(EST-2751) Estimate Quality: Observations from Independent Reviews of Owner's Estimates
Author(s)/Presenter(s): Shoshanna Fraizinger, CCP
Time/Location: Tuesday, June 26 from 4:00pm to 5:00pm / America's Cup CD (4th Floor)
[Level: Basic] The cost estimating process is used to predict uncertain future costs (which will often become the baseline by which a project is managed). A key aspect of cost estimating is the minimization of the uncertainty of the estimate given the level and quality of scope definition.
An estimator’s skill, judgement and experience are critical factors affecting the quality of cost estimating artifacts and ability to minimize uncertainty in the numbers. In addition, the level of detail provided in estimate documentation will define how useful the estimate can be for further cost engineering activities such as change management, earned value, resource loading, and cost control.
AACE® RP 46R-11 provides recommended competencies for a project cost estimator, however detailed skills, knowledge and methodology, are excluded from this recommended practice document.
Based on the Author’s work reviewing owner’s estimating artifacts, this paper describes:
• Some of the common areas of improvement across the organization’s estimating products,
• Elements an owner’s estimating organization can implement or review to address those areas, and
• Recommendations for maximizing the use of the estimate for other cost engineering activities.
(EST-2801) (Presentation Only) Understanding Estimate Accuracy
Author(s)/Presenter(s): Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life
Monday, June 25 from 10:15am to 11:15am / America's Cup CD (4th Floor)
Tuesday, June 26 from 10:15am to 11:15am / America's Cup CD (4th Floor)
[Level: Basic] This will be a presentation of the AACE Recommended Practice titled "Understanding Estimate Accuracy" (currently in development but expected to be completed before the AM). It is intended that the RP will serve as the paper. The presentation will walk through the identification of an estimate as a range of potential values, discuss the typical shape of the probability distribution associated with the estimate range, identify the concept of estimate contingency, and identify the elements required to convey information about estimate accuracy to stakeholders.
(EST-2825) Introduction to the Organizational Cost Community Framework
Author(s)/Presenter(s): Terry Josserand; Edwin P. Chamberlin; Leone Z. Young
Time/Location: Sunday, June 24 from 2:15pm to 3:15pm / America's Cup CD (4th Floor)
[Level: Basic] Organizations often experience conflicts because of role and responsibility overlaps and gaps. While a potential consequence of organizational role and responsibility overlap is inefficiency, the consequence of a gap may result in the lack of sustainable and defensible execution. One specific area of emergent research and assessment, with respect to organizational role and responsibility overlaps and gaps, exists within an organization’s ability to generate sustainable and defensible cost estimates. This paper will assist organizations facing the challenge to improve their cost estimation and analysis capabilities through the general characterization of the four interdependent cost functions, their processes, and the participants all within the systematic Organizational Cost Community Framework.
(EST-2827) Allocating Probabilistic Contingency
Author(s)/Presenter(s): Gustavo Vinueza C.
Time/Location: Tuesday, June 26 from 5:15pm to 6:15pm / America's Cup CD (4th Floor)
[Level: Advanced] Contingency management is necessary in any mid or large project. Calculation of contingency should include concepts such as uncertainty and scenario thinking, blended into a probabilistic model. This final contingency number responds to a simulated scenario used as a reference for calculating the potential economic and duration extensions for the project.
From the budgeting side, funding the contingency requires a different number of business units to contribute, each one of them with a different magnitude. Finding that number, a percentage most of the time, is a task that should be carefully considered as each unit has a different level of risk exposure through time. Contingency managers have the duty of proposing a somewhat fair solution for the participant units as the project progresses, deriving a set of different calculations and prorating schemes that sometimes conflict between each other.
This initial research approaches the contingency allocation problem recognizing the need of disaggregation, model robustness and creativity in order to generate a set of valid alternatives to be applied to different industries, projects and realities.
(EST-2832) Transmission Project Estimate Assessment
Author(s)/Presenter(s): Yan Wang
Time/Location: Monday, June 25 from 2:15pm to 3:15pm / America's Cup CD (4th Floor)
[Level: Basic] In Alberta, transmission project costs are reviewed by the Alberta Electric System Operator (AESO). The AESO validates the preferred alternative by assessing the reasonableness of the cost estimate.
