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OCR for page R1
NATIONAL
NCHRP REPORT 574
COOPERATIVE
HIGHWAY
RESEARCH
PROGRAM
Guidance for Cost Estimation and
Management for Highway Projects
During Planning, Programming,
and Preconstruction
OCR for page R2
TRANSPORTATION RESEARCH BOARD 2006 EXECUTIVE COMMITTEE*
OFFICERS
CHAIR: Michael D. Meyer, Professor, School of Civil and Environmental Engineering, Georgia Institute of Technology, Atlanta
VICE CHAIR: Linda S. Watson, Executive Director, LYNX--Central Florida Regional Transportation Authority, Orlando
EXECUTIVE DIRECTOR: Robert E. Skinner, Jr., Transportation Research Board
MEMBERS
Michael W. Behrens, Executive Director, Texas DOT, Austin
Allen D. Biehler, Secretary, Pennsylvania DOT, Harrisburg
John D. Bowe, Regional President, APL Americas, Oakland, CA
Larry L. Brown, Sr., Executive Director, Mississippi DOT, Jackson
Deborah H. Butler, Vice President, Customer Service, Norfolk Southern Corporation and Subsidiaries, Atlanta, GA
Anne P. Canby, President, Surface Transportation Policy Project, Washington, DC
Douglas G. Duncan, President and CEO, FedEx Freight, Memphis, TN
Nicholas J. Garber, Henry L. Kinnier Professor, Department of Civil Engineering, University of Virginia, Charlottesville
Angela Gittens, Vice President, Airport Business Services, HNTB Corporation, Miami, FL
Genevieve Giuliano, Professor and Senior Associate Dean of Research and Technology, School of Policy, Planning, and Development,
and Director, METRANS National Center for Metropolitan Transportation Research, University of Southern California, Los Angeles
Susan Hanson, Landry University Professor of Geography, Graduate School of Geography, Clark University, Worcester, MA
James R. Hertwig, President, CSX Intermodal, Jacksonville, FL
Gloria J. Jeff, General Manager, City of Los Angeles DOT, Los Angeles, CA
Adib K. Kanafani, Cahill Professor of Civil Engineering, University of California, Berkeley
Harold E. Linnenkohl, Commissioner, Georgia DOT, Atlanta
Sue McNeil, Professor, Department of Civil and Environmental Engineering, University of Delaware, Newark
Debra L. Miller, Secretary, Kansas DOT, Topeka
Michael R. Morris, Director of Transportation, North Central Texas Council of Governments, Arlington
Carol A. Murray, Commissioner, New Hampshire DOT, Concord
John R. Njord, Executive Director, Utah DOT, Salt Lake City
Pete K. Rahn, Director, Missouri DOT, Jefferson City
Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson
Henry Gerard Schwartz, Jr., Senior Professor, Washington University, St. Louis, MO
Michael S. Townes, President and CEO, Hampton Roads Transit, Hampton, VA
C. Michael Walton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas, Austin
EX OFFICIO MEMBERS
Thad Allen (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard, Washington, DC
Thomas J. Barrett (Vice Adm., U.S. Coast Guard, ret.), Pipeline and Hazardous Materials Safety Administrator, U.S.DOT
Marion C. Blakey, Federal Aviation Administrator, U.S.DOT
Joseph H. Boardman, Federal Railroad Administrator, U.S.DOT
John Bobo, Deputy Administrator, Research and Innovative Technology Administration, U.S.DOT
Rebecca M. Brewster, President and COO, American Transportation Research Institute, Smyrna, GA
George Bugliarello, Chancellor, Polytechnic University of New York, Brooklyn, and Foreign Secretary, National Academy of Engineering,
Washington, DC
J. Richard Capka, Federal Highway Administrator, U.S.DOT
Sean T. Connaughton, Maritime Administrator, U.S.DOT
Edward R. Hamberger, President and CEO, Association of American Railroads, Washington, DC
John H. Hill, Federal Motor Carrier Safety Administrator, U.S.DOT
John C. Horsley, Executive Director, American Association of State Highway and Transportation Officials, Washington, DC
J. Edward Johnson, Director, Applied Science Directorate, National Aeronautics and Space Administration, John C. Stennis Space Center, MS
William W. Millar, President, American Public Transportation Association, Washington, DC
Nicole R. Nason, National Highway Traffic Safety Administrator, U.S.DOT
Jeffrey N. Shane, Under Secretary for Policy, U.S.DOT
James S. Simpson, Federal Transit Administrator, U.S.DOT
Carl A. Strock (Lt. Gen., U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers, Washington, DC
*Membership as of November 2006.
