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Suggested Citation:"Appendix A - Tools." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Appendix A - Tools." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Appendix A - Tools." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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A-i Contents A-1 Introduction A-3 B1 Budget Control A-3 B1.1 Budget by Corridor A-4 B1.2 Constrained Budget A-5 B1.3 Standardized Estimation and Cost Management Procedures A-7 B1.4 Summary of Key Scope Items (Original/Previous/Current) A-8 B1.5 Variance Reports on Cost and Schedule A-10 C1 Communication A-10 C1.1 Communication of Importance A-12 C1.2 Communication of Uncertainty A-13 D4 Document Estimate Basis and Assumptions A-13 D4.1 Right-of-Way Cost Estimate File A-16 E2 Estimate Review—External A-16 E2.1 Expert Team A-18 E3 Estimate Review—Internal A-18 E3.1 Formal Committee A-20 E3.2 Off-Prism Evaluation A-22 E3.3 In-House/Peer A-24 I2 Identification of Risk A-24 I2.1 Red Flag Items A-26 I2.2 Risk Charter A-30 I2.3 Risk Checklist A-31 R2 Right-of-Way A-31 R2.1 Acres for Interchange A-36 R2.2 Advanced Purchase (Right-of-Way Preservation) A-38 R2.3 Condemnation A-40 R2.4 Relocation Costs A-42 R2.5 Right-of-Way Estimator Training A-44 R2.6 Separate Right-of-Way Estimators A-47 R2.7 Cost Estimate Map A P P E N D I X A Tools

A-48 R2.8 Cost Estimate System A-57 R2.9 Formal Database A-62 R2.10 Purchase Values Database A-64 R3 Risk Analysis A-64 R3.1 Analysis of Risk and Uncertainty A-70 R3.2 Contingency—Identified A-74 R3.3 Contingency—Percentage A-77 R3.5 Programmatic Cost Risk Analysis A-ii Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Background This Appendix describes tools that are specific to right of way and tools that are generic for developing highway estimates as adapted from the Tool Appendix in NCHRP Report 574. The NCHRP Report 574 Tool Appendix has 72 different tools that are described in terms of over 90 different applications. The tools support over 30 cost estimating and cost management meth- ods. These methods in turn support eight strategies, six of which are described in Chapter 2 of this Guidebook. A strategy is defined as a plan of action intended for accomplishing a specific goal. A method is defined as a means or manner of procedure, especially a regular and systematic way of accomplishing something (i.e., a strategy). A tool is defined as something used in the performance of an operation (i.e., a method). The strategies, methods, and tools are discussed in NCHRP Report 574 with the intent of sup- porting development of a total cost estimate for a project. Total project cost is often defined as having three main components: (1) engineering/design, (2) right-of-way, and (3) construction. Construction typically covers direct construction costs, including environmental mitigation, and construction engineering. The tools in NCHRP Report 574 support all three total project cost components, but their focus is often specific to one component (e.g., historical bid based esti- mating for construction, estimate communication, etc.). There are also cost management related tools that tend to be more generic and support cost management of all project components. Tool Appendix Layout and Structure The layout of this Tool Appendix follows the NCHRP Report 574 approach. Prior to discussing a specific tool or set of tools, the method associated with the tool(s) is first described. For exam- ple, Estimate Review—Internal is a method that has three tools associated with it, Formal Committee, Off-Prism Evaluation, and In-House/Peer. Each method and its tools are described using an alphanumeric system. A letter and number describe the method, such as E3 Estimate Review—Internal. The tools used to perform the method are described using the method des- ignator and a decimal number system. For example, Formal Committee is E3.1. This alpha- numeric system is the same system used in the NCHRP Report 574 Tool Appendix. This approach is used in the right-of-way Tool Appendix to ensure consistent referencing to the tools contained in NCHRP Report 574. Where new tools have been added as a result of the right-of-way cost esti- mating focus of this Guide, they are added under the existing NCHRP Report 574 methods. For example, the R2 Right of Way method has four new tools designated R2.7 to R2.10. The first six tools under this method are also covered in the NCHRP Report 574 Tool Appendix, but these last four tools are new. A-1 Introduction

Tool Use This Tool Appendix describes all the tools referenced in Chapters 4 through 7. The material presented in this appendix is a synopsis and distillation of good practices currently being used by SHAs to support their right-of-way cost estimating efforts. To be most effective, appropriate tools should be used to support the structured estimating approach presented in the body of this Guide. Use of individual tools in an “a la carte” fashion will have limited effect in improving the accuracy of right-of-way estimates and managing right-of-way costs. Implementation must occur within the context of a greater vision for integrating the total cost estimation practice, of which right-of-way estimates are one part. The common informational structure for describing each tool is the following: • 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? • What are examples or applications of the tool? • What tips will lead to successful use of the tool? • Where can the user find more information to support development of a specific tool? This structure is also consistent with the structure of the tools described in the NCHRP Report 574 Tool Appendix. Right-of-Way Tool Selection In Chapters 4 through 7, tools are identified in relation to each of the three focused estimat- ing efforts and cost management efforts that occur over the planning, programming, prelimi- nary design, and final design phases of project development. The methods and tools supporting each project development phase are selected based on their applicability to a particular phase of the project. In some cases, method and tool selection are influenced by project complexity. In every case, the discussion of the method and tool application in Chapters 4 through 7 is modi- fied to fit the level of project definition that corresponds to a phase. Many of the methods and tools that are identified for use in the context of right-of-way cost estimating and cost management are equally applicable to other project cost components. These methods and tools are described in the Tool Appendix in general terms with reference to right- of-way. Specific discussion of their application in the right-of-way area is incorporated in the rel- evant chapters. Users of the Guide are encouraged to review these more generic methods and tools and then adapt them for use as they fit in the culture of their SHAs. Generally, the more generic methods include the following: • B1 Budget Control • C1 Communication • E2 Estimate Review—External • E3 Estimate Review—Internal • I2 Identification of Risk • R3 Risk Analysis Two methods and their tools, D4 Document Estimate Basis and Assumptions and R2 Right of Way, are more specifically focused on right of way. Their application is discussed throughout Chapters 4 through 7. However, actual use within an SHA may require modifications to fit the culture and approaches an SHA follows when performing right of way cost estimating and man- aging right of way costs. A-2 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

B1 Budget Control Budget control tools assist in providing a disciplined approach to decisions that affect proj- ect cost. Budget control must begin early in project development. Two simple but essential prin- ciples of the budget control process must be clearly understood: (1) there must be a basis for comparison, and (2) only future costs can be controlled. B1.1 Budget by Corridor Budget control tools assist in providing a disciplined approach to scope decisions that affect project cost. Budget control must begin early in project development. Good budget control means that management is informed about what (1) has been done; (2) has to be done; and (3) is wrong and why—informed early; so that management has the opportunity to take corrective action. What Is It? Budgeting by corridor involves estimating and managing right-of-way requirements in logi- cal groups of smaller projects in transportation corridors. Transport corridors link major artic- ulation points (e.g., hubs) on which freight and passenger movements converge. Most often, they lie at the intersection of economic, demographic, and geographic spaces as they perform both market-serving and market-connecting functions. Why? Developing right-of-way estimates and budgets by corridors can assist with the challenges of long-range planning. First, projects in a corridor can be closely related in their physical and tem- poral characteristics. There is a link between transportation corridors and economic activities that can help to predict the needs, and thus the cost, of transportation projects. Estimating the need for improvements and reconstruction of corridors can be more accurate than estimating smaller projects individually. Additionally, long-range planning tools (i.e., conceptual estima- tion tools) are aligned with corridor-scale estimates, rather than smaller individual projects. What Does It Do? In addition to providing a logical grouping of projects with similar physical and temporal characteristics for more accurate estimates, budgeting by corridor allows planners and estima- tors to better manage cost because they can budget a portfolio of projects and right-of-way cost rather than the cost for a single project. Project needs will change over time within the corridor. Budgeting by corridor allows planners to reallocate moneys from one project to another within the corridor as needs dictate and better scope information becomes available over time. Used in conjunction with the constrained budget and/or design to cost tools, budgeting by corridor can provide a means to manage a portfolio of projects in a logical manner. When? This tool is used for preparing long-range right-of-way estimates during the planning phase of project development. Examples The Washington State DOT has created an Urban Corridors Office in the Seattle Metro area to manage the state’s largest corridors. The Seattle-based Urban Corridors Office directs six of the DOT’s largest projects, including the SR 99 (Alaskan Way Viaduct and Seawall Replacement Project), SR 520 (Bridge Replacement and HOV Project), and SR 509 (I-5 Freight and Congestion Relief, Access Downtown [Bellevue], I-90 Two-Way Transit and HOV, and I-405 Congestion Relief and Bus Rapid Transit Projects). More information can be found at www.wsdot.wa.gov/ consulting/Ads/UrbanCorridors/Misc/UCOOrganization.pdf. Appendix A A-3

Tips An SHA may need to reorganize its management structure to effectively budget and control costs by corridor. This tool should be used in conjunction with other tools, such as constrained budget and design to cost. Resources Washington State DOT Urban Corridors Offices: www.wsdot.wa.gov/consulting/Ads/Urban Corridors/Misc/UCOOrganization.pdf. B1.2 Constrained Budget Prudence requires that individual project budget growth not destroy the agency’s total pro- gram by requiring the diversion of funds to cover the deficit in one project. To optimize the agency’s programs, it is better to establish budget constraints early in the project development process and to demand that cost-effectiveness be a critical component of all project decisions. What Is It? Highway projects often are authorized with resource limitations, particularly budget limita- tions. SHAs are often willing to undertake these projects with a specific cost commitment approach that means the projects have to be completed within a fixed budget. Scope definition including required right-of-way for such projects is directly related to the funds available. The constrained budget tool is perceived as a regulatory mechanism to evaluate and limit project scope to absolutely necessary items and to prevent cost overruns. Why? Highway projects involve large monetary resources and often there is a significant amount of consideration and give and take by legislators to control programs. The need and feasibility of a project has to be adequately justified while funds are being sought. In a resource-limited envi- ronment, some projects may be approved based on a limited resource allocation—budget. A mechanism is required to carefully monitor and use resources for such projects. The constrained budget tool was developed with these requirements in mind. What Does It Do? This tool is used to constantly evaluate whether or not the total project cost is within a pre- defined or mandated budget while attempting to scope and design the project within the fixed budget. The tool can also be perceived as a cost-cutting technique. The tool ensures that crit- ical elements of the project, including right-of-way, are adequately included in the scope. This tool causes designers to seek innovative and low-cost designs as a means of meeting cost restraints. When? This tool is used early in the project development process—in the programming and prelim- inary design phase. The tool is required when a budget has been mandated and when no increases will be allowed. Examples The State of Washington has recently passed several gas taxes that included legislated line-item budgets for projects. The budgets for these projects are considered fixed and cannot be increased. Cost estimates for many of these projects were prepared based on limited scope definition. WSDOT has initiated project control and reporting procedures to ensure that these projects are delivered at the constrained budget amounts or less. A-4 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Tips When developing a project under a constrained budget, the agency should use several differ- ent tools to support this method. For example, design to cost, is an excellent tool to help ensure that the design is constantly being assessed from a cost estimate perspective. Value engineering, should also be used to evaluate different design alternatives to determine the lowest-cost option that provides the desired scope features. Other budget control tools should be used in conjunc- tion with this tool. One issue that SHA estimators have to carefully consider under the con- strained budget tool is artificially reducing costs to maintain the budget as the design and more is known about right-of-way requirements developed. The integrity strategy should be followed to prevent this pressure from occurring (see Chapter 2 for all strategies). Resources WSDOT (2006). Project Management On-Line Guide. www.wsdot.wa.gov/Projects/ProjectMgmt. Project Management Institute (2004). A Guide to the Project Management Body of Knowledge: PMBOK Guide, Third Edition, Project Management Institute. B1.3 Standardized Estimation and Cost Management Procedures The objective of standardizing procedures is to establish a common basis for all SHA project participants to follow when preparing cost estimates and to manage costs consistently over the project development process. Change occurs frequently as projects are developed. Changes come from, for example, added scope, design development, and site conditions different than antici- pated. Adopting standard procedures will aid project participants when making decisions regard- ing potential changes to current budgets, with the goal of controlling the project baseline budget. The integration of both cost estimation practice and cost estimation management through stan- dardized procedures is a critical feature to successfully managing cost escalation. What Is It? This tool establishes a set of standards and procedures within a state highway agency to guide the preparation of all cost estimates, including right-of-way estimates, and for the manage- ment of project costs through the various stages of project development. The objective is to provide a coherent policy basis for alleviating cost escalation by consistently providing timely feedback on the potential effect of project changes to the budget. Procedures provide a basis for how costs are managed, including who has authority to make decisions regarding changes to current budgets. Why? Project changes often affect costs, and the necessity to constantly monitor these effects in rela- tion to the budget is necessary to control cost escalation. The most effective cost management system is one that will allow the project team to develop designs and make decisions regarding design alternatives with full knowledge of the cost effect of the decisions. Standardized cost man- agement procedures should facilitate controlling cost escalation throughout programming and design of project development. Such procedures also help establish a cost-conscious atmosphere within the project team environment. What Does It Do? These procedures formalize project cost control approaches followed throughout the project development phases. It is a standardized process for (1) monitoring project development for potential changes to the budget, (2) submitting potential changes, and (3) obtaining manage- ment approval of changes. This cost control process aids the project team in monitoring costs and alerts the team to any major effects with regard to the current budget. Appendix A A-5

When? Standardized procedures must be established at an agency-level for guiding project develop- ment work, specifically for cost estimation and cost management. The procedures should be applied throughout the project development process. However, cost management can only begin when a baseline scope, cost, and schedule is set. Examples The Missouri DOT has developed a set of estimation and cost management procedures that are applied from need identification through to the final design stages. These procedures are closely tied to the Missouri DOT project development process. There are clear definitions of terms and the identification of a timeline for the different steps to be followed for a project to be realized. As a need is transformed into a real project, based on available information, appropri- ate estimation techniques are used to accurately derive cost estimates. Further, significant tasks— such as public input, environmental considerations, and the proper channels to obtain approvals as cost estimates are developed—have been incorporated in the Missouri DOT procedures. An outline of the contents of the Missouri DOT procedure is provided below: 1-02.1 PURPOSE 1-02.2 GENERAL OVERVIEW 1-02.3 NEEDS IDENTIFICATION 1-02.4 NEEDS PRIORITIZATION 1-02.5 INITIAL PROJECT ESTIMATES 1-02.6 PROJECT SCOPING 1-02.7 PROJECT SCOPING MEMORANDUM 1-02.8 PROJECT SCOPING CHECKLISTS 1-02.9 PROJECT PRIORITIZATION 1-02.10 STIP COMMITMENTS 1-02.11 SCOPE CHANGES 1-02.12 PROJECT COST ESTIMATES 1-02.13 ENGINEER’S ESTIMATE 1-02.14 BID ANALYSIS PROCESS 1-02.15 RECOMMENDATION FOR AWARD OR REJECTION OF BIDS A tracking system for potential amendments to budgets is also covered in the Missouri DOT procedures to monitor changes and update the estimate accordingly. A set of submittal and approval forms, indicating changes and justification of these changes to current budgets, keeps key personnel informed of cost variations. Tips Real budget control can only begin once a baseline cost estimate is prepared for a project. Cost management procedures should include project control forms and directions on when and how to complete these forms. Further, the procedures should identify levels of approval for accept- ing changes to the budget based on dollar size of the change. Smaller cost changes can be approved at the project level, while larger cost changes would require region/district or head- quarters’ management approval. Resources Becker, Daniel (2003). “Controlling Construction Costs During Design,” AACE Transactions, AACE International, Vol. F-5, 1–4. Schloz, Michael J. (1977). “Project Cost Management During Conceptual Engineering,” AACE Transactions, AACE International, 167–172. A-6 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Sturgis, Robert P. (1967). “For Big Savings—Control Costs while Defining Scope,” AACE 11th National Meeting, AACE International, Vol. 67-C.3, 49–52. Missouri DOT (2004). “Chapter 1, General Information: Needs Identification Project Scoping and STIP Commitments,” Section 1-02, Project Development Manual, Revision April, 12, 2004. www.modot.org/business/manuals/projectdevelopment.htm. Project Management Institute (2004), A Guide to the Project Management Body of Knowledge: PMBOK Guide, Third Edition. B1.4 Summary of Key Scope Items (Original/Previous/Current) Developing and tracking key scope items can aid in budget control by immediately indicating changes in those items as the project progresses through project development. Listing these key items at each project development phase and with each estimate assists in communication among all team members. What Is It? A summary of key scope items is a list or outline of the most important elements of a project. These items should be identified early, during the project scoping process. These items ultimately define the project budget and schedule. Why? Defining project scope clearly lays the groundwork for accurate estimation and more efficient project delivery by defining and setting project limits. Communication of these items makes tracking of project scope changes transparent. What Does It Do? Summarizing key scope items makes team members aware of the estimate basis and funda- mental project assumptions. Each key scope item will represent a group of smaller tasks and scope components. Estimates can be prepared according to each key scope item or division of the project. When a new scope item arises, the team will be immediately aware of the change. When? The list of key scope items should be completed as early as possible in the project development process, preferably during the scoping process. If a project does not use a formal scoping process, a list can typically be completed during the conceptual estimation process. When right-of-way is a major component of project cost, it should be identified as a key item. The summary of key scope items should be used for conceptual estimation, budget control, and project control. Examples The Minnesota DOT uses a summary of key scope items to clearly define the project (see Fig- ure B1.4-1, note the inclusion of right-of-way). Although simple, the summary of key scope items can be used extensively throughout project development to track budget and schedule progression. Tips As a means to monitor budget and schedule variances, compare original and current project scopes at key project development milestones and when changes arise. Resources California DOT Division of Design. Project Development Procedures Manual. www.dot.ca.gov/ hq/oppd/pdpm/pdpmn.htm. South Dakota DOT. Scope Summary—Road Design Manual. www.sddot.com/pe/roaddesign/docs/ rdmanual/rdmch03.pdf. Appendix A A-7

B1.5 Variance Reports on Cost and Schedule Variance reports on changes in cost and schedule provide a mechanism for budget control through tracking changes and alerting project personnel of changes. What Is It? This is a tool for alerting project personnel, particularly management, to deviations from the project budget or plan. It enhances management’s ability to control project cost and schedule. A-8 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure B1.4-1. Minnesota scope summary form.

