CHAPTER 3 - Educators

86 CHAPTER 3/COST-ESTIMATION TECHNIQUES
where C = cost being estimated;
Cd = cost of the selected component d that is estimated directly;
fm = cost per unit of component m;
Um = number of units of component m.
As a simple example, suppose that we need a slightly refined estimate of the
cost of a house consisting of 2,000 square feet, two porches, and a garage.
Using a unit factor of $85 per square foot, $10,000 per porch, and $8,000 per
garage for the two directly estimated components, we can calculate the total
estimate as
($10,000 × 2) + $8,000 + ($85 × 2,000) = $198,000.
We can also answer the question posed at the beginning of the chapter (page 71)
using the factor technique. The rental expense per year will be approximately
20,000×$233.57 in London plus 10,000×$201.29 in Hong Kong plus 20,000×$175.00
in New York City. The total expense will be $10,184,300 per year for the additional
office space.
The factor technique is particularly useful when the complexity of the
estimating situation does not require a WBS, but several different parts are involved.
Example 3-5 and the product cost-estimating example to be presented in Section
3.5.1 further illustrate this technique.
EXAMPLE 3-5 Analysis of Building Space Cost Estimates
The detailed design of the commercial building described in Example 3-2 affects
the utilization of the gross square feet (and, thus, the net rentable space)
available on each floor. Also, the size and location of the parking lot and the
prime road frontage available along the property may offer some additional
revenue sources. As project manager, analyze the potential revenue impacts of
the following considerations.
The first floor of the building has 15,000 gross square feet of retail
space, and the second floor has the same amount planned for office use.
Based on discussions with the sales staff, develop the following additional
information:
(a) The retail space should be designed for two different uses—60% for a
restaurant operation (utilization = 79%, yearly rent = $23/sq.ft.) and 40%
for a retail clothing store (utilization = 83%, yearly rent = $18/sq.ft.).
(b) There is a high probability that all the office space on the second floor will
be leased to one client (utilization = 89%, yearly rent = $14/sq.ft.).
(c) An estimated 20 parking spaces can be rented on a long-term basis to two
existing businesses that adjoin the property. Also, one spot along the road
frontage can be leased to a sign company, for erection of a billboard, without
impairing the primary use of the property.