ESTIMATING MARGIN MARK UP ON CIVIL ENGINEERING PROJECTS BASIC AND TUTORIALS

Margin comprises three components: indirect costs, company-wide costs, and profit.

Determining Indirect, or Distributable, Costs
The techniques used to calculate indirect costs (often called indirects) resemble those used to calculate direct costs .

Parametric Technique. The indirects calculated by this technique may be expressed in many ways, for example, as a percentage of the direct cost of a project, as a percentage of the labor cost, or as a function of the distance to the site and the volume of the construction materials that must be moved there. For a warehouse, for instance, the cost of indirects is often taken to be either one-third the labor cost or 15% of the total cost.

Unit-Price Technique. To determine indirects by the unit-price technique, the estimator proceeds as follows: The various project activities not associated with a specific physical item are determined. Examples of such activities are project management, payroll, cleanup, waste disposal, and provision of temporary structures.

These activities are quantified in various ways: monthly rate, linear feet, cubic yards, and the like. For each of the activities, the estimator multiplies the unit price by the unit quantity to obtain activity cost. The total cost of indirects is the sum of the products.

Crew Development Technique. To determine the cost of the indirects by this technique, the estimator proceeds as follows: The various project activities not associated\ with a specific physical item are determined. Next, the estimator identifies the specific personnel needed (project manager, project engineer, payroll clerks) to perform these activities and determines their starting and ending dates and salaries.

Then, the estimator computes total personnel costs. After that, the estimator identifies the specific facilities and services needed, the length of time they are required, and the cost of each and calculates the total cost of these facilities and services. The total cost of indirects is the sum of all the preceding costs.

Determining Company-Wide Costs and Profit
Company-wide costs and profit, sometimes called gross margin, are usually lumped together for calculation purposes. Gross margin is generally a function of market conditions. Specifically, it depends on locale, state of the industry and economy, and type of discipline involved, such as mechanical, electrical, or structural.

To calculate gross margin, the estimator normally consults standard handbooks that give gross margin as a percent of project cost for various geographic areas and industries. The estimator also obtains from periodicals the market price for specific work.

Then, the information obtained from the various sources is combined. As an example, consider the case of a general contractor preparing a bid for a project in a geographic region where the company has not had recent experience.


At the time that the estimate is prepared, the contractor knows the direct and indirect costs but not the gross margin. To estimate this item, the estimator selects from handbooks published annually the gross margin, percent of total cost, for projects of the type to be constructed and for the region in which the building site is located.

Then, the estimator computes the dollar amount of the gross margin by multiplying the selected percentage by the previously calculated project cost and adds the product to that cost to obtain the total price for the project.

To validate this result, the estimator examines reports of recent bids for similar projects and compares appropriate bids with the price obtained from the use of handbooks. Then, the estimator adjusts the gross margin accordingly.

ROCK PARAMETERS AND CLASSIFICATION SCHEMES BASIC AND TUTORIALS

The purpose of rock mass classification is to establish the quality of a particular rock mass (or part of a rock mass) by assigning rating values to a set of rock parameters. Webster’s dictionary defines ’classification’ as “the act of classifying or forming into a class or classes, so as to bring together those beings or things which most resemble each other, and to separate those that differ”.

This definition immediately highlights two main issues in rock mass classification: the purpose of the classification has to be established and the method of classification has to be commensurate with the purpose.

For example, if we only used the uniaxial compressive strength of the intact rock and the fracture frequency of the rock mass, we could generate a rock mass classification scheme for characterizing sections of rock in a tunnel as shown in Table 12.1.


Table 12.1 Illustrative simple rock mass classification scheme
Parameter Ratings, R
Uniaxial compressive strength, a,
Fracture frequency, h Ifh54/m, R = 1 If h 4/m, R =2
If a, 3 100 MPa, R = A If a, < 100 Ma, R = B


On the basis of this scheme, all rock masses must then be one of the categories, AI, A2, B1, B2. We could call this a Rock Index and assign the words ’Good’ to AI, ’Fair’ to A2 and BI, and ’Poor’ to B2. But what is the purpose of this classification?

Perhaps, the Rock Index would indicate the excavatability and stability of the rock masses in each category. If so, is the classification the best one for that purpose?

There are four main steps in the development of any rock mass classification scheme:
1. decide on the objective of the rock mass classification scheme;
2. decide on the parameters to be used, their ranges and ratings;
3. decide on the algebra to be used for the rock index (e.g. do we simply select values from a table, do we add rating values together, do we multiply ratings together, or something else?); and
4. calibrate the rock index value against the objective.

The advantage of using a rock mass classification scheme is that it is a simple and effective way of representing rock mass quality and of encapsulating precedent practice. The disadvantage is that one cannot use it for a different objective or in significantly new circumstances.

The rock mass classifications that have been developed to date follow this basic approach, but include more parameters and use a greater number of classes than the simple 'good', 'fair', 'poor' example we gave above.

For example, by adding a third parameter to the classification given in Table 12.1, 'thickness of the layers', and using more rating values (Vervoort and de Wit, 1997'), a useful rock index for rock dredging has been developed. By judicious choice of the relevant parameters, such rock mass classification schemes can be a powerful tool for rock engineering.

The two main classification systems, Rock Mass Rating and Tunnelling Quality Index (XMR and Q), have both been widely applied and there is now a large database of projects where they have been used as the main indicator of rock stabilization requirements in rock tunnelling.

The systems provide a coherent method of using precedent practice experience and can now be linked to numerical analysis approaches.

With all schemes, the key issues are the objective of the classification system, choice of the optimal parameters, assigning numerical ratings to parameter values, the algebraic manipulation of the parameter ratings, and drawing conclusions from the mean and variation of the overall rock quality index values.