Why? Early identification of differences in project cost and schedule can help to ensure proper resource allocation. Discrepancies between estimated or planned costs or schedule can be harm- ful to the project. If a project’s costs increase, additional funds will need to be allocated. If a proj- ect’s schedule duration increases, additional funds may also have to be allocated to compensate for inflation, raising real estate values, or other time-related factors. If the project costs decrease, the additional resources can be allocated elsewhere. However, care should be taken to not redi- rect money that may be requested later due to emerging deviations that might arise in the future. If the project schedule duration decreases, the availability of funds and other resources needs to be assessed given the new time frame. What Does It Do? Variance reports create a transparent notification system for alerting project personnel of deviations in project costs or schedule. When? Variance reports need to be completed regularly throughout project development but espe- cially when design or scope changes are made. Examples Cost containment tables are a simple but powerful form of variance reporting. Figure B1.5-1 can be used to create a variance report, which is simply a report that documents variances in cost to management as a project progresses through the development process. Variance reports are generated at key project milestones or when significant changes in the project occur. Tips Consider different variance report details and intervals depending on the level of complexity of the project or phase of project development. Intervals should be closer together on highly complex projects or projects that are in a phase of high activity. Even during periods of inactiv- ity, projects should be regularly examined to ensure that there are no variances in project costs or schedule. Between variance reports, management experiences what is termed “a cost black- out period.” If major variances occur, the agency has lost an opportunity to take appropriate cost reduction steps. Variances should be reported to appropriate levels of management if the magnitude of the deviation warrants. Consideration should be given to the effect of multiple small deviations that alone do not account for much difference from the budget or schedule but collectively amount to a problem. Safeguards should be in place to watch for this type of activity. Resources FHWA (2004). “Lessons Learned: Federal Task Force on the Boston Central Artery/Tunnel Project (Summary of 34 Recommendations).” www.fhwa.dot.gov/programadmin/mega/ lessonsa.htm. Federal Aviation Administration (FAA) uses “baseline instability” or variance from an origin to determine cost and schedule deviations. See www.faa.gov/acm/acm10/reports/Instability/ introduction.htm. Metropolitan Transportation Authority of New York, Sample of Variance Report can be found at www.mta.net/board/Items/2005/04_April/20050407OtherSectorWES_Item2D.pdf Washington DOT, Set of Deviation Guidelines: www.wsdot.wa.gov/NR/rdonlyres/76FAB4F0- 7EBD-4104-9441-B80D690DE4C1/0/DVP.pdf. Appendix A A-9

C1 Communication Proper communication of project cost estimates can help to solve many cost escalation prob- lems. Key communication points are the communication of importance and the communication of uncertainty. A key question that must be communicated with each estimate is “what decisions will be made from this estimate?” Estimators need to know the purpose of an estimate to know the appropriate level of effort to expend on an estimate. The decisions that will be made from the estimate must be communicated at the time the estimate is being generated. Likewise, esti- mators have an obligation to communicate the level of uncertainty associated with an estimate so that inappropriate decisions are not made from the estimate. C1.1 Communication of Importance Every project estimate is important because cost is integral to project scope, and together cost and scope drive many of the project team’s design and schedule decisions. Cost estimation must be viewed as an important and integral part of the project development function. Cost estima- tors should understand how their estimates are going to be used to support the project develop- ment process. Additionally, the estimated costs presented to stakeholders outside of the project team create third-party expectations, and these expectations can have many positive and nega- tive implications to the project and the state highway agency. A-10 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure B1.5-1. Cost containment table (Adapted from NCHRP Report 574, Tool C6.1).

What Is It? This is a tool that ensures that all project team members understand the importance of a given cost estimate and/or the cost estimation function. This understanding is necessary if costs are to be managed appropriately. Communication of importance serves to correctly convey the accu- racy and variability of an estimate. Why? During project development, team members, including right-of-way staff, and various stake- holders need scope and cost information to make decisions. Estimators should understand the nature of the decisions that will be made from their estimates. For example, a different level of importance—and a corresponding level of effort—should be placed on an estimate that is sup- porting a decision when comparing options versus an estimate that is being released to external stakeholders as an ultimate project cost. What Does It Do? The communication of importance creates an understandable and open communication path among all project participants. It lets estimators know the amount of effort they should expend on the estimate. It creates a transparency in the purpose of the estimate and helps to ensure that the wrong number will not be used for critical budgeting or design decisions. When? Communication of importance should happen throughout all phases of project development. It is particularly important during milestone updates and at critical points in the project devel- opment process. Examples The communication of importance is as much a philosophy as it is a tool. The simplest exam- ple is to always ask, “What decisions will be made from this estimate?” The use of milestone estimates to convey importance is also very helpful. Pennsylvania DOT uses the following milestones in their estimating process: • Program amount (amount approved by the Program Management Committee [PMC]) • Engineering and environmental (E&E) scoping field view • 30% (design field view) • 75% (after final design field view) • 95% (engineer’s estimate) • Bid amount By using these critical milestones, Pennsylvania DOT can convey the importance of these esti- mates. They know what decisions will be made at each of these milestones and what the current estimate is to communicate to external stakeholders. Estimates in support of design decisions will not be confused with milestone estimates. For more information on the Pennsylvania DOT system, see Figure B1.5-1, Cost Containment Table. Tips Through workshops and continued reinforcement of the concept, develop an agency under- standing of how important it is to have accurate estimates and the effect that inaccurate estimates may have on a project and program. Resources The Construction Industry Institute has numerous tools available on its website. Search for “communication of importance” at www.construction-institute.org. Appendix A A-11

C1.2 Communication of Uncertainty Properly communicating estimate uncertainty will help to ensure that appropriate decisions are made from the estimate. Estimate uncertainty can be communicated by providing a range estimate rather than a point estimate. Communication of estimate uncertainty can also be con- veyed by simply listing the assumptions, allowances, unknowns, and contingencies included in an estimate. Some SHAs have the right-of-way estimator rank the accuracy of the estimate using a simple A, B, C, and D scale. What Is It? Communication of estimate uncertainty involves an explicit means of conveying the accuracy of an estimate. There are numerous means of conveying uncertainty. Presenting a cost range is common early in project development, and presenting a contingency is common during final engineering. At any point in the process, lists of allowances or project unknowns can be used to convey uncertainty. All means are intended to let designers and decisionmakers know the accu- racy of, or potential error in, a cost estimate. Why? Projects are not well defined in the early stages of their development. Identification and com- munication of the project’s early stage uncertainty and the fact that unknowns can affect scope and estimated costs will help in managing project expectations. What Does It Do? Communication of uncertainty creates transparency in the estimation process. It buffers esti- mators by conveying that estimates are not absolute, but rather predictions based on the best information known at the time. This tool allows for more prudent decisions to be made from cost estimates. When? The identification and communication of the uncertainty in relation to project scope and cost unknowns helps in managing project cost in all phases of project development, but particularly in the programming and preliminary design phase. As the project moves from programming through preliminary design, the amount of uncertainty in the estimate should diminish. Good cost management techniques communicate specifically how the design process has removed the uncertainty. Examples Examples of communication of uncertainty can be seen under the risk analysis method, Tool R3.1. The following illustration from Washington State DOT’s Cost Estimate Validation Process (CEVP) program is an excellent example of how to convey uncertainty concisely to the project team and any number of stakeholders. The Washington State DOT CEVP summary is an excellent demonstration of how to convey estimate uncertainty. It provides a cost range, rather than a point estimate, for both cost and schedule. It lists the risks associated with the project so that readers understand what is driving the uncertainty in an estimate. It also lists changes from periodic or milestone estimates. Although the CEVP example may be too elaborate for most projects, the point of communicating estimates with a range or with a list of risks is applicable to most projects. Tips Transparently convey the uncertainty of each estimate. An estimate with uncertainty is not a bad estimate; it is a realistic estimate. Conveying uncertainty will allow better decisions to be made from estimate information. A-12 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Manage- ment Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm. Molenaar, K. R. (2005). “Programmatic Cost Risk Analysis for Highway Mega-Projects,” Journal of Construction Engineering and Management, Vol. 131, No. 3. Washington State DOT (2006). Cost Estimating Validation Process (CEVP) website. www.wsdot. wa.gov/Projects/ProjectMgmt/RiskAssessment. D4 Document Estimate Basis and Assumptions Project complexity and the size of many projects today means that more issues must be con- sidered in preparing the estimate. Additionally, estimates are commonly prepared in collabora- tion among many individuals and departments within the SHA. The decisions and assumptions behind the decisions the drive the estimate must be clearly stated and communicated to man- agement and to those reviewing the estimate. D4.1 Right-of-Way Cost Estimate File Because right-of-way estimates are usually created by the collaborative effort of many indi- viduals and sections within the SHA–real estate, land management, mapping and surveying, and right-of-way; the assumptions upon which the estimate is based must be traceable; and to preserve the real estate information for future efforts, there should be a structured system for accumulating all right-of-way estimates and their supporting documentation. Construction con- tractors use their project estimates both to create the budgets for successful bids and as reference sources for developing future estimates. The right-of-way sections in SHAs need information systems that allow the easy retrieval of historical estimate information and at the same time are designed to allow multiple individuals to collaborate on a single estimate. What Is It? The development team and the right-of-way estimator prepares and maintains a master ref- erence file that contains the critical scope, policy, and supporting information (assumptions, methods, and procedures) that affect project real estate cost. This master file is maintained as a permanent reference file. The estimator when costing a parcel must reference specific costs affecting information documented in the file and as project development continues, additional information (e.g., surveys for right-of-way, legal land descriptions, revisions, and correspon- dence) will be added to the file. Why? Good documentation supports the cost estimate’s credibility, aids in the analysis of changes in right-of-way cost, enables reviewers to effectively assess the estimate, and contributes to the population of SHA data for estimating future projects. Each project should have an individual project right-of-way estimate file that is separate from the general project estimate file. The primary purpose of this requirement is to ensure that each right-of-way estimate has a well-documented and easily retrievable history of the assumptions, methods, and procedures used to estimate the costs associated with the project’s specific real estate requirements and scope assumptions. Having this information contained in one location and separated from other project documentation will help ensure that the right-of-way estimate information is readily accessible and uncluttered with other project information. Appendix A A-13

What Does It Do? A project right-of-way estimate file provides a corporate memory and historical data for cat- aloging the reasoning behind the original estimate of right-of-way cost and the reasons for sub- sequent cost revisions. Additionally, it usually provides descriptive information as project scope is developed and design progresses. Other descriptive information would include trends that affect parcel cost, historical cost from similar projects, and design features that affect cost. This historical file allows easy comparison of the current estimate to previous right-of-way estimates and identification of cost discrepancies When? The right-of-way estimate information should be retained in a central filing system from the time the initial right-of-way estimate is prepared until project close-out. The right-of-way esti- mate file should include all estimates prepared for the project up to and including any right-of- way estimates needed to support changes made during construction. Archiving right-of-way cost estimate files is good practice because the files are often useful in reconciling completed project cost, responding to future inquiries, and when developing future estimates. Examples For each right-of-way parcel and item cost element, describe the derivation of its estimated cost in sufficient detail to allow an independent reviewer to determine whether the estimate is complete, accurate, and realistic. The following information should be provided: • Parcel Number and Title. • Parcel Description. • Methodology. Describe how the parcel’s costs were estimated. Depending on the choice of methodology, the estimator could include one or more of the following practices: – The use of a historical database approach considering gross area by type. Under this approach, historical real estate data are summarized and adjusted for conditions (i.e., loca- tion, area, and remaining area) and general market conditions. – The actual parcel cost approach takes into consideration factors related to each individual parcel. This approach requires more time. • Document – Historical district costs/factors. – Relocation costs (replacement housing costs, move costs, personal property). – Land improvements. – Severance damages. – Business damages. – Owner appraiser fees. – Other condemnation costs. – Appraisal fees. – Court reporter/witness fees. – Moving costs. – Attorney fees (outside counsel). – Experts. – Title search. – Hazardous waste asbestos. – Survey. – Utility owner reimbursement costs. • Identify the base year of the cost calculation and expected date of acquisitions. • Explain environmental items (requirements) in detail and with extreme clarity. • Provide a description of how appraisal and condemnation costs are determined. A-14 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

• Provide a written description for each contingency allowance assigned to the various parts of the estimate. If extraordinary conditions exist that call for higher contingencies, the rationale will be documented. • All uncertainties and risks associated with the estimate should be listed. • Level of knowledge about scope. • Level of confidence. Not all cost estimates need to be prepared to the same level of confidence. The level of confidence should be identified using a standard agency system. Examples of confidence levels: (a) High level of confidence: right-of-way maps or other exhibits that accurately and clearly depict the project are approximately 100%. Parcels are identified and delineated and areas of parent tract, take, and remainders are shown. Potential relocation, property manage- ment, and environmental and business damage concerns have been identified. Informa- tion is readily available on which to base probable property cost and damages. (b) Average level of confidence: right-of-way maps or other exhibits are sufficient to identify individual parcels, areas of take, and remainders. There is sufficient identification of potential relocation, property management, and environmental and business damage concerns. Information is available on which to base probable property cost and damages. (c) Below average level of confidence: right-of-way maps or other exhibits are preliminary and may not identify individual parcels, areas of take, and remainders. There is prelimi- nary identification of potential relocation, property management, environmental and business damage concerns. Market data are limited, but available. (d) Poor level of confidence: right-of-way maps are not available or are extremely prelimi- nary. Other exhibits are of limited accuracy to depict the project. Parcels, proposed acquisitions, and remainders are not identified. Potential relocation, property manage- ment, environmental and business damage concerns have not been identified. Market data are limited, but available. • Cost Traceability. When a prior cost estimate exists, a cost track should be prepared. The cost track should provide a concise explanation for any cost change to an item from the prior estimate. • A list should be made of all participants in the development of the estimate. Tips The project right-of-way estimate file should, at a minimum, include any assumptions that have been made, the current project scope, right-of-way maps, aerial photos, and a copy of or reference to the cost data used to develop the estimate. This basic information should be included in each project estimate file, regardless of project development phase–the creation of the file begins with the very first right-of-way estimate. A sheet should be placed in the front of each esti- mate file so the project manger can record the date and current project milestone or project development phase each time the project estimate is changed, updated, or reviewed. A signature line should also be included to document the project manager’s review of the estimate file. Cost adjustment factors will never be considered as an acceptable substitute for preparing a well-documented and accurate estimate if adequate project information is available. Depending on the level of project development that has taken place, the amount and type of documentation contained in the project estimate file will vary. Information used to develop the initial right-of-way estimate, such as gross area by land use type and historical real estate cost, should be well documented and included in the project estimate file. This information may con- sist of references to software databases, historical data, and real estate market data from outside sources or some other reputable resource. Appendix A A-15

The right-of-way estimating procedures manual should also establish general guidelines for the contents of the file. The documents that serve, as the basis of the estimators should – Describe site conditions (railroad through or adjacent, utilities, and environmental issues). – Describe assumed partial and whole takes. – Explain the decision criteria used for evaluating alternatives. – List and explain all general assumptions that apply. – List and explain all specific assumptions (e.g., percent of parcel that will go to condemnation). Resources The Florida DOT “Guidance Document for Right-of-Way Cost Estimates” offers guidance about files: www.dot.state.fl.us/rightofway/documents/ROWmanual/Acrobat%20files/guide2.pdf Chapter 4 of the Caltrans Right of Way Manual also offers guidance. It is available at: www.dot.ca.gov/hq/row/rowman/manual/ch4.pdf E2 Estimate Review—External The most effective means of improving estimate quality is to refine the methods of identify- ing errors and omissions, not to refine estimation methods or computer software. No estimate should be released without a review. Estimate reviews should be conducted at strategic times dur- ing estimate preparation to improve accuracy and completeness. The formality of a project esti- mate review and the depth of the review at each stage in project development will vary depend- ing on the type of project and project complexity. The first review of the estimate should be conducted by the team that prepared the estimate. This is essentially a screening review that ensures that the math is correct, the process is documented, and agency guidelines are followed. When very complex right-of-way situations are expected, management should require that there be an external review of the estimate by qualified professionals. E2.1 Expert Team Very complex and high-profile projects should have an external review of the estimate by qual- ified professionals. The most indispensable tool for estimate review is judgment. Judgment is what identifies mistakes, detects flawed assumptions, and identifies where the process has missed critical cost drivers. The surest way of conducting a successful external review is by selecting a panel of independent reviewers who have as broad a range of experience as the project demands. What Is It? External reviews concentrate on the estimation process and methodology. They are applied based on project scope and design development at the point in time when the review is con- ducted. An external review should include a risk analysis that identifies the critical elements of the right-of-way estimate and possible impacting risks. Why? Large projects with multiple interacting activities, urban projects with numerous stakehold- ers, and projects using new technology all test the right-of-way estimator’s ability to properly account for all cost drivers when developing an estimate. Therefore, a review that brings a view- point completely external to that of the state highway agency should be part of an inclusive review process. This includes a requirement for internal reviews of the estimate calculations and the applied unit costs. A-16 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

What Does It Do? The reviewers seek to assess the reasonableness of the assumptions supporting the cost ele- ments and assess the rationale for the methodology used. Reviewers receive a briefing from the project team and the estimators and are given access to all available documentation. By applying parametric techniques or ratios to analyze costs and schedule reasonableness, they check the completeness of the estimate. However, they usually do not re-estimate individual items. The result is a report that details findings and recommendations. When? Independent external reviews are more typically employed on later estimates of large complex projects. However, having such reviews conducted earlier in the design process can provide real benefits, because they often discern cost drivers that can be addressed by design changes, thereby reducing project cost. Examples Several SHAs have used retired personnel or other professionals to conduct estimate reviews. As an after-the-fact example, on December 13, 2001, Maryland DOT opened bids for the Woodrow Wilson Bridge superstructure contract and a single $860 million bid was received. That amount was more than 75% higher than the engineer’s estimate for the contract. Maryland formally rejected the bid because it far exceeded the project’s budget. An independent review committee (IRC) was organized to identify and evaluate the reasons for the large discrepancy between the engineer’s estimate and the bid submitted. The IRC determined that the owner-produced estimate was technically solid, based on the tangible factors such as the cost of steel, concrete, and other materials. But certain significant fac- tors, particularly for large construction projects, are difficult to quantify in an estimate. The IRC went on to state that the estimate did not sufficiently take into account the intangibles of mar- ket factors, specifically the following: • Contractors capable of bidding a project of that size were seeking larger margins to protect themselves due to recent experiences on other mega-projects and associated project risk. • There several other large bridge projects were bidding in the same period, a completely exter- nal factor that caused a lack of competition. • Equipment demands on projects of this size are substantial. Maryland DOT took the advice of the IRC and repackaged the contract and rebid the project approximately a year later as three independent contracts. The first contract rebid came in 11% over the estimate, but there were five bidders and it was a workable bid. The other two contracts both came in below the estimates, one by 28% and the other by 25%. Tips In the case of right-of-way estimates the reviewers need to be experienced professionals who have an understanding real estate costs and the complexities of acquisition processes. Market conditions or changes in the macro-environment can affect the costs of a project right-of-way, particularly large projects. Resources Maryland DOT (March 1, 2002). “Summary of Independent Review Committee Findings Regarding the Woodrow Wilson Bridge Superstructure Contract.” The full report is available from the MDOT. Appendix A A-17

Woodrow Wilson Bridge Project Bridge Superstructure Contract (BR-3): Review of the Engineer’s Estimate vs. the Single Bid, February 28, 2002. This report is available from Maryland DOT. Douglass, Robert, Robert Healy, Thomas Mohler, and Shirlene Cleveland (2004). “Adventures in Building Another Washington Monument: Rebid Outcomes of Woodrow Wilson Bridge Project. Transportation Research Record 1900, Transportation Research Board of the National Academies, Washington DC, pp. 114-121. E3 Estimate Review—Internal Estimate reviews should be conducted at strategic times during estimate preparation to improve accuracy and completeness. The formality of a project estimate review and the depth of the review at each stage in project development will vary depending on the type of project and project complexity. No estimate should be released without internal reviews. The team that prepared the estimate should conduct the first review of the project estimate. This is essentially a screening review that ensures that the math is correct, the process is documented, and department guidelines were fol- lowed. In the case of straightforward right-of-way requirements, a formal review may not be nec- essary. However, as real estate complexity increases, it is necessary to conduct formal reviews with either an in-house/peer review or a formal committee review. When projects involve land acquisition in highly active markets, cost experienced by third parties, such as utilities and rail- roads, or special acquisitions, such as those from government sites, management should require that there be an external review of the estimate. There can be several different approaches to estimate reviews: (1) a review of calculations and applied unit costs, (2) a review of the process and methodology, or (3) a very complete review that encompasses evaluation of both calculations and methodology. All reviews must closely examine the assumptions that form the basis of the estimate, internal logic, completeness of scope, and estimation methodology. E3.1 Formal Committee Certain SHAs use an “estimate review committee” approach to enhance estimate accuracy. Formal committees review each estimate at different stages in project development and prior to the bid letting. The committee structure used by the Georgia DOT to review project estimates consists of six people, including the state construction engineer, an FHWA representative, a con- tract administration engineer, a state maintenance engineer, and two project/field engineers. What Is It? A formal committee estimate review is a cost estimate validation tool. This cost validation tool entails an objective review of the estimate by a group of experienced third-party state highway agency individuals who did not participate in development of the estimate. Why? The most effective means of improving estimate quality is not to refine estimation methods or computer software, but to refine the methods of identifying errors and omissions. This is a tool to ensure that estimation criteria and requirements have been met and that a well-documented, defensible estimate has been developed. What Does It Do? The review committee seeks to subjectively determine estimate accuracy, based on the totality of the information available. In particular, the committee A-18 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

