CIVL 3052 Municipal Engineering 1

Lecture 09

Mohamed Essa, Ph.D., P.Eng.

Important Note: The original course materials were developed
in Fall 2023 by Eugene Wat & Binega Markos

CIVL 3052
MUNICIPAL ENGINEERING 1
EUGENE WAT, P.ENG.
BINEGA MARKOS, P.ENG.
FALL 2023

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Course Contents - Municipal Engineering 1 (CIVL 3052)
1. Introduction to Urban Developments
2. Site Planning Considerations
3. Subdivision Design (access, lot layout)
4. Off-Site Servicing 1: Water, Sanitary & Storm
5. Off-Site Servicing 2: Road, Street lighting, Utilities (dry), Landscaping
6. Regional Growth Strategy, Official Community Plan, Rezoning Process, (Community
Impacts)
7. Subdivision Process (Legislation & Bylaws)
8. Environment & Sustainability
9. Finance & Benefit/Cost Analysis
10. Integrated Storm Water Management (Detention)
11. Asset Management
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9. Project Cost Estimation
1. Project Cost Estimate

❑ Definition & Purpose of a Project Cost Estimate

❑ Accuracy & Completeness

❑ Project Cost Estimates through the Project Lifecycle

❑ Principles of Project Cost Estimating

❑ Quality/ Integrity/ Contingency

❑ Classification of Estimates

2. Cost Predictability in Construction

❑ Issues & Considerations in Cost Predictability

❑ Recommendations to Improving Cost Predictability

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 1. Project Cost Estimate
What is a Project Cost Estimate?

❑A “project cost estimate” is a prediction of the most likely total cost of

the identified scope of work for a project

❑The philosophy of project cost estimating is to produce the best cost

estimates to the level of project development, inclusive of
contingencies reflective of the project risks and the project
phase, using the most accurate and complete project and pricing
information available at the time the estimate is prepared

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Purpose of a Project Cost Estimate

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Purpose of a Project Cost Estimate
❑The primary purpose of a project cost estimate is to
provide a basis for developing, amending, or
reviewing a project budget
❑Contractor – estimate too high & the bid may go to
someone else; estimate too low, wins the bid & later
he wishes it went to someone else
❑Developer – estimate too low, additional financing
cost down the road or lose of profit
❑City – too high estimate could lead to killing a
project, political ramification, lose of public trust

❖ A cost estimate is a key component of the project

business cases, as it is the foremost document to
justify/support funding allocation
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Accuracy & Completeness
❑ The importance of accuracy and completeness
cannot be overstated
❑ An estimate based on incomplete or incorrect
information can make an already programmed and
committed to project difficult or impossible to
deliver, if early estimates prove to be significantly
low
❑ Conversely, when early estimates prove to be
significantly high, it can lead to killing an important
project
❑ An accurate and complete cost estimate goes a
long way toward supporting the successful delivery
of a project within its approved budget
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 Project Lifecycle Phases
• As knowledge increases, risk
typically decreases
• Accuracy improves as
knowledge increases
• Cost estimates need to be
continually revised to keep
them current
• Each revision should result with
a greater level of confidence
than the preceding estimate
• Each successive estimate
should fall within the range of
accuracy of the previous
estimate.
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Principles of Project Cost Estimating
Quality:
Cost estimators should:
➢ apply expert judgment to the estimate and the
assumptions made in developing it
➢ incorporate appropriate quality control processes
into the estimating process
➢ appropriately consider and quantify the risks and
uncertainties of the project
➢ present the estimate in an easily understood format
➢ be able to defend the estimate and the basis for the
decisions and assumptions therein, if asked
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Principles of Project Cost Estimating
Integrity:
➢ Project cost estimates should be prepared using a
high standard of professional and ethical integrity
➢ They should not be prepared by anyone who may
be, or may be perceived to be, in conflict of interest
➢ Project cost estimates should be presented in a
manner that is easily understood
➢ Where possible project cost estimates should be
prepared using a team approach, employing
expertise from appropriate disciplines for the major
project components

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Principles of Project Cost Estimating
Contingency:

➢ Contingency is generally understood to be an

amount of money added to an estimate to cover
items of cost which are not known exactly at the
time the estimate is developed, but which will
likely occur during the life of the project

