WORLDWIDE LOCATION FACTOR
OM1300 - WORLDWIDE LOCATION FACTORS
A METHODOLOGY TO ADJUST A COST ESTIMATION GIVEN A (USGC) REFERENCE
Given that the information on man-hours of installation and the prices of components and process equipment contained in the databases based on the "Gulf Coast of the United States of America" (USGC), a cost estimator should consider applying a adjustment that we will call from now on "Location Factor”.
ASSUMPTIONS AND METHODOLOGY
To develop a project cost estimation in a different country of origin of the data available on materials, equipment and labor, a good Cost Estimator should be familiar with the main sources of data on the costs of their own country but this is not always the case for estimates data bases applicable to other nations. While cost engineers and project managers are generally very familiar with the main sources of data on the costs of their own country, are often not aware of the useful sources of cost data and related information elsewhere. This problem is compounded by the lack of time to conduct a proper search, publications in several languages, and the lack of information on the key factors that can affect the estimate for certain geographical areas.
If the database used in your cost estimate is a USGC (Gulf of the United States) or GOM (Gulf of Mexico) reference, an International location factor must be applied. This is one of the issues that frequently appears when we handle databases with USGC reference, the change in the relative levels of construction costs between different countries, makes this issue of vital importance when starting a cost estimation.
Much of this fluctuation in costs can be attributed to the characteristics of the labor component in the locality, both in productivity and in the monetary value of the mix of labor gangs, together with changes in exchange rates for the majority of coutries. the world currencies compared with reference value (dollar), on the other hand it is always well known how the "political-social" factors contribute greatly in this context. Averages have been weighted and adjusted for anticipated economic conditions to arrive at the forecasted data.
How to Measure the Location Factor?
STEP 1 - Parameters affecting the measurement of the Location Factor (Country Drivers)
- Attitude towards foreign investment
- Type of bureaucracy
- Bank System
- Insurance regulations
- Tax system
- Laws that govern the conduct of business and individual freedom
- Business ethics
- Language and religion
- Infrastructure and communication
STEP 2 - PROCUREMENT FACTOR
IMPORTED PROCUREMENT LOCATION FACTOR (A):
It contains all related Imported Equipment and Material additives required to purchase all of imported these items to obtain the total cost delivered to the jobsite:
a) Duty and customs fees at the host location.
b) Freight cost from shipping plant to dock.
c) Ocean freight.
d) Unloading, storage, and delivery to plant location.
e) Value-added taxes imposed by the host country.
f) Other taxes imposed by national or local government.
LOCALLY SUPPLIED EQUIPMENT AND MATERIAL FACTOR (B):
It contains all related to the cost of local material as a percent of cost at the country-city base location
PROCUREMENT AND LOGISTIC FACTOR PARAMETERS
According to the findings in our searchings, there are many procurement parameters affecting procurement and supply chain performance, these include, bureaucracy and time consuming methods of procurement, training on cost effectiveness and timely delivery of projects, stakeholders involvement, failure to involve suppliers at the early design and specification stage leading to frequent changes of design and specifications and cancellation of contracts, etc.
We have selected the following drivers or criteria to measure or evaluate the Procurement and Logistic Factor:
- Procurement and Supply Chain Practices
- Level of Cooperation from Supplier
- Quality of Company’s Procurement in Country
STEP 3 - LABOR / CONSTRUCTION FACTOR
WEIGHTED AVERAGE CRAFT RATE RATIO (LRR):
The locally weighted average craft rate for a construction worker divided by the USGC in U.S. Dollars, which includes Fringe Benefits, Overhead and Profit .
AVERAGE LABOR PERFORMANCE FACTOR RATIO (LPFR):
This includes the average labor performance factor attained in the country as a percent of that for the base location open shop operation. This reflects typical labor saving construction tools and equipment used in the host country.
STEP 4 - DESIGN & PM FACTOR
WEIGHTED AVERAGE DESIGN & PM RATE RATIO (DRR):
The locally weighted average rate for Design & PM divided by the USGC in U.S. Dollars, which includes Fringe Benefits, Overhead and Profit .
AVERAGE DESIGN PERFORMANCE FACTOR RATIO (DPFR):
This includes the average Design performance factor attained in the country as a percent of that for the base location Engineering & Design.
OUTPUT REPORT - SUMMARY TABLE
Assessment of Location Factor – Workshop
WHO SHOULD ATTEND:
- Location Factor Drivers are identified in one or more dedicated workshops with project team.
- Disciplines involved in workshop may vary depending on project characteristics.
- Output relies on total team involvement in the process
WORKSHOP SUPPORTING DOCUMENTATION:
- Country General Drivers Information (Social -Political – Financial – Geography – etc.)
- Labor – Construction Wages and Disciplines previous background experiences.
- Design & Project Management Salaries references
- Procurement Country Info. & Logistic Country Experiences