Energy Estimating
In the world of energy construction and engineering, estimates are crucial tools for planning, budgeting, and executing large-scale projects. A well-structured estimate breaks down complex scopes into manageable categories, providing a transparent view of costs, risks, and contingencies. This article offers an expanded overview of the key categories involved in a Class 2 EPC (Engineering, Procurement, and Construction) estimate, commonly developed during the FEED (Front-End Engineering Design) phase.
Engineered Equipment
Engineered equipment forms the backbone of any energy project, encompassing all tagged equipment identified in the Piping and Instrumentation Diagrams (P&IDs). This category includes detailed pricing for individual components and systems essential to the project.
Key Inclusions:
- Carried Pricing: Costs derived from normalized quote sheets, reviewed collaboratively with stakeholders to align on equipment selection and pricing.
- Freight and Factory Acceptance Tests: Itemized costs for logistics and quality assurance testing.
- Evaluation Processes: Vendor evaluations consider cost, quality, reliability, and compliance with project specifications.
Examples: Compressors, heat exchangers, and large-scale turbines undergo rigorous evaluations to meet project demands.
Vendor Selection and Evaluation: Proposals are analyzed using predefined criteria, such as cost, delivery timelines, and performance guarantees, supported by normalized quote sheets to ensure transparency.
Importance: Engineered equipment directly influences project performance, operational efficiency, and long-term maintenance costs. Early vendor engagement mitigates risks and ensures alignment with project goals.
Quantity Development
Quantity development relies on Material Take-Offs (MTOs), which are detailed calculations of materials and components required for the project. MTOs are critical in ensuring that estimates are accurate and aligned with the project’s scope.
Typical MTO Discipline Categories Include:
- Demolition: Removal and disposal of existing structures or materials for site preparation.
- Site Work: Preparation of the construction site, including grading, excavation, and soil stabilization.
- Civil Utilities: Installation of underground infrastructure such as water, sewage, and drainage systems.
- Aggregates and Paving: Materials for road construction, pathways, and surface stabilization.
- Deep Foundations: Structural elements like piles and caissons for load transfer to stable ground.
- Concrete: Materials for cast-in-place or precast concrete structures, including rebar and formwork.
- Structural Steel: Structural and miscellaneous metals for framework, piperacks, supports, and custom fabrications.
- Piping: Pipes, fittings, and supports.
- Paint: Coatings and finishes for corrosion protection and aesthetic applications.
- Mechanical: Equipment and systems for mechanical operations.
- Insulation: Materials to insulate piping, tanks, and buildings for thermal and sound protection.
- Electrical: Wiring, conduits, and equipment for power distribution and control systems.
- Instrumentation: Sensors and controls for monitoring and automation of processes.
- Buildings: Materials for structural and architectural elements of enclosed facilities.
- Scaffolding: Temporary structures for worker access and material support during construction.
- Tanks: Materials and components for the storage of liquids and gases.
- Specialty Work: Unique or project-specific elements requiring custom design or fabrication.
Development Process: Quantities are derived from design documents and refined through iterative reviews as designs mature. For instance, for piping, MTOs include detailed breakdowns of material types, diameters, and lengths, aligning with execution plans. Foundations might include estimates for concrete volumes and rebar densities.
Accuracy and Updates: As the FEED phase progresses, the maturity of design documents improves, allowing for greater accuracy in MTOs. Regular updates ensure alignment with design changes and project milestones, reducing allowances and minimizing rework.
Direct Labor, Materials, and Subcontractors
This category encompasses the costs of labor, materials, and subcontracted services, forming the core of project execution. Breaking these components down by discipline allows for a detailed understanding of project size, resource allocation, and cost distribution. Additionally, small tools and consumables are included within the labor costs to account for their critical role in project efficiency.
Key Components:
- Manhours: Estimates are derived using historical data and project comparables, ensuring discipline-specific accuracy.
- Material Costs: Itemized and transparent, including freight, factory acceptance costs, and other logistical considerations.
- Subcontractor Costs: Validated through quote sheets and benchmarks to ensure alignment with project scope and budget.
Breakdown by Discipline
Each discipline is defined by a specific quantity, providing context for the project’s total size and enabling better resource planning.
