John tells his friends that the project is going well because he is halfway through the project but has only spent a fifth of his budget. Due to our extensive database of verified construction costs, our published manual Current Construction Costs used by most state and local agencies, and our ability to perform extremely detailed and unassailable change order estimates, LSA has been very successful in reducing change order costs for both owner and architect. Refer to the definitions of CPI and SPI. Those contracts can be managed more conveniently if the unit of measure for partial completion is the same as that used for cost budgeting. Account analysis: Y = $7,000 + $1,428.57X, High-low method: Y = $25,000 + $1,500.00X, Scattergraph method: Y = $5,000 + $1,439.39X, Regression analysis: Y = $703 + $1,442.97X. I did it with a fourteen-foot truck. The budgeted cost of work scheduled (BCWS)All the items in the cost estimate. For nearly 60 Years, Leland Saylor has been the leader in cost consulting in the U.S. 2021 Marks the 58th Edition of Current Construction Costs, used by owners, architects, builders and public officials to estimate the cost of projects from houses to schools to airports to skyscrapers. They respond with a proposal for completing the work described in the RFP, including an estimate of the cost. For example, utility costs may be low relative to those in the winter months, and production costs may be relatively high as the company prepares for increased demand in July and August. Answer: The scattergraph method considers all data points, not just the highest and lowest levels of activity. This process is made easier using computer software. How does regression analysis differ from the scattergraph method for estimating costs? Bottom-up estimating determines the cost of each detail and aggregates them to determine activity cost estimates. The difference between the earned value of $162.10 and the actual cost of $154.50 is the cost variance (CV). The moving company assumes that the number of bedrooms is the important parameter in determining how big a truck is needed for a move. BUS105: Cost Estimation Methods | Saylor Academy The summary indicates that it has a CPI of 0.9 and an SPI of 0.8. Reconsidering the selection of the project should take into consideration the economic ratings of the competing projects that were not chosen and who the project champions are for the projects that would be affected. Answer: Regression analysisA method of cost analysis that uses a series of mathematical equations to estimate fixed and variable costs; typically done using computer software. Question: Why should Susan be careful using historical data for one month (June) to estimate future costs? Chapter 5, Section 2 of your textbook continues the story of Bikes Unlimited. The highest level of activity (level of production) occurred in the month of April (5,900 units; $380,000 production costs), and the lowest level of activity occurred in the month of January (2,900 units; $200,000 production costs). For more information on Leland Saylor Associates and our services: Leland Saylor Associates101 Montgomery Street #800San Francisco, CA 94104415.291.3200info@lelandsaylor.com, Saylor Communications, 1777 Oakland Boulevard #103, Walnut Creek, CA, 94596, United States. Prevailing wages and government contracting costs The formula is SV = EV PV. What is the cost variance (CV) at the end of week seven? approach is perhaps the most common starting point for estimating fixed and variable costs. With hundreds of projects estimated each year, from small remodels to billion dollar building programs, LSA has the most accurate, up to date cost information for your type of project and geographical location. Most projects have something unexpected occur that increases costs above the original estimates. Saylor Consulting brings together a staff of experienced consultants who have helped shape and pioneer the field of cost consulting and continue to develop new approaches to maximize cost savings and streamline construction management in an ever-changing business environment. An estimate that is based on other project estimates is an analogous estimateBudget estimate based on a similar project.. Once the project is selected, more accurate estimates are often needed to raise funds and agree on contracts with vendors in the initiation phase. It is also known for its Credit Recommendation Service, which evaluates courses and educational programs offered outside of traditional degree-granting institutions and makes recommendations for college credit. In the spreadsheet, apply what you have learned to perform similar calculations for weeks 3 and 4. See Figure 9.15 "AC, CV, and SV Calculations for Week 1". This information appears in Table 5.4 "Monthly Production Costs for Bikes Unlimited". We know from step 2 that the variable cost per unit is $1,500, and from step 3 that total fixed costs are $25,000. In the Johns move example, CPI = $162.10/$154.50 = 1.05 A value greater than 1 indicates the project is under budget. Describe the terms and relationships of budget factors used in earned value analysis. Answer: The high-low method uses historical information from several reporting periods to estimate costs. The ratio of earned value to planned value gives an indication of how much of the project is completed. Ultimate Guide to Project Cost Estimating | Smartsheet The methods used to estimate the cost of the project during the selection phase are generally faster and consume fewer resources than those used to create detailed estimates in later phases. Saylor Direct Credit courses can help you complete your degree with significant tuition savings! The detail can be rolled upSubtotaled.subtotaledto display less detail. John is only six days into his project, and his costs and performance are starting to vary from the plan. Based on the scattergraph prepared, all agreed that the data was relatively uniform and no outlying data points were identified. . Measurable factors that can be used in an equation to calculate a result. Finally, regression analysis can be run using computer software and its precise results will provide more accurate cost estimates. An estimate that is based on other project estimates is an analogous estimateBudget estimate based on a similar project.. Normally, this judgment is based on many years of experience estimating projects, including incorrect