ECON

Project

collaborative enterprise - achieve particular aim; temporary - defined beginning and end; specific set of operations - not a routine; has objective that will benefit the end user

Cash Flow Analysis

estimated annual costs and benefits

Tangible Cost/Benefits

can be easily measured (moneytary)

Intangible Cost

resources used to research area of project but not billed

Intangible Benefits

prestige, improved productivity - difficult to measure

Cost

amount to pay for service/goods

Project Cost

estimations/monetary obligations to complete the project

Direct Costs

reasonably measured/allocated to a specific output or work activity (salaries and materials required for a project)

Indirect Costs

costs that are difficult to allocate to a specific output or work activity. (insurances, taxes, or maintenance)

Investment cost

first cost or the capital required

A project's initial costs are those that are incurred during the design and construction process.

fixed cost

costs that are unaffected by changes in activity level over a feasible range of operations for the capacity or capability available. (insurance, tax, gen management, license fees, depreciation)

Variable Cost

costs associated with an operation that vary in total with the quantity of output or other measures of activity level. (costs of material and labor)

Incremental Cost

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Revenue - addtional cost from increasing the output

Sunk Costs

no relativance to estimates of future costs;; related to an alternative course of action;; amount spent cannot be retrieved

Opportunity Costs

costs that are incurred because of the use of limited resources, such that the opportunity to use those resources to monetary advantage in an alternative use is forgone.;; cost of the best rejected opportunit and is often hidden or implied.

Top-down Approach (design-to-cost)

uses historical data from similar engineering projects to estimate the costs, revenues, and other data for the current project by modifying these data for changes in inflation or deflation, activity level, weight, energy consumption, size, and other factors.

This approach is best used early in the estimating process when alternatives are still being developed and refined.

Bottom-up approach

method that breaks down a project into small, manageable units and estimates their economic consequences.

These smaller unit costs are added together with other types of costs to obtain an overall cost estimate.

This approach usually works best when the detail concerning the desired output (a product or a service) has been defined and clarified.

Work breakdown structure (WBS)

technique for explicitly defining, at successive levels of detail, the work elements of a project and their interrelationships

“work element structure”

defines all the things a project needs to accomplish, organized into multiple levels, and displayed graphically

defines all the things a project needs to accomplish, organized into multiple levels, and displayed graphically.

Cost and revenue structure (classification)

Delineation of the cost and revenue categories and elements is made for estimates of cash flows at each level of the WBS.

Estimating techniques (models)

Selected mathematical models are used to estimate the future costs and revenues during the analysis period.

Phase-Based WBS

requires work associated with multiple elements be divided into the work unique to each Level 1 Element.

Gantt Chart

visual view of tasks scheduled over time. It is a type of bar chart that illustrates a project schedule. Program of works

Cost Structure

used to identify and categorize the costs that need to be included in the analysis

prepared in tabular or checklist form, is a good means of preventing overlooking important categories of costs

Technical familiarity with the project is essential in ensuring the completeness of the structure, as are using the life -cycle concept and the WBS in its preparation

Labor Costs

also called direct costs, are the costs of employees’ time spent on rendering services or performing manufacturing works within the project.

They can incur as work time paid at a specific pay rate, or as a fixed cost per item, unit, or service.

Material Costs

arise as costs of raw materials, parts and supplies purchased for using in project works or performing them

Sometimes, this cost type also includes insurance, custom clearance and other costs related to purchasing materials and goods

Overhead costs

cannot be always allocated to a specific cost driver and don’t create profit in a direct way.

However, they influence project outcomes indirectly by making business activities possible, or increasing their efficiency.

Subcontracting, or outsourcing costs

are sometimes treated as direct costs, and sometimes included in cost structures as a separate category

they can be accrued on the basis of work time spent by an outsourcing team and their pay rates, or as a fixed cost for certain products or services

Logistics costs

• are associated with storing and moving purchased materials and include such subcomponents as transportation, storage, distribution, etc.

Order-of-magnitude estimates

used in the planning and initial evaluation stage of a project
used in selecting the feasible alternatives for the study

• they typically provide accuracy in the range of ±30 to 50% and are developed through semiformal means such as conferences, questionnaires, and generalized equations

Semi-detailed, or budget, estimates

used in the preliminary or conceptual design stage of a project. •

compiled to support the preliminary design effort and decision-making` during this project period. •

Their accuracy usually lies in the range of ±15%

Definitive (detailed) estimates:

• used in the detailed engineering/construction stage of a project.

• used as the basis for bids and to make detailed design decisions.

Their accuracy is ±5%.