Discipline | Quantity | Manhours | Labor Cost ($) | Materials Cost ($) | Subcontractor Cost ($) | Total Cost ($) |
Steel | 912 TON | 23,210 | 1,260,767 | 3,564,096 | 456,324 | 5,281,187 |
Piping | 45,000 LF | 40,000 | 2,172,800 | 3,800,000 | 650,000 | 6,622,800 |
Concrete | 2,500 CY | 18,000 | 972,000 | 1,250,000 | 300,000 | 2,522,000 |
Electrical | 20,000 LF wiring | 25,000 | 1,485,000 | 750,000 | 400,000 | 2,635,000 |
Instrumentation | 1,500 devices | 12,000 | 720,000 | 1,500,000 | 250,000 | 2,470,000 |
Labor Cost Breakdown
Labor costs are detailed further to include base wages, overtime premiums, burdens (taxes, insurance), per diem allowances, and small tools and consumables.
Cost Component | Amount ($/Manhour) | Notes |
Base Wage | $30.41 | Average wage for skilled labor. |
Overtime Premium | $3.04 | Estimated at 10% of base wage. |
Burdens | $8.36 | Includes taxes, insurance, and other employee-related costs. |
Per Diem | $12.50 | Covers lodging and daily expenses for traveling labor. |
Small Tools and Consumables | $5.00 | Allocated for hand tools, fasteners, welding rods, safety gear. |
Total Cost per Manhour | $59.31 | Sum of all components. |
Subcontractor Management Insights
Effective subcontractor management ensures alignment with project benchmarks and mitigates risks. This involves:
- Defining Detailed Scopes of Work: Clearly outlining deliverables, timelines, and expectations.
- Performance Monitoring: Regularly assessing subcontractor progress and quality to avoid delays or additional costs.
- Cost Validation: Using tools like normalized quote sheets to ensure bids align with industry standards.
Impact of Discipline-Specific Breakdown
By breaking costs down by discipline and including defining quantities, project teams gain:
- Clarity on Project Scale: Quantities like tons of steel or linear feet of piping contextualize the scope.
- Resource Optimization: Accurate manhour and material estimates enable efficient planning.
- Cost Control: A detailed labor breakdown ensures all cost components, including small tools and consumables, are accounted for.
This structured approach ensures accurate cost projections, minimizes risks, and aligns all stakeholders on financial expectations.
Construction Equipment
This category captures costs related to machinery and tools required for construction activities.
Details Include:
- Equipment Schedule: Lists individual equipment with duration-based usage estimates.
- Cost Components: Rental costs, maintenance, operating expenses, and mobilization/demobilization.
Optimization Strategies: Efficient scheduling and utilization planning minimize idle time, reducing overall equipment costs. Strategies include:
- Multi-purpose Equipment: Using machines that serve multiple functions, such as excavators that can also perform loading tasks.
- Shared Equipment Pools: Coordinating equipment use across multiple projects to maximize efficiency.
Sustainability Considerations: Selecting energy-efficient or low-emission machinery can align with sustainability goals while potentially reducing operating costs.
Commissioning and Startup
Commissioning ensures that all systems and equipment are operational and meet project specifications.
Inclusions:
- Craft and Staff Schedules: Weekly/hourly breakdowns with associated wage rates.
- Vendor Collaboration: Third-party representatives assist in startup activities for specialized equipment.
Critical Path Activities: Commissioning integrates with the project’s critical path to avoid delays in transitioning from construction to operation. Key milestones include system pre-checks, functional testing, and final handovers.
Vendor Collaboration: Vendor representatives play a critical role in ensuring equipment operates according to specifications. For example, a compressor manufacturer’s representative might assist in calibrating equipment during startup to meet performance standards.
Temporary and Indirect Work
Temporary work includes non-permanent installations and support services required during the construction phase.
Examples:
- Temporary fencing, roads, and parking.
- Support services like fire watch, warehouse operations, and testing.
- Utilities such as temporary electrical systems and water supply.
Case Studies: For example, a large refinery project used temporary modular office buildings to house project teams near the construction site, reducing transit times and increasing efficiency. Reusable scaffolding systems also minimized costs and material waste.
Cost Management: Temporary costs are monitored against benchmarks and past project data to avoid cost overruns. Tools like cost-tracking software ensure visibility into indirect expenditures, enabling project managers to identify cost-saving opportunities.
Staff Costs
Staff costs cover salaries and expenses for management and supervisory roles.
Details Include:
- Positions: Project management, QA/QC, procurement, and safety personnel.
- Expenses: Travel, per diem, and administrative costs itemized for transparency.
Role in Project Success: Staff, particularly in roles like QA/QC and safety management, are critical to ensuring project quality and adherence to standards. For example, proactive QA/QC teams can identify potential issues early, reducing costly rework.
