CEP Cost Estimation Techniques & Methods 4 — Questions and Answers
Question 1: Which of the following best describes the 'learning curve' effect in cost estimating?
- Costs increase as workers become more familiar with a task
- Unit costs decrease by a constant percentage each time cumulative output doubles (Correct answer)
- Overhead rates decline as project scope grows
- Material costs stabilize after the first procurement cycle
Correct answer: Unit costs decrease by a constant percentage each time cumulative output doubles
The learning curve (or experience curve) quantifies the reduction in labor hours per unit as cumulative production doubles, typically expressed as an 80–90% curve.
Question 2: Direct costs in a construction estimate typically include which of the following?
- Home office overhead and profit margin
- Labor, material, and equipment costs directly attributable to the work (Correct answer)
- Financing charges and bond premiums
- Escalation and contingency allowances
Correct answer: Labor, material, and equipment costs directly attributable to the work
Direct costs are those that can be traced specifically to construction activities — primarily labor, materials, and equipment.
Question 3: A 'factor estimating' method applies percentage factors to which base cost?
- Total project cost including contingency
- A major purchased equipment or installed equipment cost (Correct answer)
- The owner's budget ceiling
- The contractor's bid price
Correct answer: A major purchased equipment or installed equipment cost
Factor estimating (e.g., Lang factor, Hand factor) multiplies purchased or installed equipment cost by empirically derived factors to estimate total facility cost.
Question 4: What is the key difference between a 'fixed-price' and a 'cost-reimbursable' contract from an estimating risk perspective?
- Fixed-price transfers cost risk to the owner; cost-reimbursable places it on the contractor
- Fixed-price transfers cost risk to the contractor; cost-reimbursable retains risk with the owner (Correct answer)
- Both contract types distribute risk equally
- Risk allocation depends solely on the project schedule, not contract type
Correct answer: Fixed-price transfers cost risk to the contractor; cost-reimbursable retains risk with the owner
Under a fixed-price contract, the contractor absorbs cost overruns, so the estimate becomes a risk management tool; under cost-reimbursable, the owner pays actual costs.
Question 5: Which statistical technique is most commonly used to validate a parametric CER by measuring how well the equation fits historical data?
- Critical path method
- Coefficient of variation (CV)
- Coefficient of determination (R²) (Correct answer)
- Standard error of the mean
Correct answer: Coefficient of determination (R²)
R² measures the proportion of variance in cost explained by the CER's independent variable(s); an R² close to 1.0 indicates a strong fit.
Question 6: An estimator uses 'vendor quotes' for major equipment rather than parametric factors. What is the primary advantage of this approach?
- It eliminates the need for a contingency allowance
- It provides project-specific pricing that reflects current market conditions (Correct answer)
- It is always faster than parametric methods
- It requires no technical scope definition
Correct answer: It provides project-specific pricing that reflects current market conditions
Vendor quotes reflect actual current pricing, equipment-specific configurations, and market conditions, making them more accurate than historical factors.
Question 7: In the context of cost estimating, what does 'basis of estimate' (BOE) documentation primarily provide?
- A final approved budget signed by the project sponsor
- A record of the scope, assumptions, methodologies, and exclusions used to develop the estimate (Correct answer)
- A variance analysis comparing budget to actuals
- A risk register for unresolved scope items
Correct answer: A record of the scope, assumptions, methodologies, and exclusions used to develop the estimate
The BOE documents everything needed to understand, reproduce, and update the estimate, including scope boundaries, pricing sources, and key assumptions.
CEP Cost Estimation Techniques & Methods 4
Which of the following best describes the 'learning curve' effect in cost estimating?