OM1300 - WORLDWIDE LOCATION FACTOR


A METHODOLOGY TO  ADJUST  A COST ESTIMATION  GIVEN  A (USGC)  REFERENCE




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.


Parameters affecting the measurement of the Location Factor


Political

      • Stability
      • Attitude towards foreign investment
      • Type of bureaucracy

Finance

      • Bank System
      • Insurance regulations
      • Tax system
      • Duties

Legal system

      • Laws that govern the conduct of business and individual freedom

Social System

      • Business ethics
      • Education
      • Language and religion

Geografy

      • Infraestructure and communication
      • Wether

Industry

      • Capacity
      • Diversity
      • Efficiency


How to Measure the Location Factor?



PROCUREMENT

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


LABOR 

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 .

USGCRate= XXXX

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.

USGCPF= 1.00


DESIGN & PM 

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 .

USGCDRate= XXXX

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.

USGCDPF= 1.00

 


The assumptions required to calculate a location cost factor are:


1. A construction cost breakdown of a typical Project. The database uses a "Production / Process facility"  type operation with most equipment located outdoors.
2. Within this breakdown is a split between building and site work as one major system category, and process system being the other.
3. Each system is then split within material labor and design. All construction costs, including indirects are allocated as  material, labor or design.
4. Material is allocated as local or imported based on knowledge of the host country procurement practices.



 

POLITICAL



FINANCIAL


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LEGAL SYSTEM


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SOCIAL SYSTEM


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GEOGRAFY


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INDUSTRY


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