Staffing Challenges: Attracting and retaining skilled personnel remains a challenge in the industry. Strategies such as offering competitive wages, clear role definitions, and professional development opportunities can help mitigate turnover and ensure a motivated workforce
Engineering
Engineering costs are calculated based on the manhours required for each discipline.
Key Activities:
- Design and constructability reviews.
- Coordination among disciplines to align with project execution plans.
Interdisciplinary Coordination: Successful projects rely on seamless communication between engineering disciplines. For example, structural and mechanical teams work together to ensure pipe racks are both robust and optimized for layout efficiency.
Design Iterations: Frequent design iterations during FEED reduce the risk of rework later. For instance, 3D modeling and Building Information Modeling (BIM) tools help identify clashes and improve constructability before construction begins.
Impact: Detailed engineering ensures seamless transitions between design and construction phases, reducing the risk of rework and delays.
Contingency and Escalation
Contingency accounts for risks and uncertainties, while escalation addresses potential cost increases due to market trends.
Development Process:
- Risk Logs: Quantify risks by probability and impact, assigning contingency values.
- Escalation Tables: Predict cost changes in labor, materials, and equipment based on market conditions.
Importance: Regular reviews with updated market data refine these estimates, ensuring financial health despite unforeseen challenges.
Commercial
The commercial category includes taxes, fees, and administrative costs.
Components:
- Taxes: Sales and gross receipts taxes as a percentage of total costs.
- General and Administrative (G&A) Costs: Fixed percentages for project-wide administrative functions.
- Fee: Profit margins negotiated based on project risk and complexity.
Negotiation Strategies: Fixed percentages for taxes and fees are often subject to negotiation. For example, clients and contractors might agree on adjusted rates for projects with unique risks or high upfront costs.
Transparency in Costs: Clear documentation of commercial costs fosters trust between contractors and clients. For instance, providing a breakdown of G&A expenses and comparing them to industry benchmarks can validate the reasonableness of these charges.
Deliverables and Review Process
Each category within an energy estimate generates specific deliverables, such as:
- Estimate execution plans / estimate basis.
- Material Take-Offs (MTOs) and buyout logs.
- Wage sheets, schedules, and escalation summaries.
The estimate review process engages stakeholders to validate assumptions and align on cost allocation. Tools like cost breakdown structures (CBS) and software platforms enhance transparency and facilitate informed decision-making.
Sample Estimate Summary
Category | Labor ($) | Materials ($) | Subcontractors ($) | Total ($) |
Engineered Equipment | ||||
Direct (By Major Discipline) | ||||
Construction Equipment | ||||
Commissioning | ||||
Temporary Work | ||||
Staff Costs | ||||
Engineering | ||||
Contingency | ||||
Commercial | ||||
Total |
This is a basic estimate output intended for high-level summary information. The complexity and detail of the estimate summary and its supporting documentation will vary significantly depending on the estimate class (e.g., Class 5 through Class 1) and project requirements. Factors such as client needs, contract types, and project scope will directly influence how estimates are structured and reported.
Estimate Basis
An estimate basis is a critical document in the project estimation process. It outlines the detailed assumptions, methodologies, and data sources used to develop the estimate. This document provides the context and rationale for the figures presented, serving as a foundational reference for the project team and stakeholders.
The estimate basis typically includes:
- Scope Definition: A detailed description of the project’s scope, including specific deliverables.
- Assumptions and Exclusions: Key assumptions made during the estimation process and any items intentionally excluded.
- Methodology: The approach used for the estimate, such as parametric, analogous, or bottom-up techniques.
- Data Sources: Sources of cost data, including historical project data, industry benchmarks, or supplier quotes.
- Risk and Contingency: Identification of potential risks and the contingency amounts included in the estimate.
- Cost Breakdown Structure (CBS): The framework used to organize and categorize costs.
Importance of the Estimate Basis in Energy Estimates
- Transparency and Clarity: It ensures all stakeholders understand how the estimate was derived, promoting trust and alignment.
- Scope Alignment: By clearly defining the project scope, the estimate basis reduces the risk of scope creep and associated cost overruns.
- Risk Mitigation: Documenting assumptions and risks helps in identifying potential cost uncertainties early, allowing for proactive risk management.
- Benchmarking and Validation: The estimate basis provides a reference for comparing actual costs to initial estimates, enabling performance tracking and lessons learned for future projects.
