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					    Subcommittee on Design
     New Strategies for Cost
Research on Cost Estimating and Management
            NCHRP Project 8-49

               Annual Meeting
               Orlando, Florida
                June 16, 2006
       NCHRP Project 8-49

    Procedures for Cost Estimation and
 Management for Highway Projects During
Planning, Programming, and Preconstruction

       Stuart Anderson, PhD, PE
           Keith Molenaar, PhD
       Cliff Schexnayder, PhD, PE
What are Ten Key Principles that Ensure
  Consistent and Accurate Estimates?
   Make estimating a           Complete every step in
    priority                     the estimate process

   Set a project baseline      Document estimate
    cost estimate                basis

   Create cost                 Identify project risks
    containment                  and uncertainties
                                Anticipate external cost
   Create estimate              influences
                                Perform estimate
   Protect estimators           reviews
State Highway Agencies face a
major challenge is controlling
project budgets over the time span
between the initiation of a project
and the completion of construction.
               Research Objective
To develop a guidebook on highway
cost estimating management and
cost estimating procedures
aimed at achieving
greater consistency and accuracy
between long-range transportation
planning, priority programming, and
preconstruction estimates.

 Difficulty in describing scope
  solutions for all issues early in
  project development  Scope
 Difficulty in evaluating the quality
  and completeness of early project
  cost estimates  Review

 Difficulty in identifying major areas
   of variability and uncertainty in
   project scope and costs  Risk
 Difficulty in tracking the cost
   impact of design development that
   occurs between major cost estimates
    Control
             Development Phase

                                  & Tools

 nd                         Strategies, Methods,
ools                        and Tools Congruent with
                            Project Phase and
                            Project Complexity.

    Interaction between strategies, methods, & tools,
       Project Development
        project development phase, & complexity
                       Two Phases
The first phase focused on state of
practice  an extensive review of the
literature supported by interviews of
transportation agencies.
Major factors causing project cost
escalation and strategies, methods, and
tools were identified during this first
Over 23 SHAs provided input
                 Cost Escalation Factor
           1. Bias
           2. Delivery/Procurement Approach
           3. Project Schedule Changes
Internal   4. Engineering and Construction Complexities
           5. Scope Changes
           6. Scope Creep                                 Remember!
           7. Poor Estimating
           8. Inconsistent Application of Contingencies
           9. Faulty Execution
           10. Ambiguous Contract Provisions
           11. Contract Document Conflicts
           1. Local Concerns and Requirements
           2. Effects of Inflation

           3. Scope Changes
           4. Scope Creep
           5. Market Conditions
           6. Unforeseen Events
           7. Unforeseen Conditions
                  Two Phases
The second phase focused on
developing the Guidebook based on
the Strategies, Methods, and Tools
identified in Phase I.

The draft Guidebook was presented
to and critiqued by 10 SHAs
including Peer Exchange sponsored
by the Minnesota DOT.
   Management – Manage estimate process
    through all stages of project development
   Scope/Schedule – Formulate definitive
    processes for controlling project scope and
    schedule changes
   Off-prism – Use proactive methods for
    engaging external participants and assessing
    the macro-environmental conditions that can
    influence project costs
   Risk – Identify risks, quantify cost, and
    take actions to mitigate impact as the
    project scope is developed
   Project Delivery/Procurement –
    Apply appropriate delivery methods,
    delivery influences both risk and cost
   Document Quality – Promote
    estimate accuracy and consistency
    through quality documents
   Estimate Quality – Use qualified
    personnel and uniform approaches
   Integrity – Ensure checks and
    balances are in place to maintain
    estimate accuracy and minimize the
    impact of outside pressures
To consistently achieve accurate
cost estimates and to effectively
manage project cost SHAs must
adopt strategic approaches that
address the interdependence of
cost estimating and cost estimating
management problems.
The Guidebook is intended to assist
in creating a strategic change in
agency estimating approaches.
It aligns strategies with identified
problem areas and can be used to
create organizational structures for
achieving accurate cost estimates.
The Guidebook links the eight
strategies to over 30 implementation
methods that are supported by over
90 tool applications.
Strategies, methods, and tools are
identified in relation to four generic
project development phases.
           Project Development Phases
Planning       Programming         Preliminary Design         Final Design

                      Strategy 1               Strategy 2

           Method 1                 Method 2                Method 3

Tool 1                Tool 2                   Tool 3                  Tool 4
                    Programming and Preliminary Design Phase

Determine Estimate Basis

                              Prepare Base Estimate

                               Determine Risk & Set Contingency

                                Review Total Estimate
         Methods and Tools

Guidance is provided
through a common
descriptive structure for each
proposed method and tool.
               Method Structure
 Why  use the method?
 What step is the method used?

 How is the method impacted by
  project complexity?
 What makes the use of the method
 How is the method applied?
                      Tool Appendix
 What is the tool?
 What is the tool used for and why
  is the tool used?
 What does the tool do or create?
 When should the tool be used?
 Examples or applications of the
                   Tool Appendix

 Tips that will lead to successful
  use of the tool?
 Where can the user find more
  information about the tool?
SHA management must demand
adherence to a strategic approach and
require that all steps in the cost
estimating and cost estimating
management processes be performed.
Approach implementation from a
systems perspective, that is, not only
must cost estimating and cost
estimating management be integrated
but these processes must be
integrated with the SHA project
development process
Full implementation of the Guidebook
requires time. The implementation
effort will require time to determine
how the Guidebook strategies, methods,
and tools are best incorporated into
current SHA practice

   Ten Key Principles
        Ten Key Principles
Cost Estimate Management
1. Make estimating a priority by
   allocating time and staff resources.
2. Set a project baseline cost estimate
   early in preliminary design and
   manage to it throughout project
     Cost Estimate Management
3. Create cost containment mechanisms
   for timely decision making that
   indicates when projects deviate from
   the baseline.
4. Create estimate transparency with
   disciplined communication of the
   estimate uncertainty & importance.
   Cost Estimate Management

5. Protect estimators from internal
   and external pressures to provide
   low cost estimates.
       Cost Estimating Practice
1. Complete every step in the estimate
   process during all phases of
   project development.
2. Document estimate basis,
   assumptions, and back-up
   calculations thoroughly.
      Cost Estimating Practice
3. Identify project risks and
   uncertainties early and use these
   identified risks to establish
   appropriate contingencies.
4. Anticipate external cost influences
   and incorporate them into the
      Cost Estimating Practice

5. Perform estimate reviews to
   confirm the estimate is accurate
   and fully reflects project scope.
Thank You!

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