“it’s only an estimate!” a panel discussion: roundtable · “it’s only an estimate!” a...
TRANSCRIPT
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