• Determines whether the estimate satisfies the project criteria. The committee seeks to ensure that the estimate conforms to the project scope and design documents. The stated right-of-way requirements match the proposed design, including space for utilities. • Appraises the estimate methodology. The committee must be able to follow and check the estimate methodology. Steps to do this would include verifying estimation techniques and sources of estimate data. The committee should be able to clearly understand the origin of all numerical data in the estimate. Sources of parcel cost data should be clearly stated. • Identifies uncertainties. The committee should confirm all uncertainties documented in the estimate, such as number and cost of expected condemnation, and identify other uncertain- ties in the estimate that were missed or glossed over. It is good to note these uncertainties at this time so that an accurate estimate can be developed. • Documents the finding. The findings of the estimate review must be documented. The com- mittee may use an estimate review checklist or prepare a concise written report that docu- ments the findings. A sample estimate review checklist is present here in the example part of this section. When? As the project design is developed and the revised estimates are generated, it is good practice to conduct a review of revised estimates, particularly at the major design development stages— 30% and 60%. These reviews can provide real benefit because they often discern cost drivers that can be addressed by design changes and, in so doing, reduce project cost. It is still possible at these points in project development to find a least-cost solution that accommodates design requirements and at the same time minimizes real estate cost. Example Here is an example of a checklist used by a formal committee when conducting a review. REVIEW CHECKLIST Review Date: Review Location: Project Name: Reviewers’ Names and Organizations: Background Data and Conditions: Is there complete technical scope documentation, including the following elements? ____ Description of the work to be performed; ____ Performance criteria and requirements; ____ Discrete tasks and deliverables; ____ Resource requirements; ____ Sequence of events and discrete milestones; ____ Work not included in the scope. Have milestone descriptions been developed for each milestone associated with the project? Does the technical scope documentation for the estimate include descriptions of support asso- ciated with the work to be performed? Is the technical scope for the estimate consistent with the site, regulatory requirements and con- straints (e.g., permit conditions, regulations) identified during the planning process? Cost Estimate Are appropriate historical cost data used in the estimate? Are direct costs that are associated with individual activities included in the cost estimate clearly and individually identified? Are indirect, overhead, or other costs clearly and individually identified? Appendix A A-19

Has the cost estimate been updated in a timely manner in response to relevant changes in its basis, background data, or assumptions? Are an appropriate change control document and an estimate development history attached to the cost estimate? Does the estimate development history include an itemized and chronological list of the changes made to the cost estimate since initiation of its preparation and the rationale for each change? Are activities, quantities, and unit costs associated with the work to be performed clearly iden- tified and defined in the cost estimate? Are the assumptions and exclusions on which the cost estimate is based clearly identified and defined in the estimate? Are time and cost assumptions and cost elements associated with each activity clearly identified, defined, and documented in the estimate? Cost elements for program activities include Quantities Unit of measure Material cost Overhead rate Total overhead allocated Are significant estimator findings identified during preparation of the estimate documented? Have factors been used to adjust the costs? If so, have they been adequately documented and appropriately applied? Have escalation factors been used to escalate the estimate? Are the escalation factors adequately documented and appropriately applied? Are indirect rates used in the estimate adequately documented and appropriately applied? Are estimate summary and detailed reports included, and do they provide cost totals for each cost element in the estimate? Is a schedule included with the estimate? Are activities included in the schedule consistent with those included in the technical scope? Are milestones and deliverables included in the schedule consistent with those included in the technical scope documentation and the estimate? Tips Check the estimated cost of any parcel that represents an unfamiliar situation or items for which there is only a limited database of historical information. Investigate whether the percent- ages used to estimate overhead and other costs besides the direct cost are realistic. It is good practice to include younger state highway agency staff as members of the commit- tee so that they can learn from the discussion, but many times they will also contribute a com- pletely new perspective. Resources FHWA (2004). Major Project Program Cost Estimating Guidance. While aimed at estimation for major projects, this document does contain many ideas that can be incorporated into a review process and stresses the need for review teams to have diverse membership composition. E3.2 Off-Prism Evaluation In the case of most conventional projects, engineers focus on technical solutions with little attention to community interest or the macroeconomic environment. Market forces and third- party interventions can have a major effect on project real estate cost and must be accounted for in the estimation process. A-20 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

What Is It? This is an estimate review that seeks to provide management with assurance that cost effects driven by macroeconomic and market conditions have been considered in developing the project’s estimated cost. Why? Every project is executed in the context of a particular political, economic, and cultural environment. The legal system, labor practices, and even the global demand for construction materials are manifestations of a project’s macroeconomics. The macroeconomy can affect cost growth in two ways: (1) by being unknown to some degree to estimators and managers and (2) by changes in the environment. Unlike understanding other aspects of project plan- ning and estimation, understanding the macroenvironment has never been standardized as a part of project estimation. What Does It Do? An off-prism review is conducted from the perspective of external factors affecting cost and specifically considers the marketplace and macroeconomic factors affecting project cost. Perhaps the most difficult right-of-way costs to estimate are those associated with third parties, such as utilities and railroads. Third-party requirements have a high potential for risk and change. For example, major projects often are located in urban areas with a high concentration of existing utilities. Although it is best to locate and avoid as many utilities as possible during the design phase, appropriate contingencies for utility adjustments need to be included. Cost should be included for subsurface utility engineering. Mitigating effects to railroads or transit lines will need to be considered as well. If all utility and railroad adjustment work cannot be identified, appropriate contingencies for adjustments need to be included. When? Because reviews are the best means for ensuring estimate accuracy and for minimizing the potential for unanticipated surprises concerning the financial condition of the project, it is good practice to perform a review each time an estimate is revised. However, in the case of off-prism evaluations, an estimate review should also occur any time there is a change in macroeconomic conditions or the marketplace. When the underlying economic assumptions for the estimate change, the estimate will need to be revisited. Examples The FHWA document Major Project Program Cost Estimating Guidance, June 4, 2004, specif- ically calls attention to the following cost that must be included in a project’s right-of-way estimate: • Costs for stormwater management, • Wetland mitigation, and • Other work outside the roadway prism. This includes the contractual obligations with property owners to relocate fencing, reconstruct gates, and reconstruct road approaches, and so on, if not included in the engineer’s estimate. This also includes the cost of any required relocation assistance and benefits for displaced indi- viduals, families, businesses, governments, and nonprofit organizations, as well as the adminis- tration costs of all right-of-way activities. If the extent of the right-of-way acquisition is not known, then a contingency should be added based on historical settlements and awards for con- demnation cases, which must include costs for attorneys, engineering research, witness research, survey, and staff time. Appendix A A-21

The right-of-way acquisition schedule needs to be considered. Right-of-way acquisition costs will increase quickly in rapidly developing areas. Special acquisitions, such as those from government sites can be time consuming and costly. Tips A value analysis should be performed on the project to determine the most economical alignment. Resources Arizona DOT (1989). Estimating Guidelines. Schexnayder, Cliff (2001). “Construction Forum,” Practice Periodical on Structural Design and Construction, ASCE, Vol. 6, No. 1. E3.3 In-House/Peer An objective estimate review can be accomplished by a group of experienced third-party state highway agency individuals who did not participate in developing the estimate. For large or com- plex projects, the review is usually conducted with the project team and estimator so that the reviewers can better understand the execution plan, estimate basis, and project challenges in regard to scope and pricing. What Is It? A peer review typically involves an estimate validation by a state highway agency estimator who has not worked on the estimate being reviewed. The state highway agency reviewer must have the experience and knowledge to carefully appraise the materials presented. In the case of larger projects, this peer validation may involve a peer team. Why? The foundation of a good estimate is the formats, procedures, and processes used to arrive at the cost. Poor estimation includes general errors, omissions, and technique inadequacies. It is easy for members of the state highway agency to conduct an estimate review because they are familiar with the formats, procedures, and processes that the agency has in place and therefore can easily spot deficiencies. What Does It Do? A peer review checks the estimate for completeness and correctness, including, but not lim- ited to, the following: • Check of mathematical extensions and correctness. • Check of parcel list for omissions or oversights. • Check for conformity between construction easements and the schedule durations to con- struction activities. • Check of the calculations of the indirect costs. • Compare the estimate with any similar project for an order-of-magnitude check. When? Each time a revised estimated is generated, there should be a review. An estimate review is the best means for ensuring accuracy and minimizing the potential for unanticipated surprises con- cerning the financial condition of the project. Examples North Carolina DOT uses a formal internal estimate review process. The process coincides with the project development process milestones. A-22 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Following is the approach used by Missouri DOT regarding timing of estimate reviews: 1-02.12 (4) REVIEW OF ESTIMATES. Project cost estimates should be reviewed and updated periodically. At a minimum, project cost estimates should be reviewed annually. A new or revised project estimate should be prepared at the following major milestones or stages of project devel- opment: project initialization, conceptual plan/environmental document completion, prelimi- nary plan completion, and right-of-way plan completion. The estimated project costs should be submitted to General Headquarters (GHQ) Transportation Planning at least annually, at the above noted project development milestones/stages, or when significant project scope changes are identified using a Project Amendment Tracking System (PATS) form. If an annual review of the previous estimate is conducted and it is determined that no change is necessary, the project estimate file should include documentation to indicate that the previ- ous estimate has been reviewed and remains valid. Revised cost estimates submitted for projects that are scheduled for expenditure of funds within the current fiscal year of the statewide transportation improvement program (STIP) will not be reflected in the STIP or the approved PATS database. For example, if the project is to be awarded during the current fiscal year, the construction cost reflected in the STIP will not be revised to account for project estimates prepared after the beginning of the fiscal year. Similarly, if a project has right-of-way funds included in the current fiscal year of the STIP, the right-of- way amount will not be revised based on a revised estimate submitted in the same fiscal year. Even though these costs will not be reflected in the STIP, the revised project estimates should still be prepared in accordance with the recommended schedule. However, the submission of a PATS form to GHQ Transportation Planning will not be required in this situation. This is the only exception that exists for not submitting a PATS form to GHQ Transportation Planning each time a revised estimate is prepared. All estimated costs should be submitted in current dollars. GHQ Transportation Planning will make any necessary inflation adjustments. Estimate revisions will affect a district’s funding bal- ance and be used to calculate the current cost of the program, but not be used to determine any changes in the district funding distribution. Tips The peer review should consider the following: • What is the basis for the assumptions made in developing the estimate? • Are the assumptions made in the estimate consistent with the technical scope and schedule of the project? • Are the activity durations in the schedule consistent with the estimated cost? • Are indirect rates, escalation factors, and other factors used appropriately? • Have the findings and recommendations of the peer review been documented in a peer review document? • Is the peer review document included with the cost estimate documentation? • Have the findings and recommendations of the peer review been addressed in revisions to the cost estimate? • Are activities included in the schedule consistent with those included in the technical scope documentation and estimate? Resources Opfer, Neil D. (Fall 1997). “Construction Peer Review: A Technique for Improving Construction Practice,” Journal of Construction Education, Vol. 2, No. 3, pp. 211–221. While this article discusses a peer review of contractor organizations, it includes several important peer review Appendix A A-23

fundamentals. One of these is the point that the technique’s success depends on significant resource commitments, including time. Missouri DOT (2004). “Chapter 1, General Information: Needs Identification Project Scoping and STIP Commitments,” Section 1-02, Project Development Manual. www.modot.org/ business/manuals/projectdevelopment.htm I2 Identification of Risk Risk identification involves the discovery of potential project risks and the documentation of their characteristics. In the context of cost estimation, an understanding of project risk will assist estimators in setting appropriate project contingencies. It will also assist managers in estimation management as the project progresses through project development. In the broader context of project risk management, risk identification is the first step in the following detailed process: • Risk identification • Risk analysis (qualitative and/or quantitative) • Risk mitigation planning • Risk monitoring and control Red flag items, risk charters, and risk checklists are three tools that assist estimators in both identifying and monitoring risks throughout project development. These tools support risk iden- tification early in the project development process to assist in setting appropriate project contin- gencies. The tools also support the risk monitoring and control process to assist in contingency resolution as the project scope, design, and project delivery methods become fully defined. During the development of this Guide, NCHRP was developing a Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs (NCHRP Project 8-60). The goal of that effort was to develop a comprehensive guidebook on risk-related analysis tools and management practices for estimating and controlling transportation project costs. When complete, the NCHRP 8-60 guidebook will provide more detailed tools and techniques for risk identification and risk management. The readers of this Guide are encouraged to also review the completed NCHRP 8-60 guidebook for more information on risk-related estimating issues. I2.1 Red Flag Items A red flag item list is created at the earliest stages of project development and maintained as a reference document throughout project development. It is perhaps the simplest form of risk identification and risk management. The list helps estimators to better understand the required contingency and helps managers to more effectively control scope growth throughout the proj- ect development process. Not all projects will require a comprehensive and quantitative risk management process. A red flag item list can be used in a streamlined qualitative risk manage- ment process. What Is It? A red flag item list is a technique to identify risks and focus attention on critical items with respect to critical cost and schedule effects to the estimate. Issues and items that can significantly affect project cost or schedule are identified in a list—or “red flagged”—and the list is kept cur- rent as the project progresses through development. Why? By listing items that can affect a project’s cost or schedule, and by keeping the list current, the project team has a better perspective for setting proper contingencies and controlling cost esca- A-24 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

lation. Occasionally, items considered a risk are mentioned in planning but soon forgotten. The red flag item list facilitates communication between estimators and designers concerning these items. By maintaining a running list, these items will not disappear from consideration and then later cause problems. What Does It Do? At the earliest stages of project development, an agency develops a list of affecting items, based primarily on engineering judgment or historical records of problems. The red flagging of these items may not involve any formal qualitative or quantitative risk analysis of the factors, but it keeps the team mindful of their existence. The list also helps the team to remove contingency from the project cost estimate as the design progresses and risk issues are resolved. When? The composition of a red flag item list is completed in the earliest stages of project develop- ment. The list should then be updated at each major milestone or as new items are identified. The list will be most useful if it is maintained and updated throughout the project development process. Examples The Ohio DOT includes the identification of Red Flag Items in their comprehensive approach to right-of-way cost estimating. Figure I2.1-1 is an excerpt from their Project Development Process (PDP) manual concerning Red Flag Item identification on right-of-way estimates for minor projects: Tips The list of red flag items should be developed in an interdisciplinary team environment. This activity works well during the planning and programming processes. Consider brainstorming ses- sions with representatives from multiple discipline areas for creation of a list of red flag items. In addition to scoping documents, individuals should use their own knowledge of the project and consult with others who have significant knowledge of the project or its environment. Addition- ally, risk checklists can be consulted to learn from risks encountered on past projects (see I2.3). Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Manage- ment Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm Curran, Michael W. (1998). Professional Practice Guide #2: Risk. Association for the Advance- ment of Cost Engineering International. FHWA (2004). Major Project Program Cost Estimating Guidance. Grey, S. (1995). Practical Risk Assessment for Project Managers. John Wiley and Sons, Chichester, England. Appendix A A-25 301.6 Red Flags Red Flags, including environmental and engineering issues, are locations of concern within the study area. Red Flags do not necessarily identify locations that must be avoided, but rather, identify locations that will entail additional study, coordination, design, right-of-way, or construction cost. Locations that must be avoided are referred to as “fatal flaws.” The project manager should ensure consultation with the appropriate specialists to determine the level of concern for each Red Flag item. Both environmental and design Red Flags are identified on the Red Flag Summary. Figure I2.1-1. Ohio DOT Red Flag example.

Molenaar, K. R. (2005). “Programmatic Cost Risk Analysis for Highway Mega-Projects,” Journal of Construction Engineering and Management, Vol. 131, No. 3. NCHRP (2005). NCHRP Project 20-7/172 Final Report, “Recommended AASHTO Design- Build Procurement Guide,” Washington, D.C. Ohio DOT (2004). Project Development Process (PDP) Manual. I2.2 Risk Charter The creation of a risk charter is a more formal identification of risks than the listing of red flag items (Tool I2.1). This tool is typically completed as part of a formal and rigorous risk management plan. The risk charter helps to set estimate contingencies and monitor potential cost escalation. It provides estimators with a list of significant risks and includes information about the potential cost and schedule effects associated with these risks. It also supports the contingency resolution process by tracking changes to the magnitude of potential cost and schedule risk effects as the project progresses through the development process and the risks are resolved. What Is It? A risk charter is a document containing the results of a qualitative or quantitative risk analy- sis. It is similar to a list of red flag items (see Section I2.1), but typically contains more detailed information concerning the potential effect of the risks and the mitigation planning. The risk charter contains a list of identified risks, including description, category, and cause. It may con- tain measurements of magnitude such as the probability and effect of occurrence. It may also contain proposed mitigation responses, “owners” of the risk, and current status. This method may be more effective than simply listing the potential problem areas, as with the red flagging, since it is integrated into the risk monitoring and control processes. The terms “risk charter” and “risk register” are synonymous in the industry. Why? A risk charter is used to identify, communicate, monitor, and control risks. It provides assis- tance in setting appropriate contingencies and managing the cost estimation process. As part of a comprehensive risk management plan, the risk charter can help to control cost escalation. It is appropriate for large or complex projects that have significant uncertainty. What Does It Do? The charter organizes risks that can affect project cost and project delivery. A risk charter is typically based on either a qualitative or quantitative assessment of risk, rather than simple engineering judgment. The identified risks are listed with relevant information for quantify- ing, controlling, and monitoring. The risk charter may include relevant information, such as the following: • Risk description • Status • Date identified • Project phase • Functional assignment • Risk trigger • Probability of occurrence (%) • Impact ($ or days) • Response actions • Responsibility (task manager) A-26 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

When? This technique can be used throughout project development. At the earliest stages of proj- ect development, the risk charter will be helpful in a risk identification capacity. As the proj- ect progresses, more rigorous and quantitative risk management can be performed and the charter will become an even more valuable tool for cost estimation management and risk mon- itoring and control. Examples Washington State DOT has built a Cost Estimating Validation Process (CEVP). The CEVP uses a risk charter (or risk register) as a fundamental tool in its comprehensive validation process. The CEVP is explained in more detail in Section C1.2. Figures I2.2-1 and I2.2-2 show two aspects of the CEVP that are relevant to describing a risk charter. Figure I2.2-1 provides a summary example from a risk identification exercise that is part of the CEVP. Figure I2.2-2 pro- vides a summary of risk descriptions in the risk charter for the CEVP analyses. For more infor- mation on these first nine projects, see K. R. Molenaar’s 2005 article, “Programmatic Cost Risk Analysis for Highway Mega-Projects,” in the ASCE Journal of Construction Engineering and Management, Vol. 131, No. 3, pp. 343–353. For more information on the current CEVP, see the Washington State DOT’s 2006 CEVP website at www.wsdot.wa.gov/Projects/ProjectMgmt/RiskAssessment Tips The risk charter should be developed in conjunction with a comprehensive risk management plan. It should be developed in an interdisciplinary team environment and may require external facilitation. Resources Curran, Michael W. (1998). Professional Practice Guide #2: Risk. Association for the Advance- ment of Cost Engineering International. FHWA (2004). Major Project Program Cost Estimating Guidance. Appendix A A-27 Figure I2.2-1. Summary example of risk event identification exercise that is part of WSDOT’s CEVP.

