The Cost of projects

monte carlo analysis is part of risk management. could be schedule risk, cost risk, operational risk, business risk, etc. similar with any other established risk analysis, the input is very important i.e. garbage in garbage out. so far i had experience using monte carlo analysis (PERTMASTER) for schedule only. but I know it could also be applied to cost....quite useful & relatively more quantitative

Monte Carlo?



Does anyone really use this in a big project? Wouldn’t a simple risk identification / risk response suffice considering that this alone is a tall order already.



Changes are going to happen. Why?

1. Estimates are based on assumptions made early on in the project.

2. A lot of these assumptions are best-guesses. Therefore, these cause changes orders.

3. If people had to have a perfect plan before even starting to execute, it may be much more expensive considering the opportunity loss of bringing a finished project to market; and imaging the cost & effort it would take to try to know everything.



I guess this is only necessary in cases like when you need to send someone to the moon. You have to be right, perform all the researches... otherwise you won’t have people willing to fly to the moon... thinking it would be suicidal.



I guess Monte Carlo is too academic for me. Unless some users can share the benefits they have reaped from uitilizing this.

Perhaps we could also apply monte carlo analysis for the project cost estimation. This will tell us the probability of achieving our cost estimates...

Hi Gents



I think there is a step between 3 - 7, set up a project plan...



It will help to the costing, especially you may found whether the project is achieveable with the time frame allow. And whether overtime costing ... is needed



Good Luck



ALex

Hi Mehdi,



I cost this way:

1. Review the Contract Scope of Work

2. Break down into manageable deliverables (WBS).

3. Break down WBS into activities and duration needed to complete each WBS.

4. List all resources needed to complete each activity. - All materials, all labor, etc.

5. What resource quantities are needed? For materials - lumpsum quantities. For labor and equipment - quantity per day x duration.

6. What are the unit prices of each? Multiple this by the total budgeted quantity.

7. Look at other your accounting expenses such as overheads, bonds, travel, accommodation, etc. so you can also allocate budgets for these.

8. How about risks? Would you buy insurances? How about cost contigencies? Is the contract document well written? Are risks transferred to you? Or to the owner? Risk transference is alright as long as it is paid for.

9. How about taxes? Be careful to specify if your price is already inclusive of sales taxes and other taxes.

10. By the way, profit is NOT an expense. It is the difference between your selling price and your costs.



Good luck.



Jorge

Hello Mehdi,



There are a lot of method in estimating or costing a project. Generally, this are company secrets, however there are fundamental that you need to consider. In my experience, I categories cost into direct and indirect cost



Direct cost:



a.) Materials

b.) Labor,

c.) Equipment (construction equipment, others called it Plant)

d.) Sub-contractors



The indirect cost:



a.) Overhead: i. project site overhead ii. head office overhead

b.) contigency:

c.) Miscellaneous

d.) Tax, Bonds

f.) profit

e.) Other expenses (other companies got different difinition of indirect cost so i categories this in others)



The cost of the project is the sum of Direct Cost and Indirect Cost.



I hope this help.



Cheers,



Charlie