Cost Estimating: How to use Composites

Different methodologies could be applied to perform a cost estimate. When detailed information on a project is available, it is possible to develop a detailed unit cost estimate, which is a bottom-up estimate at work-package or task level and it includes quantities, unit costs, labor rates, etc.  However, in most of the cases, especially in early stages of a project, there is a lack of detailed information. This article will discuss how composites can help you create reliable and accurate cost estimates in these situations.

What are composites?

An assembly method of estimating can be applied to structure and group the components of cost estimation. An assembly is a unit which consists of cost items with even more detailed pieces. A common way of structuring assemblies for estimating is forming the top level using composites which can be further substructured into unit-rates and details. 

The application of composites can be best illustrated with a case in the chemical or oil & gas industry. The installation of pipelines is a significant cost element in building plants and turnarounds. In early stages of a project, typically the information about piping is limited. The exact details of additional components related to pipe (e.g. fittings) are not identified at this stage. This is where the use of composites becomes helpful. 

A composite (e.g. one meter of carbon steel pipe of a certain size) consists of components which include the quantities of the fittings such as elbows, flanges, and valves. These quantities (or ratios) are based on statistical data gathered from historical projects. Besides material cost, components like painting, insulation, installation, and testing should be also considered. Using assembly structures, the described cost elements can be included and clearly structured in the composite. 

Benefits of composites when estimating the cost

There are several benefits of using composites. It is a fast way of cost estimating since an estimator can concentrate on the main components and does not need to gather detailed information. Moreover, a satisfying accuracy can be reached because the composites are built up using historical data. The composites also give the estimator a quick insight into how the costs of an item are built up. Therefore, it reduces the risk of overlooking components or activities.

Limitations of composites and the use of an industry standard knowledgebase

One should also keep in mind that there are some limitations of using composites. The most important one is that the quality of composites depends heavily on the statistical data used. The data is often not publically available nor existing within the company. It is, therefore, difficult and time consuming to build up a knowledgebase which consists of all cost components used for day-to-day estimating. 

This issue can be solved by using an industry-wide standard knowledgebase. For instance, an industry standard knowledgebase used by companies worldwide: The Cost Engineering Standard Knowledgebase (CESK). The vast array of information CESK offers include labor norms and cost data and covers a wide range of disciplines for various industries. Having a complete and well-structured dataset makes your life much easier as a cost estimator. 


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