Cost Estimation
and Cost Management:
Research to Practice
Stuart Anderson, PhD, PE
Texas A&M University
Transportation Estimators Association Conference
October 22, 2010
Baton Rouge, Louisiana
Outline
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•
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•
•
•
•
Challenge
Approach
Assessment
Definition
Development
Details
Issues and Gaps
Cost Estimation and Cost Management
Part of the Challenge:
Estimating Under Fire
Image003.jpg
Cost Estimation and Cost Management
“Theory to Practice”
How?
Cost Estimation and Cost Management
• Framework – NCHRP
Report 574 and
Mn/DOT Scoping
Process
• Methodology with rigor
• Industry involvement –
Mn/DOT Professionals
• Academics with right
industry experience
• Know user expectations
Approach
• Project – Cost Estimating Improvement
and Organizational Integration
• Four phases
– Assessment
– Definition
– Development
– Implementation
Cost Estimation and Cost Management
Assessment
What is State-of-Practice?
• Data Collection
• Data Analysis
• Results
Cost Estimation and Cost Management
What is State-of-Practice?
Themes
• Lack of systematic and structured
approach
• Lack of organizational strategies
• Lack of management support
• Focus on project delivery
Cost Estimation and Cost Management
What is State-of-Practice?
Organization Issues
• Estimators have multiple responsibilities
• High workloads
• Project Manager role and responsibility
not clear
• Functional areas drive project scope
and scope changes
• Lack of understanding of CE/CM
processes
Cost Estimation and Cost Management
What is State-of-Practice?
CE and CM Key Issues
• Limited risk and contingency analysis
with unclear definition of contingency
• Lack of adequate documentation of
estimate basis and estimate preparation
• Lack of structured reviews
• Lack of timely cost management
Definition
Champion and Vision
Mn/DOT will manage and control costs through a
department-wide priority on cost estimating and
cost management, reliable and accurate
estimates, statewide uniformity and consistency,
improved communication and credibility
with external stakeholders, and clear
accountability.
NCHRP REPORT
574 CE/CM
STRATEGIES
Mn/DOT leadership is committed to developing
a standard process and supporting policies,
integrating processes and policies across all
functions,
and making the necessary organizational
adjustments to fulfill the vision.
Mn/DOT STATEWIDE
TRANSPORTATION
PLAN
Mn/DOT POLICY 9
INVESTMENT
STRATEGIES
Mn/DOT COST ESTIMATION
PROCESS IMPROVEMENT AND
ORGANIZATIONAL
INTEGRATION VISION
Mn/DOT CE/CM
POLICIES
Mn/DOT CE/CM
PROCESS MODEL
Mn/DOT CE/CM
TECHNICAL
REFERENCE MANUAL
11
NCHRP REPORT
574 GUIDING
PRINCIPLES
Development
CE and CM Processes
•
•
•
•
•
Process focus
Structured modeling technique
Interactive workshops
Tools
Guidebook
Cost Estimation and Cost Management
Structured Modeling Technique
Used IDEF0
» Integration DEFinition for Function Modeling (IDEF0)
» Modeling Technique based on combined graphics and text
that are presented in an organized and systematic way to
gain understanding, provide logic for potential changes or
support systems level design and integration activities
» IDEF0 Model consists of a hierarchical series of diagrams,
text, and glossary cross-referenced to each other
» IDEF0 is being used for documentation, understanding,
design, analysis, planning, and Integration
» Based on structured analysis basic principle “To divide is to
conquer, providing that it is clear how the divided pieces are