- Regulatory and Audit Compliance: A well-documented estimate basis supports compliance with industry regulations and facilitates smooth audits.
In the energy sector, where projects often involve significant capital investments and complex systems, an accurate and well-documented estimate basis is vital. It not only supports effective project execution but also enhances decision-making, stakeholder confidence, and the overall success of the project.
Importance of Early Alignment
Achieving early alignment on the reporting structure is critical to ensure consistency and clarity in how the estimating process is conducted. Misalignment at the beginning can lead to inefficiencies, misunderstandings, and potential rework, particularly when multiple stakeholders are involved. Early discussions should cover:
- Reporting Requirements: Define what information needs to be captured and how it will be presented.
- Level of Detail: Determine the granularity of the estimate (e.g., summary vs. detailed line items).
- Frequency of Updates: Agree on intervals for sharing estimate revisions and progress reports.
- Key Stakeholder Expectations: Align deliverables with the requirements of clients, contractors, and financiers.
Role of the CBS Structure
The Cost Breakdown Structure (CBS) serves as the foundation for organizing and presenting estimate information. It defines the hierarchy of costs, from high-level categories (e.g., labor, materials, equipment) down to specific line items (e.g., piping, concrete, scaffolding). The CBS structure significantly impacts:
- Estimate Development: Ensures consistency across all estimate phases by providing a clear roadmap for cost allocation and tracking.
- Deliverables: Dictates the format and structure of supporting documentation, such as cost reports, variance analyses, and risk assessments.
- Stakeholder Communication: Provides a common language and framework for discussing cost-related issues, facilitating better collaboration and decision-making.
Summary Table: Key Categories of an Industrial Estimate
Category | Description | Key Components |
Engineered Equipment | Costs for tagged equipment identified in P&IDs. | Carried pricing, freight, vendor evaluation, compressors, turbines. |
Quantity Development | Material Take-Offs (MTOs) ensure alignment with project scope. | Civil, mechanical, and specialty work quantities (e.g., piping, foundations). |
Direct Labor, Materials, and Subcontractors | Core costs for project execution, including labor and materials. | Manhours, unit rates, subcontractor costs, historical data usage. |
Construction Equipment | Machinery and tools required for construction activities. | Rental costs, equipment schedules, optimization strategies. |
Ensures systems and equipment meet operational specifications. | Pre-checks, functional testing, vendor collaboration. | |
Temporary and Indirect Work | Non-permanent installations and support services during construction. | Temporary structures, utilities, support services like fire watch and warehouse operations. |
Staff Costs | Salaries and expenses for management and supervisory roles. | Project managers, QA/QC, safety personnel, travel, per diem. |
Engineering | Manhours required for design and constructability reviews. | Structural, mechanical, interdisciplinary coordination, design iterations. |
Contingency and Escalation | Risk reserves and cost increases due to market trends. | Risk logs, escalation tables, contingency percentages. |
Commercial | Administrative costs, taxes, and fees. | Taxes, G&A expenses, profit margins. |
Deliverables | Documents to ensure transparency and alignment with stakeholders. | Estimate execution plans, MTOs, cost breakdown structures (CBS). |
The table above outlines common costs associated with each category of industrial project estimates. It is crucial to note that every estimate is unique, and thorough planning and review are essential to ensure project costs are accurately allocated to the appropriate categories. Effective cost allocation supports project success by providing a clear financial roadmap and minimizing the risk of budget overruns.
Conclusion
Energy estimates are critical tools that transcend numbers, acting as blueprints for project planning, risk management, and execution. By thoroughly understanding the key categories of an estimate—engineered equipment, quantity development, labor, materials, subcontractors, and more—stakeholders can gain valuable insights into cost drivers, potential risks, and opportunities for optimization. Leveraging advanced tools, collaborative processes, and transparent methodologies enhances the accuracy and reliability of estimates, ensuring alignment between all parties. In a dynamic industry, embracing robust estimating practices not only mitigates risks but also sets the foundation for successful project delivery. The integration of modern technologies and a commitment to continuous improvement further elevate the strategic importance of estimates, making them indispensable for navigating complexities in energy construction and engineering.
Disclaimer
The information provided in this post is for reference purposes only and is intended to serve as a guide to highlight key topics, considerations, and best practices. It does not constitute professional advice or a substitute for consulting regarding specific projects or circumstances. Readers are encouraged to evaluate their unique project needs and seek tailored advice where necessary. Please Contact Us to discuss your particular project.