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NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM
NCHRP REPORT 574
Guidance for Cost Estimation
and Management for Highway Projects
During Planning, Programming,
and Preconstruction
Stuart Anderson
TEXAS TRANSPORTATION INSTITUTE
College Station, TX
Keith Molenaar
UNIVERSITY OF COLORADO
Boulder, CO
Cliff Schexnayder
DEL E. WEB SCHOOL OF CONSTRUCTION
ARIZONA STATE UNIVERSITY
Tempe, AZ
Subject Areas
Planning, Administration, and Environment · Design · Public Transit · Rail
Research sponsored by the American Association of State Highway and Transportation Officials
in cooperation with the Federal Highway Administration
TRANSPORTATION RESEARCH BOARD
WASHINGTON, D.C.
2007
www.TRB.org
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NATIONAL COOPERATIVE HIGHWAY NCHRP REPORT 574
RESEARCH PROGRAM
Systematic, well-designed research provides the most effective Project 8-49
approach to the solution of many problems facing highway ISSN 0077-5614
administrators and engineers. Often, highway problems are of local ISBN 978-0-309-09875-5
interest and can best be studied by highway departments individually Library of Congress Control Number 2007922065
or in cooperation with their state universities and others. However, the © 2007 Transportation Research Board
accelerating growth of highway transportation develops increasingly
complex problems of wide interest to highway authorities. These
problems are best studied through a coordinated program of COPYRIGHT PERMISSION
cooperative research.
Authors herein are responsible for the authenticity of their materials and for obtaining
In recognition of these needs, the highway administrators of the written permissions from publishers or persons who own the copyright to any previously
American Association of State Highway and Transportation Officials published or copyrighted material used herein.
initiated in 1962 an objective national highway research program Cooperative Research Programs (CRP) grants permission to reproduce material in this
employing modern scientific techniques. This program is supported on publication for classroom and not-for-profit purposes. Permission is given with the
understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA,
a continuing basis by funds from participating member states of the
FMCSA, FTA, or Transit Development Corporation endorsement of a particular product,
Association and it receives the full cooperation and support of the method, or practice. It is expected that those reproducing the material in this document for
Federal Highway Administration, United States Department of educational and not-for-profit uses will give appropriate acknowledgment of the source of
any reprinted or reproduced material. For other uses of the material, request permission
Transportation.
from CRP.
The Transportation Research Board of the National Academies was
requested by the Association to administer the research program
because of the Board's recognized objectivity and understanding of
NOTICE
modern research practices. The Board is uniquely suited for this
purpose as it maintains an extensive committee structure from which The project that is the subject of this report was a part of the National Cooperative Highway
Research Program conducted by the Transportation Research Board with the approval of
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The members of the technical committee selected to monitor this project and to review this
objectivity; it maintains a full-time research correlation staff of
report were chosen for recognized scholarly competence and with due consideration for the
specialists in highway transportation matters to bring the findings of balance of disciplines appropriate to the project. The opinions and conclusions expressed
research directly to those who are in a position to use them. or implied are those of the research agency that performed the research, and, while they have
been accepted as appropriate by the technical committee, they are not necessarily those of
The program is developed on the basis of research needs identified
the Transportation Research Board, the National Research Council, the American
by chief administrators of the highway and transportation departments Association of State Highway and Transportation Officials, or the Federal Highway
and by committees of AASHTO. Each year, specific areas of research Administration, U.S. Department of Transportation.
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The needs for highway research are many, and the National
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intended to complement rather than to substitute for or duplicate other
highway research programs.
Published reports of the
NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM
are available from:
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Washington, DC 20001
and can be ordered through the Internet at:
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Printed in the United States of America
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COOPERATIVE RESEARCH PROGRAMS
CRP STAFF FOR NCHRP REPORT 574
Robert J. Reilly, Director, Cooperative Research Programs
Crawford F. Jencks, Manager, NCHRP
Ronald D. McCready, Senior Program Officer
Eileen P. Delaney, Director of Publications
Beth Hatch, Editor
NCHRP PROJECT 8-49 PANEL
Field of Transportation Planning--Area of Forecasting
G. Scott Rutherford, University of Washington, Seattle, WA (Chair)
Nigel Blampied, California DOT
Christopher D. Crachi, New York State DOT
Greg Davis, Florida DOT
Daryl J. Greer, Kentucky Transportation Cabinet, Frankfort, KY
Timothy A. Henkel, Minnesota DOT
Cheryl A. Kyte, Glendale, CA
Robert J. Munchinski, H.W. Lochner, Inc., Bellevue, WA
Jeffrey M. South, Illinois DOT
Larry Anderson, FHWA Liaison
Kimberly Fisher, TRB Liaison
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FOREWORD
By Ronald D. McCready
Staff Officer
Transportation Research Board
This guidebook presents approaches to cost estimation and management to overcome
the root causes of cost escalation and to support the development of consistent and accu-
rate project estimates through all phases of the development process, from long-range plan-
ning, through priority programming, and through project design.