A-28 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure I2.2-2. Summary risk charter risk descriptions from the WSDOT CEVP analysis. Grey, S. (1995). Practical Risk Assessment for Project Managers. John Wiley and Sons, Chichester, England. Molenaar, K. R. (2005). “Programmatic Cost Risk Analysis for Highway Mega-Projects,” Journal of Construction Engineering and Management, Vol. 131, No. 3. NCHRP (2005). NCHRP Project 20-7/172 Final Report: Recommended AASHTO Design-Build Procurement Guide. Project Management Institute (2004). A Guide to Project Management Body of Knowledge (PMBOK Guide). Washington State DOT (2006). Cost Estimating Validation Process (CEVP) website: www.wsdot. wa.gov/Projects/ProjectMgmt/RiskAssessment.

Figure I2.2-2. (Continued).

I2.3 Risk Checklist Risk Checklists are a tool for risk identification that can be used at the earliest stages of risk identification to learn from past projects and past team member experience. The list helps esti- mators to better understand the required contingency and helps managers to more effectively control scope growth throughout the project development process. The use of a Risk Checklist is the final step of risk identification to ensure that common project risks are not overlooked. What Is It? A Risk Checklist is a list of risks identified or realized on past projects. Risk Checklists are meant to be shared between estimators and discipline groups on all projects. Why? The benefit of maintaining Risk Checklists is to capture corporate knowledge within a state highway agency and ensure that common risks are not overlooked in the estimating or man- agement process. Risk Checklists are simple to maintain if the agency has a central estimating or risk management function. Risk Checklists can also be maintained by individual estimators or project managers. What Does It Do? Risk Checklists serve as a final step in the risk identification process to ensure that common risks are not overlooked. When? Risk Checklists should be used only after the team has identified risks on their own (e.g., through an examination of scope and estimating assumptions, brainstorming of issues and concerns, or the creation of a Red Flag List). Risk Checklists should not be used as the first step in risk iden- tification, because they may not contain important project-specific risks. If a project team relies too heavily on a Risk Checklist, the team could easily overlook project-specific risks and the risks might not be phased correctly for the unique aspects of the project. Example Right-of-way risks specifically from various projects conducted by Caltrans and the Washing- ton State DOT follow: • Accelerating pace of development in project corridor; • Changes in land use/demographics in project corridor; • Difficult or additional condemnation; • Excessive relocation or demolition (including unanticipated remediation) (either globally or for particular parcels); • Right-of-way staffing shortages; • Process delays (e.g., ROW plan development by team; plan approval process); • Railroad coordination/acquisition problems; • Utility coordination/relocation delays; • Objections to right-of-way appraisal takes more time and/or money; • Variations in estimate quantities such as acres by land use; and • Variations in cost basis used for estimate elements. Caltrans has developed a sample list of risks in its Project Risk Management Handbook. The list is provided in Tables I2.3-1 through I2.3-4. This sample list of risks can be used as the basis for cre- ating a list of red flag items for an individual project. The Caltrans list is quite comprehensive, and A-30 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Appendix A A-31 Table I2.3-1. Caltrans sample technical risks list. any single project’s list of Red Flag items should not include all of these elements. Washington State DOT also uses a “Sample Risk Elements” checklist for its cost risk assessment process. Tips Maintain the Risk Checklist in a central location and capture risks from multiple projects and disciplines. Categorize the Risk Checklist into major headings to facilitate data collection and checklist application. Use the Risk Checklist only after the project team has exhausted other risk identification options. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Manage- ment Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm Molenaar, K. R. (2005). “Programmatic Cost Risk Analysis for Highway Mega-Projects,” Journal of Construction Engineering and Management, Vol. 131, No. 3. R2 Right-of-Way Right-of-way administrators have reported a number of challenges routinely encountered in right-of-way cost estimation: (1) early estimates are typically based on planning-level maps, so the extent of takings must be anticipated based on limited information; (2) often there is limited time to prepare early estimates, thereby restricting the amount of research that can be under- taken for complex parcels; and (3) right-of-way estimates are usually prepared years in advance of actual right-of-way acquisition, and significant inflation in between estimation and acquisi- tion results in property and damage appreciation. R2.1 Acres for Interchange A chronic problem in estimating the right-of-way cost, for either new interchanges or recon- structed interchanges, is establishing the land requirements, including the requirements needed

for construction operations. This problem is most acute during the preparation of planning and programming phase estimates. What Is It? This tool encourages early consultation between the agency’s design, construction, and right-of-way sections in order to better define interchange land requirements and the cost of A-32 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Table I2.3-2. Caltrans sample external and environmental risk list.

acquiring that land. During the programming phase of project development, the estimators and designers must understand that average interchange acreage requirements are frequently not an appropriate methodology for estimating the cost of the necessary takings. When esti- mating an interchange acreage requirement, consideration must be given to effects on utilities (e.g., water, sewer, gas, electric, cable, and fiber-optic lines), the need for space to accommo- date utility relocations, and, often, space for noise walls. The concepts developed for each interchange should be evaluated to identify engineering issues, environmental concerns, con- struction requirements, and maintenance requirements. The concepts developed should be evaluated for • Acquisition of developed properties; • Reconstruction of other facilities; Appendix A A-33 Table I2.3-3. Caltrans sample organizational and project management risk list.

• Traffic operation issues on or into private property (access management); • Significant acquisition of right-of-way from the protected areas (i.e., environmentally sensitive areas); and • Effects (economic, traffic, and environmental) on existing facilities. Why? Many SHAs have design guidelines that describe the elements of a typical highway interchange and required land area. Right-of-way estimates (including those for interchanges) that are prepared based on both typical acreage requirements and an average per-acre price are often inaccurate because they fail to consider impacting cost drivers and the fact that interchanges, while follow- ing standard designs, must almost always be fit into the unique physical setting of their locations. What Does It Do? This is a tool to help project managers and estimators appreciate the fact that, as projects become more complex, there is a greater need for coordination and communication between the disciplines participating in developing the project’s design and estimate. This is particularly important in the case of initial right-of-way estimates for interchanges. In such a case, many more supporting groups—multiple utility companies, agencies that grant environmental per- mits, construction, and maintenance—must be consulted before the area required for the inter- change can be determined and the right-of-way cost estimated. When? This tool supports the estimate process for projects (new alignment or reconstruction) involv- ing interchanges, either interchange-only projects or projects where interchanges are part of a large total scope. This tool should even be applied to projects where, during early programming, it is believed that no additional right-of-way will be required, because consultation with supporting sections (utilities relocation, environmental, and construction) may lead to a different conclusion. Examples The Mid-Ohio Regional Planning Commission issued a report, Historical and Projected Transportation Funding in Central Ohio, in 2004 (available online at http://transportation. A-34 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Table I2.3-4. Caltrans sample right of way, construction, and regulatory risk list.

morpc.org/tplan/finalTPlan04Funding.pdf). Section 5 of the report, “Right-of-Way Costs,” provides the following guidance for that region of the country. Although the cost data are probably not appropriate to SHAs, the format could be used to establish interchange reality check figures for both acreage and land cost. If a ROW acreage estimate is provided, that number is used. Otherwise, estimate ROW needed according to type of project. For the regional Transportation Plan, two methods have been used to estimate the ROW costs. The simplified method generally assumes a project is in a high (A), medium (B) or low (C-default) cost-per-acre area. A more complex method based on actual county auditor valuations for the adjacent parcels has also been used. For this study the simpli- fied approach will be used. The three cost-per-acre categories are $620,000/ac, $235,000/ac and $75,000/ac. Other costs such as utility relocation vary depending on the individual project and are not included. The following ROW acreage assumptions are made based on the improvement type: Intersection Improvement: a) Turn lane 2 approaches • Major Intersection: 0.5 acre • Minor Intersection: 0.25 acre b) Turn lane 4 approaches • Major Intersection: 1 acre • Minor Intersection: 0.5 acre Interchange Upgrade: a) Basic Diamond/Partial Clover: 5 acre b) Complex with directional Ramp: 10 acre New Interchange: a) Basic Diamond or Partial Clover: 30 acre b) Complex with directional Ramp: 70 acre For the right-of-way cost, project-specific estimates are made. First, for each project, the parcels are identified through which ROW is needed. Second, using the county auditor’s data set, the cost per acre for each parcel is determined. The total ROW cost is calculated by multi- plying the estimated ROW acreage and the cost per acre of the parcel. The minimum cost per acre is fixed at $75,000. Tips Based on a project description detailing the limits of all alternatives, a primary impact area should be established. This primary impact area identification should include work completed during concept development, scoping, public involvement, and interagency coordination. Secondary impact areas, where applicable, should also be identified and discussed. A graphic detailing the primary and secondary impact corridors and proposed right-of-way limits should be developed. Another graphic should be developed mapping the existing land use and zon- ing within the primary impact area of each alternative. The graphics should delineate indus- trial, commercial, single-family residential, multifamily residential, public and quasi-public uses, and vacant land. Pursuant to the Farmland Protection Policy Act of 1984 (FPPA) (Pub- lic Law 97–98—Subtitle I of Title XV, Section 1539–1549), all agricultural lands, defined as agricultural soils considered prime farmland soils, soils of statewide or local importance, and unique soils, affected by the proposed action must be identified and quantified. The acreage of agricultural soils acquired by the proposed right-of-way must be determined. Additionally, it should be noted if this total exceeds 3 acres per mile of roadway improvements or 10 acres per interchange or intersection. The results of these calculations will be forwarded to the State Soil Conservation Service. Appendix A A-35

Early project alignment drawings may not show the required right-of-way width or area for interchanges. Use a typical section width under the worst-case scenario—maximum right-of- way needed. In the conceptual plans, look at the existing constraints so that alternatives that limit right-of-way requirements (e.g., retaining walls or steeper side slopes) can be explored. Resources Florida DOT right-of-way estimation guidance can be found on the web at www.dot.state.fl.us/ rightofway/documents/ROWmanual/Acrobat%20files/ch06s03.pdf Computer-aided design and drafting (CADD) systems use computer graphic technologies to design and map projects and to quickly consolidate many different design aspects, such as right-of-way maps, into a common database or base map. A 1999 U.S. General Accounting Office study found that 43 SHAs use CADD systems on more than half their projects. CADD-generated project right-of-way maps present an opportunity to enhance knowledge concerning required right-of-way requirements and to improve right-of-way estimation. Global positioning systems (GPS) are used for mapping purposes. A 1999 survey found that 15 SHAs use GPS on more than half their projects. GPS-generated project right-of-way maps present an opportunity to enhance knowledge concerning required right-of-way require- ments and to improve right-of-way estimation. Wisconsin DOT’s document “Design, Real Estate and Construction Delivery Estimates” identifies the portion of dollars that should be set aside for design, real estate, and construction delivery. The web address is www.dot. wisconsin.gov/localgov/highways/docs/delivery.pdf. Estimates are derived by taking a certain percentage of actual real estate acquisition costs for real estate delivery or an actual percentage of total construction costs for design and construction delivery. R2.2 Advanced Purchase (Right-of-Way Preservation) To facilitate the construction of a public improvement, the necessary real property interests must be acquired expeditiously and in compliance with governing rules and regulations. Pro- active access management and corridor preservation strategies may reduce right-of-way cost. However, transportation agencies must be very careful to avoid preemptive takings (i.e., takings in which land use rights are prematurely restricted) in long-term anticipation of projects involv- ing right-of-way acquisition. What Is It? This tool educates project managers and estimators about advance purchasing of real estate and the effect of such actions on project cost estimates. For years, corridor preservation for high- way projects has been a goal of the FHWA and other governmental agencies. Various activities have been undertaken in support of this goal, and legislative support was provided in ISTEA. Protective buying may be approved only after (1) the acquiring agency has given official notice to the public that it has selected a particular location for the project alignment or (2) a public hearing has been held or an opportunity for such hearing has been afforded. Why? The goal of the tool is to eliminate one of the major uncertainties from the project cost esti- mate by purchasing right-of-way in a future corridor to protect the corridor from further devel- opment that could substantially increase the cost of real estate. What Does It Do? In the case of estimates prepared during early project development, it may be necessary to pre- dict real estate values as much as a decade in advance, which is a very difficult task. Advance pur- chase of right-of-way can eliminate or at least moderate this volatile component of early project cost estimates and therefore improves the accuracy of the estimate. A-36 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

When? This tool should be used in the earliest stages of project development in order to avoid infla- tion and escalating property values caused by development within the alignment of a corridor or project. It is a good tool for a limited number of parcels. However, in the case of a long corridor, its application is limited. Examples The Texas legislature has given the Texas Department of Transportation (TxDOT) the author- ity to acquire right-of-way to preserve a corridor. Both TxDOT and the FHWA understand that such an acquisition would not negate the requirement to complete NEPA. The I-69/Trans-Texas Corridor Project in Texas will be evaluated using a tiered approach. At Tier 1, corridor-level deci- sions will be made. After the Tier 1 right-of-way acquisition, TxDOT can acquire right-of-way at its own risk, knowing that when the Tier 2 NEPA evaluations are initiated, the ownership of the previously acquired right-of-way cannot and will not influence the Tier 2 alternative loca- tion decision. Since the I-69/TTC corridor will be approximately 1,000 miles long, common sense would lead one to believe that only the parcels in eminent danger of being developed would be acquired. See the FHWA’s March 2004 Environmental Streamlining Newsletter for more infor- mation on the I-69 project. Minnesota DOT (Mn/DOT) policy requires environmental documentation prior to pur- chase. Additional information can be found in Appendix J of Mn/DOT’s Interregional Corri- dors: A Guide for Plan Development and Corridor Management (available online at http:// www.oim.dot.state.mn.us/IRC-Guide.html). Also included is information on the environ- mental review and documentation process as it relates to right-of-way preservation. Mn/DOT also conducted a research project to identify circumstances under which it is optional to pur- chase right-of-way in advance and those in which it is not. The final report of this research project, titled The Final Benefits of Early Acquisition of Transportation Right of Way, is avail- able at http://www.research.dot.state.mn.us/detail.cfm?productID=1998. Improvements to Florida’s Strategic Intermodal System (SIS), a statewide network of high-priority transporta- tion facilities, envisions acquisition of right-of-way for the following: • The future widening of I-595 • The widening of I-4 • Future improvements to SR 79 • Future US 331 reconstruction to a four-lane facility Florida DOT’s Right of Way Manual (effective April 15, 1999; acquisition revised December 11, 2000), “Section 8.1 Advance Acquisition,” can be found at www.dot.state.fl.us/rightofway/ documents/ROWmanual/Acrobat%20files/ch08s01.pdf Tips Brief summary of the process. To use the protective purchase option (advance purchase), there must be at least a draft environmental document (which means that the initial public hearings must have been held). An individual categorical exclusion (CE) document will be required for the protective purchase. The state highway agency will ask the FHWA division office to review and approve a protective purchase package. The package will include (but may not be limited to) a CE document, copies of property valuation appraisals, preliminary design maps, and written justification for the protective purchase. If the FHWA division office concurs with the protective purchase, the approval will indicate that the state highway agency may incur costs that will be eligible for reimbursement at such time as a final environmental document is approved. The state highway agency may use its own funds to make the purchase and request reimbursement from the FHWA after the final environmen- tal document is approved. Appendix A A-37

There is the potential for a decrease in the value of abutting parcels (e.g., who would want to purchase a home in an area knowing that there is a major highway project planned?). Adjacent property owners could also demand compensation at this time, and there really is no appropri- ate way to compensate properties not within the corridor for a property value stigma associated with a nearby project. However, limited studies at Illinois Department of Transportation (IDOT) looking at the effect of highway improvements on adjacent property did not show evidence of property value decreases. IDOT often received comments from property owners who were not directly affected by right-of-way acquisition that the highway would damage them even though no right-of-way was taken from them. When sales prices of properties next to and away from a major highway were examined, it did not appear that the highway had a negative effect on property values. When using this tool, the agency might want to look at some examples in its area to see if properties next to major roadways sell for less than comparable properties a block or two away. A study conducted by a national realtors organization that surveyed 2,000 homebuyers nation- wide on what issues were most important in choosing a home location found that access to trans- portation infrastructure was cited most often (43%). Transfer of development rights. Some agencies have negotiated with property owners to transfer right-of-way dedication for future roadways for increased development densities on remaining portions of the parcel. This enables the developer to get the same number of lots or units and also enables the agency to obtain the needed right-of-way. Resources See the hardship/protective purchasing sections of the 23 Code of Federal Regulations. Specifi- cally, refer to Sections 23 CFR 630.106(c)(3), 23 CFR 710.503, and 23 CFR 771.117(d)(12). The Missouri Department of Transportation (MoDOT) Engineering Policy Guide combines the Right of Way, Design, Bridge, Construction, Traffic and Maintenance Manuals of the Department and provides a single reference for all engineering guidance. The MoDOT pol- icy is as follows: 236.13.1.12 Advanced Right of Way Acquisition At times it is in the public interest to buy right of way resulting from hardship cases, total acqui- sitions, or protective buying prior to the time the right of way plans have been fully developed. When this occurs, it is possible to obtain authorization for right of way acquisition based on the approved final preliminary plan. This procedure is restricted to special cases. It is initiated by the district’s request and supported with adequate justification for approval. District right of way will request approval from the Right of Way Division for all hardship and protective purchases. Also see the Texas Department of Transportation’s Project Development Process Manual, “4410: Perform Advance Acquisition for Qualified Parcels,” at http://onlinemanuals.txdot.gov/ txdotmanuals/pdp/right_of_way_appraisals_and_acquisition.htm#i1005267 R2.3 Condemnation Typically, right-of-way acquisition, especially in urbanized areas, includes other costs besides land purchase, such as costs related to takings, condemnations, relocations, damages, and courts. As a result, it is necessary to estimate these additional costs associated with actual acquisition of land needed for projects. From FY 91/92 to FY 94/95, Florida DOT had to initiate condemna- tion proceedings in 42.9% of its right-of-way parcel acquisition actions. What Is It? This is a tool to educate project managers and estimators about the schedule changes, which can affect the overall project estimate, and the direct right-of-way cost impacts of using con- A-38 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

demnation to acquire right-of-way. When right-of-way must be secured by condemnation through eminent domain procedures, it typically involves the transition of control of the set- tlement from the agency’s right-of-way department to its legal department. At that point, issues of time, cost, and jury process are relevant to establishing the estimated cost of the right-of-way parcel. Why? Because of the high costs and the potential for project delays, most right-of-way offices make it a high priority to resolve and settle right-of-way parcel disputes before resorting to litigation and most of the cases where condemnation proceedings have been initiated are settled before actually going to court. However, estimators must have an understanding of the potential neces- sity of resorting to condemnation proceeding to acquire right-of-way and of the cost conse- quences of such procedures. What Does It Do? This tool educates estimators about the direct and indirect cost of right-of-way acquisition, particularly the cost associated with condemnation proceedings, and the effect that condemna- tion proceedings can have on a project’s timeline. If a state highway agency is unable to agree with the owner on a price for a parcel of property, the agency files a condemnation suit and the court determines the property’s value. Other costs in many cases can include the landowner’s attorney fees, appraiser fees, technical expert fees, and relocation expenses, if necessary. If the state takes a portion of a business property, it may also have to pay business damages for per- manently lost profits and the reduced profit-making capacity of the business. Estimators need to understand these ramifications of right-of-way cost in order to prepare accurate project estimates. When? This tool should be a continuous estimator education process for all estimators who are involved in estimating the cost of right-of-way. The tool particularly supports early estimates developed when the exact project alignment is imprecise and right-of-way issues lack focus. Examples Oregon DOT (ODOT) holds statewide right-of-way meetings every 18 months, where all right-of-way staff assembles for training sessions and to share best practices with each other. In addition to formal training programs, individual training plans are prepared at the regional level and approved by the central office as part of its business plan. Portions of the right-of-way man- ual are available online on a shared directory, and policy memos, clarifications, and relocation meeting minutes are frequently circulated and stored electronically. Something like this could be expanded to include training for right-of-way estimators. The AASHTO Right-of-Way and Utilities Subcommittee sponsor’s conferences addressing many of the subjects that right-of-way estimators need knowledge about. Tips In terms of condemnation rates, those states that require payment of litigation costs and give property owners more than 30 days to make a decision tend to fare some what better [Shadi Hakimi and Kara M. Kockelman, Right-of-Way Acquisition and Property Condemnation: A Comparison of U.S. State Laws, Journal of the Transportation Research Forum 44 (3): 45–58 2005]. Most areas of dispute involve severance damages to the remainder of the property and business damages. Therefore, these issues must be fully understood when estimating right-of-way cost. Consider the effect that relocation has on a business. Does the business have specific require- ments that may hinder relocation? Appendix A A-39