structured together to constitute the whole”
IDEF0 Syntax
»Boxes
»Arrows
»Diagrams
»Types of IDEF0 Diagrams
»Diagram Features
IDEF0 Boxes
» Box provided a description of what
happens in a designated function
Perform Cost
Estimation
1
» Function name is a verb
or a verb phrase
» Box number is shown
insider lower right corner
IDEF0 Arrows
» One or more line segments with a terminal
arrowhead at one end
Straight
Curved
Forking
» Arrows segments may be
straight, curved or
branching configurations
» Arrows do not represent
flow or sequence, they
convey data or objects
related to functions to be
performed
Joining
» Bend arrows shall only
have 90 degree arcs
IDEF0 Arrow Positions and Roles
Estimating Procedures/
Controls
Policies
Project Scope
Inputs
Historical Data
Prepare
Function
Base
Estimate
1
Outputs
Base
Estimate
Estimators/
Mechanisms
Estimating
Spreadsheet
Function
- An activity or transformation identified by a verb phrase that
describes what must be accomplished
Inputs
Controls
Mechanisms
Outputs
- The data or objects that are transformed by the function into output
- Conditions required to produce correct output (often called a constraint)
- The means used to perform a function
- The data or object produced by the function
Interactive Workshops
• Introduction of Technique
• Variety of Mn/DOT/FHWA Professionals
• Modeled CE and CM Process for four
Mn/DOT Project Development Phase
• Modeled “As Is” first then “Would Be”
processes
• Formalized model using IDEF0
• Reviewed All Models
Cost Estimation and Cost Management
Process Modeler
Working Groups
Facilitator
Cost Estimation and Cost Management
Notes
Whiteboard with different colors
CE and CM Tools
• Basis – NCHRP Report 574 Tool
Appendix
• Survey tool usefulness
• Workshop
• Which tools
• Tools and CE/CM process
Cost Estimation and Cost Management
Cost Estimation and Cost Management
Cost Estimation and Cost Management
Development
How to Convert Process Models to Technical
Reference Manual?
Challenge!
Cost Estimation and Cost Management
TRM Challenges
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Who is primary user?
How present overall content?
How to present detailed “how to” steps?
What tools are used with which steps?
What is layout, format, and structure?
Cost Estimation and Cost Management
Technical Reference Manual
CONTENTS
•Introduction
•Essentials
•Practice
•Appendix
Introduction
• CE and CM
Vision
• Technical
Reference
Manual Layout
Mn/DOT STATEWIDE
TRANSPORTATION
PLAN
Mn/DOT POLICY 9
INVESTMENT
STRATEGIES
NCHRP REPORT
574 CE/CM
STRATEGIES
Mn/DOT COST ESTIMATION
PROCESS IMPROVEMENT AND
ORGANIZATIONAL
INTEGRATION VISION
Mn/DOT CE/CM
POLICIES
Mn/DOT CE/CM
PROCESS MODEL
Cost Estimation and Cost Management
Mn/DOT CE/CM
TECHNICAL
REFERENCE MANUAL
NCHRP REPORT
574 GUIDING
PRINCIPLES
Essentials
• Project Development Process and
CE/CM Process Integration
• CE and CM Policies
• CE and CM Process Overview
Cost Estimation and Cost Management
Project Delivery Process
Phases
Planning
Scoping
Design
Letting
Construction
Time
Project Development Process
Major Activities
Identify Needs
(Huge List)
Assign Project Manager
STIP
Amendments
Scoping Worksheets
Select Candidate Projects
(Long List)
Design
Project Scoping Report
Select Projects to Scope
(Short List)
Scope Approval
LETTING
Project Development Process
Plans and Programs
20 Year Plan
HIP (10 Year Plan)
STIP
Construction
-20
-10
-4
Time (years)
0
10
Project Development Process
Timeline by Project Type
Years from Letting
10+
9
8
7
6
5
4
3
2
0
LETTING
Major Const.
