W6_AI_Price Forecasts for Offshore Regasification Facility Project

  1. Problem Definition

After last week blog discussed about cost estimate calculation for offshore regasification facility project using historical data, and then this week according to Dr. Paul Giammalvo suggestion, price forecast method will be used to predict project cost within the next 5 years.

Still using the same indicative price last week, this week the indicative price for offshore regasification facility project with capacity 100 MMSCFD will be forecasting using MS Excel “Best Fit” Regression Analysis Curve.

This calculation can be using as an input value in financial economic model. With this method, we can calculate cash flow prediction project value within a certain period in the future.

  1. Identify the Possible Alternative

Using last week indicative price, then capex value for offshore regasification facility project, as follow:

Table 1. Indicative Price

From the table above, then to analyze price forecasts for next 5 years will use:

  1. MS Excel “Best Fit” Linear Regression Analysis Curve
  2. MS Excel “Best Fit” Polynomial Regression Analysis Curve
  3. MS Excel “Best Fit” Logarithmic Regression Analysis Curve

 

  1. Development of The Outcome for Alternative

These are the following an initial data plotting in determining price forecast:

Picture 1. Input Data

Using these input data (indicative price 2015-2017) and MS Excel “Best Fit” Linear Regression Analysis Curve, then trendline and trending them out to 5 years provide in picture (2) below. While the trendline use R2 = 0.9948.

Picture 2. Linear Trendline

Then still using data input in 2015-2017, now MS Excel “Best Fit” Polynomial Regression Analysis Curve with R2 = 1 will be used in the second analysis. The result of the polynominal regression analysis can be seen in the picture (3) below.

Picture 3. Polynominal Trendline

The latest, on the third data input in 2015-2017 analysis will use MS Excel “Best Fit” Logarithmic Regression Analysis Curve with R2 = 0.9941. The result of the logarithmic regression analysis can be seen in the picture (4) below.

Picture 4. Logarithmic Trendline

With the purpose to make it simple to see the results of the analysis, then bellow will be displayed plotting all three trendline in one chart.

Picture 5. All Trendline (Linear, Polynominal, Logarithmic)

 

  1. Selection Criteria

Further, value of all treadline for the fifth year, which is 2021, will be used, ranked and analyzed using PERT calculation. As for the smallest value represents “best case”, middle value represents “most likely” and the highest value represents “worst case”.

 

  1. Analysis & Comparison of Alternative

The following is data to be used for PERT calculation

Table 2. Trendline Forecasts of Offshore Regasification Facility Project

From the table above, we can see

a. Best case (optimistic) = $ 114.2

b. Most Likely case = $ 123.5

c. Worst case (pessimistic) = $ 124.2

Using PERT calculation, then the Mean, Sd, and variance:

Step 1 – PERT weighted Mean

= ((Optimistic)+(4 x Most Likely)+(pessimistic))/6

= $ ((114.2) + (4 x 123.5) + (124.2))/6

= $ 732.4/6

= $ 122.1

Step 2 – Standard Deviation

= (Largest Value – Smallest Value)/6

= $ (124.2 – 114.2)/6

= $ 10/6

= $ 1.67

Step 3 – Variance

= Sigma/Standard Deviation^2

= $ 1.67^2

= $ 2.8

The following picture (6) below shows normal distribution curve:

Picture 6. Normal Distribution Curve

From the step 3, there is small variance means that the risk was small, so there is no need high contingency to cover the risk. Hence, P(75) will be considered to being calculate for the indicative price .

Picture7. P(75) Distribution Curve

The following above is P(75) cost estimate offshore regasification facility project in 2021 with value $ 123.36.

 

  1. Selection of the Preferred Alternative

This blog displays one of method in determining price forecast, on next week blog another price forecast method will be applied. So in the last price forecast series, the best and optimum forecast method will be chosen to be applied in part of financial economic model for offshore regasification facility project.

 

  1. Performance Monitoring and The Post Evaluation of Result

Forecasting method very dependent on the amount of data used, so it will be better and optimal if forecasting calculations using updated and valid data. Therefore project character are dynamic and unique, preferably input data for price forecast is updated periodically as a continual process of checking, reviewing and monitoring.

Reference:

  1. Planning Planet (2017). Creating The Owners Cost Estimate (Top Down).

Retrieved from http://www.planningplanet.com/guild/gpccar/creating-the-owners-cost-estimate

  1. Sullivan, G. W. (2014). Engineering Economy 16th Chapter 3 – Cost-Estimation Techniques, pp. 113-121.
  2. (2017). W11.1_SJP_Forecasts Part 3.

Retrieved from https://js-pag-cert-2017.com/w11-1_sjp_forecasts-part-3/

  1. (2009). Excel Dynamic Chart #11: Dynamic Area Chart with IF Functioin – Normal Distribution Chart Statistics

Retrieved from https://www.youtube.com/watch?v=Fp1JV-ZVDZw

 

 

 

 

 

 

 

 

W6_OAN_Equipment Factored Cost Estimates

  1. Problem Definition

This week, Author went to South Borneo, to conduct survey for New Fuel Terminal. After survey, Management asked Author to estimate cost of this facilities based on the limited time and data availability. This estimation will be used to conduct feasibility study

  1. Development of Feasible Alternatives

Based on AACE RP No. 17R-97, Author should create class 4 estimate to meet Management requirement.