When the right-of-way land requirement does not require all of an owner’s business property, other facts should be considered: • Will the proximity of the proposed facility affect the operations of any businesses, in terms of access disruption, or parking loss, which could result in loss of business? • Will the proposed action disrupt current accessibility to businesses, thereby having a poten- tial for loss of clientele? Resources States usually determine compensable items through right-of-way statutes or previous court cases (Meltz, R., D. H. Merriam, R. M. Frank. The Takings Issues, 1999). The extent of state law flex- ibility on compensable items varies across the United States. The nature of early negotiations can be a key issue in condemnation proceedings (Netherton, 1963). Some states require that there be an attempt to negotiate in good faith; others require only a failure to agree; and some require no negotiations at all. The Uniform Act impact on Condemnation Rates as it only applies to federally aided projects (49 CFR Part 24). State laws must be in accordance with the Uniform Act, unless required permission is obtained (49 CFR Part 24). The FHWA report, “Evaluation of State Condemnation Process,” summarizes the legal and procedural framework for acquiring real property for right-of-way, focusing on five spe- cific states. It provides information on the statutory authority and case law relevant to the acquisition of real property in each of those five states. It reviews each state’s approach to negotiations and valuation, the use of alternative dispute resolution or other administra- tive procedures used to establish value, and the payment of the property owner’s attor- ney fees and related expenses. This FHWA report can be found at www.fhwa.dot.gov/ realestate/cndmst.htm Also see the AASHTO Standing Committee on Highways, Strategic Plan 4-4, Right-of-Way and Utilities Guidelines and Best Practices, Jan. 2004, http://cms.transportation.org/sites/ rightofway/docs/aabp%20report%20 final.pdf R2.4 Relocation Costs In 1999, $100 million in federal and state funds were paid to displaced business and property owners for reestablishment and relocation assistance. The Uniform Relocation Act (Uniform Act) and FHWA regulations address the benefits and protections for persons displaced by highway projects funded, at least in part, with federal money. In 1987, as part of the Surface Transportation and Uniform Relocation Assistance Act (STURAA), Congress amended the Uniform Act to increase payment levels, to add benefits for small businesses, and to designate the U.S. DOT as the lead agency for the Uniform Act for all federal and federally funded programs and projects. The FHWA has the responsibility to act for the U.S. DOT. The Uniform Act was once again amended on November 21, 1997, to incorporate Public Law 105-117 by prohibiting an alien who is not lawfully present in the United States from receiving assistance under the Uniform Act. What Is It? This tool ensures that those estimating the cost of project right-of-way fully understand the legal requirements of parcel acquisition to include relocation costs. The Uniform Act provides reloca- tion payments for residential occupants and for businesses, farms, and nonprofit organizations. These payments include moving expense payments and certain supplementary payments for replacement housing for residential occupants. In addition, the Uniform Act requires the availabil- ity of replacement housing for displaced persons, sets minimum standards for such housing, and A-40 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

requires notices and information to be provided to all property occupants. The law also requires that advisory services be provided to occupants so as to help them relocate successfully. Why? It is important to understand that the project schedule can be affected by relocation actions and that there are indirect costs associated with securing right-of-way. Without the relocation of those occupying the project site, the project cannot proceed to actual construction and the schedule will be extended, thereby adding cost to the project. Estimators must understand the timing effects of relocation actions, particularly in relation to construction timing (midpoint of construction for estimation purposes), and the cost of relocation actions must be included in a project right-of-way cost estimate. What Does It Do? This tool seeks to educate estimators and project managers about the legal requirements that affect the right-of-way cost and the effect that relocation actions have on project schedule so that estimators and project managers can estimate project cost based on realistic schedules and can include all subsidiary (i.e., indirect) right-of-way costs in the estimate. When? This tool should be used when projects involve the relocation of individuals in residential properties or nonresidential relocations, businesses, farms, and nonprofit organizations. One of the main purposes of the Uniform Act is to prevent affected persons from bearing an unfair share of the burden of public projects. The act provides relocation assistance payments in addition to relocation assistance advisory services. Relocation assistance payments are designed to compensate displaced persons for costs that result from acquisition of the property on which they reside. Examples Residential relocation payments are intended for persons who move (or move personal property) from a dwelling as a result of a highway project receiving federal financial assistance. These payments fall into three types: • Moving expense payments are designed to compensate for the moving and related costs that a person incurs as a result of having to move from his or her dwelling or to move personal property for a project. • Replacement housing payments are designed to help eligible displaced persons occupy housing that is decent, safe, sanitary, adequate for their needs, and comparable to what they had before the project required their move. There are three categories of replacement hous- ing payments: purchase supplements, rental assistance, and down payment assistance. • Housing-of-last-resort payments are payments in excess of statutory maximums or payments involving other, unusual methods of providing comparable housing. See the Caltrans brochure, “Your Rights and Benefits as a Displaced Business, Farm or Nonprofit Organization Under the Uniform Relocation Assistance Program,” on the Internet at www.dot.ca.gov/hq/row/pubs/ business_farm.pdf Tips Consider the effect that relocation has on a business and answer the question: Does the busi- ness have specific requirements that may hinder relocation? Resources See the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (Public Law 91-646), as amended (42 U.S.C. 4601 et seq.). Appendix A A-41

Also see the Uniform Relocation Assistance and Real Property Acquisition for Federal and Fed- erally Assisted Programs (49 CFR 24). If the project has Federal-aid funding, the FHWA’s memorandum Policy and Guidance for Acqui- sition and/or Relocation Incentive Programs-Voluntary (2006) should be consulted. It can be found at http://www.fhwa.dot.gov/realestate/acqincentguid.htm R2.5 Right-of-Way Estimator Training A “Highway Construction Cost Comparison Survey” conducted by the Washington State DOT in 2002 found that right-of-way costs typically vary. SHAs reported that variability rates for right-of-way ranged from 10% or less to over 30% of project cost. Such variability makes the use of historical cost averages for estimating right-of-way cost very unreliable. Estimators need to be trained to recognize the factors that affect right-of-way cost. Why? It is important that right-of-way acquisition be handled expeditiously and that project man- agers and estimators have a solid understanding of right-of-way acquisition processes and costs, both direct and indirect. What Does It Do? This tool seeks to specifically educate estimators concerning the factors that influence right-of-way cost and to provide the estimators with the information necessary to handle the challenges associated with developing right-of-way estimates. Right-of-way estimators must be trained to • Develop early estimates based on planning-level maps with limited information on the extent of takings. • Adjust right-of-way estimates for the significant inflation and speculation that can occur between the time when the estimate is initially prepared (typically several years in advance of actual right-of-way acquisition) and when the parcels are purchased. Right-of-way estimates are prepared based on year of parcel purchase, not midpoint of construction. • Account for the uncertainties associated with damages and court costs that result from con- demnation proceedings. When? Because all SHAs are continually involved with projects requiring right-of-way, the right-of- way estimator training tool should be standard practice to every state highway agency. However, it has been found that court costs are highly variable and are particularly high for projects in highly developed commercial corridors, where condemnation proceedings are common. Thus, the tool may be of greater benefit to SHAs that regularly engage in urban commercial corridor projects. Examples An example of right-of-way estimation guidance can be found at www.dot.state.fl.us/ rightofway/documents/ROWmanual/Acrobat%20files/ch06s03.pdf. Another example of a train- ing course developed by the Ohio DOT can be found at the following: http://www.dot.state.oh.us/ real/—Click on Manuals & booklets, Click on Cost Estimating—PowerPoint under POWERPOINT PRESENTATIONS. The FHWA’s Office of Real Estate Services has a Right-of-Way Outreach and Program Research website (www.fhwa.dot.gov/realestate/research.htm), which lists available professional training and technical assistance. A-42 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Tips Train estimators to red flag areas in proposed corridors [e.g., major streams, Federal Emer- gency Management Agency (FEMA) flood zones, residential and commercial structures, cemeteries, wetlands, historic properties, hazardous waste sites, and parks] that can affect right-of-way cost. Also train estimators to recognize removal items that will affect right-of-way cost (e.g., trees, buildings, and abandoned slabs). Revisit the right-of-way estimate as design proceeds and the construction limits are refined. Each time, identify total takes, relocations, and noise wall loca- tions, and then check the cost estimate. Understand whether the acquisition process for compensating renters differs from the process for compensating property owners. Real estate sales prices along a corridor of several individual projects are affected by the order in which projects are accomplished. A study of residential property prices from 1979 to 1997 along an urban corridor in Texas revealed significant price effects of the corridor improvement phases. During the pre-planning phase, housing prices in the immediate vicinity of the freeway were negatively affected, while those farther away were positively affected. During the planning phase, houses in the corridor appreciated at twice the rate of other Dallas properties. Prices declined more rapidly in the cor- ridor than elsewhere in Dallas during the early construction phases. However, prices again improved during the final construction phase, as sections of the freeway began to reopen and access improved. During the early phase of a project development, the right-of-way needs may not be defined clearly enough to differentiate between what will be a whole take and what will be a partial take. If it is helpful, cost estimates may be limited to whole parcel acquisition. Costs of partial acqui- sitions, including damages to the remaining properties and project overhead, can be factored into an estimate. A right-of-way estimator training program should cover the following: • Cost-escalated/real estate appreciation to year of expenditure dollars. • Risk assessment processes. • Documentation. • Estimate validation. • Estimate consistence with project scope. • Right-of-way administrative costs. • Estimating third-party (e.g., utility or railroad) costs. • Planning or conceptual estimates, consideration to expressing the estimate as a range. • Contingency based on stage of design. Resources The Florida DOT right-of-way estimation guidance can be found at www.dot.state.fl.us/ rightofway/documents/ROWmanual/Acrobat%20files/ch06s03.pdf Executive Order (EO) No. 12898 (1994), “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations,” requires that federal agencies be responsible for reviewing their programs and other activities to determine and prohibit any disproportionately high adverse effects on the human environments in low-income or minority communities. In the case of transportation projects, EO 12898 is implemented through the U.S. DOT and the FHWA. The U.S. DOT strategy ensures that the provisions of EO 12898 are integrated into the relevant existing guidelines used in the project planning Appendix A A-43

and public participation processes. The FHWA’s order requires that specific research and related data collection be conducted to provide information on environmental justice concerns. The FHWA’s Office of Real Estate Services has a Project Development Guide that contains a prac- tical approach to project right-of-way. This document presents best practices of state and local agencies and others in the right-of-way field. The guide can be found on the Internet at www.fhwa.dot.gov/realestate/pdg.htm “The Costs of Right of Way Acquisition: Methods and Models for Estimation” is a paper pre- sented at the 83rd Annual Meeting of the Transportation Research Board, January 2004. The paper reviews the literature related to right-of-way acquisition and property valuation. It describes the appraisal process. R2.6 Separate Right-of-Way Estimators Right-of-way is not merely a financial transaction to acquire real estate. It is a human endeavor that requires the highest level of tact, understanding, and respect from the people who represent the State. SHA right-of-way sections have the mission to deliver real estate services essential for public transportation projects that support the economic, environmental, and social vitality of their state. Completion of the right-of-way function is the last stage before construction com- mences, but to reach that point in project development, accurate right-of-way estimates must be prepared years before. Predicting the future is always difficult and in the case of right-of-way estimates it is necessary to understand all of the costs associated with obtaining parcels together with the intimacies of acquisition law and FHWA guidelines in real estate matters. A right-of- way estimate predicts the cost to research and acquire right-of-way for the project, including easements. It includes right-of-way costs for stormwater management, wetland mitigation, and other work outside the roadway prism. This issue of specific right-of-way knowledge to address the multi-variant nature of right-of-way estimating has led some agencies to establish a sepa- rate group of right-of-way estimators. What Is It? This is a group, usually within the right-of-way section of an SHA, specifically trained in tech- niques for estimating right-of-way cost. Its primary function is to estimate the right-of-way cost portion of a project estimate. Additionally, it is tasked to construct and maintain right-of-way cost models. While most SHAs position this group of right-of-way estimators in the agency’s right-of- way section, some have located it in design or estimating sections. Location in the agency structure is not as important as developing a group having the unique skill set needed to accurately estimate right-of-way cost and who can mentor and support one another in this important task. Why? It is extremely important that individuals attempting to estimate the cost of real estate acqui- sition be intimately familiar with the applicable State laws and implementing regulations. States have over the years enacted eminent domain laws governing public acquisitions under their juris- diction. Since the enactment of the Federal Uniform Relocation Assistance and Real Property Policies Act of 1970 (Uniform Act) and passage of the various State consent laws, basic public acquisition policy has become more uniform. However, several States have enacted laws and reg- ulations that go beyond Federal law, which provide property owners entitlements not considered generally compensable under Federal law. Therefore, those responsible for estimating the cost of real estate for right-of-way must possess knowledge concerning a unique set of rules and regula- tions and understand the lead time requirements that follow from the rules and regulations. Aside from property acquisition costs, right-of-way estimators must also estimate adminis- trative costs, including labor costs for environmental assessments, title research, appraisals or A-44 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

updated appraisals, lengthy negotiations and closings, as well as the hiring and managing right- of-way consultants. What Does It Do? It ensures that the agency has individuals who are knowledgeable and specifically trained to prepare right-of-way cost estimates and who are dedicated to monitoring changes in the real estate market place. In addition, separate right-of-way estimators provide the agency with the staff personnel having the necessary competencies to evaluate right-of-way cost estimates pre- pared by external consultants. When? The establishment of separate right-of-way estimators could be of great benefit to SHAs that regularly have projects penetrating urban environments. It has been found that court costs asso- ciated with acquiring right-of-way are highly variable and are particularly high for projects in highly developed commercial corridors, therefore estimating the cost of real estate for these proj- ects is very challenging. Examples The Virginia Department of Transportation (VDOT) is currently doing right-of-way esti- mates through the right-of-way department. VDOT has incorporated right-of-way estimating into the in-house computer program. There has been some resistance because the right-of-way people think that the computer cannot match the expert judgment. Caltrans has realized that right-of-way funds to acquire parcels needed to construct their projects are typically expended during the design phase; for this reason, it is the agency’s policy to have close coordination with the Right-of-Way Branch during the design phase of project development. The Florida DOT has recommended (Guidance Document 2 Right of Way Cost Estimates, Revised: April 2004) the use of right-of-way cost estimating teams for certain projects. “It is sug- gested that the district consider appointment of a team to participate in the preparation of the esti- mate on large or complex projects.” www.dot.state.fl.us/rightofway/documents/ROWmanual/ Acrobat%20files/guide2.pdf Tips Real estate sales prices along a corridor of several individual projects are affected by the order in which projects are accomplished. A study of residential property prices from 1979 to 1997 along an urban corridor in Texas revealed significant price effects of the corridor improvement phases. During the pre-planning phase, housing prices in the immediate vicinity of the freeway were negatively affected, while those further away were positively affected. During the planning phase, houses in the corridor appreciated at twice the rate of other Dallas properties. Prices declined more rapidly than prices elsewhere in Dallas during the early construction phases. How- ever, prices again improved during the final construction phase, as sections of the freeway began to reopen, and access improved. Right-of-way estimators need to be including construction data based on such information to use as aids in estimate preparation. Resources Executive Order (EO) No. 12898 of 1994: Federal Actions to Address Environmental Justice in Minority Populations and Low-income Populations, requires that federal agencies be responsible for reviewing their programs and other activities to determine and prohibit any disproportion- ately high adverse effects on the human environments in low-income or minority communities. Appendix A A-45

A-46 Procedures Guide for Right-of-Way Cost Estimation and Cost Management In the case of transportation projects, EO 12898 is implemented through the USDOT and the FHWA. The USDOT strategy ensures that the provisions of EO 12898 are integrated into the relevant existing guidelines used in the project planning and public participation processes. FHWA’s order requires that specific research and related data collection be conducted to pro- vide information on environmental justice concerns. The FHWA’s Office of Real Estate Services has a Project Development Guide, which contains a practical approach to project right of way. This document presents “best practices” of State and local agencies and others in the right-of-way field. The Guide can be found on the Internet at www.fhwa.dot.gov/realestate/pdg.htm The Costs of Right-of-Way Acquisition: Methods and Models for Estimation is a paper pre- sented at the 83rd Annual Meeting of the Transportation Research Board, January 2004. The paper reviews the literature related to ROW acquisition and property valuation. It describes the appraisal process and the influence of federal law on acquisition practices. It provides hedonic price models for estimation of costs associated with taking property using recent acquisition data from several Texas corridors and full-parcel commercial sales transactions in Texas’ largest regions. Results indicate that damages depend heavily on parking, access, and location; the size of the taking is not as important as the value of improvements; and utility costs are highly variable. See also the following research: Buffington, J. L., M. K. Chui, J. L. Memmott, and F. Saad, 1995. “Characteristics of Remainders of Partial Takings Significantly Affecting Right-of-Way Costs.” TXDOT Research Report. FHWA/TX-95/1390-2F. Carey, J. 2001. “Impact of Highways on Property Values: Case Study of the Superstition Freeway Corridor.” FHWA Report No. FHWA-AZ-01-516. Gallego, A. V., 1996. “Interrelation of Land Use and Traffic Demand in the Estimation of the Value of Property Access Rights.” Thesis for Masters of Science in Civil Engineering, The University of Texas at Austin. See the following federal laws governing acquisition: Uniform Relocation and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4801 et seq.) Section I of the Civil Rights Act of 1866 (42 U.S.C. 1982, et seq.) Title VI of the Civil Rights Act of 1966 (42 U.S.C. 2000d et seq.) Title VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601 et seq.) as amended The National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund) as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA) (42 U.S.C. Section 9601 et seq.) Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 790 et seq.) The Flood Disaster Protection Act of 1973 (Public Law. 93-234) The Age Discrimination Act of 1975 (42 U.S.C. 6101 et seq.) Executive Order 11063: Equal Opportunity and Housing, as amended by Executive Order 12259 Executive Order 11246: Equal Employment Opportunity Executive Order 11625: Minority Business Enterprise Executive Order 11988: Floodplain Management Executive Order 11990: Protection of Wetlands Executive Order 12250: Leadership and Coordination of Non-Discrimination Laws Executive Order 12259: Leadership and Coordination of Fair Housing in Federal Programs Executive Order 12630: Governmental Actions and Interference with Constitutionally Protected Property Rights