The problem of cost escalation has become a major concern in virtually every field of
capital project development. Within the transportation sector, cost escalation has attracted
attention at the federal, state, regional, and local government levels for highways, transit,
and other modes. State departments of transportation (DOTs), transit agencies, and other
government entities responsible for delivering transportation projects historically have
experienced increases in project cost estimates from the time that a project is first proposed
or programmed until the time that it is completed. Recent studies have shown that this has
been a worldwide problem, particularly for large projects. Cost estimate increases that occur
after a project is first identified in a plan but before the project is designed create a substan-
tial disruption in priority programs, because other projects have to be delayed or removed
in order to accommodate higher cost estimates. The challenges of accurate cost estimation
and management of costs are faced by almost every state DOT, transit agency, and metro-
politan planning organization (MPO) in the country as projects evolve from concept in the
long-range planning process, are prioritized within programs, and are subject to detailed
development prior to construction.
Cost estimates increasing over the course of project development may be caused by any
number of factors, such as an inadequate project scope at the time of planning or program-
ming, insufficient information on the extent of utility relocation requirements, insufficient
knowledge of right-of-way costs and locations, required environmental mitigation costs to
avoid certain impacts, traffic control requirements, and work-hour restrictions. As is often
the case with very large and complex projects, the project scope and concept may not be
fully understood until well after a substantial commitment has been made to its construc-
tion. In addition, the project scope often expands as more internal and external stakehold-
ers provide input on what elements should be included. Sometimes, if the cost of an item is
not known, it is not included in early project cost estimates. In other instances, items such
as right-of-way or construction engineering may be included with only tentative or super-
ficial information to support their estimated costs. Initial cost estimates may be prepared by
an agency other than the agency responsible for project delivery; this can result in different
understandings of project requirements and vastly different estimates. There is sometimes
speculation that, to secure funding for projects, items may be purposefully excluded from
initial project scopes and costs with the intention of adding them later. Questions about
OCR for page R8
honesty or competence can threaten the credibility of the planning and programming
process and that of the transportation agency and create increased frustration by profes-
sional staffs, policy makers, elected officials, and the general public.
Both the Federal Highway Administration and the Federal Transit Administration have
initiated major efforts to overcome this problem in federally aided projects. In recent years,
states, transit agencies, and local public works agencies have studied the problem and
attempted to find causes and solutions to improve the procedures, with varying degrees of
success. There is a need for research into all aspects of cost estimation management and cost
estimation procedures aimed at addressing consistency and accuracy throughout the entire
project development process, from long-range planning, through priority programming,
up to preconstruction engineering and design.
The objective of this project was to develop a guidebook on highway cost estimation
and management practice aimed at achieving greater consistency and accuracy between
long-range transportation planning, priority programming, and preconstruction cost esti-
mates. The guidebook provides strategies, methods, and tools to develop, track, and docu-
ment more realistic cost estimates during each phase of the process.
Under NCHRP Project 8-49, "Guidance on Cost Estimation and Management for
Highway Projects During Planning, Programming, and Preconstruction," a research team
led by Texas Transportation Institute carried out a comprehensive investigation into cur-
rent and effective practices for cost estimation and management during the various plan-
ning and project development phases prior to construction. The project resulted in a prac-
tical guidebook designed to provide users with the most appropriate practices to develop
and manage realistic cost estimates throughout the project development process.
The guidebook should be of significant use to managers, practitioners, and decision
makers interested in development and management of realistic and accurate cost estimates
for transportation projects from the earliest stages of planning through final project design.
The guidance provided is intended to provide methods and tools that will reduce un-
intended or unanticipated escalation of costs as transportation projects proceed through
the development process.