ITEMIZED COS

This is the most common way to estimate costs

All the items needed in the project is listed and the costs are added up. •

Includes all applicable costs, such as equipment and parts, materials and supplies, labor, financing, fees and licensing, transportation, and acquisition costs for land or facilities

Contigency Alliwance

Allowance for adverse conditions which will be in addition to the base cost estimate

Physical contingencies

to cover physical uncertainties beyond the base case to complete the project. Often calculated and expressed as percentages of base costs.

Price contingencies

to cover inflation and price uncertainties

5% - Physical Contingencies

standard equipment designs/definable civil works, e.g., road surfacing, canal lining.

10% - Physical Contingencies

general civil works with routine and predictable uncertainties e.g, roads, buildings, pipelines, transmission lines

15% - Physical Contingencies

plant and civil works in difficult terrain

Project Benefits

an outcome of the project that is seen as a positive change by one or more stakeholders

Must be achievable and approved by key holders

Not deliverables (computer system, dam, carpark, etc. )

Deliverables

means by which the benefits are provided

final outputs that are transferred to a third party outside of the project, usually either the customer (prod, service, or result), beneficiaries or the performing organization

PRoject Deliverables

cannot be used as a measure of the benefits generated by the project

Benefits

it is the impact or using the deliverables that creates the benefit

Real Benefits–

determined by the final consumers of the project; reflect an addition to the community’s net welfare as usually measured as consumer or producer surplus increments

Pecuniary Benefits

the economy adjusts itself to the project;; pecuniary benefits, costs offset, and overtime should not be considered in the BCA calculation

Final Benefits

-        benefits or goods consumers use directly

Intermediate Benefits

-benefits flow into the production of other goods (electricity from a dam)

Inside Benefits

-        captured within the benefited region

Outside Benefits

-        benefits outside of the region

Direct Benefits

-        closely with the project objectives

Indirect Benefits

-        by-products

Tangible Benefits

valued in the market

Intangible Benefits

soical goods and social costs

Hard Benefits

measurably better teamwork, shorter production times, more cost-effective software, increased profits, decreased costs, reduction in water use, reduced travel time and so on.

Soft benefits

include an enhanced professional reputation, influencing industry on a major issue, fostering corporate change and so on.

Project Life Cycle

1.      Initiation

2.      Planning

3.      Execution

4.      Control

5.      Closure

Initiation

• Project initiation is the first phase of a project's life cycle.

• It is at this point where the opportunity or reason for the project is identified, and a project is developed to take advantage of that opportunity.

• You can start a new project by defining its objectives, scope, purpose and deliverables to be produced.

Planning

• The main purpose of project planning is to guide execution.

• Key outputs included in the project plan include:

-A scope statement.

-A work breakdown structure (WBS).

-A project schedule, in the form of a Gantt chart with all dependencies and resources entered.

-A list of prioritized risks (part of a risk register).

 

Execution

Project execution usually takes the most time and resources.

• Many project sponsors and customers focus on deliverables related to providing the products, services, or results desired from the project.

milestone

a specific point in time within a project lifecycle used to measure the progress of a project toward its ultimate goal.

milestone report

can keep the focus on completing major milestones.

Monitoring and Control

• Involves measuring progress toward project objectives, monitoring deviation from the plan, and taking corrective action to match progress with the plan.

• Affects all other process groups and occurs during all phases of the project life cycle.

• Outputs include performance or accomplishment reports, requested changes, and updates to various plans

Closure

• Involves gaining stakeholder and customer acceptance of the final products and services.

• Even if projects are not completed, they should be formally closed in order to reflect on what can be learned to improve future projects.

• Outputs include project archives and lessons learned, which are part of organizational process assets.

• Most projects also include a final report and presentation to the sponsor or senior management.

DEPRECIATION

• the decrease in value of physical properties with the passage of time.

• For equipment and machines, it is the decrease in value and service capacity as a result of natural wear, obsolescence, damage, corrosion, and weathering.

VALUE

• this is the present worth of all the future profits that are to be received through ownership of a particular property.

SALVAGE VALUE (Market Value)

• the estimated value of property at the end of its useful life.

USEFUL LIFE (depreciable life)

• the expected (estimated) period of time that a property will be used on a trade or business or to produce income.

BOOK VALUE

• the worth of a depreciable property as shown on the accounting records.

• It is the original cost (first cost) less all allowable depreciation.

Straight line Method (SLM)

• Straight Line Method is the simplest depreciation method.

• It assumes that a constant amount is depreciated each year over the useful life of the property

• Straight Line Method is the simplest depreciation method.

• It assumes that a constant amount is depreciated each year over the useful life of the property

Decline Balance Method, DB<

• Sometimes called Constant Percentage Method, CPM or

the Matheson Formula

• The DBM depreciates the value of the machine at the same percentage of the, value remaining each year.