Table 1: Class Estimate

The requirement for class 4 estimate are:

Table 2: Maturity Level of Project Deliverables

  1. Possible Solution

Based on Table 1, the methodology suggested to produce class 4 estimate are:

  • Equipment Factored
  • Parametric Models

In this case, we will use Happel’s Method, which estimated purchase for all pieces of equipment (material), labor needed for installation using factors for each class of equipment, extra material and labor for piping, insulation etc. from ratios relative to sum of material and added installed cost of special equipment, overhead, engineering fees, and contingency.

Table 3: Happel’s Method 1

Table 4: Happel’s Method 2

Table 5: Happel’s Method 3

  1. Selection Criteria

The Estimation result should meet the Management requirement, at expected accuracy at the end of the project actual cost generated .

  1. Analysis and Comparison of the Alternatives

Table 6: Data

From Table 6, we can calculate using Happel’s Method as shown in table 7.

  1. Selection and Preferred Alternatives

As shown at table 1, Class 4 estimation range is from -30% to + 50%.

Table 7: Proposed Solution

Based on the estimation result in Table 7, the Author proposed a class 4 estimate with the total investment cost is $ 59.400.000. The total investment cost includes all of the construction cost plus overhead, engineering fees, and contingency.

  1. Performance Monitoring and the Post Evaluation of Result

The class 4 estimates purpose is only for the study or feasibility. If the management approve the FID (Final Investment Decision), the Estimators then should complete the required project scope so that the level 2 or 3 estimate can be produced for bidding process.

 

Refrences

  1. Module 08-4 Creating The Owners Cost Estimate Top Down.
    Retrieved from http://www.planningplanet.com/guild/gpccar/creating-the-owners-cost-estimate
  2. AACE International Recommended Practice No. 17R-97
    Retrieved from http://www.anvari.net/Risk%20Analysis/17r-97.pdf
  3. AACE International Recommended Practice No. 59R-10
    Retrieved from https://fenix.tecnico.ulisboa.pt/downloadFile/1126518382175702/DEVELOPMENT%20OF%20FACTORED%20COST%20ESTIMATES_AACE%2059R-10.pdf
  4. W22_RM_Equipment Factored Cost Estimates (2016)
    Retrieved from https://goldenaace2015.wordpress.com/2016/05/26/w22_rm_equipment-factored-cost-estimates/

 

 

 

W6 Benchmark Of Cost Estimate Process refer to US Government Accountability Office/GAO

1.Problem Definition

Referring to the suggestion given by Dr. Paul on previous blog posting, at this occasion a process of estimation will be made using US Government Accountability Office/GAO references against on current process on author company.

2.Identify The Possible Alternative

On this occasion a checklist of estimation stages will be performed at the company following the estimation phases that have been prepared by US Government Accountability Office/GAO and find strengths and weaknesses at each stage of the process.

3.Development of the Outcome for Alternative 

GAO Cost Estimating and Assessment Guide suggest 12 step of estimating process as shown on following figure-1,these 12 steps shown on above figure could be categorized into 4 main process,  these main process are Initiation and Research, Assessment, Analysis and Presentation :

Figure-1 : GAO Step Process

4.Selection Criteria

We will perform a checklist of each stage proposed by GAO approach in the estimation process. If it finds some difference and has the potential to improve and improve the procedure of the feeding estimation process it will greatly help improve the quality of the project estimation process.

5.Analysis and Comparison of Alternative

Based on check list assessment, below are the summary shown on Tabel-1

Table-1 : GAO Step Process Checklist on Author Current Estimate Process

Based on the stages of the approach made by the GAO can be seen that not all steps are done by the company, where from 12 steps there are 4 stages that are not implemented, namely Develop point estimate and compare it to an independent cost estimate, Conduct sensitivity analysis, Conduct risk and uncertainty analysis, Update the estimate to reflect actual costs and changes and 2 stages that sometimes implemented sometimes not is Define program characteristics and Document the estimate. Regarding to our previous blog posting on week-5 using  Humphrey Associations and related to GAO estimate process check list, we still founding a same thing that a estimate process not use a best practice guidelines such as GAO, and it can effect to project running behind schedule and over budget. An Unique founding on step-12 purposed by GAO “Update the estimate to reflect actual costs and changes” it will be helpful for us to get more lesson learn in future on estimate process, because it can controlling us on estimate.

6.Selection of the Preferred Alternative

Based on above assessment and analysis, company must consider unimplemented step as per a best practice guidelines such as GAO and or Humphreys, and a possible mixed step between GAO and Humphreys.

7.Performance Monitoring and The Post Evaluation of Result

Management should consider the use a best practice estimate process because it could help project running well and on budget.

 

REFERENCES :

  1. Ardiansyah (2017), W5_A_Benchmark Of Cost Estimate Process refer to Humphreys Association. Retrieved from : http://emeraldaace2017.com/2017/09/03/w5_a_benchmark-of-cost-estimate-process-refer-to-humphreys-association/
  2. United State Government Accountability Office (GAO) (2009), Cost Estimating and Assessment Guide, Chapter 1, pp.8-14
  3. Yushadi, Edi (2015), W9_EY_Estimating Process Benchmark. Retrieved from https://garudaaace2015.wordpress.com/2015/04/23/w9_ey_estimating-process-benchmark/
  4. Permana, Arif (2013), W16_APE_Comparison Cost Estimate Process, Retrieved From:  https://simatupangaace2014.wordpress.com/2013/11/12/w16_ape_comparison-cost-estimate-process/