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CONTENTS
1 Summary
3 Chapter 1 Introduction
3 Background
3 Industry Problem
3 Guidebook Concepts
4 Guidebook Development
4 Guidebook Organization
5 Use of Guidebook
5 Implementation Thrust
6 Topic Focus
6 Summary
7 Chapter 2 Agency Cost Estimation Practice
and Cost Estimation Management Processes
7 Transportation Development Phases
7 Cost Estimation Practice and Cost Estimation Management Overview
10 Cost Estimation Practice and Cost Estimation Management Steps
11 Summary
13 Chapter 3 Factors and Strategies
13 Cost Escalation Factors
13 Internal Cost Escalation Factors
15 External Cost Escalation Factors
16 Strategies
16 Management Strategy
16 Scope and Schedule Strategy
16 Off-Prism Strategy
17 Risk Strategy
17 Delivery and Procurement Strategy
17 Document Quality Strategy
17 Estimate Quality Strategy
17 Integrity Strategy
17 Summary
19 Chapter 4 Guidebook Framework
19 Background
19 Strategy, Method, and Tool Integration
19 Structure and Layout of Content
21 Tool Appendix
21 Summary
22 Chapter 5 Guide for Planning Phase
22 Introduction
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24 Methodology
25 5.1 Strategy: Management
25 5.1.1 Budget Control
26 5.1.2 Communication
26 5.1.3 Consistency
27 5.1.4 Recognition of Project Complexity
27 5.1.5 Risk Analysis
27 5.2 Strategy: Scope and Schedule
27 5.2.1 Buffers
28 5.2.2 Communication
29 5.2.3 Computer Software
29 5.3 Strategy: Off-Prism Issues
29 5.3.1 Communication
30 5.3.2 Identifying Off-Prism Issues
30 5.4 Strategy: Risk
30 5.4.1 Identification of Risk
31 5.4.2 Right-of-Way
31 5.4.3 Risk Analysis
32 5.5 Strategy: Delivery and Procurement
32 5.5.1 Delivery and Procurement Method
33 5.6 Strategy: Document Quality
33 5.6.1 Computer Software
33 5.6.2 Document Estimate Basis and Assumptions
34 5.6.3 Identifying Off-Prism Issues
34 5.7 Strategy: Estimate Quality
34 5.7.1 Computer Software
35 5.7.2 Conceptual Estimation
35 5.7.3 Estimate Review--External
36 5.7.4 Estimate Review--Internal
36 5.7.5 Project Scoping
37 5.7.6 Right-of-Way
37 5.8 Strategy: Integrity
37 5.8.1 Computer Software
38 5.9 Summary
39 Chapter 6 Guide for Programming
and Preliminary Design Phase
39 Introduction
41 Methodology
41 6.1 Strategy: Management
41 6.1.1 Budget Control
43 6.1.2 Communication
44 6.1.3 Computer Software
44 6.1.4 Consistency
45 6.1.5 Gated Process
45 6.1.6 Recognition of Project Complexity
46 6.2 Strategy: Scope and Schedule
46 6.2.1 Buffers
46 6.2.2 Communication
47 6.2.3 Creation of Project Baseline
48 6.2.4 Delivery and Procurement Method
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48 6.2.5 Identification of Changes
49 6.2.6 Constructability
49 6.2.7 Value Engineering
50 6.3 Strategy: Off-Prism Issues
50 6.3.1 Communication
51 6.3.2 Right-of-Way
51 6.3.3 Public Involvement
52 6.3.4 Estimate Review--Internal
52 6.3.5 Identifying Off-Prism Issues
52 6.4 Strategy: Risk
53 6.4.1 Communication
53 6.4.2 Identification of Risk
54 6.4.3 Right-of-Way
54 6.4.4 Risk Analysis
55 6.4.5 Delivery and Procurement Method
55 6.5 Strategy: Delivery and Procurement
55 6.5.1 Delivery and Procurement Method
56 6.6 Strategy: Document Quality
56 6.6.1 Computer Software
57 6.6.2 Constructability
57 6.6.3 Estimate/Document Review
58 6.7 Strategy: Estimate Quality
58 6.7.1 Computer Software
58 6.7.2 Consistency
60 6.7.3 Creation of Project Baseline
60 6.7.4 Gated Process
60 6.7.5 Right-of-Way
61 6.7.6 Communication
61 6.7.7 Design Estimation
62 6.7.8 Document Estimate Basis and Assumptions
62 6.7.9 Estimate Review--External
63 6.7.10 Estimate Review--Internal
63 6.7.11 Project Scoping
63 6.8 Strategy: Integrity
63 6.8.1 Communication
64 6.8.2 Computer Software
65 6.8.3 Design to Mandated Budget
65 6.8.4 Consistency
66 6.8.5 Estimate Review--External
66 6.8.6 Estimate Review--Internal
66 6.8.7 Validate Costs
67 6.8.8 Verify Scope Completeness
67 6.9 Summary
69 Chapter 7 Guide for Final Design Phase
69 Introduction
69 Methodology
69 7.1 Strategy: Management
70 7.1.1 Budget Control
71 7.1.2 Consistency
73 7.1.3 Estimate Review--External
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A-161
Source: Project Risk Management Handbook, Caltrans Office of Project Management Process Improvement, 2003.