➢ It is intended only for the scope as defined in

the estimate, it is not intended to cover scope
changes

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Principles of Project Cost Estimating
➢ An estimate assumes things as:
– Errors will not be made and quantities will not
change
– Resources will be available
– The work will be done according to the
execution plan
– The project is well defined and decisions will be
made on time
– Contractor’s work will flow smoothly and
produce deliverables per the schedule
– Contractor will have materials, equipment, and
information as per the schedule
❖ Contingency is meant to cover likely variations to
these assumptions 13
Principles of Project Cost Estimating
Contingency:
❑ What does Contingency Include?
➢ Normal design development changes
➢ Normal variations in project execution
➢ Normal variations in estimating (e.g. between
estimated and actual quantities and costs)
❑ What does Contingency Exclude?
➢ Significant changes in scope
➢ Major changes in project execution
➢ Extraordinary variations in cost (Escalation)
➢ Major (unexpected) work stoppages
➢ Disasters (earthquakes, tornadoes, etc.)
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Principles of Project Cost Estimating
Contingency - Points to remember:
– Project cost estimates should always include
contingency to cover certain uncertainties and
risks
– Contingency is an item in a cost estimate like
any other. It is best presented as a separate line
to clearly identify it
– Contingency should be estimated and included
in every estimate and every budget
– Contingency evolves with the level of project
understanding
– An estimate that contains too much contingency
is overpriced; such estimates can negatively
impact project ‘go/no-go’ decisions
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Classification of Estimates
AACE Process Industry Estimate Classification
AACE LEVEL OF PROJECT EXPECTED ACCURACY
END USAGE METHODOLOGY TYPICAL CONTINGENCY
ESTIMATE DEFINITION RANGE
Expressed as % of Complete To Achieve 50% Probability of
CLASS Typical Purpose of Estimate Typical Estimating Techniques At 90% Confidence Level
Project Definition Overrun/Underrun
Preliminary Project Capacity Factored,
Screening Estimate, Parametric Models,
Capital Budget OOM Judgment, Analogy, Low: -20% to -50%
5 <= 2% Estimate, Alternate Historical Project 15% to 40%
High: +30% to +100%
Schemes Evaluation, Comparisons, Gross Unit
Strategic Analysis Cost
Preliminary Project Equipment Factored,
Estimate, Reality Check Parametric Models,
Estimate, Alternate Historical Relationship Low: -15% to -30%
4 1% to 15% 10% to 25%
Schemes Evaluation, Factors, Broad Unit Cost High: +20% to +50%
Feasibility Study Data

Project Funding Estimate,

Semi-Detailed Unit Costs
Fair Price Check Estimate,
with Assembly Level Line Low: -10% to -20%
3 10% to 40% Change Alert Check 5% to 15%
Items By Trade, Historical High: +10% to +30%
Estimate, Alternate
Relationship Factors
Schemes Evaluation

Project Funding Estimate,

Detailed Estimating Data
Control Estimate, Change Low: -5% to -15% 5% to 15%
2 30% to 70% by Trade, with (Forced)
Alert Estimate, Firm Bid High: +5% to +20% of unexpended funds
Detailed Takeoff Quantities
Estimate

Detailed Estimating Data

Change Alert Estimate, Low: -3% to -10% 3% to 10%
1 50% to 100% by Trade, with Detailed
Firm Bid Estimate High: +3% to +15% of unexpended funds
Firm Takeoff Quantities

AACE – American Association of Cost Engineering

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Cost Estimate Variance Matrix

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10-Minute
Break

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Factors influencing an estimate
• PUP (Public Utility Plans): Plans
for managing and relocating
utilities like water, electricity, and
gas affected by a project.
• QTRIP (Queensland Transport and
Roads Investment Program): A
multi-year funding and planning
framework for transport and road
projects in Queensland, Australia.
• Brownfield: Projects on previously
developed land, often requiring
cleanup or demolition.
• Greenfield: Projects on
undeveloped land, requiring new
infrastructure but offering design
flexibility.