This paper discusses the main activities in the AESO’s assessment of transmission project estimates:
- Information based analysis
- Quantity based analysis
- Interpretation of the analysis
- Conclusion and recommendations
(EST-2833) Maturity Assessment for Engineering Deliverables
Author(s)/Presenter(s): H. Lance Stephenson, CCP FAACE; Peter R. Bredehoeft, Jr. CEP FAACE
Time/Location: Tuesday, June 26 from 2:15pm to 3:15pm / America's Cup CD (4th Floor)
[Level: Intermediate] Over the last 60 years, AACE International has provided numerous recommended practices that have advanced the skills and knowledge of cost engineering. In an effort to provide further enhancement to the practice of cost engineering, the authors have developed a maturity assessment tool based on AACE International’s Recommended Practice No. 18R-97, Cost Estimate Classification System - As Applied in Engineering, Procurement, and Construction for the Process Industries.
The Maturity Assessment for Engineering Deliverables (MAED) tool, as introduced in this paper, is a maturity methodology that further defines the “Estimate Input Checklist and Maturity Matrix” as provided in the Recommended Practice No. 18R-97 Cost Estimate Classification System (CECS).
The AACE International RP No. 18R-97 Cost Estimate Classification System, complimented with the Maturity Assessment for Engineering Deliverables, can be used as a quantitative approach in determining the appropriate level of maturity required for improved estimate accuracy and confidence, and project delivery success. This article will provide readers with:
• A refined understanding of the maturity for each of the deliverables identified in the Estimate Input Checklist and Maturity Matrix.
• A quantitative assessment for the completeness and usability of the engineering deliverables.
(EST-2875) CAPEX Growth Over Project Delay - A Case Study
Author(s)/Presenter(s): Dorothy A. Ekeng
Time/Location: Monday, June 25 from 4:00pm to 5:00pm / America's Cup CD (4th Floor)
[Level: Intermediate] Prolonged project delays could be detrimental to the project’s CAPEX, schedule and economic feasibility, if it does not end up killing the project. The Case Study is a Midstream EPC Gas Project jointly owned by a National Oil Company and multiple International Oil Companies. The Project has been on the drawing board for over a decade with successive CAPEX estimates prepared during the project’s development phase. This Paper presents the estimating processes that were adopted by the FEED contractor on behalf of the owner in the preparation of the CAPEX estimates and the resultant steady CAPEX growth over time. While the major contributing factors to the CAPEX growth are identified principally as scope changes (internal) and cost escalation (external), there were still many others. Appropriate monitoring and quantification of these factors are required as the project’s CAPEX evolves over time in order to provide a good basis for informed decision by management. Keeping the project’s CAPEX growth at a minimum enhances the realization of the project’s business objectives and profitability.
(EST-2877) Credible Estimates Require Probabilistic Models
Author(s)/Presenter(s): John R. Schuyler, PE CCP DRMP
Time/Location: Monday, June 25 from 5:15pm to 6:15pm / America's Cup CD (4th Floor)
[Level: Basic] In estimation and forecasting, a useful reference calculation is a project model solved with best single-point assessment inputs. However, this deterministic solution (e.g., cost or schedule) seldom provides an objective project estimate. Proper calculations under uncertainty require Monte Carlo simulation (MCS). In this, subject matter experts assess uncertain input parameters as probability distributions. The MCS model then produces cost, schedule and other outcome values as distributions.
MCS provides important benefits: 1) Output values are distributions, communicating uncertainty; 2) For the most part, unbiased inputs produce unbiased model outputs; and 3) The statistical mean outcome value is often substantially different than the reference value.
Stochastic variance (SV) is the correction from the deterministic solution to the mean MCS result. Contributors to SV include nonlinear equations, correlations, and options. When preparing a variance analysis “reconciling forecast to actual” the important SV term stands alone. A periodic variance analysis provides a useful report and project control tool.