PT = Project development team
EIS = Environmental impact statement
ND = Negative declaration
FONSI = Finding of no significant impact
EIR = Environmental impact report
Figure R3.5. Caltrans risk management flowchart.
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A-162
Table R3.5-1. Caltrans risk management tasks and deliverables.
Source: Project Risk Management Handbook, Caltrans Office of Project Management Process
Improvement, 2003.
the foundation of the CEVP process. A multidisciplinary that are integrated into the cost estimation, risk management,
team of professionals from both the public and private sec- and project management processes at WSDOT. Other ele-
tors examines the project. Table R3.5-3 presents the seven ments of the CEVP process are described in Sections C1.2, I2.2,
phases in the WSDOT CEVP process. R3.1, and R3.4 in this guide. More information can be found
While the workshop is a key component of the CEVP on the WSDOT CEVP and Cost Risk Analysis website at
process, the CEVP process involves many other components www.wsdot.wa.gov/Projects/ProjectMgmt/RiskAssessment.
Table R3.5-2. Caltrans risk management responsibility matrix.
Legend: R = responsible, S = support, A = approve
Source: Project Risk Management Handbook, Caltrans Office of Project Management Process Improvement, 2003.
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A-163
Table R3.5-3. CEVP workshop format.
CEVP Process Phase Summary Description
Phase I Project · Project data compilation
Identification and · CEVP training and education
Preparation
Phase II Workshop · Establishment of the workshop goals, workshop scope, and
Initiation project alternatives being explored
· Project team presentation of: 1) scope and assumptions for
each decision alternative; 2) cost and schedule estimate; and
3) major issues and concerns
· Development of project flow chart or schedule (the basis for
the cost and schedule risk and uncertainty model)
Phase III Cost Validation · Cost validation team breakout activities
and Risk Identification · Risk team breakout activities
· Environmental costing team breakout activities
· Modeling team breakout activities
Phase IV Integration and · Breakout team reports
Model Construction · Reconciliation of breakout assumptions
· Construction of cost and schedule risk and uncertainty model
Phase V Presentation of · Oral presentation of workshop results
Results · Written presentation of workshop results
Phase VI Validation of · Project and CEVP teams validate workshop results
Results and Generation of · Alternative project scenarios are explored and evaluated
Alternatives
Phase VII Implementation · Development of risk mitigation planning and integration into
and Auditing project management
· Reviewing and updating of workshop results and predictions
as compared with actual project results
Tips Project Management Institute (2004). A Guide to Project
Management Body of Knowledge (PMBOK Guide).
Implementation of a programmatic cost risk analysis tool
Washington State DOT (2006). Cost Estimating Valida-
will involve significant changes to most state highway agencies' tion Process (CEVP) website: www.wsdot.wa.gov/Projects/
cost estimation and project management procedures. In fact, ProjectMgmt/RiskAssessment.
the process will likely require a cultural change within the
organization. To be successful, this tool will require manage-
ment's full support and commitment of resources. V1 Validate Costs
Constant project cost evaluation is a means to better manage
Resources projects and respond to public skepticism and concern about
project estimates and actual costs. Validation processes appraise
Caltrans Office of Project Management Process Improve- the reasonableness and completeness of the assumptions, pro-
ment (2003). Project Risk Management Handbook. www.dot.ca. cedures, and calculations used in developing an estimate.
gov/hq/projmgmt/documents/prmhb/project_risk_manage
ment_handbook.pdf.
Federal Transit Authority (2004). Risk Assessment Method- V1.1 Estimation Software
ologies and Procedures, report under Contract No. DTFT60-
(Also See C2, C3, D2, P1)
98-D-41013. Computer software provides state highway agencies with the
Federal Highway Administration (2004). Major Project ability to manage large data sets that support estimate devel-
Program Cost Estimating Guidance. opment for all project types and levels of complexity. Estima-
Molenaar, K. R. (2005). "Programmatic Cost Risk Analy- tion programs with preloaded templates for creating cost items
sis for Highway Mega-Projects," Journal of Construction Engi- help project teams define the project scope, cost, and schedule.
neering and Management, Vol. 131, No. 3, American Society It is easy to include checks in estimation software to flag cost
of Civil Engineers. items that do not fall within historical price ranges.