R2.7 Cost Estimate Map Early scope definition of right-of-way requirements is often viewed as an important approach to improving the accuracy of cost estimates. The problem with determining right-of-way require- ments early is the lack of information on specific parcels that may be within the proposed right- of-way boundaries. One approach to enhancing the information available regarding the effect of right-of-way on existing properties is to obtain aerial mapping, mosaics, or as-built plans covering affected properties and showing all improvements. This information can form the basis for early cost estimating. What Is It? Cost Estimate Maps show the approximate land requirements for a project in advance of pre- cise design requirements. The map is typically developed based on aerial photos of the proposed project location. Other information is used to show specific ownerships, limits and sizes of parcels and assessor’s parcel numbers. A map can also be prepared based on schematic plan view drawings. Cost Estimate Maps are used for studying alternative route locations, studying alter- native design features, producing cost estimates consisting of • Land (ownership and area), • Improvements, • Severance damages, • Special benefits, • Demolition, • Relocation assistance, and • Utility relocation. Why? Cost Estimate Maps provide a complete view of the desired location at a single glance. Criti- cal right-of-way information is added to the map depicting requirements, including potential areas where improvements may be necessary or damages will result from takes. Special features, which are sometimes not even noticeable by field visits, are often captured when using aerial pho- tographs. The topographic maps show the level of the area, which provides the user with an indi- cation of the type of terrain immediately in the vicinity of the right-of-way to be acquired. This level of information shown on these maps will aid in enhancing the accuracy of early right-of- way estimates. What Does It Do? Arial maps portray the land use properties of the site to be acquired. The field properties like datum, terrain, and marsh lands can be identified. The estimators can easily establish boundaries for the right-of-way to be acquired. These boundaries provide a general idea of the number and type of parcels to be acquired. Structures, utilities, and potential access points are some of the features of concern when considering the cost of right-of-way. The right-of-way items can be broadly denoted for the estimation purpose. The maps of present sites are used to superimpose on them the proposed facility. Communication of project issues between different divisions within the SHAs can be improved with the use of Cost Estimate Maps. When? A conceptual level Cost Estimate Map can be used during the planning phase as a basis for preparing a Conceptual ROW Estimate. This early use of the map can focus on potential align- ments showing approximate right-of-way boundaries. It may also give an indication of struc- tures and access points that may be affected by the proposed right-of-way boundaries. The Cost Estimate Map is more often used to support cost estimates during programming or early in the Appendix A A-47

preliminary design phase. The use of this tool may be critical when setting the Baseline ROW Cost Estimate. In its more advanced state, the map will help identify potential parcels and pro- vide insights into improvements and damages as a result of whole or partial takes. Example At Caltrans, a cost estimate map is provided that usually consists of an aerial photo, right-of-way boundaries, and affected parcels of each of the alternatives at the programming stage of project development. This map is designated as “For Estimate Purposes Only” with respect to early esti- mating. Based on the Cost Estimate Map, a Cost Data Sheet is completed. The Cost Data Sheet is a workbook in Microsoft Excel that includes all areas of right-of-way by parcel. Following com- pletion of the data sheet, the sheet is circulated to other affected divisions such as utilities, rail- roads, and environmental. This estimate is completed on a parcel-by-parcel basis. After the data sheet is completed, it is re-circulated through each of the divisions for review and approval. Figure R2.7-1 shows the details of right-of-way on Route 49 at Loganville, Uninc Sierra County, California. The green lines along the route are the existing right-of-way boundaries. Three areas are shown where right-of-way is needed for the project. Tips During the estimation process when using maps, special attention should be given to the scale of the map. Calculations should be rechecked before finalizing the cost estimate. When prepar- ing an early right-of-way estimate and time is limited, the use of a Cost Estimate Map can provide a picture of the right-of-way requirements without a site visit. This can aid the estimator in adjust- ing cost to better reflect anticipated conditions. Resources Caltrans: see Right of Way Engineering http://www.dot.ca.gov/hq/row/rowman/manual/ch6.pdf on Cost Estimate Maps and http://www.dot.ca.gov/hq/row/rowman/manual/ch4.pdf on Cost Project Estimate Mapping. R2.8 Cost Estimate System The real estate that will become the right-of-way for any project is subject to changes in land use or value over very short time spans. Additionally, the value of individual right-of-way parcels is greatly affected by changes to adjoining parcels. At the planning stage of project devel- opment, the right-of-way estimate is being developed several years before the actual real estate acquisition and it, therefore, includes a presumption about value appreciation. Assumptions for market price changes, the possible development in the adjoining areas, potential costs for condemnations, and the changes in governmental policies must be made so that the estimate reflects a future cost. To make these assumptions, right-of-way estimators use historical cost data to identify future trends. A large amount of historical data allows the estimator to make better predictions; therefore, computer-aided estimation software is an excellent support tool. Consequently, transportation agencies in many states use computer software for estimation of right-of-way cost. What Is It? Right-of-way cost estimation software can be sophisticated or a simple spreadsheet, customized to meet specific agency objectives. Generally, sophisticated software requires training and highly skilled people to use effectively. As a result, estimators need to spend more time in learning the system before they can fully use its potential. Electronic spreadsheets, on the other hand, are sim- ple to operate and edit and repetitive calculations can be easily performed. A-48 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Figure R2.7-1. Caltrans cost estimate map for a proposed project.

Why? Computer software can handle large data sets. The calculation speed is enhanced greatly and accuracy is improved. Historical data plays an important role in the estimation of right-of-way cost and the use of computer software for right-of-way estimates makes the storage and retrieval of historical data easy and rapid. The historical data are retrieved by the software to prepare a right-of-way estimate. Computer software gives consistency in estimation, which is very impor- tant at every level of estimation. Consistency gives a definite pattern of estimation which is easy to recognize and to edit for future estimates. Using the computer software gives flexibility to cal- culations. Electronic spreadsheets consist of small blocks called cells. These cells store formulas and values, hence when one value is changed it automatically changes the other values coupled with the cell. This makes editing very easy. The computerized right-of-way estimation program can be easily improved over time as use demands enhancements. What Does It Do? The electronic spreadsheet uses a step-by-step approach to prompt the estimator for informa- tion in creating the estimate. The estimators feed the available information, from survey and field visits, into the electronic spreadsheet and calculations performed by the spreadsheet program. The program allows the estimator to view and use data or information from historical right-of- way estimates. Complicated calculations involving Monte-Carlo simulation, risk assessment, and probabilistic estimation can be easily incorporated in the program performed. Standard reporting templates are available to generate reports. Maintaining records of the reports and right-of-way estimates thus becomes easier. Communication of the right-of-way estimate at var- ious phases of project development is one of the key factors for successful right-of-way estimate preparation. The consistency and standardized pattern of calculations and reports makes it easy to communicate the estimated right-of-way cost. The inflation rate and environmental issues related to the parcel are communicated with the costing details. When? Electronic spreadsheets are an effective way to estimate right-of-way cost for all types of proj- ects. Estimation of right-of-way is often a complex procedure because it includes many details about the real estate, which may differ from parcel to parcel. From the start of project planning until project construction, the right-of-way cost estimates are prepared at various stages. As a result the right-of-way cost estimate needs to be constantly updated. Any change in the scope of the project requires an update of the estimate. Hence, electronic spreadsheets make it easier to update, incorporate changes, and ensure consistency in data entry. Examples VDOT has developed an in-house estimating system called the Project Cost Estimating System (PCES). This cost estimating program covers all project-related costs, including right-of-way. The system was initially developed by engineering as an early estimate tool. PCES appears to be some- what cumbersome for right-of-way; however, it does address all areas of the right-of-way com- ponent. The system requires input for all of the cost areas of right-of-way to produce an estimate; therefore, it serves as a tool to ensure that all cost elements of right-of-way are considered. Esti- mators prepare an estimate in present dollars and the system automatically applies inflation. Screen captures of the estimating system are shown in Figures R2.8-1 through R2.8-3. The Ohio Department of Transportation (ODOT) has a manual, “Cost Estimating Procedures for Acquiring Right of Way” (2300 Cost Estimation . . . 2007). The ODOT procedure focuses on right-of-way cost estimating for major projects and minor projects. This classification of projects is defined in ODOT project development process (PDP) procedures. Major projects have 14 steps. Right-of-way cost estimates are prepared at several of these steps. The first estimate is prepared A-50 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Appendix A A-51 Figure R2.8-1. Screen capture of VDOT’s cost estimating system (PCES).

A-52 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure R2.8-2. Screen capture of VDOT’s cost estimating system (PCES).

to coincide with the first PDP step. Subsequent right-of-way estimates are updated based on the first estimate. The level of detail regarding right-of-way requirements increases as the PDP steps are performed. Multiple updates of the right-of-way estimate are prepared to support alterna- tive selection, for example. On minor projects, fewer right-of-way estimates are prepared because the alignment is not subject to alternative analysis. Similar estimating approaches are followed. In general, right-of-way cost estimating techniques are discussed and the use of supporting infor- mation is identified. Cost values are provided for many estimate elements. An estimate form is used to capture all costs and summarize costs for a total right-of-way estimate. This estimate form is shown in Figure R2.8-4. California DOT (Caltrans) has developed an in-house electronic spreadsheet for right-of- way estimation. This software is easy to use because the templates for the input of data are avail- able at every stage of the estimation process. The data acquired from the field survey are used as input for the calculations. The electronic spreadsheet used by Caltrans for right-of-way esti- mate has many information and data entry sections. The most important of these are the instructions (Figure R2.8-5), information about data available, mitigation, railroad, utilities, USA land information, mitigation details, and reports. The instructions page includes all the technical information required at various levels of the estimation process. The instructions tab gives information about how to use the spreadsheet; this gives the spreadsheet user flexibility in creating the estimate. Even a less experienced estimator can read the instruction and create an accurate right-of-way estimate for Caltrans. The “Basic Input” sheet (Fig. R2.8-6) is a template for entering the basic project information. This would include the project description, extend, project number, details of the maps acquired, name of the estimator, type of work, and contingencies of the project. The information entered in this tab is used by the spreadsheet as the title information and descriptive data displayed on reports. Appendix A A-53 Figure R2.8-3. Screen capture of VDOT’s cost estimating system (PCES).

Figure R2.8-4. Ohio DOT estimating sheet.

The “Worksheet” tab (Fig. R2.8-7) is where the data acquired from the field visits are entered. These data are used in the calculations of real estate cost. The details of input include items such as the type of parcel, parcel number, the estimated cost, relocation assistance program cost, demo- lition cost, and appraisal fees. This worksheet is also used to enter the escalation rates and envi- ronmental permits. Additional tabs include details about railroads in the right-of-way, utilities in the right-of-way, and rentable properties. The mitigation details about some parcels can also be entered in the Mit- igation information tab. From these data input, the worksheet automatically prepares the data sheet and the cover letter. Figure R2.8-8 shows a data sheet from the Caltrans electronic spreadsheet. The output of the right-of-way estimate is printed and sent to the team leader for review. If changes are recommended, they can easily be entered into the spreadsheet. The Florida DOT has two spreadsheets that are comprehensive in terms of right-of-way cost estimating. One spreadsheet, Right of Way Long-range Cost Estimate, has three tabs and is used Appendix A A-55 Figure R2.8-5. Caltrans electronic spreadsheet for right-of-way estimating.

to support planning right-of-way estimates. It does require an estimate of the total number of parcels. Historical cost data are included on a Factor Sheet where the cost estimate is generated automatically based on key inputs. The second spreadsheet, Right of Way Work Program Cost Estimating Software System, has nine tabs. The program is based on individual parcel input and impacts to each parcel. Cost data are also provided, either through historical information or current inputs. This spreadsheet also has a tab that helps track estimated costs of a parcel ver- sus acquisition costs. The spreadsheet is very comprehensive in its treatment of right-of-way cost estimates. Tips Entering data in the electronic spreadsheet can sometimes be confusing and hence the data should be checked to avoid unexpected errors. Spreadsheet calculations should be verified. The right-of-way estimate must be able to override cost data embedded in the program. Resources Virginia DOT—Contact Virginia DOT to obtain further information about the PCES program: http://www.vdot.virginia.gov/default_noflash.asp A-56 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure R2.8-6. Basic input sheet for the Caltrans right-of-way electronic spreadsheet.

Ohio DOT: http://www.dot.state.oh.us/real/—Click on Manuals & booklets, Click on 2300, Cost Estimating Procedures for Acquiring Right of Way under 2000 Series. Caltrans: Right of Way Engineering, http://www.dot.ca.gov/hq/row/rowman/manual/ch4.pdf on Estimating. Florida DOT: “Right of Way Long Range Cost Estimate (Estimate_LongRange_Version_4.xls)” and “Right of Way Work Program Cost Estimating Software System.” The FDOT Office of Right of Way is located at: http://www.dot.state.fl.us/rightofway/default.htm R2.9 Formal Database Historical bid based estimation is the most common type of cost estimation used by SHAs. This approach relies on data from previous work. SHAs typically have databases that store historical acquisition and other costs information. Many SHAs have internally developed software that allows an estimator to selectively sort and analyze historical cost data before assigning cost to real estate estimate elements and assembling a project or program estimate. Although such databases are common for construction work items in many SHAs, they are not as sophisticated in the right- of-way cost estimating area. There is a need for a cost database that can provide historical cost Appendix A A-57 Figure R2.8-7. Worksheet for the Caltrans right-of-way electronic spreadsheet.

data to support the assignment of cost to certain right-of-way cost elements. Such databases may be particularly helpful when creating estimates early in the project development process. What Is It? In general, a right-of-way database is a tracking system containing information on individual real property parcels. The system provides a means for assembling and retrieving parcel infor- mation easily. Right-of-way functional areas are usually conducted by the different functional divisions within the SHA, including but not limited to the Division of Real Estate, Land Man- agement, Mapping and Surveying, and Right of Way. A database can ensure that all parties are using the same and most current information. When the database is tied to a geographic infor- mation system (GIS), a software Data Query feature of GIS can be used to identify parcels and their associated attributes (including owners and their contact information) located within established rights-of-way and to create output files of affected property owners to be contacted for Property Acquisition negotiation. A-58 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure R2.8-8. Data sheet from the Caltrans right-of-way electronic spreadsheet.

The database provides users with statewide historical and parcel information and can be used to review recent comparable sales, for predicting possible inflation rates and condemnation rates, or to analyze other right-of-way–specific parameters and/or statistics. Instant access and avail- ability of the forms, reports, and data contained in such databases are major advantages of these systems, particularly when managing costs during parcel appraisal and acquisition actions. Why? Right-of-way estimators use historical data to estimate various cost elements of a right-of-way action. When preparing estimates using historical data, it is important to have all the data ready available and structured in an easy-to-access format. Hence, the development of a formal data- base is an important support tool for estimation of right-of-way cost. The easily accessible data assist estimators, and project management is available to conduct studies of previous rights-of- way costs and to structure improvements in the estimation process. The database also helps to maintain and track actual expenses incurred as real estate is evaluated and purchased. The staff retirements or even changes in right-of-way staff within an agency usually mean the loss of cor- porate knowledge. By implementing a database system, the history of right-of-way acquisitions and utility relocations and adjustments can be easily referenced or queried. What Does It Do? A formal right-of-way database is a structured collection of information from right-of-way actions. Details portrayed in a database might include the status of a project, estimated costs, active estimates, construction limits, details of permits and, when integrated with a GIS, site envi- ronmental and contaminated can be shown graphically. The database probably would store information about individual real estate parcels acquired, including information such as parcel maps, contacts, and cost of the parcel as well as condemnation and mitigation details. This type of database provides information for the users, which is critically important during the appraisal and acquisition process and is very helpful when preparing future cost estimates. Special cases of right-of-way acquisition can be studied by users to gain valuable information and experience. The database provides the information necessary for the preparation of cost comparison tables and can improve accuracy of a project cost forecast. Commercial database systems are available that track • Property ownership and encumbrances • Title information, name of owners and other contacts • Easement acquisition across properties along the route of a right-of-way • Permission to enter properties for civil surveys and other land studies (e.g., environmental, cultural, wetlands, and endangered species) • Permit acquisition from local, county, state, and federal agencies • Relocation assistance efforts • Damage claims • Special instructions and provisions which must be observed in crossing the properties • Legal rights obtained from the easements (i.e., due diligence) • Document maintenance for due diligence • Contact with owners and other interested parties When? Currently, most right-of-way databases are used to track real estate appraisals and acquisitions. In this capacity, the database probably would be used during the final design phase of project devel- opment when right-of-way cost management is performed. However, the information within such as database can support the preliminary design phase of project development when cost estimate updates are being prepared and especially when a parcel-by-parcel estimating approach is used. Appendix A A-59

Examples Minnesota DOT: A ROW tracking system has been developed by the Minnesota DOT (MnDOT) identified as the Right-of-Way Electronic Acquisition Land Management System (REALMS). At this time, REALMS capability only includes cost reporting and tracking of each parcel from appraisal through acquisition. It is not used as a cost estimation tool, but offers the potential to provide a source of recent historical data and market trends for land values. REALMS does track condemnation rates and costs. For example, data over the past 5 years indicate that 24 percent of the parcels in Minnesota have proceeded to condemnation with an average cost that is 58 per- cent over the appraisal price. REALMS software provides easier access to historical data and supports right-of-way acquisi- tion, utility relocation, and cost adjustments. MnDOT wants all their employees to use REALMS as it improves not only right-of-way cost estimation but provides historical data from previ- ous projects. REALMS acts as a source of information for all personnel in the MnDOT system. Historical data are now available on every employee’s desktop and hence reviewing and under- standing right-of-way projects has become easier with this single authoritative source of infor- mation. REALMS has a provision for data storage from the initial planning phase to the final design which provides a complete overview of the project. Virginia DOT: The Right of Way and Utilities Division (RW&U) and VDOT wanted soft- ware that would provide leaders with a single, comprehensive view of project and land parcel status and enable them to track key dates efficiently. The Right of Way and Utilities Manage- ment System (RUMS) was developed as a tool to track the acquisition process on a project- by-project basis. RUMS supports the right of way and utilities business from the estimate stage through condemnation by tracking evaluations, negotiations, legal functions, the relocation of families and businesses, disposition of improvements, the execution of utility easement agreements, and the relocation of utility facilities. Additionally, it is used in the management and disposition of surplus/residue properties and in managing consultant contracts. RUMS replaced a mainframe system that was awkward for the users. Ad hoc reporting using this legacy system was difficult to produce, resulting in lost time and an increased chance for errors. Moreover many RW&Us functions were not being tracked. Modifying the legacy sys- tem was becoming more difficult and limited. RUMS enables employees of VDOT and its agents to manage their work efficiently, thereby meeting critical project advertisement dates. Through an innovative graphical user interface design, which uses business-intelligent icons, RUMS enables management at all levels to quickly determine project statuses at-a-glance and make informed business decisions. Not only can users quickly assess whether projects are in danger of missing the advertisement date, but also which parcels and/or disciplines are causing the delay. Formal reports complement the at-a-glance features of RUMS by providing more detailed status information, while powerful ad hoc reporting features empower the users in their business analysis. While RUMS provides management-level employees with real-time project status, the sys- tem supports the business of right-of-way by enabling the end users to manage their workflow. All pertinent right-of-way data are tracked and contribute to VDOT’s ability to drive their busi- ness through informed decisionmaking. Furthermore, RUMS provides assignment-tracking through the entire business process, enabling users to track, manage, and perform their work within the same software tool and enabling management to determine how the workforce is being used. The system includes a document management feature whereby forms and letters are generated and stored. Forms and letters are pre-populated by date from RUMS, eliminat- ing the time and errors associated with data duplication. Upon completion, the forms and letters are retained in the system’s database and are readily available for viewing by all with appropriate access rights. A-60 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