Sum-of-the-Year Digit Method (SYDM)

The depreciation for any year is the product of the depreciation factor for that 7ear and the depreciable value of the machine

Recurring Cost

Recurring costs refer to any expense that is known, anticipated, and occurs at regular intervals.

Annual costs covers the cost of operation incurred by the project during its life cycle.

Non-recurring Cost

one-of-a-kind expenses that occur at irregular intervals and thus are sometimes difficult to plan for or anticipate from a budgeting perspective.

Fixed Costs

• Fixed costs are those that do not change throughout the life-cycle of a project.

• Each of the fixed costs is figured or estimated on a calendar year or annual basis.

• Examples: depreciation, rent, utilities, taxes, insurance.

Interest on Investment

e.g in a farm machine, is considered as cost, since money spent in buying a machine cannot be used or is not available for investment or use elsewhere (for other productive enterprises), where it could be earning an investment return.

Tax

compulsory financial charge imposed on the project by a governmental organization.

Insurance

means of protection from financial loss. It is a form of risk management used to hedge against the risk of a contingent or uncertain loss.

UTILITIES

Costs that are incurred as bills paid for use of a utility such as electricity, telephone, internet, water, etc. over the life cycle of the project.

HOUSING, SHELTER, OR RENT

Includes costs relating to the protection of equipment or rent of a facility. equal to 2% of the original cost of the machine if straight line depreciation is assumed, and 4% of the remaining value at the beginning of each year if a variable depreciation system is used.

Variable Costs

These are the costs that are associated with the operation of project and occur only while the project is in operation.

The term Operating Costs is frequently used to described the variable cost.

REPAIR AND MAINTENANCE COST, RMC

Estimated by taking a percentage of the direct cost of the project/ purchase price.

• Jones and Aldred (1980) suggested 3.50% of the first cost of the tractor as a representative of repair cost based on the result of survey among Kansas tractor users.

• A table maybe used to determine the percentage cost of repair for other machines.

FUEL AND LUBRICANTS COSTS, FLC

• Total cost for fuel and lubrication in equipment such as machines, motors, vehicles, etc used in the project per year.

• Dependent on the size and use of the equipment.

LABOR COST, LC

• Labor cost is the wage for labor to operate an equipment or do other tasks in Peso per day.

• This is multiplied by the number of labor and operating days in

year.

• Different skillsets have different daily rates.

DISPOSAL COSTS

includes those nonrecurring costs of shutting down the operation and the retirement and disposal of assets at the end of the life cycle.

• These costs will be offset in some instances by receipts from the sale of assets with remaining market value. (Salvage Value)

• A classic example of a disposal cost is that associated with cleaning up a site where a chemical processing plant had been located.

ANNUAL BENEFITS

These are the quantifiable monetary benefits that are generated by a project.

• Examples: Profit, Cost savings, Productivity, Efficiency, Quality

Feasibility Study

• assesses thepracticality of a proposal

• Answers the question “is this proposed idea viable?”

• The feasibility report is written at the end of that study to present the findings to the writers’ supervisor or team. an in- depth analysis of a potential engineering project that looks at the complete picture of the costs required to complete the project as well as the potential benefits of completion.

Technical Feasibility

measures the feasibility of the technological resources needed to undertake the project.

Cultural feasibility

– impacts on the local and general cultures.

Environmental feasibility

– environmental impacts of the project.

Legal/ ethical feasibility

legal implications of the project

Marketing feasibility

will people want the products of the project.

Resource feasibility

resources required in the project

Operational feasibility

measures how well your team will be able to solve problems during the conduct of the project

Schedule feasibility

will the project be completed within the available time.

Economic feasibility

will the returns justify the cost of undertaking the project.

Preliminary Analysis

screens project ideas before extensive time, effort, and money are invested.

• It aims to uncover insurmountable obstacles that would render a\ feasibility study useless.

Project Income Statement

Anticipated income must cover direct and indirect costs, taking into account the expected income growth curve.

Market Survey

primary objective is a realistic projection of revenues

Survey the needs and wants of not just the market but all of the stakeholders.

Analyze the strengths and weaknesses of all the alternatives.

Feasibility Study Report

Contents:

i. Executive Summary

ii. Introduction/ Description of the Project

iii. Scheduling

iv. Economic Analysis

v. Alternatives Analysis

vi. Findings and Recommendations

Operations

Planning the organization and operations determines the technical feasibility and costs involved.

i. Equipment

ii. Merchandising methods (if any)

iii. Facility location and design (or layout)

iv. Availability and cost of personnel (staffing)

v. Supply availability

vi. Overhead (e.g., utilities, taxes, insurance)

Minimum Attractive Rate of Return (MARR)

is the minimum rate of return on a project a manager or an organization is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects