – Chapter 6: Equipment, Parts, and Tools. USA, Morgantown WV: AACE International Inc.
  2. Paul D. Giammalvo. (2012). AACE Certification Preparation Course (2012, 16 – 20 January). Indonesia, Jakarta: PT. Mitratata Citragraha.
  3. Sullivan, William G., Wicks, Elin M. & Koelling, C. Patrick. (2012). Engineering Economy 15th Edition. Singapore: Prentice Hall, Inc.
  4. Bodie Z., Kane A. Marcus A.J. (2005). Investments 6th Edition. Singapore: McGraw-Hill Higher Education

W16_SRN_Determination of Unit Rates

Opportunity Recognition:
The standard labor cost for 200 LF of footing 10 inches by 15 inches = $210.2.
I’d like to determine Unit Labor Rate.

Feasible Alternatives:
Job site Conditions:
Good        + 3% to 5%
Average   + 6% to 8%
Poor         + 9% to 15%
Worker Skill Level:
High        + 2% to 5%
Average  + 6% to 10%
Poor       + 11% to 20%
Temperature:
Below 40° or above 85°        +1% per degree of variance
Work Weeks in excess of 40 hours:
40 to 48 hours    + 5% to 10%
49 to 50 hours    + 11% to 15%
51 to 54 hours    + 16% to 20%
55 to 59 hours    + 21% to 25%
60 to 65 hours    + 26% to 30%
66 to 72 hours    + 31% to 40%

Tools and Techniques:
The Richardson Estimating System

Selection Criteria:
The result should represent adjustments based on actual working conditions.

Calculation:
Adders:
Job site Conditions:    Good        + 4%
Worker Skill Level:    Average     + 8%
Temperature:                  95°       + 10%
Work Week:               40 hours   + 0%
Total Adders:                            + 22%

Unit Rate    =    $210.2 x 1.22   =    $256.44

Conclusion:
I should use Unit Labor Rate of $256.44 for this project based on adjustments of working conditions.

Performance Monitoring and Post-Evaluation:
I should consider other various conditions that may affect both cost and schedule of this project.

References:

  1. AACE International. 2010. Skills and Knowledge of Cost Engineering 5th Edition Revised – Chapter 4: Labor. USA, Morgantown WV: AACE International Inc.
  2. Richardson Engineering services, Inc. 2001. Process Plant Construction Estimating Standards – page 1-2. Mesa, Arizona.
  3. Paul D. Giammalvo. 2012. AACE Certification Preparation Course (2012, 16 – 20 January). Indonesia, Jakarta: PT. Mitratata Citragraha.

W15_SRN_Control Account Analysis

Opportunity Recognition:

Management team wants to have a list of attention priority regarding on-going project. I’d like to analysis the basis to provide this decision.

Feasible Alternatives:

Schedule and Cost Performance Indices:

 

Critical Path Float:

 

Tools and Techniques:

Performance Measurement Calculations using Earned Value Analysis

Selection Criteria:

The result should represent trends in the data and consider events impacted favorable or unfavorable.

Analysis:

  1. CA-11 and 43 require immediate attention since both have activity paths with negative float. They also merit attention because of their SPI values and trends.

    CA-53, 55, and 92 should receive management scrutiny because of their very low SPI values, before the results are reflected in their CPM status.

    CA-32 needs close monitoring because of its combination very low float (+2 days in activity path 32-2) and unacceptable SPI (0.72). These are the obvious concerns, but there are some other considerations as well.

  2. CA-26 has positive float (+5 days) and a favorable SPI (1.09), but its CPI is a concern at 0.67. This account is staffed with more people than planned if it is a labor account. It would be worth verifying that staffing levels are appropriate for the work available.
  3. CA-29 should raise some question with its SPI of precisely 1.00 for four consecutive months. Is this a case of data manipulation? Is this a Level of Effort account? The later would appear to be the case, but there is an activity path within the CPM for this CA (29-1). This may be an account being handled as a LOE that has discrete work products and therefore should not be LOE.
  4. If CA-55 and 92 are primarily labor accounts, one thing is obvious. Since both are experiencing better productivity that budgeted (1.02 and 1.05 respectively) and yet only about half of the planned work is being accomplished, there appears to be staffing problem. Clearly, the staffing is only about half of what planned. There could be reasons for this, such as missing information that is needed before work can proceed as planned. What is the delay: missing information, lack of staff, or both? If the situation is not remedied, there will eventually be critical paths within this account.
  5. CA-94 would ordinarily command attention because of its CPI 2.61 to date. There could be a question regarding the accuracy of the original budget or collection of actual charges. However, this also appears to be an LOE account. In that case, the very favorable CPI is only an indication that staffing is less than budgeted.

Conclusion (Preferred Alternative):

Top priority lists for management attention are:

  1. CA-11,43,53,55,92,32
  2. CA-26
  3. CA-29
  4. CA-94

Performance Monitoring and Post-Evaluation:

What is really needed is a feel for the day-to-day activity on the project. I should strive to know the “pulse” of the project, not just the numbers.

References:

  1. Humphreys, Gary C. (2011). Project Management Using Earned Value Second Edition, Chapter 32 – Performance Measurement Calculations and Estimates at Completion and Case Study 32.2 – Control Account Analysis. USA, CA: Humphreys & Associates, Inc.
  2. Paul D. Giammalvo. (2012). AACE Certification Preparation Course (2012, 16 – 20 January). Indonesia, Jakarta: PT. Mitratata Citragraha.
  3. AACE International. (2010). Skills and Knowledge of Cost Engineering 5th Edition Revised. USA, Morgantown WV: AACE International Inc.