The system was designed using the input of field personnel and their knowledge of the work- flow. The ideas of the people in the field were incorporated and continue to be incorporated to make this system work for them. RUMS was designed to be their workhorse and the backbone of the day-to-day right-of-way process. RUMS supports the following: • Improved work flow and expedited processes, • A repository of forms and letters that pre-populates repetitive data, • An intuitive interface that highlights critical dates, • Ease and flexibility for data searching and filtering, • Ad hoc reporting capabilities, • Formal reporting capabilities, • Valuation history of parcels, • Contextual assignment tracking, and • Web-based reporting capabilities. Utah DOT: The Utah DOT (UDOT) Right-of-Way Division has an Electric Project Manage- ment (ePM) Right-of-Way Tracking program. This database tracks reports for current and past right-of-way projects. Searches can be made by owner, project number, parcel number, and other project attributes. Data can be exported to create Microsoft Excel spreadsheets and imported into Microsoft Project for project scheduling purposes. The system shows the owner- ships that have been cleared for construction, those in condemnation, and those in the process of relocation. Envisioned electronic enhancements to the systems include the ability to store electronic appraisals and generate relocation documents, deed descriptions, and project drawings for each property within the right-of-way database. Eventually, the UDOT Document Management (DM) system will be linked to the ePM Right-of-Way Tracking program. New Hampshire DOT: The New Hampshire DOT (NHDOT) has developed a Risk Assessment and Site Characterization for Appraisal of Land (RASCAL) system to facilitate the collection and management of data for contaminated sites it proposes to acquire for transportation purposes. This web-based system integrates personal digital assistants (PDAs), global positioning systems (GPS), and digital cameras for rapid contamination data collection. The data are uploaded to a database that interacts with other databases (e.g., right-of-way databases) to eliminate data redundancy and are easily accessible through the web site. This accessibility allows consultants to access the database from outside the NHDOT firewall. The collected data automatically rank the contamination risk threshold for each site and flag key issues. The data are also used to generate cost estimates for remedial action, for use in determining property values during the right-of-way appraisal process. Reports can automatically be generated from the database. RASCAL reduces field time, standardizes data collection and reporting, and provides NHDOT with more accu- rate and more easily retrievable data, which allows for prioritization of sites for remediation. It is intended that this approach to data collection and management will be applied to other envi- ronmental disciplines in the future (e.g., historic resources and wetlands). New Jersey DOT: The Department began a Right of Way Database/Document Management System project in FY 2008. That project will update the existing Access database with a system approved and supported by the Department’s Division of Information Technology. This “next- generation” system will have scheduling, document production, management control, GIS, and extensive reporting capabilities. All information of the proposed system has been presented to Information Technology and has the advocacy of CPM’s senior management as well as the Department’s Office of the Inspector General. The New Jersey DOT uses its current database to track the progress and status of cases dur- ing condemnation. The progress and status of each new case, amendment, withdrawal and/or Appendix A A-61

additional deposit is tracked via the Right-of-Way Database. Proper and timely maintenance of the database facilitates the generation of reports that detail the progress in processing cases to final judgment to management. The database aids the Department in ensuring that property acquired through condemnation is secured by established right of way availability dates. Tips Right-of-way estimation is complicated and estimates must be created during all phases of project development. From the conceptual phase to the final design phase, the parcels of land to be acquired may change with the change in project design and route. A database of previous projects forms a learning foundation and makes it easier to cost when historical data are avail- able. The increasing ability to access the data increases the accuracy and speed of right-of-way estimation. Right-of-way estimation and acquisition is subjected to changes until the comple- tion of construction. Database software should be linked with the estimation software and compatible with sources of GIS data. New GIS tools allow earlier input of right-of-way data to aid in project decision- making. New technology that allows web-based systems to be developed while incorporating state-of-the-art aerial and 3-D stereo imagery is available (GIS in Right of Way Scan, Tallahas- see, Florida: www.fhwa.dot.gov/realestate/scans/talafreport.htm) Resources “Cashing In” about the development of VDOT’s RUMS database can be found at www. govtech.com/gt/print_article.php?id=92321 Minnesota DOT, “REALMS for Dummies: Workbook.” Right of Way Acquisition, January 1, 2007. Although not specifically done for right-of-way purposes, the Portage County Land Informa- tion Modernization Plan 2005–2010 has a good discussion of database components. (http://www.doa.state.wi.us/docview.asp?locid=9&docid=6037). A presentation on the integration of a right-of-way database with GIS resources can be found at http://www.fhwa.dot.gov/realestate/scans/talafreport.htm#sess4. This presentation shows the methods used to view and query properties of interest and overlay them with other infor- mational layers (e.g., aerial photography, wetlands, and land use). R2.10 Purchase Values Database Producing accurate right-of-way cost estimates and managing real estate acquisition cost can be challenging. Usually programming and even planning right-of-way estimates which are devel- oped years before real estate acquisition are based on gross definitions of right-of-way require- ments. The second issue in developing an accurate forecast of right-of-way cost once acquisition begins is that, in many cases, management is a secondary task to purchasing property and there is limited time to prepare the forecasts. Time constraints restrict the development of accurate forecasts of cost once acquisition begins. Therefore, managers need structured databases of the actual cost of acquired right-of-way parcels that permit easy development of cost forecast based on the estimate and completed acquisitions. What Is It? This is a real estate activity database that includes information on property location and spa- tial dimensions, improvements, year of construction, and most important the agency’s actual cost to acquire. Properties should be coded into land use classes. These classes may match codes used by Appraisal Districts. If the database has a geographic information system (GIS) compo- nent, it is possible to unite comprehensive maps with ownership, value data, and experienced cost to acquire. A-62 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Why? Property owners must be treated fairly where real property is taken for project right-of-way. Therefore, determining “just compensation” is a major component of estimating the cost of right-of-way. Just compensation means that the estimate reflects the fair market value for the real estate taken. Comparable sales data for determining the fair market value may be obtained from appraisal districts, title companies, private appraisers, and/or online data services. Such data are used to create the right-of-way cost estimate. Additionally, once acquisition begins, it is possible to create a more accurate forecast of the final cost to purchase the right-of-way if actual costs are substituted for the fair market values used in the estimate. Collecting data and forecasting can be performed independently for each estimate. Indepen- dently collecting data is common practice in many SHAs. In this case, the information resides with the individual estimator when it would be better to have a managed database structured for easy retrieval of data that supports forecasting and which can be used to develop future estimates. What Does It Do? This database provides the managers of project right-of-way activities with a structured source of easily retrievable data on actual real estate cost as experienced by the agency. It is not the fair market value, which is defined as the price that a willing buyer will pay a willing seller for a piece of real estate. Fair market value data are used to develop right-of-way estimates. This is a record of actual cost experienced by the SHA. This actual cost data facilitates development of cost fore- casts as acquisition proceeds. By analyzing the actual cost record, management can update the cost estimate—make a forecast–and act to control project cost. When? During acquisition, the purchase cost data residing in this database are use to make forecast of the total dollar expenditure to acquire all of the right-of-way needed for a project. It is a man- agement tool for controlling and assessing acquisition and for gauging the accuracy of right-of- way estimates. Example TXDOT and other SHAs have right-of-way information systems that include maps, costs, and parcel detail for their projects. This Purchase Values Database can be a subpart of these existing systems or much simpler database software can be adapted specifically to the needs of an SHA right-of-way section. Tips Information Technology (IT) personnel can create onscreen forms to facilitate data entry and establish input controls to increase the likelihood that data are entered correctly. In some agen- cies, personnel stated that using databases could be difficult and frustrating. Therefore, it is important that right-of-way personnel have a voice with IT when the software is developed to make the system user-friendly. It is also necessary that the department provide training on the use of such systems. If the software that supports the database is not user-friendly, personnel will revert to compiling information independently. Such a practice wastes time that should be ded- icated to gaining a better understanding of the factors affecting the cost of individual parcels. Commercial database software is available that is currently used by businesses and govern- ment organizations. System controls can increase the likelihood that personnel enter accurate and complete data. It maybe necessary to restrict who may enter data into specific fields or to require that data entry meet established criteria. Appendix A A-63

Resources Data to populate such a database come from actual acquisitions but sheets similar to those used for making evaluations can serve to collect the raw data. See Ohio DOT Condemna- tion Appraisal data sheet (Fig. R2.8-4) or information at: www.dot.state.oh.us/real/pdf/ appraisal/4100%20Managing%20the%20FMVE%20Delivery%20Process.pdf R3 Risk Analysis Risk management is concerned with future events, whose outcome is unknown, and how to deal with uncertainties by identifying and examining a range of possible outcomes. The objec- tives are to understand risks and mitigate or control risks. Understanding the risks inherent with each potential project alternative is important to controlling cost and developing estimates that reflect the cost of accepted risks. Risk management and an understanding of project uncertainty will assist estimators in setting appropriate contingencies for each individual project. This understanding is important to man- agers of estimation processes. Cost estimation is one tool in a comprehensive risk management process. In the broader context of project risk management, risk analysis is the second step in a comprehensive risk management process that includes the following: • Risk identification, • Risk analysis (qualitative and/or quantitative), • Risk mitigation planning, and • Risk monitoring and control. During the development of this Procedures Guide, NCHRP was developing a Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs (NCHRP Project 8-60). The goal of that effort was to develop a comprehensive guidebook on risk-related analysis tools and management practices for estimating and controlling transportation project costs. When complete, the NCHRP 8-60 guidebook will provide more detailed tools and tech- niques for risk identification and risk management. The readers of this Procedures Guide are encouraged to review the completed NCHRP 8-60 guidebook for more information on risk- related estimating issues. R3.1 Analysis of Risk and Uncertainty Analysis of risk and uncertainty involves quantifying identified risks. In a comprehensive risk management process, risk analysis is used to prioritize the identified risks for mitigation, mon- itoring, and control purposes. In the context of cost estimation, risk analysis can be extremely helpful for understanding project uncertainty and setting appropriate contingencies. Risk analy- sis can be accomplished through qualitative or quantitative methods. What Is It? In the context of cost estimation, this tool quantifies project risk and uncertainty to provide a better understanding of contingency and the ultimate project cost. It involves evaluation of risks in terms of their likelihood of occurrence and their probable consequences. Likelihood of occur- rence and the associated consequences can be expressed qualitatively or quantitatively. If risks can be quantified, they can provide for a better understanding of project uncertainty and assist in the cost estimation management process. Risk analysis can be performed through qualitative or quantitative procedures. In a qualita- tive analysis, the project team assesses each identified risk for its probability of occurrence and A-64 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

its relative magnitude of impact on project objectives. Often, experts or functional unit staff assess the risks in their respective fields and share these assessments with the project team. The risks are then sorted into high-, moderate-, and low-risk categories (in terms of time, cost, and scope). The objective is to rank each risk by degree of probability and impact. The rationale for the decision should be documented for future updates, monitoring, and control. Quantitative risk analysis procedures employ numeric estimates of the probability that a proj- ect will meet its cost and time objectives. It is common to simplify a risk analysis by calculating the expected value or average of a risk. The expected value provides a single quantity for each risk that is easier to use for comparisons. Although this is helpful for comparisons and ranking of risks, estimators must take care when using the expected value to calculate project costs or contingencies. For example, if there is a 20-percent chance that a project will need a $1 million stormwater upgrade, the estimator will include $200,000 in contingency using the expected value. If the stormwater upgrade is required, this value will not be enough. Unfortunately, a great deal of information is lost in this oversimplified contingency analysis. More comprehensive quantitative analysis is based on a simultaneous evaluation of the impact of all identified and quantified risks. The result is a probability distribution of the project’s cost and completion date based on the risks in the project. Quantitative risk analysis involves statistical simulations and other techniques from the decision sciences. Tools commonly used for these analyses include first-order second-moment (FOSM) methods, decision trees, and/or Monte Carlo simulations. Why? Highway project delivery, particularly the estimation of right-of-way cost, is a complex task heavy with uncertainty. Traditional methods of cost estimation often overlook risks or deal with them deterministically. Using the analysis of uncertainty and other risk tools in the cost estima- tion process has many advantages. The Federal Transit Administration’s 2004 Risk Assessment Methodologies and Procedures cited several advantages: • Better understanding of the project delivery process, including timelines and phasing, proce- dural requirements, and potential obstacles. • More realistic estimates of individual component costs and durations, thereby allowing more reasonable expectations of total project cost and duration. • Better understanding of what the project contingency is, whether it is sufficient, and for what it may need to be used. • Information support to other project or agency activities, such as value engineering and strate- gic planning. • Potential to improve the project budget and scheduling processes, possibly for the immediate project in development but certainly for future projects. What Does It Do? This tool quantifies the effect of potential risks in terms of their consequences to cost and schedule. It provides a systematic evaluation of project uncertainty, helps estimators in setting appropriate contingencies, and assists project managers in controlling project cost, schedule, and scope issues that can arise from uncertain or occurrence of risky events. When? Risk analysis can be used throughout the project development process. At the earliest stages of project development, risk analysis will be helpful in developing an understanding of project uncertainty and in developing an appropriate project contingency. As the project progresses, risk analysis can be used in a comprehensive risk management monitoring and control process to help manage cost escalation resulting from either scope growth or the realization of risk events. Appendix A A-65

Examples Caltrans has documented a qualitative risk analysis procedure in its 2007 Project Risk Manage- ment Handbook: Threats and Opportunities. The Caltrans process is largely based on the Project Management Institute’s 2004 publication, A Guide to Project Management Body of Knowledge (PMBOK Guide). The Caltrans handbook calls for a quantitative assessment of project risk items representing the highest degree of exposure. This quantification is important for updating the contingency amount to be included in the project estimate. Figure R3.1-1 shows the Caltrans risk ranking process, published as Appendix E of the handbook, as an example of a qualitative risk analysis method. The Caltrans example demonstrates a sound process for qualitative risk analysis. The outcome of the qualitative analysis is typically a ranked list of risks that can be used as red flag items or in a risk register. Quantitative analysis typically begins in a way similar to the quantitative analysis describe above, but then applies a direct and more accurate assessment of probability and impact and incorporates these assessments into a probabilistic cost-risk model. A-66 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure R3.1-1. Caltrans process of risk ranking.

Appendix A A-67 Figure R3.1-1. (Continued).

A-68 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure R3.1-1. (Continued).

Appendix A A-69 Figure R3.1-1. (Continued).

A-70 Procedures Guide for Right-of-Way Cost Estimation and Cost Management The goal of the quantitative risk analysis is to create a probabilistic cost-risk model to represent the uncertainties affecting project cost and schedule. It ultimately identifies a likely range of costs or dura- tions that bracket potential risk impacts to cost or schedule. Tips Conduct the risk analysis early in the project development process. Involve a multidisciplinary team to conduct the risk analysis. The team may benefit from outside experts to generate the list of risks and assist in the analysis. If a project requires a quantitative risk analysis, consult expert modelers. Most SHAs do not have in-house capabilities for performing quantitative risk analyses. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Management Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http:// www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm Federal Transit Authority (2004). Risk Assessment Methodologies and Procedures. Project Management Oversight under Contract No. DTFT60-98-D-41013. Federal Highway Administration (2004). Major Project Program Cost Estimating Guidance. www.fhwa. dot.gov/programadmin/mega/cefinal.htm Grey, S. (1995). Practical Risk Assessment for Project Managers. John Wiley and Sons, Chichester, England. Molenaar, K. R. (2005). “Programmatic Cost Risk Analysis for Highway Mega-Projects,” Journal of Construction Engineering and Management, Vol. 131, No. 3. Project Management Institute (2004). A Guide to Project Management Body of Knowledge (PMBOK Guide). Washington State DOT’s Cost Estimating Validation Process (CEVP) website: www.wsdot.wa.gov/ Projects/ProjectMgmt/RiskAssessment R3.2 Contingency—Identified The common SHA method for assigning contingency has been either to apply standard percentages for the varying stages of project development or to rely solely on the project estimator’s experience. The enumeration and qualitative assessment of a project’s contributor risks offers a more effective method for determining project contingency than does the standard SHA practice of broad-based percent add- on contingency amounts. Attention to technical complexities, construction execution, and the macro- environment focuses estimator attention on project risks. What Is It? This tool creates a process whereby the contingency amount included in an estimate is set on the basis of identified risks and the probability of their occurrence. Ideally, this tool should be used in con- junction with a comprehensive risk management process. When this tool is used in conjunction with a qualitative risk assessment, the contingency is set using the cost estimator’s judgment and the infor- mation generated from the risk identification and analysis process. Even this contingency assignment should be in compliance with SHA policy. When this tool is used in conjunction with a quantitative risk analysis, the contingency is set using an acceptable confidence interval for the project (i.e., the dif- ference between the 50% and 80% confidence intervals of a range estimate). Cost estimation methods and tools must be understood in terms of the design definition (i.e., detail) available during the various phases of project development. More generally, at any stage in the develop- ment of a highway project, cost estimates will consist of three components for which there are different amounts of information: “Known/Knowns” (known and quantifiable costs), “Known/Unknowns” (known but not quantified costs), and “Unknown/Unknowns” (as yet unrecognized costs); these con-

cepts are illustrated in Figure R3.2-1. In this figure the contingency cost component extends into the known/known cost percentage. Also, at the “Advertise & Bid” point, there still can be unrec- ognized costs (a very small gap) and known but not quantified costs (a small gap). Only when con- struction is completed are all costs known. All too often, if the cost of an item is not known, it is not included in early cost estimates. There is also opportunity for other items (e.g., environmental mitigation costs) to be entirely left out of early estimates. The costs associated with the three components—known/knowns, known/unknowns, and unknown/unknowns—require different methods and tools to define and quantify their possible contribution to the estimate at any partic- ular time in the project development process. Figure R3.2-2 illustrates how identifying, quantifying, and managing cost and schedule uncer- tainty relates to refining the cost estimate (i.e., managing the final project cost). This figure illus- trates two crucial points that apply to situations where the scope is unchanged and where an estimate, at some early stage in the programming process, has included uncertainty. The first point is that the range of cost or schedule uncertainty should decrease as a project proceeds from concept to final design. Estimate accuracy improves as design develops, cost variables are better Appendix A A-71 Figure R3.2-1. Components of a cost estimate. Figure R3.2-2. Refinement of a cost estimate.

