“It’s Only an Estimate!” A Panel Discussion: Roundtable · “It’s Only an Estimate!” A...

Montreal Section of AACE International Presents….

“It’s Only an Estimate!” A Panel Discussion: Roundtable

Agenda “It’s Only an Estimate!”

• Safety Topic • Panel Introduction • Overview on Capital Cost Estimating • Panel Questions & Discussion • Question period

Safety Topic

• Walking on Montreal Streets in Winter…..

The PANEL Introduction

• The Owner: Guillaume Lafortune – Hydro Quebec

• The Consultant: John Alarcon – Hatch • The Contractor: Patrick Habib – LCO

It’s Only an Estimate! The concept……

Of Course, That’s Only an ESTIMATE…..

The ACTUAL cost will be much

more!

Art Imitates Life….. Why estimators are cautious

Industry Results

J. Hollmann Presentation 2011

• COST ESTIMATING – A predictive process used to quantify, cost, & price

resources required by scope of an asset investment option, activity, or project.

– As a predictive process, estimating must address risks & uncertainties.

– Outputs of estimating are used primarily as inputs for budgeting, cost or value analysis, decision making in business, asset & project planning, or for project cost & schedule control processes.

It’s Only an Estimate! Definitions

Estimate Defined

Estimate (aace): A compilation of all the costs of the elements of a project or effort included within an agreed upon scope. PMBoK: A quantitative assessment of the likely amount or outcome. Usually applied to project costs, resources, effort and durations and is usually preceded by a modifier (i.e. preliminary, conceptual, feasibility, OoM, definitive). It should also include some indication of accuracy e.g. +/-percent).

Basic Estimating Process

Planning Preparation Development Summation Document Review

Final Estimate

Mandate Owner req’ts

Estimate Level WBS

Est. Resources Est. Methods

Schedule

Scope of Work Site Survey

Labour rates Productivity

Prev. Est.

Equip. Lists & Eng. Docs MTOs

Quotes/$ Databases Direct Labour Schedule Data

Indirect Costs/Owner Risk Review

Methodology Data Sources

Inclusions Exclusions

Quantities Cost summaries Historical data

Benchmark data Risk Evaluation

Variance Analysis

Owner Requirements

WBS Commodity

Coding

Estimate

Plan

Quantified & priced Line items

Direct & Indirect Allowances

Contingency & Esc.

Summary by WBS Discipline

Quantities , hours & cost

Variance report

Basis of Estimate

Supporting worksheets

Labour rates & Crews

productivity

Activities typically shown for Class 3 estimate

Reference: AACE International Recommended Practice No. 18R-97 COST ESTIMATE CLASSIFICATION SYSTEM

It’s Only an Estimate! Estimate Classes

Capacity factors (6/10 rule), analogous, expert judgment, cost indices (top down)

Factors applied to plant (Hand factor) or equipment (Lang factor)

Parametric estimating (related to a physical attribute/s)

Model based with CAE 5D (BIM)

Detail line items with MTOs and pricing from estimating databases & market pricing (bottom-up estimating)

School of Project Controls Estimating Methods

Reference: Estimating in 3D: the Next Dimension, Barmania & McMullan, AACE International Annual Meeting, 2004

Estimate Elements Direct Contractor View

COST ESTIMATE

Direct Costs

Indirect Costs

Labor Material Equipment Subcontract

Taxes General Conditions Risk / Reward Overhead

Profit Contingency

It’s Only an Estimate! Estimate Summary

Class & Stage-Gate

Doing the Right Project

Doing the Project Right

Project Shaping

18

Class 5 Class 4 Class 3 Class 4,5

Sanction Appropriation

4 Definitive 5 Tender

Check

Estimate types and “Stage-Gate” At what stage are you most involved?

Is the stage-gate process

effective?

Where are there areas for improvement? (e.g. communications, interfaces)

It’s Only an Estimate! Panel Discussion

Flaws • Each of the stages do not meet required

deliverables, leading to recycling: – FEL G1 = Robust business case – FEL G2 = Scope complete (base case selected) – FEL G3 = Project ready to execute

• Stage-gate approval conditional • FEL drives cost and schedule predictability* • FEL & Context: 3 key areas of context*

– Challenges of physical location – Availability & quality of construction labour – Permitting

* industrial megaprojects by E.W. Merrow, chapter 10

From Social Media……

Reference: When Good Projects Go Bad – SOR - April 2011

One of the reasons given for project overrun is “poor estimating”.

How do you respond?

What is the most variable part of the estimate and has greatest impact?

What can the industry do to improve?

It’s Only an Estimate! Panel Discussion

Flyvbjerg’s Top Reasons for Mega project Overrun

Most variable costs

• Typical areas of highest growth: – Bulk Quantities – Construction Labour hours – Indirect related labour costs – Construction indirect costs – Field Overheads – Consultant services – Owner costs

EQUIP 23%

BULKS 24%

DIR. LAB. 21%

HO 13%

INDIR. 19%

RATIOS

Contingency & Escalation

How do you define each?

How do you assess cont’y? Deterministic, probabilistic or parametric?

Who owns the project contingency?

It’s Only an Estimate! Panel Discussion

Project Contingency

• Contingency – An amount added to an estimate to allow for

items, conditions, or events for which the state, occurrence, and/or effect is uncertain and that experience shows will likely result, in aggregate, in additional costs.

– Typically estimated using statistical analysis or

judgment based on past asset or project experience.

Risk Methods

Risk Methods

Escalation

Estimating Accuracy:

What does it mean?

How do you establish and validate it?

How do we improve it?

It’s Only an Estimate! Panel Discussion

Estimate accuracy

International Projects:

How is labour productivity evaluated in the estimate?

What are the things to watch for remote locations?

It’s Only an Estimate! Panel Discussion

Sample Labour Productivity evaluation sheet

“Selling” the estimate: why so important?

What is your estimate review process/processes?

How do you convince mgmt, client and stakeholders?

School of Project Controls Panel Discussion

Typical Reviews

Progressive internal reviews

Estimating/Controls team review Project Review Consult. Mgmt

Review Owner Review

Collecting Benchmarking & Historical Data:

Is it really worthwhile?

What is your approach?

It’s Only an Estimate! Panel Discussion

Budget and Cost Control Workflow

Capital Estimate Scope of

Work Budget

Trending & Forecasting

Commitments Change Orders

Progress

Databases

Design Data/ Quantities

Project Statistics

and Metrics

Final Cost

Market Data

Estimating & Project Controls:

Should front end estimating be part of project controls?

How has technology affected the estimating process? ( Systems/Methods)

What is role of estimating during execution?

It’s Only an Estimate! Panel Discussion

Lessons learned and estimating:

In summary, is there a lesson learned that means the most to you that you would like to share?

It’s Only an Estimate! Panel Discussion

Question Period