Cost & Financial Management

for Project Management

PM 5104
Presentation on “PROJECT COST ESTIMATING ”

Group #2
• Abdul Mugees
• Syed Aoun Jaffry
• Hassan Raza
• Hamza Ali Khan
Estimate Development in Relation to Project
Developments

Estimators must start estimation with assumption that following factors will
remain constant or change in predicted ways:
• Scope of the Project will not change
• Inflation has been forecasted appropriately
• No unanticipated regulatory change will occur
• Project will not be mismanaged
Estimate Accuracy in Relation to Project Developments
Factors Influencing Project Final Cost
s
Between project initiation and completion many factors influence
project final cost, which include:

• Changes in project Scope

• Unforeseen engineering complexities and constructability issues

• Changes in economic and market condition

• Lack of organizational capacity/capability

• Changes in regulatory requirements

• Local governmental pressures

• Transformation of community expectations.

Holland Tunnel: A project experiencing cost growth from initial conception to
completion of construction

Conception Stage (Geothal Proposal)

• The tunnel was dedicated for vehicular traffic (instead of Rail transport),
therefore needed new ventilation technology.

• G.W Geothal (renowned engineer for Panama Canal) design received

acknowledgement in 1919, which called for a single, bi-level tunnel

• Tunnel was to be 24.5 ft wide for 3 lane traffic.

• Conceptual design estimate called for $12 million dollars and 3 years to
construct.

• Geothal design proposed concrete blocks instead of steel or iron to construct

the tunnel (an entirely new technique required for such construction)
Holland Tunnel: A project experiencing cost growth from initial conception to
completion of construction

Conception Stage (Holland Proposal)

• The tunnel was dedicated for vehicular traffic (instead of Rail transport),
therefore needed new ventilation technology.

• Holland in 1920 after examining Geothal’s design called for a twin cast iron
tubes tunnel

• Tunnel was to be 29 ft wide for 3 lane traffic.

• Conceptual design estimate called for $28 million dollars and 3.5 years to
construct.
Causes of Holland Tunnel Cost Escalation:
Scope changes:
• From a single 24.5 ft wide to twin 29ft diameter tunnel
• Larger entrance/exit plazas (forecasted traffic increased during construction
period) therefore Land, labour and material expenses added $6 million to
estimated cost.
• Tile lining to optimize lighting
• Approach roads
• Architectural treatment of approach roads

Inflation between initial design and completion of construction period (9 years)

• Labor costs
• Material costs
• Labor Strikes

New Technology:
• Lack of knowledge about ventilation systems.
Causes of Holland Tunnel Cost Escalation:
Technical Challange:
• Tunneling method
• Unknown soil condition
• Major Leakage into tunnel during construction period

Summary of Project:
• The original cost estimate in early 1919 of $12 million grew to $48.4 million
when the final cost was reported

• Geothal’s estimate was significantly beneath the project scope

• Holland’s design was not complete when the first estimate of $28 million was
reported
How can we get True Estimates: Recommendation by
Research Team

• Standard Formats, procedures, and processes used to arrive at the cost should
be used.

• Estimate documentation must be in form that can be understood, checked,

verified and corrected.

• Inflation influence in cost estimation must be clearly mentioned.

• Costs estimates must be prepared in “Year-of-expenditure”.

• Acquire cost estimates with each design submittal. This will help in identifying
differences between conceptual estimates and design estimates.
How can we get True Estimates: Recommendation by
Research Team

• Estimators that estimated a project should be involved in bid analysis for that
project prior to award. This will ensure knowledgeable verification of
received bids.

• Estimators should consider the constraints of natural environment, public

health and safety effected by project and influence of govt. standards and
regulations.

• Estimators should consider the effect of technological innovation e.g. any new
material or method of construction adopted.
THANKS