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A-164
What Is It? Tips
Estimation software is the computer program that assists The effectiveness of any estimation software is directly
the state highway agencies in developing cost estimates. Most related to product support and training. When selecting soft-
estimation software, be it agency developed or a commercial ware, always ensure that product support will be available and
product, has preloaded templates that help the state highway that training and training material will be provided.
agency project teams define the project scope, cost, and sched-
ule. The software provides a means to track project develop- Resources
ment, and it can assist in project review, particularly if it
For more information about Trns·port Estimator, contact
includes features that flag costs that do not fall within preset
the AASHTOWare contractor: Info Tech, 5700 SW 34th Street,
historical cost ranges.
Suite 1235, Gainesville, FL 32608. Phone (352) 381-4400;
Fax (352) 381-4444; E-mail info@infotechfl.com; Internet
Why? www.infotechfl.com.
Heavy Construction Systems Specialists, Inc. (HCSS), 6200
One of the advantages of using estimation software to cal- Savoy, Suite 1100, Houston, TX 77036. Phone (800) 683-3196
culate project cost is that it can provide rapid search features or (713) 270-4000; Fax (713) 270-0185; E-mail info@hcss.com;
that detect errors or anomalies in an estimate. Estimates on Internet www.hcss.com.
large projects and even on many small urban projects are
very complex, and computer software is the only efficient V2 Value Engineering
method of checking the many small details that support the
cost calculations. Value engineering can be defined as a systematic method to
improve the value of goods and services by examining func-
tion. Value is the ratio of function to cost. Value can therefore
What Does It Do? be increased by either improving the function or reducing the
cost. It is a primary tenet of value engineering that quality not
The estimation software will direct the estimator's attention
be reduced as a consequence of pursuing value improvements.
to input data or costs that the software detects as not being
In the United States, value engineering is specifically
appropriate. The software does not tell the estimator what is
addressed in Public Law 104-106, which states, "Each execu-
wrong, but it focuses attention on those areas of the estimate tive agency shall establish and maintain cost-effective Value
that should be carefully reviewed. Engineering procedures and processes."
Value engineering is sometimes taught within the industrial
When? engineering body of knowledge as a technique in which the
value of a system's outputs is optimized by crafting a mix of
Cost validation is an ongoing process that should be occur- performance (i.e., function) and costs. In most cases, this
ring during all project development stages. By using estima- practice identifies and removes unnecessary expenditures,
tion software with built-in anomaly detection features, the thereby increasing the value for the manufacturer and/or their
validation checks take place as the estimate is created. This customers.
means that problem identification is continuous. In late 1995, Congress passed the National Highway System
(NHS) Designation Act, which included a provision requiring
the U.S. Secretary of Transportation to establish a program that
Examples would require states to carry out a value engineering analysis for
The Heavy Construction Systems Specialists, Inc. (HCSS), all federal-aid highway projects on the NHS with an estimated
software, HeavyBid, has a feature that checks the estimate and total cost of $25 million or more. On February 14, 1997, the
takes the estimator to each questionable location so that cor- FHWA published its value engineering regulation establishing
such a program.
rections can easily be made as necessary.
The AASHTO CES and Estimator software have a feature
that allows the estimator to spot unit costs that are outside V2.1 Value Engineering
the range of unit cost data included in the database. There is Value engineering is a requirement of federal-aid projects.
a statistical regression option that provides a best-fit curve The value engineering process is a systematic approach to
with confidence intervals. This feature can be used to deter- improving cost-effectiveness of designs for highway projects.
mine if a unit price that was input by the estimator is within Value engineering can provide a mechanism for enhancing
the range of expected unit prices as deleted through the cost estimates of projects by clarifying scope and the quality
regression analysis. of design documents.
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A-165
What Is It? 3. Speculation Phase: Be creative and brainstorm alternative
proposals and solutions.
