Parametric Cost Estimating

Parametric Cost Estimating: A Powerful Tool for Oil & Gas Projects

In the complex and demanding world of oil and gas projects, accurate cost estimation is crucial for successful project planning and execution. One widely used technique is parametric cost estimating, a statistical approach that leverages historical data to predict future project costs. This article delves into the specifics of parametric cost estimating, explaining its benefits and limitations in the context of oil and gas projects.

Understanding Parametric Cost Estimating:

Parametric cost estimating, often referred to as "top-down" estimating, relies on establishing statistically significant relationships between historical project costs and relevant project variables. These variables can include:

• System physical characteristics: Size, capacity, weight, or other physical parameters of the project's components.
• Performance characteristics: Output capacity, efficiency, or other performance metrics of the project.
• Contractor output measures: Labor hours, equipment usage, or other productivity metrics associated with the contractor's performance.
• Manpower loading: Number and types of personnel required for the project.

By analyzing historical data and identifying correlations between these variables and project costs, parametric models can be developed to estimate costs for future projects with similar characteristics.

Benefits of Parametric Cost Estimating:

• Speed and efficiency: Parametric cost estimating is a relatively quick and efficient method compared to detailed bottom-up estimating, making it ideal for preliminary project evaluations and feasibility studies.
• Early cost estimates: It provides early cost estimates even in the absence of detailed project specifications, allowing for better budgeting and resource allocation.
• Consistency and standardization: By using statistical models, parametric estimating promotes consistency and standardization across projects, reducing the risk of human error and subjectivity.
• Improved accuracy: When applied correctly and calibrated with historical data, parametric models can achieve reasonably accurate cost estimates, particularly for projects with similar characteristics to past projects.

Limitations of Parametric Cost Estimating:

• Limited accuracy for unique projects: Parametric estimating relies on historical data and might not be accurate for projects with unique characteristics or significant departures from previous projects.
• Sensitivity to data quality: The accuracy of parametric estimates is heavily dependent on the quality and reliability of the historical data used to build the models.
• Potential for bias: The models can be biased if the historical data reflects past inefficiencies or cost overruns.
• Lack of detail: Parametric estimating provides a high-level overview of project costs and may not capture specific cost components or potential risks.

Parametric Cost Estimating in Oil & Gas Projects:

Parametric cost estimating is widely used in the oil and gas industry for various purposes:

• Feasibility studies: Determining the potential cost-effectiveness of new projects.
• Early project planning: Establishing initial budgets and resource allocation plans.
• Comparative analysis: Comparing the estimated costs of different project alternatives.

Conclusion:

Parametric cost estimating is a valuable tool for oil and gas projects, offering speed, efficiency, and early cost estimates. However, it's important to understand its limitations and use it in conjunction with other cost estimation techniques, such as bottom-up estimating, to ensure comprehensive and accurate cost assessments. By leveraging the power of historical data and statistical analysis, parametric cost estimating can contribute significantly to the success of oil and gas projects.