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Chapter 5 - Project Costing and Valuation

This document discusses project cost estimation and valuation. It explains that project cost estimation involves valuing the monetary costs of all elements needed for planning, implementing, and monitoring a proposed project. It also discusses factors that affect cost estimation like construction methods, material and labor costs, transportation costs, and location. The document provides examples of preliminary cost estimation methods and outlines the process for detailed cost estimation using itemized rates and quantities. It defines the purposes of valuation and discusses various valuation methods.

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85 views19 pages

Chapter 5 - Project Costing and Valuation

This document discusses project cost estimation and valuation. It explains that project cost estimation involves valuing the monetary costs of all elements needed for planning, implementing, and monitoring a proposed project. It also discusses factors that affect cost estimation like construction methods, material and labor costs, transportation costs, and location. The document provides examples of preliminary cost estimation methods and outlines the process for detailed cost estimation using itemized rates and quantities. It defines the purposes of valuation and discusses various valuation methods.

Uploaded by

fayo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PROJECT COST ESTIMATION

PROJECT VALUATION
` Project Cost estimation is the process of
valuing on monetary expression, including
the cost of all possible entrants necessary for
the planning, implementing and monitoring
stages
t off the
th proposed d project
j t under
d
consideration.
` Project Cost includes:
◦ Preliminary investigation (project appraisal costs)
◦ Design and supervision (consultancy cost )
◦ C
Construction
t ti works
k ((contractor’s
t t ’ costt )
◦ Land owning cost, and
◦ Monitoring costs
◦
` Cost due to construction is the focus of this
chapter. Cost includes:
◦ cost due to material,
◦ cost due to labor,
◦ cost due to equipment,
◦ overhead costs and contractor’s profit.
` Material Break Down - In order to facilitate
estimation
ti ti off costt due
d tto material,
t i l it iis
important to know the quantities of various
elements involved in construction of various
parts of the building work
` Example: Material Break Down for 1m3 C-25
concrete (1:2:3
(1 2 3 mix)i )
` Wet (fresh) concrete mix … = 1m3
◦ Quantity for dry base analysis…= 1.55m3
◦ Volume of cement……………..…= 1/6*1.55 = 0.258m3 =
0.258m3/0.035m3 per bag = 7.4 bags of cement
◦ Sands ………………………….....=
…………………………..... 2/6 2/6* 1.55 = 0.517m3
◦ Coarse aggregate…………….….= 3/6 *1.55 = 0.775m3
◦ Water …………………………….= 0.16 m3 ( assuming w/c
0 62)
0.62)
` Note: - 1.5 to 1.6 times dry volume of the
materials is required
q to get
g 1m3 of compact
p dense
fresh concrete mix.

` Exercise: Do similarly for C 20 and C 30 concretes


` Purposes of Cost Estimation
◦ determine actual cost per unit of item
◦ identifying engineering estimate of the work for bidding purpose
◦ work out economical use of materials, labor and equipments
◦ in cases of variations to determine the extra cost to be incurred
◦ when changes in cost due to legislation happens, to work out
the escalation in cost

` The following information is required to define cost per


unit of work
◦ Correct information of the market price of the materials at the
time of need to be used as a basic price
◦ Correct information of the rates of various categories of skilled
and unskilled laborers as wage rates to be used for daily work
rate
◦ Output of laborers per day for various types of items
(productivity)
◦ Correct information of the rates of various categories of
equipments
i t andd ttools
l as rental
t l rates
t tto b
be used
d ffor major
j ititems
of rates
◦ Up-to-date knowledge of the construction methods.
` Factors affecting cost estimation
x Type and documentation of the project
x Construction scheduling
x Bidding environment
x Quality and availability of material and labor
(given in specification)
x Construction facilities /tools and method of
construction
x Location of the site: Transportation charges
x Proper management
x Land charges (lease)
x Nature of subsurface condition
` Estimation can be broadly classified as
preliminary (approximate) and detailed.

` Preliminary /approximate costing


` This type of cost estimation is required to
know the financial position of the client before
costly detailed designs are carried out.

` Such estimates are based on practical


p
knowledge and cost of similar previous works.
Examples of approximate cost estimations are
as follows:
`
` A. Cost p
per functional unit
` Hospital =cost per bed, Dormitory = cost per student,
Cinema or theatre = cost per seat, residential buildings =
cost per area, road works = cost per kilometer length,
culverts or bridges = cost per meter span,
span water supply or
sewerage projects = cost per head of population.

` B. Plinth area method – cost per m2


B
` Based on PLINTH AREA - roof area or external dimensions
at the plinth level (Courtyard & open area shall not be
included)
` The rate per meter square is deduced from the cost of
similar building projects in the locality.

