Deterministic method for cost estimation

In summary, the conversation revolves around a feasibility study for small gas fuelled power stations in remote areas, with a focus on CAPEX costs. The speaker has experience with estimating costs based on prior experience and inflation escalation, and is looking for insights and information from vendors. The company they are working for is secretive about cost information, but they have obtained some guidelines on different levels of accuracy for cost estimation. The conversation also touches on the differences between deterministic and probabilistic estimates, with various examples provided. The speaker is looking for a feasibility level estimate and a list of major equipment and their associated costs. They plan to approach vendors for this information.
  • #1
LT Judd
25
8
TL;DR Summary
I am reading through some company literature for cost estimation of large projects and they say for feasibility estimates use "deterministic method". What does that mean?
This is for my Engineering master project. I am doing a feasibility study on a couple of different designs of small gas fuelled power stations for remote areas. A big part of it is the CAPEX costs. Most companies hold that kind of info very closely. Does anyone have any insights on this kind of thing?
 
Engineering news on Phys.org
  • #2
I have not done anything I'd define as a "deterministic estimate". That term doesn't seem to apply quantitative measures, i.e.--Estimate is accurate +15%/-5%. I normally quantify the accuracy of my estimates, and my experience is that the words "budget estimate" mean very different things at different companies. As an engineer and a construction contractor, I have done MANY estimates that were based on prior experience, historical costs, and used inflation escalation to adjust them.

Can you tell us what company literature you read this in, so we are sure of context, and can understand their definition?

Regarding cost estimation in this case, I'd look for a vendor that sells the major equipment. Tell them you are a student, and see if you can get a budget estimate for the major equipment. They may be able to give you one based on recent sales. Most additional work (piping, electrical, civil, can be factored, based on using different costing guides, along with regional corrections. If you don't know a vendor, let us know what you are looking for, and we may be able to guide you.

Realize I am looking at this from a process engineering standpoint, and normally, for expensive OEM equipment, the process drives the rest of the costs.

What kind of project is this?
 
  • #3
Hi, I read it in some internal company documents. ( oil and gas company). It is from the "projects" department of the company. I am in maintenance and I am doing project for my masters of engineering.The project is for a hypothetcial Power generation barge. However when it comes to money and costs, the company is quite secretive . Like wise I have tried approaching a few equipment vendors but mostly got no replies.
I am thinking that the deterministic method may mean build up the cost by its component parts , ( e,g. so much pipe , so many pumps , so many metres of cable ),whereas other methods may be based on bulk factors , i.e power plant 10 MW = expected cost "X"$million
I know there are different levels of accuracy and they are called different things in different places.
I have obtained some company guidelines and they have the levels;
Class 0 "assess" +40/-25%
Class1 "study/ feasibility" +30/-20%
Class 2 "Pre feed", and so on to class 4 with narrowing bands of accuracy.
And as they move higher up they switch from "deterministic" to 'probalistic" methods, whatever that means .
But I can't find much more data than that. As I said they keep their data pretty tight- I guess its all IP and trade secrets etc.

I am looking for a "feasibility" level, and I am looking for lists of major equipment like , air receivers , compressors, pumps, ,heat exchangers , Plus what you might call complexity or quality factors. For example a simple sea water fresh water heat exchanger may cost "x" $/W but a cryogenic heat exchanger ( glycol/lng) may cost "3x" or "4X" $/W.
 
  • #4
LT Judd said:
However when it comes to money and costs, the company is quite secretive .
But there should be no objection if you ask the right way.
"This company document says deterministic estimate. What does that mean?"
If you're allowed to read the document, you must be allowed to understand the words.
 
  • #5
Here is a deterministic estimate for a capital project: "X will cost $200 million". Here is a probabilistic estimate: "There is a 90% chance that a budget of $200 million will be sufficient for X".

Note that "X will cost $190 million ± $10 million", "X will cost $200 million allowing for a contingency of $20 million" and "X will cost $180 million plus a contingency of $20 million" are all also deterministic estimates - in fact they and the first estimate above are all different ways of expressing the same deterministic estimate.