(EST-2880) The Development of an Estimating Department – Strategic Approaches
Author(s)/Presenter(s): David Kyle, CEP
Time/Location: Sunday, June 24 from 1:00pm to 2:00pm / America's Cup CD (4th Floor)
[Level: Intermediate] In a previous paper, the author identified and recommended solutions to specific hindrances in the development of reliable cost estimates including estimator competency, effective estimating tools, and a lack of reliable historical data. However, the execution of a plan to attain the desired solutions in the corporate world is fraught with obstacles. Experience by the author with owner and engineering contractor firms has identified common roadblocks and mitigation strategies to support the attainment of the solutions. This paper will discuss these mitigation strategies including: developing an identified vision and objectives based on the Total Cost Management Framework, presenting and winning management approval, development of a detailed plan, presentation to and obtaining support of middle and senior management, and implementation. Topics will include understanding senior management’s perspective, communicating the correct information at the appropriate level of detail, setting realistic goals based on business objectives, establishing a sense of urgency, short term wins, and overcoming the challenges of implementation. These principles can be applied in any development scenario.
(EST-2881) Benchmarking and Predictive Analytics to Improve Estimates, Forecasts, and Performance Measurement
Author(s)/Presenter(s): Susan W. Bomba, PE; Lamis El Didi
Time/Location: Monday, June 25 from 11:30am to 12:30pm / America's Cup CD (4th Floor)
[Level: Intermediate] By applying predictive analytics to an organization’s historical data, project cost estimates and risk assessments can be more accurate, improving forecasts and execution on a multi-year investment plan. The challenge with using historical data is that it is often dispersed throughout various financial and project management software systems, requiring significant data analysis for the comparison to be viable. This paper describes the steps involved in developing a robust cost benchmarking tool that centralizes historical project data into a user-friendly platform and predicts the cost of a construction project with a high degree of confidence, using only a few input variables. This paper will detail the four development steps: data gathering, data classification, data analysis, implementation, and refinement. Using the results from the tool, organizations can negotiate project cost reductions and focus risk management processes to inform contingency decisions. Across a portfolio, the changes can result in significant savings and form the basis for setting achievable performance targets.
(EST-2884) Three Models for Estimating Bid Markups
Author(s)/Presenter(s): Mohammadjavad Arabpour; Dr. Osama El Sayed Moselhi, P.Eng.
Time/Location: Wednesday, June 27 from 9:15am to 10:15am / America's Cup CD (4th Floor)
[Level: Advanced] Bidding is a commonly used method by contractors to secure business for their companies. A typical bid price consists of three main cost components; direct costs, indirect costs and mark-up. While there are methods for estimating direct and indirect costs with or without contingency, there are fewer tools for estimating mark-ups. This study introduces Multiple Regression (MR), Artificial Neural Network (ANN) and Adaptive Nero-Fuzzy Inference System (ANFIS) techniques for estimating markups, utilizing data collected from contractors in Canada and the USA. To facilitate the modeling process, thirty factors, recognized to impact the mark-ups of estimates and 23 of which are clustered in into five independent categories: need for work, job uncertainty, job complexity, market condition, and owner capability. The ANN, ANFIS and MR models are developed using “MATLAB 2017a” and the results obtained by these methods are compared to their respective performance against the actual estimated markups by the contractors. The ANFIS model yielded more accurate estimates than the other two (2) models.
(EST-2892) Pre-Class 5 Estimating Cost Communication for Long-Term System Planning
Author(s)/Presenter(s): Lisa M. Taylor; Gregory Brink; Paul Galeno; Douglas W. Leo, CCP CEP FAACE Hon.Life
Time/Location: Tuesday, June 26 from 11:30am to 12:30pm / America's Cup CD (4th Floor)
[Level: Intermediate] King County’s Wastewater Treatment Division (WTD) serves 1.7 million people in a 420-square-mile area around Seattle, Washington. Long-term system planning for public agencies such as WTD requires early commitment, allocation, and buy-in from decision-makers and stakeholders to deliver their target mission. However, communicating projected scope and costs for early needs identification in the conceptual planning stage is daunting. Although Class 5 conceptual estimates are typically considered for near-term use, long-term system planning necessitates a 25- to 30-year forecast. In hindsight, public agencies are often criticized for not accurately predicting final total project costs. Stakeholders often do not understand the limitations of early cost estimates and anchor to the lowest, most optimistic expectations.
WTD embarked on a multiyear process to improve cost-estimate communication. As a result, WTD developed a pre-Class 5 estimate methodology for communication of conceptual costs. This strategic planning-level estimate is focused on understanding costs early in the project life cycle with limited scope definition.