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 2. Cost Predictability in Construction
Definition:

➢ For the purpose of this presentation, “cost

predictability” is defined as “the prediction of a
construction cost estimate, as compared to the
median of competitive bids”

➢ Where “prediction” is defined as “an assertion on the

basis of data, theory or experience, but in advance of
proof”

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Issues and Considerations in Cost Predictability
➢ Local or national construction industries are becoming increasingly
affected by global trends and influences, which can create significant and
unexpected volatility and unpredictability in the construction marketplace

Examples of such market volatility would include:

▪ The abnormal cost escalation in BC during 2006 leading up to the
Vancouver Olympics
▪ The unprecedented run-up in almost all construction material prices in
2008, especially for steel and oil-based products, across the world
▪ The equally unprecedented and sudden global financial crisis, and
resulting potential temporary collapse of both the commodity and
construction markets in 2008-2009
▪ NAFTA renegotiation/ Trans-Pacific Trade Agreement
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Issues and Considerations in Cost Predictability

1. Consideration of local or regional market influences

2. Current and accurate information should be shared
between stakeholders
3. Cost estimates should be prepared during tender period for
changes to schedule or addenda
4. Incomplete/uncoordinated bid documents, causing
different interpretations
5. Failure to recognize the appropriate class of estimate
6. Fast-tracking projects or proceeding with a project
before it is well defined
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Issues and Considerations in Cost Predictability

7.Project objectives or program not clearly defined when developing

the initial budget
8.Scope creep - growth in project objectives or programs during
design development
To manage scope creep and absorb its impact:
▪ immediately adjust for any changes
▪ use value engineering techniques with input from various sectors
9. Proper use of contingencies
The following two escalation contingencies should be taken into
consideration:
▪ market escalation up to the bid; and
▪ embedded escalation within bid prices

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Issues and Considerations in Cost Predictability

10. Mistake of designing to maximum of the budget

11.No consideration or misuse of data about similar projects
➢ When using budgets from previous projects one should take into account lessons learned.
This applies in particular to the Class D Estimate stage
12. Actual errors in the estimate or bid preparation
➢ Double check and overview all estimates before submission to avoid making errors
13.Ensure that the estimate is produced by a qualified individual
14. Outdated estimate used
➢ Projects and estimates that are delayed or shelved need to be updated to make the proper
allowances for current market conditions

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Issues and Considerations in Cost Predictability

15. No Consideration for Normal Cost Inflation

➢ Consideration for industry-specific cost inflation should be given

16. Pressure to Meet Limited Budget

➢ Estimates should not be altered to meet limited budgets. If the estimate exceeds the
budget, owners should achieve the intended result by either increasing the budget or
modifying the scope of work

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 Recommendations for Improved Cost

Predictability
1. Utilize qualified estimating personnel throughout the life of
the project
2. Ensure all stakeholders have input early and often. Clear
definition of project objectives, program and scope will avoid
potentially expensive surprises, such as scope growth
3. Give designers sufficient time to finalize bid documents
4. Consider developing & maintaining a usable construction
cost database

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 Recommendations for Improved Cost

Predictability
5. Include sufficient contingency to address market volatility, timing of
construction, and other exclusions in the estimate

6.1 Before Tender

✓ consider possible scope variations in the tender as a contingency to
adjust to the owner’s budget
✓ give designers sufficient time to finalize 100% bid documents for the
pre-tender estimate; and
✓ allow cost consultants or estimators sufficient time to prepare and finalize
pre-tender estimates

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 Recommendations for Improved Cost

Predictability
6.2 During Tender

✓ keep the cost consultant involved during the tender period

✓ monitor addenda changes and bidding environment; and
✓ revise estimates to reflect scope changes and addenda

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 Recommendations for Improved Cost

Predictability
6.3 After Tender
✓ involve the cost consultant in the post tender review
✓ analyze bid results against estimates for lessons learned; and
✓ keep a record of historical estimate versus bid data

7. When a capital project gets completed consider carrying out a post-

completion assessment to determine whether the project was carried out
successfully, how contractors performed, the risks encountered and
whether you have achieved overall project objectives

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 2. Cost Predictability in Construction
Cost Predictability Guarantee

✓ There is no guarantee that pre-tender estimates will precisely match

bid prices, just as there is no expectation that all bid prices will be the
same.

✓ In reality, there are too many variables influencing final bid prices to expect
100% accuracy. However, there are many proven recommendations and
methodologies one can follow to help improve and define the cost
predictability of projects.

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Thank you!

See you next lecture

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