1. 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

2. Cost Estimation and Cost Management Outline Challenge Approach Assessment Definition Development Details Issues and Gaps

4. Cost Estimation and Cost Management Part of the Challenge: Estimating Under Fire

5. Cost Estimation and Cost Management “Theory to Practice” 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 How?

6. Cost Estimation and Cost Management Approach Project – Cost Estimating Improvement and Organizational Integration Four phases –Assessment –Definition –Development –Implementation

7. Cost Estimation and Cost Management Assessment What is State-of-Practice? Data Collection Data Analysis Results

8. 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

9. 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

10. 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

11. 11 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. 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. Definition Champion and Vision

12. Cost Estimation and Cost Management Development CE and CM Processes Process focus Structured modeling technique Interactive workshops Tools Guidebook

13. » 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” Structured Modeling Technique Used IDEF0

14. IDEF0 Syntax » Boxes » Arrows » Diagrams » Types of IDEF0 Diagrams » Diagram Features

15. 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

16. IDEF0 Arrows » One or more line segments with a terminal arrowhead at one end » 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 » Bend arrows shall only have 90 degree arcs Straight Curved Forking Joining

17. IDEF0 Arrow Positions and Roles Inputs - The data or objects that are transformed by the function into output Inputs Function 1 Outputs Controls Mechanisms Controls - Conditions required to produce correct output (often called a constraint) Outputs - The data or object produced by the function Mechanisms - The means used to perform a function Prepare Base Estimate Project Scope Historical Data Estimating Procedures/ Policies Estimators/ Estimating Spreadsheet Base Estimate Function - An activity or transformation identified by a verb phrase that describes what must be accomplished

18. 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

19. Process ModelerWorking Groups Facilitator

20. Whiteboard with different colors Notes

21. Cost Estimation and Cost Management CE and CM Tools Basis – NCHRP Report 574 Tool Appendix Survey tool usefulness Workshop Which tools Tools and CE/CM process

22. Cost Estimation and Cost Management

24. Development How to Convert Process Models to Technical Reference Manual? Challenge!

25. Cost Estimation and Cost Management TRM Challenges 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?

26. Technical Reference Manual CONTENTS Introduction Essentials Practice Appendix

27. Introduction CE and CM Vision Technical Reference Manual Layout Cost Estimation and Cost Management

28. Essentials Project Development Process and CE/CM Process Integration CE and CM Policies CE and CM Process Overview Cost Estimation and Cost Management

29. Project Delivery Process Phases

30. Project Development Process Major Activities

31. Project Development Process Plans and Programs

32. Project Development Process Timeline by Project Type

33. Planning Phase and Cost Estimating

34. Scoping Phase and Cost Estimating

35. Design Phase Change Process

36. CE and CM Policies Project Cost Estimation Policy Uncertainty, Risk and Contingency Policy Communications Policy Project Cost Management Policy Program Management Policy

37. Total Project Cost Components

38. Gated Process

39. Cost Estimating and Cost Management Process Overview

40. Cost Estimating and Cost Management Process Framework

41. Practice Overview of Cost Estimation and Risk Methodologies Planning, Scoping, Letting Design Cost Estimation and Cost Management

42. Design CE and CM CM Through Estimate Updates

43. Cost Estimation and Cost Management

44. Appendix Glossary of Terms Cost Estimating and Cost Management Tools Tips for Estimating Cost Estimation and Cost Management

45. 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

46. 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.

47. 47 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

48. 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

49. 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:

50. Tips and Watch Outs Cost Estimation and Cost Management 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.

51. Tips and Watch Outs Cost Estimation and Cost Management 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.

52. Cost Estimation and Cost Management Implementation Training Cost Estimating Course Cost Management Course Help!

53. 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

54. TRM Website Address: http://dotapp7.dot.state.mn.us/edms/download?docId=670233