WTD will present its approach to the development and communication of conceptual planning costs. This information is beneficial to a wide range of project planning and delivery professionals with various levels of expertise in total cost management, project control, cost engineering, and project management.
(EST-2901) How to Achieve Dramatic Reductions in Megaproject Costs
Author(s)/Presenter(s): Arnaldo M. Angelini; Giulio Sansonetti, CCP
Time/Location: Sunday, June 24 from 4:00pm to 5:00pm / America's Cup CD (4th Floor)
[Level: Basic] Scope definition, estimation of project costs and better project management are the core ingredients for success of mega projects. Complex projects are common across various sectors including oil and gas, transportation, nuclear, construction and science and therefore, it is essential to implement project management strategies, scope identification and accurate cost estimation to improve their outcomes in parameters of time, quality and budget. Many of the construction management practices created are for traditional projects. The analysis of literature and lessons learned suggests that there is need for innovative project management strategies to manage complex projects more effectively.
Problems related to complex megaprojects include their complex nature, the use of traditional technologies, inappropriate project management strategies and environmental conditions. Consequently, such factors are responsible for affecting the quality and cost of the projects. It is essential to identify the project’s scope during the initial stages of the project to ensure that it is aligned with project goals and does not affect the quality of the project as well as helps in producing cost estimates that are reliable and disciplined.
Cost estimate uncertainty is an integral part of risk management strategy of the project, which is an influential factor in affecting the total cost of the megaprojects. If it is managed appropriately, it can help in reducing the cost of the project, ensuring that quality and time parameters are met. Additionally, project success is dependent on other factor such as accurate cost estimation, risk analysis, use of high quality engineering, strong and robust project management strategies and team coordination and communication.
Based on the Authors’ experience on Megaprojects in the field of nuclear, science and infrastructure projects, the paper describes the manner by which it would be possible to achieve dramatic cost reductions implementing high quality cost estimating process, honest communications, proper organizational structures, risk analysis, progress and cost control for each project phases with best project management practices and standards.
(EST-2909) Data Development for Parametric Estimates in Highway Construction
Author(s)/Presenter(s): Daniel E. Poole
Time/Location: Sunday, June 24 from 5:15pm to 6:15pm / America's Cup CD (4th Floor)
[Level: Intermediate] Faced with dwindling tax funds, highway agencies are hard pressed to fix deteriorating roads and bridges. A faster way to accurately gauge capital costs would ease the pressure and improve outcomes. When funds do become available through new sources, partnerships or tolling, being prepared to quickly move forward on projects is often critical to securing and utilizing those funds.
While planning level estimates based on detailed quantity take-offs are useful, they are laborious and can be misleading, implying a level of accuracy that is unrealistic for schematic design. Conversely, estimates extrapolated from total contract awards are easy to prepare, but lacking in accuracy and versatility. What is needed is a hybrid tool which permits rapid production of realistic planning estimates suitable for more than one type of project.
The paper describes a practical method which used basic statistical analysis of completed projects to build parametric structures from actual bid prices. The method was employed to quickly compile planning estimates for a $2 billion program comprising over 90 projects. At completion, the total variance between the as-built cost and the planning estimates was less than two percent.
(EST-2912) Technology Readiness Levels Guiding Cost Estimation in the Chemical Industry
Author(s)/Presenter(s): Georg Buchner; Johannes Wunderlich; Reinhard Schomaecker
Time/Location: Wednesday, June 27 from 8:00am to 9:00am / America's Cup CD (4th Floor)
[Level: Advanced] Selecting cost estimation methods that adequately fit the available data is difficult and holds great risks: Overly complex and time-consuming methods often lead to forcing assumptions that narrow the path for future development, while too simple methods that do not consider all known relevant data lead to lack of information.
The availability of data is closely linked to the progress of technology development. Technology readiness levels (TRL) are a popular concept for evaluating the maturity of development projects in government, industry and science. Since existing TRL guidelines remain unspecific to technologies, the need for a specification of TRL assessment for the chemical and process industries was identified. The first part of this paper gives detailed TRL criteria and indicators for the chemical and process industries.
The second part provides a guideline for the selection of adequate cost estimation methods by aligning existing estimation frameworks (e.g. AACE International classes) with the TRL scale and giving specific methods, estimation purposes and error ranges for each TRL. Finally appropriate indicators for economic assessment are proposed for each TRL.