Common probability levels for probabilistic estimates are 50% (often referred to as the "most likely outcome" - note this is NOT the expected value of the outcome which is a deterministic estimate) and 90% (the worst likely case).
 
Last edited:
  • #6
ChemAir said:
Regarding cost estimation in this case, I'd look for a vendor that sells the major equipment. Tell them you are a student, and see if you can get a budget estimate for the major equipment. They may be able to give you one based on recent sales. Most additional work (piping, electrical, civil, can be factored, based on using different costing guides, along with regional corrections. If you don't know a vendor, let us know what you are looking for, and we may be able to guide you.

Realize I am looking at this from a process engineering standpoint, and normally, for expensive OEM equipment, the process drives the rest of the costs.
You should probably discuss scope with your supervisor, but I wouldn't have thought that building a bottom-up estimate is appropriate. There is plenty of literature giving parametric estimates - search for "power station capital costs".
 
  • #7
pbuk said:
You should probably discuss scope with your supervisor, but I wouldn't have thought that building a bottom-up estimate is appropriate. There is plenty of literature giving parametric estimates - search for "power station capital costs".

I'm not the OP. I was just wanting to read the context of where he read the "deterministic estimate", because without that, my comment was likely unhelpful.

Corporate jargon can differ.
 
  • #8
Hi, The context came from internal company guidelines, I can't copy the internal document because if i even send an email with attachment from my work computer to my home computer , it triggers warnings and alarms.
But I can retype it in
re reading it now I noticed that the probabilistic / deterministic thing comes from the section estimating "contingency". There is a table which has;
cat IV small scale <50M USD - screening, study feasibility- standard deterministic
- BOD/pre feed, Budget,Control - probabilistic CSRA ( plus scenario analysis)

Looking through this a bit deeper I think you are right- its corporate jargon and may mean different things in different places.
I think the previous poster was right , For my purposes i am getting into too deep, better off doing a parametric estimate.
I got a good manual from the library - "Compass International - front end conceptual cost estimation/ year book" . It as a few case studies and examples. Unfortunately its 2016 version but I will just have to adjust for inflation (of which there hasn't been much)
 

What is a deterministic method for cost estimation?

A deterministic method for cost estimation is a technique used in project management to calculate the cost of a project based on a predetermined set of inputs and assumptions. It involves using a fixed set of values for factors such as labor, materials, and equipment to determine the total cost of a project.

What are the advantages of using a deterministic method for cost estimation?

Some advantages of using a deterministic method for cost estimation include its simplicity, reliability, and ability to provide a quick estimate of project costs. It also allows for easy comparison of costs between different projects and can be used to identify potential cost-saving opportunities.

What are the limitations of a deterministic method for cost estimation?

One limitation of a deterministic method for cost estimation is that it relies heavily on assumptions and fixed values, which may not accurately reflect the actual costs of a project. It also does not account for potential changes or uncertainties in project variables, making it less suitable for complex or long-term projects.

What are some common techniques used in deterministic cost estimation?

Some common techniques used in deterministic cost estimation include parametric estimating, analogous estimating, and bottom-up estimating. These techniques involve using historical data, expert judgment, and detailed breakdowns of project components to determine project costs.

How does a deterministic method for cost estimation differ from a probabilistic method?

A deterministic method for cost estimation uses fixed values and assumptions to calculate project costs, while a probabilistic method takes into account the uncertainties and risks associated with a project. A probabilistic method also provides a range of possible costs, rather than a single estimate, making it more suitable for complex or high-risk projects.

Similar threads

Replies
35
Views
5K
  • DIY Projects
Replies
12
Views
3K
Replies
2
Views
767
Replies
4
Views
4K
Replies
13
Views
2K
Replies
4
Views
2K
  • STEM Academic Advising
Replies
6
Views
1K
  • General Engineering
Replies
16
Views
6K
  • STEM Career Guidance
Replies
2
Views
1K
Replies
2
Views
1K
Back
Top