Basic Definitions For Cost Estimation

CAPEX (CAPITAL COST ESTIMATE) : Represents the total capital cost of the project, including engineering, material, construction and management costs.

ALLOWANCES: Used to reduce the risk of overrun due to “KNOWN UNCERTAINTIES”

a. Design Growth / Design Development

b. Extraordinary Freight Cost (Air freight, special cargo,etc.)

c. Forward Escalation

d. Cut/Waste (Bulk Material)

CONTINGENCIES: Used to reduce the risk of overrun due to ” POTENTIAL UNCERTAINTIES”

a. Incomplete Project Definition

b. Currency Fluctuation

c. Errors

d. Does not cover force majeure, scope changes, claims,etc.

DIRECT COSTS: Costs directly attributed to a job or a piece of project equipment

INDIRECT COSTS: These are often referred to as ” OVERHEAD COSTS”  and cannot easily be allocated to one job or projects. The process of recovering overheads is known as ” ABSORPTION COSTING”. Clients for large capital projects are very interested in proposed overhead rates, chargeable to projects and required detailed of how the overheads are to be allocated.

FIXED COSTS: Costs are said to be fixed when they remain unchanged and must continue to be incurred, even though the workload fluctuates , (e.g.management salaries, rent insurance,etc.)

VARIABLE COSTS: These are costs which are incurred at a rate depending on the level of the work activity:

e.g.   – Material

– Consumables

– Spare Parts

– Utilities (Power, Water, System)

Thanks to Dr. Muhammad Elrabaa

Hakkında Cumhur Şamiloğlu
Civil Eng., MRICS Management of International Business (MSc-2002)

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