Reconstruction
Bridge
Safety
Preservation
Setaside Projects (e.g. BARC)
1
Project Planning
Scoping
Programming
Design
Planning Phase and Cost Estimating
Project Planning
ID Needs
Compiled List of
Needs
(“Needs” List)
1.2
1.1
Assign PM
Define Project
Concept
1. Assume Fix
2. Rough Cost
Estimate
1.3
Fiscal / Other
Constraints
1.4
Needs Identification
Stop
Draft Project
Planning Report
1.10
Continue
Stop
Compiled List of
Projects
(“Long” List)
1.5
Define
Purpose
1.6
Identify
Alternatives
1.7
Develop Cost
Estimate Range
Fiscal / Other
Constraints
1.9
1.8
Candidate Projects
Compiled List
(“Short” List)
1.11
Create Project in
PPMS, obtain
SP#
1.12
Selected Projects
Continue
Project
Planning
Report
1.13
Y
e
s
Letting Planned and
>5 Years Out
1.14
No
HIP
1.15
2.1
Scoping Phase and Cost Estimating
Project Scoping
HIP
1.15
Develop Alternatives
(See HPDP)
2.2
Assign PM
2.1
Develop Preferred
Alternatives
2.3
Alternative Selection
Issues + Cost compiled
by topic on Draft Scoping
Report
2.5
Scoping
Worksheets
2.4
Issue Resolution
and Agreement
on Scope
2.6
No
Prepare Baseline
Cost Estimate
2.7
Refine Project
Schedule
2.8
Finalize Project
Scoping Report
2.9
Approval of Final
Scoping Report
2.1
Yes
Detailed Scoping
Compile List of
Approved Scoped
Project
3.1
Project
Development
(TRM Design
Phase)
STIP
3.4
Letting
Project Change
Process
Scope, Cost,
Time Change
4.1
No
Yes
Design Phase
Yes
Change Process
Purpose &
Need Change
4.2
No
Change
Request Form
4.3
ID Needs
1.1
No- Project needs
Rescoping
Program
Evaluation Form
4.4
Change
Approved
4.5
Yes- Approved
or
No- Scope
Remains
Unchanged
CE and CM Policies
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Project Cost Estimation Policy
Uncertainty, Risk and Contingency Policy
Communications Policy
Project Cost Management Policy
Program Management Policy
Total Project Cost
Components
TOTAL PROJECT COST ESTIMATE
RAW TOTAL
DIVISION
GROUP
CATEGORY
ELEMENT
ITEM
Total Before Inflation
Engineering, Construction and
Right-of-Way
Engineering; Internal; Primary Construction;
Letting; and so on.
Project Development; State Share of Letting;
Utilities; Railroads; and so on
Related Work (e.g. Excavation; Paving;
Bridges; etc)
Specific Work with Unique Number
(e.g. 2105607/00021: Excavation-Common
2105607/00025: Excavation-Subgrade)
Gated Process
Planning Phase
HIP (Program)
Scoping Phase
STIP (Program)
Design Phase
Letting Phase
PREPARE
DESIGN
APPROVED
FINAL
DESIGN
PS&E
Post-Letting
PERIODIC HIP
PROJECT COST
UPDATES
PREPARE
PLANNING
REPORT
APPROVED
PLANNING
REPORT
G1
ENTER AND G2B
CONTINUE IN
HIP
G2A
G4
PREPARE
SCOPING
REPORT
ANNUAL STIP
PROJECT COST
AMENDMENT(S)
G6
SOLICIT/
APPROVE
BID PRICE
G7
Gn
GATES
G1: To Enter HIP
G2: To Proceed to Scoping
G3: To Enter STIP
G4: To Remain in STIP/ Proceed
to Design
G5: To Proceed to Letting
G6: To Solicit/ Approve Bid Price
G7: To Proceed to Construction
APPROVED
SCOPING
REPORT
G3
ENTER
STIP
APPROVED
DISTRICT
DESIGN
SUBMITTAL
LETTER
G5
LETTING
PHASE
CONSTRUCTION
PHASE
Estimate Type
Cost Estimating and Cost Estimating Management
Purpose
Transportation Need
Development Phases
Needs /
Deficiencies
Planning
Definition
(Concepts & Complexities)
Conceptual
Estimate
Cost Estimating
Total Planning Estimate
Package
Estimate Potential Funds
Needed and Prioritize
Needs for Long Range
Cost Estimate
(Prioritization Loop)
Plans
Cost Estimating
Management
Cost
Estimating
and
Cost
Management
Process
Overview
Scoping
HIP
Design Estimating
Cost Estimating
Total Project Cost
Estimate Package
Estimate Baseline Cost
for Projects and
Program Projects
Cost Estimating
Management
Approved Baseline Total Project Cost Estimate
