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Factored Cost Estimates (With Inflation Indexing)

Factored Cost Estimates (With Inflation Indexing). ©2002 Dr. Bradley C Paul. Example of Factored Cost Estimating. Shaft Sinking - USBM Cost Estimating System Shaft sinking cost a function of 3 curves Labor Supplies Equipment Operation All functions are dependent on shaft area

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Factored Cost Estimates (With Inflation Indexing)

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  1. Factored Cost Estimates(With Inflation Indexing) ©2002 Dr. Bradley C Paul

  2. Example of Factored Cost Estimating • Shaft Sinking - USBM Cost Estimating System • Shaft sinking cost a function of 3 curves • Labor • Supplies • Equipment Operation • All functions are dependent on shaft area • Note that with one parameter (how big do you want it?) you can do all costs without engineering detail • Output is cost per meter of shaft sunk (need to know how deep you’ll go)

  3. The Labor Curve • YL = 615.595 * (X)0.542 • X is the shaft area in square meters • We were doing a 20 ft diameter shaft • about 29.2 meters square • Plug and Chug • $3833/meter of depth

  4. Modification Factors • Difficulty and cost of a shaft is a function of both size and rock hardness • Adjusting for rock hardness • FL = 0.388*(C)0.093 • C is average rock strength in psi • suppose this is a coal operation through sedimentary rock with 17,000 psi • Plug and Chug • 0.96

  5. Applying Modification Factor • $3,833.16/meter * 0.96 = $3,679.65 • Shaft Depth • better consider that we do leave a sump area below the last level accessed • (obviously need some industry specific knowledge) • 750 feet of depth • about 228.66 meters • Estimated Shaft Cost for Labor • $841,343

  6. The Cost Indexing Bugaboo • Cost base for USBM CES is 1984 • Need to inflation adjust • Use US Bureau of Labor Statistics • Can’t really use the PPI this time • PPI is an index of what industries sell their goods for • This is a labor cost • BLS still has an index

  7. Raiding the BLS Web Site • Go to www.bls.gov • Under Industries • Go to employment costs • Takes to Compensation Cost Trends Area Home Page • Go to get detailed statistics • Look at Create Customized Tables • Choose Employer Cost for Employee Compensation (ECEC)

  8. Continue the Raid • Now on National Employment, Hours and Earnings area • Select “Average Hourly Earnings of Production Workers” • do note that these earnings figures are not going to include fringe costs • Note that these kinds of figures can be selected for a region of the country too • Since we are updating a national average manual we need to use the national statistics • Select Mining code 100000 • Note that could pick specific industries within mining • we are working coal but shaft sinking is sort of its own area

  9. Continuing the Excitement • Send the computer to Fetch your data • comes back with data that doesn't go back far enough • reset the year range and send it out again • This time it returns with answers

  10. Here Come the Goodies

  11. Using the Goodies • Our figures give average wage excluding fringe • Our cost manual gave employer cost including fringe as $16.35/hr in 1984 • Fringe costs are usually a function of wage • paid vacation • workmans comp • unemployment • retirement • (Health insurance probably only stick in the mud)

  12. Response - Use it as an Index • Labor cost in 1984 dollars • $841,343 • Indexing • $841,343*17.89/11.63 • Plug and Chug • $1,294,000 (with just a little rounding) • updated to Nov. 2002

  13. Our Next Exciting Task • Supply Operating Cost • YS=182.051*(X)0.558 • Plug and Chug • X = 29.2 square meters • $1196.43/meter • Adjust it for Rock Hardness • FS=0.579*(C)0.033 • C = 17,000 psi • Plug and Chug 0.9798

  14. Finish Getting Our 1984 Cost • Apply rock hardness correction • $1196.43 * 0.9798 = $1172.22 • Use the depth of the shaft • 228.66 * $1172.22 = $268,000 • (note that rounding is being done down road) • Leaves us with need to update to current costs • Our contractor probably buys direct from wholesaler (PPI type update)

  15. A Specific Basket of Goods • Needs specific supplies • 21% cost due to explosives • 34% steel items • 38% misc items • 6% electricity • 1% timber • We will need a weighted average of several cost indices • PPI is broken down into specific sub-indexes

  16. Indices to Use • Have to use codes to get • past has been SIC code number (from IRS) • June 2003 plans to switch to NAIC codes • probably a NAFTA issue • Numbers won’t change much for mining • Heaven help the service industries • Chemical is 06 • Explosives are a specific type of chemical • 067902 • Iron and Steel 101 for the steel items

  17. More Indices • Miscellaneous Items • Use PPI industrial commodities index • already a weighted average we don’t want to worry about • Electricity • 05 is energy • 0543 is industrial power • Timber • 08 is wood products • Mines use mostly softwood - 0811

  18. Time to Run and Fetch • Go to BLS home page • Select Industrial • PPI • Takes you to PPI home page • Go to Get Detailed Statistics • Select Create Customized Tables Commodity Data • Let the Fishing Begin

  19. Index Values • Explosives • 1984 = 103.6 • 2002 = 149.7 • Steel Items • 1984 = 105.3 • 2002 = 117.9 • Misc Items (Industrial Commod) • 1984 = 103.3 • 2002 = 134.9

  20. More Index Values • Industrial Electric Power • 1984 = 108.4 • 2002 = 140.1 • Timber • 1984 = 110 • 2002 = 167

  21. Break Our Shaft Supplies Cost Down for Indexing • Explosives • $268,000 * 21% = $56,288 • Index • $56,288 * 149.7/103.6 = $81,335 • Steel Items • $268,000 * 34% = $91,133 • Index • $91,133 * 117.9/105.3 = $102,038

  22. Break Down and Index • Misc Items • $268,000 * 38% = $101,855 • Index • $101,855 * 134.9/103.3 = $133,013 • Electricity • $268,000 * 6% = $16,082 * 140.1/108.4 • Crank = $20,785 • Timber 1% • $2,680 * 167/110 = $4,069

  23. Recombine • Explosives $81,335 • Steel Items $102,038 • Misc Items $133,013 • Electricity $20,785 • Timber $4,069 • Total $341,241

  24. Last Cost Component • Equipment Operating Cost • YE= 681.476 * (X)0.407 • $2,690.73 • Hardness Adjustment • FE=0.715*(C)0.033 gives 0.986 for 17000 psi rock • 1984 cost for shaft of depth $606,691 • Breakdown • 88% Repair parts • 7% Fuel and Lubrication • 5% Tires

  25. Selecting Indices • Repair Parts - Use Construction Machinery and Equipment • $533,888*151.7/103.8 = $780,258 • Fuel and Lubricants - Use Refined Petroleum Products • $42,468 * 86.2/87.4 = $41,885 • Tires - Use bus and off-highway industrial vehicle tires • $30,335 * 90.6/83.4 = $32,953 • Total Equipment Operating $855,097

  26. Cost of Pre-Feasibility Shaft Estimate • Labor $1,294,000 • Supplies $341,241 • Equipment $855,097 • Total $2,491,000

  27. Understanding Whats Included • Cost of Shaft Sinking • Installation of Guides • Installation of Manways • Air, Water, Communications Lines • Does not include Hoist • Does not include Ore Pockets

  28. Where to Get All This Stuff • After Lecture on Website See Resources on Pre-Feasibility Estimates page • Links to Bureau of Mines Cost Estimating System • Links to Bureau of Labor Statistics Web Site • Links to Cost Indices collected from Web Site to Nov. 2002 • Links to Cost Indices from Western Mine Cost Service

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