Project Management

First-Cost Estimates in Engineering Projects

PMI Santiago, Chile Chapter

Alexis Devenin, Mechanical Engineer, MBA, PMP is an Engineering Project Manager with 20 years of experience working in the steel, mining and renewable energy industries.

First-cost estimates in engineering projects are used to decide whether to go ahead with market studies and engineering development or dismiss the project. They are also used to compare and select from several projects options, and accordingly to do analysis to concentrate scarce resources on developing the more feasible and profitable projects.

The principal issue in achieving reasonable first estimates is the low level of project definition. For a new industrial plant, for example, the size and location are not completely defined (and probably the product mix to fabricate in the plant is also not absolutely defined, too). At this stage of low project definition, there isn’t engineering development—and probably scarce resources assigned to cost estimation. Due to the low degree of available information, the accuracy of the estimation will be very low. The final cost of the project may differ greatly from the first cost estimate and, in most cases, it will exceed the estimated cost.

AACE and other institutions have defined different classes of estimations according to the level of project definition, the purpose of the estimate, the calculation method and the level of effort (resources to be used in the estimation). The lower the degree of project definition, the lower the precision of the estimation.

For estimations oriented to screening projects or for …

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