Package
STIP
Project Definition
(% Design Complete &
Project Complexity)
Design
Design Estimating
Cost Estimating
Updated Total Project Cost
Estimate Package
Manage Project Budget
Design Development/
Site Conditions
Cost Estimating
Management
Compare with
Budget
Approved Updated Estimates with Changes/
Scope Amendments
Project Definition
(Final Plans/ Specs &
Complexities)
Letting
Cost Estimating
PS & E
Estimating
Estimated Construction
Cost to Obligate Funds
and Compare with Bid
Engineers’ Estimate
Advertise & Bid
Bid Data
Cost Estimating
Management
Award Recommendation
AWARD
CONSTRUCTION
Project Delivery
Project Definition
(Schematics / Alternatives Project
Complexity)
Long Range Plan
Project Development
Approved Planning Estimate Package
Cost Estimating and Cost Management
Process Framework
Perform Cost Estimation (CE) & Cost
Management (CM)
A0
Perform CE & CM
during Planning
A1
Perform CE & CM
during Scoping
A2
Determine Estimate
Basis
A11
Determine Estimate
Basis
A21
Prepare Base Estimate
A12
Prepare Base Estimate
A22
Determine Risk & Set
Contingency
A13
Determine Risk & Set
Contingency
A23
Review & Approve
Estimate
A14
Review & Approve
Estimate
A24
Determine Estimate
Communication
Approach
A15
Determine Estimate
Communication
Approach
A25
Perform CE & CM
during Design
A3
Perform CE & CM
during Letting Phase
A4
Update Cost Estimate for
CM
A31
Determine Estimate
Basis
A41
Prepare Base Estimate
A42
Assess Potential
Changes for CM
A32
Determine Risk & Set
Contingency
A43
Review & Approve
Estimate
A44
Determine Estimate
Communication
Approach
A45
Practice
• Overview of Cost Estimation and Risk
Methodologies
• Planning, Scoping, Letting
• Design
Cost Estimation and Cost Management
Design CE and CM
CM Through Estimate Updates
Update Cost
Estimates for CM
A31
Update Estimate
Basis
A311
Update Base
Estimates
A312
Update Risk &
Contingency
A313
Review Risk
Information
A3131
Review Design
Information
A3111
Select Appropriate
Approach
A3121
Review Site
Characteristics
A3112
Quantify Estimate
Elements or Line
Items
A3122
Update Risk
Identification
A3132
Develop Estimate
Data
A3123
Update Estimate
Contingency
A3133
Identify Changes
A3113
Determine if
Clarification Needed
A3114
Document Updated
Estimate Basis
A3115
Calculate Cost
Estimate
A3124
Document Estimate
Assumptions
A3125
Prepare Estimate
Package
A3126
Document Risk &
Contingency
A3134
Revise Total Project
Cost Estimate
A3135
Review & Approve
Updated Estimates
A314
Determine Estimate
Communication Approach
A315
Reconcile with
Baseline
A3141
Communicate
Estimate Basis
A3151
Determine Review
Level
A3142
Communicate
Estimate
A3152
Review Estimate
Assumptions
A3143
Communicate
Uncertainty &
Assumptions
A3153
Verify Completeness
& Data
A3144
Prepare Estimate
Package
A3145
Approve Updated
Estimate
A3146
Prepare Change
Request
A3147
Prepare
Communication
Package
A3154
Cost Estimation and Cost Management
Appendix
• Glossary of Terms
• Cost Estimating and Cost Management
Tools
• Tips for Estimating
Cost Estimation and Cost Management
Tool Structure
• Selected smaller set of tools from
NCHRP Report 574
• Used same structure and layout
• Added “How To” instructions
• Used Mn/DOT Examples when
available
Cost Estimation and Cost Management
D4.1 Project Estimate File
Tool Appendix – General Description
Estimates are usually created by the collaborative
effort of many individuals and to be able to follow the
assumptions upon which the estimate is based, and
preserve the information for future efforts there should
be a structured system for accumulating all
estimates and their supporting documentation.