` C
C. C
Cubical
bi l C
Content
t t method
th d – costt per m3
` Based on cubical contents of various buildings, i.e. Plinth
area of the building x height x cubic content rate.
` Height should be taken from the top of flat roof (or halfway
of the sloped roof) to the top of concrete in foundation.
` Detailed cost estimate( based on item rate)

` This is
Thi i the
th mostt reliable
li bl andd accurate
t ttype off
estimate.
` The quantities of items are carefully prepared
from the drawings and the total cost worked
out from up to date market rates.
` A detail cost estimate thus requires:
◦ Quantity surveying and
◦ Analysis of the different rates for the quantities
prepared.
` Rate Analysis is the process of fixing cost per unit
of measurement for the different item of works.

` Total cost per unit of work (TC): Direct cost (DC)


+ Indirect cost (IC)

` DC includes cost due to material (MC), cost due to


labor (LC), cost due to equipment (EC)
` IC covers overhead costs,
costs and contractor
contractor’s
s profit.
profit

` In order to facilitate estimation Material break


down is essential

` Different formats,
formats Excel sheets and softwares (like
CONMIS) are used for rate analysis
` Example: - Calculate the Unit price for C -25 concrete
per m3 of work (formwork and reinforcement rated
separately). Assume 15% overhead and 20 % profit.
` Solution: -
` Total cost (TC) = Direct Cost (DC) + Indirect Cost(IC)
` IC = (15% + 20%) of DC = 35 % of DC
` Direct Cost ((DC)) = Material Cost ((MC)) + Labour Cost
(LC) + Equipment Cost (EC)
` Material cost (MC)
` Labour cost (LC)
` Assuming the crew consists of a site engineer, foreman, mason,
and four daily laborers and a productivity of 0.50 m3 per hr:
` Equipment Cost (EC)
` Assuming a mixer with an hourly rate of 20.00
20 00 Birr / Hr and
productivity of 0.5 m3 per hour:
` DC = MC + LC +EC
EC

` DC = 681.50
681 50 + 47
47.56
56 + 40
40.00
00 = 769
769. 06
Birr/m3

` IC = 35/100 * 769.06 = 269.17 Birr/m3

` TC = (769.06 + 267.17) Birr/m3 = 1,038.23 ≅


1, 040.00 Birr/m3

` C – 25 Concrete = 1, 040.00 Birr/ m3


` Valuation
V l i is
i the
h art off determining
d i i present
value of a property such as a building, a
factory or other engineering structure.
structure
` It is determined or decided by its selling price.
` The value of property depends on its structure,
structure
life, maintenance, location, etc.
` Purpose of Valuation
◦ For rent valuation –It is generally 6% to 10% per
annum of the value.
◦ For buying or selling
◦ For Security of loans or mortgage
◦ Acquisition –government compensation
◦ For Tax assessment
` Important Definitions
` Market Value, Taxes, Scarp
Value, Salvage Value, Book
Value Assessed Value,
Value, Value
Obsolescence,, Gross Income,,
Net Income, Annuity, Capital
C t C
Cost, it li d V
Capitalized l
Value, d
and
Depreciation.
ep ec at o
` Valuations of a building depends upon, the type of
building, its structure, shape, size, locality, the
quality of material used, present day prices of the
materials, and plinth area.
` Determined after knowing the contents of each
item of work,
work specifications and physical condition
of the building.
` It can also be calculated on its cost of
construction at present day rate after deducting a
suitable depreciation.

` Methods of valuation:
1. Rent Return Method: based on the net rent
value, capitalized for the future life of the
building.
building
` Valuation
V l i on land
l d and d building
b ildi basis:
b i Land
L d + Cost
C off
Building
` Valuation on profit basis: Suitable for commercial
buildings like hotels
hotels, cinemas
cinemas, etc
etc.
◦ Net profit =After deducting all outgoings and interest of capital
invested.
◦ The net p
profit is multiplies
p by
y future life of the building.
g
` Valuation on cost basis: Actual cost incurred in
construction - depreciation.
` Development
p method of valuation: underdeveloped p or
partly developed or require renovations by alteration.
` Anticipated future net income is renovated and
multiplied with the future life of the property to get the
value.
l
` Depreciation method of valuation: the property value is
determined based on the book value for the year by
d d ti
deducting th
the d
deprecation.
ti
`
` FINAL EXAM
` PART I - Conceptual
` PART II – Computational
◦ Chapter 1 -
◦ Chapter 2 -
◦ Chapter 3 -
◦ Chapter 4 -
◦ Chapter 5 –
` Please give
g me your
y comments on the course
delivery with weakness and strengthens.

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