When estimating project budgets in the process and plant industry, visible costs such as equipment and construction are usually the primary focus. However, labor costs—often represented as engineering fees when working with plant engineering companies—play a crucial role in realistic cost estimation.

In Owner’s Engineering, these costs are often absorbed as internal man-hours, making them less visible in the financial picture. This article explores how labor costs can be understood, evaluated, and incorporated into project estimates from the Owner’s Engineer perspective.

1. Engineering Fee = Engineer’s Man-Hours

In plant engineering projects, the total investment is typically broken into equipment costs, construction costs, and a contingency. When projects are outsourced, the plant engineering company charges an engineering fee, which essentially represents the labor cost of their engineers.

From an Owner’s Engineering perspective, however, these costs are hidden as internal work hours rather than a visible budget line. Still, it is critical to acknowledge them as true project costs.

2. The Challenge of Evaluating Man-Hours in Owner’s Engineering

Unlike external engineering firms, Owner’s Engineers rarely calculate labor cost explicitly. Why? Because tracking exact man-hours for each project is complex—engineers handle multiple projects and tasks simultaneously.

Some organizations manage this by using WBS (Work Breakdown Structure) and allocating budgets per project, but in reality, creating precise labor cost estimates across hundreds of projects in a year is often impractical.

3. Allocating People to Projects

Instead of estimating man-hours task by task, a practical approach is to analyze annual workload and historical data.

For example:

• A site has three engineers (A, B, C).
• During the year, they handle three major projects plus numerous minor maintenance tasks.
• Work is allocated based on project size, department, and engineer skill level (often linked to experience and role).

This approach helps avoid overburdening staff and provides a clearer view of how many engineers are realistically needed for different project sizes.

4. Linking Investment Value to Engineering Staff

How much investment can one engineer reasonably manage? While the answer depends on industry, site size, and complexity, organizations can often determine an approximate range by reviewing investment vs. headcount data across multiple projects.

Importantly, staffing needs do not scale linearly. Beyond certain thresholds, projects require multiple engineers across mechanical, electrical, and instrumentation disciplines. This means that even a small increase in investment can suddenly require a team of three or four engineers.

Failing to account for this can result in under-resourcing, excessive overtime, and “forced projects” carried by a few overstretched engineers.

🔹 Conclusion

Labor cost in Owner’s Engineering may be less visible than equipment or construction costs, but it is no less important. By understanding that engineering fees essentially represent man-hours, Owner’s Engineers can better anticipate staffing requirements, avoid unrealistic assumptions, and create more accurate project estimates.

Ultimately, incorporating labor cost into budget planning leads to safer, more efficient, and more sustainable project execution.