estimates that were learning experiences for the expert. The new estimate of the project cost is the estimate at completion (EAC)Revised project budget based on actual cost to date plus the estimate to complete (ETC).. To calculate the EAC, the estimate to complete (ETC) is added to the actual cost (AC) of the activities already performed. Total fixed costs in the graph appear to be approximately $5,000. What is the earned value (EV) at the end of week three? Marshall & Swift Online Cost Calculations - University of British Columbia When is this approach likely to yield more accurate results than the high-low method? All courses are available to complete at your pace, on your schedule, and free of cost. is the budgeted cost of work scheduled that has been done. Figure 5.8 Relevant Range for Total Production Costs at Bikes Unlimited Leland Saylor Associates There are factors for market, building type, prevailing wage, etc. Assume Alta Production, Inc., will produce 400 units next month. Experienced employees may be able to effectively estimate fixed and variable costs by using the account analysis approach. Estimate the total fixed costs (f). In reviewing the set of data points for January through December, it appears that October and November are relatively extreme points when compared to the other 10 months. Difference between the earned value (EV) and the planned value (PV). The scattergraph method gives us an opportunity to review all data points in the data set when we plot these data points in a graph in step 1. Describe the parameter and how it was used. The earned value analysis method compares the anticipated cost of work that is scheduled to be done at a given point in time against what has been done and how much it actually cost. Read more below in the Proctoring section. The goal of the high-low method is to describe this line mathematically in the form of an equation stated as Y = f + vX, which requires calculating both the total fixed costs amount (f) and per unit variable cost amount (v). Funds allocated for this purpose are called contingency reservesMoney held to pay for predictable but unspecified extra costs..Project Management Institute, Inc., A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th ed. What is the earned value (EV) at the end of week seven? A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders. Assume Susan Wesley obtains monthly production cost information from the financial accounting department for the last 12 months. Consider a project in which you have been involved that used an estimating technique to provide numbers for the conceptual plan. As an inexperienced project manager, how do you develop expert knowledge? Parametric estimating multiplies a standard cost-per-unit value by the number of units in the project. On larger projects, software that manages schedules can also manage costs and display costs by activity and by category. Using the information, perform the five steps of the scattergraph method to estimate costs and state your results in cost equation form Y =. They do not have all the items he needs, but the prices are lower than those quoted by the moving company. Finally, regression analysis can be run using computer software such as Excel and generally provides for more accurate cost estimates. For example, the subtotal feature could be used in Excel and collapsed to show the subtotals for the two categories of costs, as shown below. Extra money is allocated in a contingency fund to deal with activities where costs exceed estimates. This approach is not an exact science! This step requires that each data point be plotted on a graph. In this example, the sum of packing materials and truck expenses is estimated to be $661.25. During the project selection and approval stage, rough estimates are used that are usually obtained using analogous and parametric methods. The ratio of the earned value to the actual cost is the cost performance index (CPI)Ratio of earned value (EV) to actual cost (AC).. If you sum the BCWP values up to that point in the project schedule, you have the earned value (EV)Sum of budgeted expenses up to a particular point in the schedule.. Meets a standard of reliability and capability. Refer to the definitions for CV, SV, CPI, SPI, and ETC and write formulas in cells H18 through H23 to calculate those values at the end of week 2. Publication date. Thus we can state the equation used to estimate total costs as. Leland Saylor Associates appraisers, facility planners, contractors and others to prepare construction cost estimates. The process of matching the schedule of transfers with the schedule of activity payments is called reconciliationMatching funds provided with funds spent.. The original schedule called for spending $261.65 (PV) by day six. The goal here is to minimize the distance from the data points to the line (i.e., to make the line as close to the data points as possible). Saylor Cost Index - Saylor Consulting They respond with a proposal for completing the work described in the RFP, including an estimate of the cost. Access the cloud based application 24/7 on desktop or . Software packages like Excel are available to perform regression analysis. Because of the similarity of the projects, John's initial estimate of the cost of the move was less than $700 and he decided that the cost would be affordable and the project could go forward. Leland Saylor Associates Founded in 1958, LSA is one of the largest cost consulting firms in the United States with 5 offices throughout the country estimating over 400 projects per year, from multi-billion-dollar civic programs to small office tenant improvements. Method of comparing the budgeted and actual costs of a project during the project. For nearly 60 Years, Leland Saylor has been the leader in cost consulting in the U.S. 2020 Marks the 58th Edition of Current Construction Costs, used by owners, architects, builders and public officials to estimate the cost of projects from houses to schools to airports to skyscrapers. It combines the scheduled activities with detailed cost estimates of each activity. Sum of the items in the budgeted cost of work scheduled that should have been spent by a particular day. Because the cost equation is based solely on these two points, the resulting estimate of production costs for 400 units of production (in part 2) may not be accurate. They have a very good price on lifting straps so