Estimators are required to prepare and maintain a
master reference file that contains critical scope,
policy, and supporting information (assumptions,
methods, and procedures), which is used to prepare
the project estimate. This master file is maintained as
a permanent reference file.
P4.1 Project Estimate File
What is it? – Master reference file containing critical scope and
estimate information.
Why? – Good documentation supports cost estimate credibility,
enables reviewers to effectively assess estimate quality, and
aids in the analysis of changes.
What does it do? – Provides corporate memory and historical
database for cataloging the basic rationale behind the original
cost estimate and reasons for subsequent cost revisions.
When – Prepared and maintained from the initial estimate to
project close out.
Examples – Typical outline
Tips – Need certain level of detail to track changes
Resources – Tool Appendix
47
D4.1 Project Estimate File
How to Use It
•
•
•
•
•
Set up notebook using tool outline sections
Populate notebook with project definition basis
Populate with cost estimate information
Populate with risk and contingency information
Include reconciliation documentation when
comparing to previous estimates
• Identify key information for a Cost Estimate
Summary
D4.1 Project Estimate File
D4.1 PROJECT ESTIMATE FILE
TYPICAL OUTLINE
EXCUTIVE SUMMARY
Total Project Cost Estimate Summary One Page (Category Level with some Elements of
total project cost)
Key Project Requirements
Key Estimate Assumptions
Major Risks
TOTAL PROJECT COST ESTIMATE DETAILS (changes with project development phase)
Estimate Basis
Project Description (narrative description of project requirements)
Drawings (schematic, preliminary, final)
Specifications
Cost Estimate
Cost Estimate Summary (categories and some elements)
Cost Estimate Details (categories, elements and line items)
General Cost Basis for Estimate (impacts all cost in estimate)
Assumptions (as required for different category, element, or item estimate)
Backup Calculations (for different category, element, or item estimate)
Review notes, reconciliation documents, and recommended changes
Risk Analysis - Risks (red flag items, risk register, etc) and Contingency
(contingency basis and calculation)
Notes:
Tips and Watch Outs
Planning
Tips
Although the project has not been fully defined, do your best
to determine the full scope of the project before putting an estimate
together. Try to come up with as comprehensive a list as you can,
time permitting, of all of the elements that will be required in the project.
Visit the site in person. Become familiar with not only the roadway
and operational issues, but other site conditions as well.
Utilities, bridges, sidewalks, buildings, cut and fill slopes, waterways, etc.
will have an effect on project costs and the more familiar
the estimator is with a given site the more likely these items will be
considered.
Cost Estimation and Cost Management
Tips and Watch Outs
Planning
Watch Outs
Planning estimates may sit on the shelf for many years before moving to
scoping, design, and construction. Planning estimates should be
reviewed and refreshed regularly to reflect potential changes in scope,
unit prices, regulatory requirements, etc. This is also a good time to
review the assumptions and revise as necessary.
The estimating tools available can provide very precise numbers. The
total cost is usually displayed to the nearest dollar, sometimes even to the
penny with many tools. When these estimates are shared within the
organization, or even outside the organization, the impression given is
that the estimate is very accurate. Planning estimates should always be
rounded up to the nearest thousand, ten thousand, or hundred thousand
dollars depending on the relative magnitude of the cost.
Cost Estimation and Cost Management
Implementation
Training
• Cost Estimating Course
• Cost Management Course
Help!
Cost Estimation and Cost Management
Gaps and Other Issues
What Else?
• Audience – missing support for senior
estimators
• Layout, format, and structure – too
cumbersome
• Total project cost – how to estimate other
elements of total project cost
• Tool integration – fit with processes
• Tool development – few Mn/DOT examples
Cost Estimation and Cost Management
TRM Website Address:
http://dotapp7.dot.state.mn.us/edms/download?docId=670233