A-72 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Table R3.2-1. AACEI generic cost estimate classification matrix. Adapted from the Association for the Advancement of Cost Engineering International’s AACE International Recommended Practice No. 17R-97: Cost Estimate Classification System, 1997. defined, and uncertainty is eliminated. The second point is that if the uncertainties included in the estimate, as a contingency amount, in the early stages of project design materialize, then the estimated total will still be as expected. However, as risk management and other cost control processes are applied to the identified uncertainties, it is often possible to mitigate risks (i.e., con- tingency costs) and deliver the project at a lower cost. The Association for the Advancement of Cost Engineering International (AACEI) has devel- oped a cost estimate classification system that defines five estimate classifications. This system, shown in Table R3.2-1, provides an expected range of accuracy for each project development phase. A Class 5 estimate is prepared at the earliest stage of project definition, and a Class 1 estimate is prepared closest to complete project definition and final design. Table R3.2-1 also describes the methodological approach to the estimate as either stochastic or deterministic, depending on the level of design and information available. A deterministic estimate contains no random variables, while a stochastic estimate contains one or more random variables. The result of a deterministic estimate is a single point of total cost, while the result of a stochastic esti- mate is a range of total cost. The AACEI recommends that Class 1 through 3 estimates be devel- oped primarily as stochastic estimates, which are not commonly employed by SHAs, but are being described in this section on risk analysis. Why? The identification of project risks gives the estimator a much firmer basis for developing a reli- able contingency amount than the typical top-down assignment of a percentage based on the estimated direct cost of the project. What Does It Do? Because risks are specifically delineated as a project is developed, unique strategies can be implemented to mitigate, transfer, or avoid significant risks. In addition, with the risks identi-

fied and quantified, control and tracking procedures can be implemented to monitor risk items on an ongoing basis. These concepts are more fully explained in Section R3.5. When? The tool should be employed early, and risks should be tracked throughout the project devel- opment process. Unusual or complex projects require a more in-depth evaluation of potential risks and their effect on estimated cost. The opportunities to expand the identification and quan- tification of risks should be pursued as design progresses and as more is known about potential exogenous risk factors. Examples The Cost Estimating Validation Procedure (CEVP) developed by the Washington State DOT (WSDOT) is a peer-level review on the scope, schedule, and cost estimate for transportation projects throughout the state of Washington. The objective of the CEVP is to evaluate the qual- ity and completeness, including anticipated uncertainty and variability, of the projected cost and schedule. The outcomes of the CEVP include • An estimate validation statement in the form of a CEVP project summary sheet that repre- sents the project cost ranges and the uncertainty involved (see Tool C1.2). • Findings and recommendations that allow WSDOT project teams and senior management to better understand the basis, content, and variability of cost estimates. • Identification and characterization of the high-risk project elements (this outcome will allow project teams to address appropriate mitigation strategies). The CEVP is also discussed in Sections C1.2, R3.1, and R3.5. The Caltrans Risk Management Handbook calls for a quantitative assessment of project risk items representing the highest degree of exposure. This quantification is important for updat- ing the contingency amount to be included in the project estimate. The handbook is avail- able online at www.dot.ca.gov/hq/projmgmt/documents/prmhb/project_risk_management_ handbook.pdf. The Federal Transit Administration commissioned a report on risk assessment technologies and procedures that discusses the application of risk-based contingency, Risk Assessment Methodologies and Procedures. The Regional Transportation District (RTD) in Denver, Colorado, is also using a risk-based contingency process in its Fastracks transit program. See Denver RTD’s 2006 “Risk Assessment Quantification,” available online at www.rtd-denver.com/fastracks/ documents/SB_208_Submittal/Risk_Analysis.doc. Tips To successfully address the effects of project risk, risk analysis must take a broad view of risk— concentrating on only the technical risks can lead to oversights in other project dimensions. The analysis should consider local authority/agency impacts, industry and market risks, elements of political uncertainty, and public and/or permit approval processes that might affect timing. Scope changes must also be considered from a broad perspective. Identification of risk goes beyond the internal project risks (e.g., pile driving depth) and includes exogenous factors (e.g., market conditions, business environment, global construction activities/demand, and the macro-economic environment). Any major uncertainties that might influence the primary proj- ect outcomes of cost, schedule, or quality should be included. Appendix A A-73

A-74 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Resources Association for the Advancement of Cost Engineering International (2004). “AACE Interna- tional Recommended Practice No. 10S-90: Cost Engineering Terminology.” www.aacei.org/ resources/rp.shtml. Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Manage- ment Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm Denver Regional Transportation District (2006). “Risk Assessment Quantification.” www. rtd-denver.com/fastracks/documents/SB_208_Submittal/Risk_Analysis.doc Federal Transit Administration (2004). Risk Assessment Methodologies and Procedures, Report for Contract No. DTFT60-98-D-41013. Federal Highway Administration (2006). “Price Trends for Federal-Aid Highway Construction.” www.fhwa.dot.gov/programadmin/pricetrends.htm Federal Highway Administration (2004). “Major Project Program Cost Estimating Guidance.” http://www.fhwa.dot.gov/programadmin/mega/cefinal.htm Owen, P. A., and J. K. Nabors (1983). “Quantifying Risks in Capital Estimates,” AACE Transac- tions, B.5.1–B.5.7. Stevenson, J. J. (1984). “Determining Meaningful Estimate Contingency,” Cost Engineering, AACE International, Vol. 26, No. 1. Washington State DOT (2006). Cost Estimating Validation Process (CEVP) website, www. wsdot.wa.gov/Projects/ProjectMgmt/RiskAssessment R3.3 Contingency—Percentage As shown in Figures R3.2-1 and R3.2-2 and Table R3.2-1, contingency percentages should decrease from the early stages of project development through final design. This theoretical idea of contingency has led some SHAs to apply fixed contingencies that decrease with proj- ect development milestones. However, it is poor policy to use fixed allowances for contingen- cies without good reasons. So even if the contingency amounts included in an estimate are justified based on published tables of practice, the risk driving the inclusion of those amounts should still be documented in writing. This requirement for documentation becomes even more important when fixed allowances or guide ranges for contingency are not followed. If extraordinary conditions exist that call for higher contingencies, the rationale and basis must be documented in the estimate. What Is It? Recognizing that cost estimation is inherently difficult because estimators are trying to pre- dict the future, it is prudent to provide contingency allowances in the estimate. These contin- gency allowances represent the typical cost escalation experienced on similar projects as design progresses. The contingency amount can be set as a percentage of the project’s direct cost with the percentage being established by analysis of historical cost experience from past projects. Why? At any stage in the development of a project, cost estimates will consist of three components for which there are differing amounts of information: “Known/Knowns” (known and quantifi- able costs), “Known/Unknowns” (known but not quantified costs), and “Unknown/Unknowns” (as yet unrecognized costs). These components are illustrated in Figure R3.2-1. What the con- tingency amount is supposed to account for is the total of the “Known/Unknowns” and “Unknown/Unknowns” of the estimate.

What Does It Do? A contingency allowance included in an estimate is meant to provide funds for cost growth resulting from necessary but unforeseeable project scope changes, underestimation of real proj- ect costs, or errors in projecting the rate of inflation. Increases in the prices for construction services—inflation—are not to be considered covered by the contingency amount. Inflation should be handled by applying an appropriate inflation rate to the calculated project cost. When? Contingency amounts, added to an estimate, are a valid means of reflecting the uncertainties that remain to be defined as design progresses. A contingency amount should be included in every project estimate from the earliest planning stage of project development to the final PS&E; however, as shown in Figure R3.2-1, the magnitude of the contingency amount decreases as the scope is defined and the design progresses. Examples Many SHAs use standard percentages, such as the Maryland DOT percentages shown in Table R3.3-1, to develop estimate contingency amounts. Historical experience shows that SHAs can establish contingency percentages to be applied to an estimate’s direct cost, but research shows that, in many cases, the applied percentages do not reflect actual conditions. SHAs should only use the percentage contingency approach for projects that are similar in character to a large number of past projects for which good cost data are available. Figure R3.3-1 displays a graduated contingency estimating scale used by the Ohio DOT on their major projects. Table R3.3-2 summarizes guid- ance on contingency in Chapter 20 of the Caltrans Project Development Procedures Manual (avail- able online at http://www.dot.ca.gov/hq/oppd/pdpm/pdpmn.htm). The table is offered as guid- ance for a graduated contingency. However, it should be noted that Caltrans also offers guidance on applying risk-based contingency when appropriate, as described in Section R3.1. Tips When an SHA chooses to establish an estimate contingency by means of the relationship between contingency amount and project direct cost, two steps are needed to make the process work effectively: 1. The purpose of the contingency amount needs to be carefully defined. Estimators and man- agement must understand that the contingency is intended to account for very specific unforeseen, unexpected, unidentified, or undefined costs. The project risks that cause the occur- rence of these costs must be delineated in the SHA’s estimation manual with the percentages. Examples of risk factors early in design are provided in Section I2.3. Examples of possible risk factors near the final design period include • Number of bidders: The availability of contractors willing to bid the work will affect the bid prices. Caltrans has found that, for projects in the $1 million to $10 million range, if Appendix A A-75 Table R3.3-1. Maryland DOT graduated contingency estimating scale. Project Phase Contingency Planning 35-40% Programming and Preliminary Design 25-35% Final Design 0-25%

A-76 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Table R3.3-2. Caltrans graduated contingency estimate scale. Adapted from Chapter 20 of the Caltrans Project Development Procedures Manual (available online at http://www.dot.ca.gov/hq/oppd/pdpm/pdpmn.htm). there is only one bidder, the price will on average be 5% above the engineer’s estimate, and the effect of each additional bidder is a 2% reduction in bid price compared with the SHA estimate. • Contractor perception of project risk: The perceptions of risk by contractors vary widely, but underground work will normally increase a contractor’s bid because of geotechnical unknowns. For one-of-a-kind projects, contractors will apply more risk to their bid. • Right-of-way unknowns: Early in project development it is almost impossible to know the number of partial takes, the exact appreciation to apply, or the number of parcels that will go to condemnation. • Construction unknowns: This risk factor might be addressed with a reserve to cover con- struction change orders due to differing site conditions and other construction issues. • Contracting method: A range of risk management strategies affect project cost, risk transfer, risk reduction, and even financial treatments. Using lump sum or even unit price contracts to transfer risk to a contractor when project complexities exist that cannot be completely addressed until construction commences will add cost to the project. The constructor will Figure R3.3-1. Ohio DOT design completion contingency guidelines for cost estimating of major projects.

add higher overhead and profit markup to the bid, and there will still be difficult-to-resolve change orders. • Material price escalation: Sometimes material price escalation is carried in the individual items of the estimate, and sometimes it is supposed to be part of the estimate contingency. The proper accounting should be defined in the SHA’s estimation manual. 2. The established contingency percentages should be based on actual experience (i.e., historical data). It is important for both the SHA estimators and SHA management to know the level of accuracy achieved with the prescribed contingency percentages. Statistical analysis of past proj- ects provides a means for measuring that accuracy and adjusting the employed percentages. Resources FHWA (2004). “Contingency Fund Management for Major Projects.” www.fhwa.dot.gov/ programadmin/mega/contingency.htm FHWA (2004). “Major Project Program Cost Estimating Guidance.” www.fhwa.dot.gov/ programadmin/mega/cefinal.htm Chapter 20 of the Caltrans Project Development Procedures Manual, www.dot.ca.gov/hq/oppd/ pdpm/pdpmn.htm Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Manage- ment Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm Caltrans (1998). State Administrative Manual, Chapter 6000, Section 6854: CONSTRUCTION. http://sam.dgs.ca.gov/TOC/6000/6854.htm Ohio DOT (2007). Ohio Procedure for Budget Estimating. www.dot.state.oh.us/contract/ estimating/default.htm U.S. Army Corps of Engineers. “Military Program-Specific Information—REF8011G,” http:// bp.usace.army.mil/robo/projects/pmbp_manual/PMBP_Manual/REF8011G.htm Uppal, Kul B. (Ed.) (2005). Professional Practice Guide #8: Contingency (CD), Association for the Advancement of Cost Engineering (AACE) International. www.aacei.org/technical/ ppg.shtml R3.5 Programmatic Cost Risk Analysis State highway and transit agencies are beginning to realize the value of integrating cost esti- mation practice and cost estimation management with comprehensive risk management processes. Programmatic cost risk analysis involves all four steps of the classic risk management process—risk identification, risk analysis, risk mitigation and planning, and risk monitoring and control. The risk analysis component focuses on the quantitative risk analysis process and uses probabilistic cost models to drive the risk management process. The term “programmatic” refers to applying this process across multiple projects within the state highway agency. This form of risk management is the most comprehensive and resource-intensive manner with which to deal with project uncertainty of all the tools described in this guide. What Is It? A programmatic cost risk analysis is a systematic project review and risk assessment method, including probabilistic estimation, to evaluate the quality of the information at hand and to iden- tify and describe cost and schedule uncertainties. It involves risk identification, risk analysis, risk mitigation and planning, and risk monitoring and control. It systematically combines all of the risk identification, analysis, and communication tools described in this guide (see Sections C1.2, I2.1, I2.2, I2.3, R3.1, R3.2, and R3.3). Appendix A A-77

A-78 Procedures Guide for Right-of-Way Cost Estimation and Cost Management A successful cost risk analysis program has the following characteristics: • Feasible, stable, and well-understood user requirements • A close relationship with user, industry, and other appropriate participants • A planned and structured risk management process, integral to the acquisition process • Continual reassessment of project and associated risks • A defined set of success criteria for all cost, schedule, and performance elements • Metrics to monitor effectiveness of risk-handling strategies • Formal documentation Why? Programmatic cost risk analysis can be used to change an agency’s culture and to combat sys- temic cost escalation. It allows cost estimates to be conveyed transparently to management. It reveals risk and uncertainty involved with the project at each stage of the process. It provides a tool to model both the technical and non-technical nature of the challenges in quantifying cap- ital costs early in the project lifecycle. What Does It Do? Programmatic cost risk analysis can help to create a culture of risk management that is forward- looking, structured, informative, and continuous. Through the generation of risk-based proba- bilistic cost and schedule estimates, the process can assist agencies in anticipating and mitigating potential cost escalation. The process can produce prioritized lists of cost and schedule risks. It can provide estimates of these individual risk costs and their potential effects on project com- ponent schedules. Ultimately, the process can produce prioritized risk mitigation strategies, including their estimated implementation costs and cost/schedule savings, which can be incor- porated in a comprehensive risk management plan. When? A programmatic cost risk analysis should be applied in all phases of the project development process. In the earliest phases of project development, the tool focuses on risk identification and risk analysis to produce meaningful contingencies and prioritized rankings of risks. As project development progresses, the process supports risk mitigation and is managed though an active risk charter. In the final stages of project development, the tool supports the contingency reso- lution process though active monitoring and control. Examples Caltrans has developed a comprehensive risk management process and documented it in Cal- trans’s 2007 Project Management Risk Management Handbook. The Caltrans process is largely based on the Project Management Institute’s Guide to Project Management Body of Knowledge (PMBOK Guide). In the Caltrans process, the project team completes the risk management plan before the project initiation document (PID) component ends. The team updates the plan in each subsequent lifecycle component and continues to monitor and control risks throughout the life of the project. Figure R3.5-1 shows the process flowchart. Table R3.5-1 shows the two main process tasks, the four subtasks, and all of the deliverables associated with project risk man- agement. Table R3.5-2 shows all of the process tasks and the roles associated with each task. Caltrans has summarized its process into a risk management plan worksheet. The worksheet is available in Microsoft Excel format. It is intended to act as a risk charter for the process (see Section I2.2). The worksheet provides a tool to organize risks from the risk identification process. It provides a color-coded function for conducting qualitative risk assessments. It also provides space for inputting the results of a quantitative risk assessment. Additionally, the risk manage-

ment planning worksheet provides tracking mechanisms for risk mitigation strategies as well as risk monitoring and control. An electronic version of this sample spreadsheet is available on the project management guidance website at www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htm Washington State DOT (WSDOT) developed the Cost Estimating Validation Process (CEVP) to assist in evaluating the quality and completeness of project estimates, including the antici- pated uncertainty and variability of the projected cost and schedule. The CEVP uses systematic project review and risk assessment methods, including statistics and probability theory, to eval- uate the quality of the information available and to identify and describe cost and schedule Appendix A A-79 Source: Project Risk Management Handbook, Caltrans Statewide Office of Project Management Improvement, 2007. Figure R3.5-1. Caltrans risk management flowchart.

A-80 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Table R3.5-1. Caltrans risk management tasks and deliverables. Source: Project Risk Management Handbook, Caltrans Statewide Office of Project Management Improvement, 2007. Table R3.5-2. Caltrans risk management responsibility matrix. Legend: R = responsible, S = support, A = approve, C = concur Source: Project Risk Management Handbook, Caltrans Statewide Office of Project Management Improvement, 2007.

Appendix A A-81 uncertainties. The CEVP recognizes that every project cost estimate will be a mix of the very likely, the probable, and the possible. Importantly, the process examines, from the very begin- ning, how risks can be communicated and lowered and cost vulnerabilities managed or reduced. In other words, a dividend of the CEVP is to promote activities that will improve end-of-project cost and schedule results. The CEVP process integrates into the entire project development process in a way similar to that of the Caltrans method previously described. The CEVP process begins with a workshop to facilitate the risk identification and quantita- tive risk analysis phases of the process. A rigorous peer review and uncertainty analysis is the foundation of the CEVP process. A multidisciplinary team of professionals from both the public and private sectors examines the project. Table R3.5.3 presents the seven phases in the WSDOT CEVP process. Although the workshop is a key component of the CEVP process, the CEVP process involves many other components that are integrated into the cost estimation, risk management, and project management processes at WSDOT. Other elements of the CEVP process are described in Sections C1.2, I2.2, R3.1, and R3.4 in this guide. More information can be found on the WSDOT CEVP and Cost Risk Analysis website at www.wsdot.wa.gov/Projects/ProjectMgmt/ RiskAssessment Table R3.5-3. CEVP workshop format.

A-82 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Tips Implementation of a programmatic cost risk analysis tool will involve significant changes to most SHAs’ cost estimation and project management procedures. In fact, the process will likely require a cultural change within the organization. To be successful, this tool will require man- agement’s full support and commitment of resources. Resources Caltrans Office of Statewide Project Management Improvement (2007). Project Risk Manage- ment Handbook: Threats and Opportunities, 2nd ed., May 2007, Caltrans, Sacramento, CA. http://www.dot.ca.gov/hq/projmgmt/guidance_prmhb.htmwww.dot.ca.gov/hq/projmgmt/ documents/prmhb/project_risk_management_handbook.pdf Federal Transit Authority (2004). Risk Assessment Methodologies and Procedures, report under Contract No. DTFT60-98-D-41013. Federal Highway Administration (2004). Major Project Program Cost Estimating Guidance. Mole- naar, K. R. (2005). “Programmatic Cost Risk Analysis for Highway Mega-Projects,” Journal of Construction Engineering and Management, Vol. 131, No. 3, American Society of Civil Engineers. Project Management Institute (2004). A Guide to Project Management Body of Knowledge (PMBOK Guide). Washington State DOT (2006). Cost Estimating Validation Process (CEVP) website: www. wsdot.wa.gov/Projects/ProjectMgmt/RiskAssessment

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TRB’s National Cooperative Highway Research Program (NCHRP) Report 625: Procedures Guide for Right-of-Way Cost Estimation and Cost Management explores approaches for developing right-of-way (ROW) cost estimates. The report also examines ways to track and manage ROW cost during all phases of project development, including planning, programming, and preliminary and final design.

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