he decides to buy an extra pair. It is necessary to establish an understanding of how this progress will be measured and reported. However, the goal of most companies is to get closethe results do not need to be perfect. It cost about $575 for the truck rental, pads, hand truck, rope, boxes, and gas. Because of the similarity of the projects, Johns initial estimate of the cost of the move was less than $700 and he decided that the cost would be affordable and the project could go forward. Simply select either the high or low activity level, and fill in the data to solve for f (total fixed costs), as shown. A positive CV indicates the project is under budget. Figure 9.5 Fund Transfers and Expenditures. The schedule variance (SV) for week 1 is EV minus the PV. In fact, many organizations use a scattergraph to identify outliers and then use regression analysis to estimate the cost equation Y = f + vX. As with the account analysis, high-low, and scattergraph methods, this line is described in the equation form Y =. Cost Manuals Saylor Cost Manuals Get the 2022 Book. A positive CV indicates the project is under budget. of experienced managers who can make accurate estimates with less detailed information. The questions in this section refer to the project budget shown below. Funding transfers are arranged to reconcile money spent to money from funding sources in a timely manner. Click the Center section and then type Johns Move. Thus the mixed cost equation used to estimate future production costs is. The financial people prefer to keep the companys money working in other investments until the last moment before transferring it to the project account. Using this information, perform the four steps of the high-low method to estimate costs and state your results in cost equation form Y =. Because the financial accounting department tracks information by department, it is able to produce this information. It was founded in 1918 and is based in Washington, D.C., with a mission to provide leadership, advocacy, and support for higher education on a national level. The American Council on Education (ACE) is a non-profit organization that represents the presidents of U.S. colleges and universities. He also decides to ask for bids on a standard move that includes all phases of packing, loading, transportation, and unloading as a comparison to see if his cost-saving plan is worth the extra effort. Question: The account analysisA method of cost analysis that requires a review of accounts by an experienced employee or group of employees to determine whether the costs in each account are fixed or variable. See Figure 9.21 "Printout Oriented Horizontally and Forced to Fit on One Page". You can take any Saylor Direct Credit exam up to 3 times total. Step 3. Save the file on your computer as Ch09EVStudentName.xls. Matching the transfer of funds into the project account with the money spent is called __________________. The high and low data points may not represent the data set as a whole, and using these points can result in distorted estimates. Unlike contingency reserves, they are not likely to be spent and are not part of the projects budget baseline, but they can be included in the total project budget.Project Management Institute, Inc., A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th ed. Experienced employees may be able to effectively estimate fixed and variable costs by using the account analysis approach. Read more below in the Proctoring section. Founded in 1958, LSA is one of the largest cost consulting firms in the United States with 5 offices throughout the country estimating over 400 projects per year, from multi-billion-dollar civic programs to small office tenant improvements. Step 3. This type of estimate is typically more accurate than an analogous or parametric estimate. Saylor maintains an active stormwater practice, providing SWPPP inspection as well as Stormwater and Air Quality Monitoring for numerous Caltrans projects throughout Northern California. An online parametric interface to the Richardson Construction Estimating Standards. The scatter-graph method can be used to identify any unusual data points which can be thrown out when estimating costs. She responded with the following information: Using the previous equation, simply substitute 400 units for X, as follows: Thus total production costs are expected to be $578,428 for next month. Assume Alta intends to produce 400 units next month. Funds are transferred into the project account four times. What does the cost equation look like for each approach at Bikes Unlimited? Using this information, create the cost equation in the form Y =, Scattergraph method: Y = $45,000 + $52.86X, Regression analysis: Y = $43,276 + $53.42X. Each of these cost equations was created using the same historical production cost data for Alta Production, Inc. Its project manager provides an ETC of $50,000. Refer to Figure 9.5 "Fund Transfers and Expenditures" that shows the costs of ten major activities in a project. Location: Oakland, CAProject Cost: 700,000,000Client: Bovis Lend Lease (PM) Oakland USD (Owner). Describe the method of combining cost estimates with a schedule to create a budget. We care not only about the dollar amount of a project, but also the value our clients receive for that dollar. Budget estimate based on a similar project. He is not sure if any companies offer this option, so he decides to ask three moving companies for bids. Figure 9.8 Schedule Variance and Cost Variance on Day Six of the Johns Move Project. However, the next approach to estimating fixed and variable costsregression analysisuses mathematical equations to find the best-fitting line. Click cell E5. The budgeted cost of work performed (BCWP)The budgeted cost of work scheduled that has been done. Expressed as a formula, ETC = BAC EV. Dion and Carlita were both trying to lose weight and just wanted a nice salad. John makes a stop at a store that sells moving supplies at discount rates. What is the actual cost (AC) at the end of week three? If the manager decides that the cost variance up to this point in the project is atypicalOpposite of typicalnot typical.not typicalthen the estimate to complete is the difference between the original budget for the entire projectthe budget at completion (BAC)Budget for the entire project.and the earned value (EV) up to that point.
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