Value engineering is the systematic review of a project,
4. Evaluation Phase: Analyze design alternatives, technical pro-
product, or process to improve performance, quality, and/or cesses, life cycle costs, documentation of logic, and rationale.
life cycle cost by an independent multidisciplinary team of 5. Development Phase: Develop technical and economic
specialists. The value engineering process, referred to as the supporting data to prove the feasibility of the desirable
job plan, defines a sequence of activities that are undertaken concepts. Develop team recommendations. Recommend
during a value engineering study before, during, and follow- long-term as well as interim solutions.
ing a workshop. During the value engineering workshop, the 6. Presentation Phase: Present the recommendations of the
value engineering team learns about the background issues; value engineering team in an oral presentation and in a
defines and classifies the project (or product or process) func- written report and workbook.
tions; identifies creative approaches to providing the func- 7. Implementation Phase: Evaluate the recommendations.
tions; and then evaluates, develops, and presents the value Prepare an implementation plan, including response of
engineering proposals to key decision makers. The focus on the managers and a schedule for accomplishing the deci-
the functions that the project, product, or process must per- sions based on the recommendations.
form sets value engineering apart from other quality improve- 8. Audit Phase: Maintain a records system to track the results
ment or cost reduction approaches. and accomplishments of the value engineering program
on a statewide basis. Compile appropriate statistical analy-
Why? ses as requested.
When value engineers talk about reducing costs, they are The duration and assessment for these phases depend on
usually referring to either total life cycle costs or the direct costs the complexity of the project. By performing the steps in
of production. Total life cycle costs are the total expenditures these phases, the value engineering team will evaluate several
over the whole life span of the highway. This measure of cost is components of a project, such as designs, topographical
most applicable to expensive capital equipment and includes implications, and environmental impacts, and make recom-
engineering, procurement, construction, maintenance, and mendations for several feasible options along with the cost
decommissioning costs. Individual expenditures must be dis- differences and their impact on total project cost and sched-
counted to reflect the time value of money, which translates to ule. These details are compiled into a value engineering deci-
a more accurate estimate. sion document for appraisal from concerned authorities.
The main objectives that the value engineering process seeks
include improving project quality, reducing project costs, fos- When?
tering innovation, eliminating unnecessary and costly design
elements, ensuring efficient investment in projects, and devel- Value engineering is most successful when it is performed
oping implementation procedures. early in project development. A value engineering study
should be performed within the first 2530% of the design
effort prior to selecting the final design alternative. Value
What Does It Do? engineering is compulsorily performed on federal aid projects
Value engineering uses intuitive logic (a unique "how"/ greater than $25 million and should be performed on high-
"why" questioning technique) and analysis to identify rela- cost projects. The process can provide a justified logic for alle-
tionships that increase value. Value engineering is a quantita- viating cost escalations while not compromising quality.
tive method similar to the scientific method (which focuses on
hypothesis and conclusion to test relationships) and opera- Examples
tions research (which uses model building to identify predic-
Figure V2.1, the value analysis flowchart for Nevada DOT,
tive relationships).
shows how the value engineering process is incorporated into
The value engineering process follows a general framework practice.
commonly referred to as an eight-phase job plan, with the fol-
lowing phases:
Tips
1. Selection Phase: Select the right projects, timing, team, Often, value engineering reduces costs by eliminating
and project processes and elements. wasteful practices. This can be done in several areas:
2. Investigation Phase: Investigate the background informa-
tion, technical input reports, field data, function analysis, · Material substitutions: Unnecessarily expensive inputs can
and team focus and objectives. sometimes be replaced by less expensive ones that function
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A-166
Figure V2.1. Value analysis flow chart (Nevada).
just as well. If a product has a life span of 10 years, then that it is easier to construct. Reducing unnecessary design
using a material that lasts 30 years is wasteful. In a perfectly elements, unnecessary precision, and unnecessary con-
value-engineered product, every component of a highway struction operations can lower costs and increase the speed
will function perfectly until the product is no longer useful, of construction and reliability.
at which time all components will deteriorate. · Modularity: Many highway project design elements are
· Process efficiency and producibility: More efficient pro- identical and can be mass produced to reduce costs. Such
cesses can be used, and the highway can be redesigned so designs are developed once and reused in many slightly dif-
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ferent products, thereby reducing a project's engineering and which cause the estimator to review the scope for complete-
design costs. For example, precast concrete slabs have proven ness, will yield comprehensive and improved cost estimates.
to be a quick and efficient solution to time-constrained
construction operations. These slabs can be factory cast for
What Is It?
different sizes and transported and assembled at the sites by
modern construction practices, such as posttensioned con- This tool is the employment of checklists or templates that
crete structures. Also, these slabs can be produced to a estimators and managers use to ensure that the project scope
desired quality as they are manufactured under controlled is complete. These checklists guide the estimator through an
conditions. inventory of items and questions that address both the design
· Energy efficiency: In an environmentally conscious soci- elements of the project and other things that drive project cost,
ety, value can be created by making a product or process such as environmental permits, purchase of right-of-way, and
more energy efficient for the user. For example, develop- utility interference.
ment and usage of customized equipment, such as slip form
pavers, ensure that a single piece of equipment performs
Why?
several operations that would require several resources
traditionally. Estimators are generally very familiar and proficient with
assembling cost data and developing item costs, but for the esti-
Additionally, agencies must mate to be of value, it must match what will actually be built and
the build environment conditions. Thus, one of the first steps
· Ensure they have adequate training facilities or trained staff to achieving estimate accuracy is verifying that the project scope
· Identify and train value engineering team member in-house is complete, in terms of both the physical structures to be built
· Share knowledge gained or results derived during value and the environment where the construction will take place.
engineering studies to continuously improve the process
What Does It Do?
Resources
Checklists serve to delineate the large number of factors
Wilson, David C. (2005), NCHRP Synthesis of Highway that must be considered during scope development. There-
Practice 352: Value Engineering Applications in Transportation, fore, they are an excellent means of avoiding omissions and
Transportation Research Board. http://www.trb.org/news/ calling attention to the interaction between factors that can
blurb_detail.asp?id=5705. impact scope and cost. The answers to the checklist questions
Washington State DOT (1998), "Design Manual," Section will provide an overview of scope completeness and focus the
315. http://www.wsdot.wa.gov/EESC/Design/DesignManual/ estimator and project management team's attention on criti-
desEnglish/315-E.pdf. cal issues that need to be considered.
V3 Verify Scope Completeness When?
Scope completeness is key to producing an accurate cost Scope checklists can support estimate creation at all stages
estimate. Therefore, reviewing a project's scope documents of project development. The purpose of a checklist is to assist
for completeness is an important task in the overall estimation the project team in developing a complete description of proj-
process. The project that is estimated early in the development ect scope. Checklists should be as inclusive as possible, with
process is often not the project actually built because of scope questions that specifically probe the scope at the different
changes that could have been avoided if more attention were stages in project development.
given to both project requirements and community desires
earlier in project development.
Examples
A scope checklist for bridge construction might review the
V3.1 Estimation Checklist
following topics:
(Also See C4.2, P2.1)
Many changes in scope result from an improved under- 1. Maintenance of traffic
standing of project need and outcome requirements. Check- 2. Removals
lists are intended to serve as guides in checking and reviewing 3. Foundation
whether there are scope omissions. The use of checklists, 4. Wetland mitigation
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5. Garbage dump removal project development, but they should all include questions
6. Toxic waste removal about third-party requirements.
7. Utilities (relocation companies/owners) The project scope must be monitored as the project pro-
8. Unusual conditions, such as power stations, sewerage ceeds through the development phases to ensure that any and
plants, high-tension lines, and pumping stations all changes are properly managed.
9. Railroad engineering
10. Right-of-way summary
Resources
11. Mitigation for wetland sites
12. Sidewalks on bridge Sturgis, Robert P. (1967). "For Big Savings--Control Costs
13. Maintenance operations, such as cleaning existing pipes, while Defining Scope." AACE 11th National Meeting, AACE
drainage structures, and ditches International, Vol. 67-C.3, pp. 4952.
14. Noise barriers Though it is not strictly for transportation work, a scope
development checklist can be found on the Construction
Industry Cooperative Alliance (CICA) web page at www.ces.
Tips
clemson.edu/cica/Toolbox/files/SD1_Scope%20Develop
The project scope should clearly define each deliverable, ment%20Checklist.doc. CICA is a cooperative alliance be-
including exactly what will be produced and what will not be tween member firms from the construction industry in the
produced. Get approval from all stakeholders. There can be eastern United States and Clemson University's Department of
many individual checklists to support the different phases of Civil Engineering.
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APPENDIX B
Implementation Framework
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B-1
APPENDIX B
Implementation Framework
Please see Chapter 8 for guidance on completing this table.
Cost Management Strategy Performance Improvement Implementation Steps Responsible Party and
(Strategies) Opportunity/Action (Methods) (Tools) Performance Measurement
Management--Manage the
estimation process and costs
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 conditions
that can influence project costs.
Risk--Identify risks, quantify
their impact on cost, and take
actions to mitigate the impact
of risks as the project scope is
developed.
Delivery and Procurement
Method--Apply appropriate
delivery methods to better
manage cost, as project delivery
influences both project risk
and cost
Document Quality--Promote
cost estimate accuracy and
consistency through improved
project documents
Estimate Quality--Use qualified
personnel and uniform
approaches to achieve
improved estimate accuracy
Integrity--Ensure checks and
balances are in place to maintain
estimate accuracy and
minimize the impact of outside
pressures that can cause
optimistic biases in estimates
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APPENDIX C
Definitions
