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OCR for page 91
APPENDIX D
Critical Review of the State
of Practice
All of the agency ROW practices discussed in the following sections are from the literature
review or the agency interviews. Successful practices discovered during the state of practice
review are discussed in detail followed by a summary of those practices.
Methodology
The review consisted of evaluating the information presented in the literature and the data
collected during the agency interviews. The review process led to the identification of the suc-
cessful practices discussed here and in the Procedures Guide. The research team focused prima-
rily on the agency interviews when completing the review because the literature search revealed
little information on ROW cost estimation and cost estimate management. The review and
analysis of practices were accomplished by the project team relying on their individual cost esti-
mating expertise. Decisions were made by team consensus.
The research team used a process-focused approach to review the materials because the main
objective of the research was to "Develop an all-inclusive set of ROW cost estimation and cost esti-
mate management procedures." Within the project phases the research team considered general
cost estimation and cost estimate management steps reflected in NCHRP Report 574 (Anderson
et al., 2007a). These steps are
1. Determine Estimate Basis;
2. Prepare Estimate;
3. Determine Risk/Contingency;
4. Review Estimate;
5. Obtain Appropriate Approval;
6. Determine Estimate Communication Approach;
7. Monitor Project Scope/Project Conditions;
8. Communicate Estimate and Approval; and
9. Adjust Cost Estimate.
The first four of these steps are defined in NCHRP Report 574 as cost estimating steps, while
Steps 5 through 9 are cost estimating management steps. Although how these steps are per-
formed varies depending on the project development phase, the distinction between estimating
and management steps is important. These steps are integrated throughout the ROW flowcharts
developed as a product of this research. These steps are critical to preparing consistent and accu-
rate estimates throughout all phases of project development. The practices of SHAs were evalu-
ated for effectiveness in view of the need to have a structured process that contains all of the listed
estimate steps.
D-1
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D-2 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
General ROW Cost Estimating Procedure
Before reviewing SHA practices, it is necessary to outline the general process behind complet-
ing a ROW cost estimate. The process steps are a consequence of the general project cost esti-
mating steps detailed in NCHRP Report 574 and current SHA practice as revealed through the
interviews. The ROW-specific steps summarized here in generic form are used, to some degree,
for each of the ROW cost estimates prepared during project development.
ROW requirements, which are defined by the project scope, establish the ROW estimate basis.
These requirements are an input to the ROW cost estimation process and therefore establish the
basis for the cost estimate. They typically include information such as the width of the project or
number of lanes (dictates minimum ROW width) and other physical parameters that define
what real estate will be required. Receipt of this information marks the beginning of the cost esti-
mating activities. The preparation-of-estimate activities are
· Gathering data through field visits and from other sources of information to include assess-
ment of improvements, land values, real estate inflation rates, condemnation rates, and pos-
sible damages;
· Quantifying estimate parameters such as total real estate or parcel areas;
· Computing cost by applying values to estimate parameters and other line items, including
damages, property improvements, etc; and
· Adjusting the estimate for inflation, uncertainties, and risk.
After the cost estimate is computed, it is reviewed (usually by a ROW supervisor or man-
ager) and then after approval, it is communicated to the appropriate project or program man-
agement staff.
ROW Cost Estimation
ROW cost estimates are completed during the first three project development phases: plan-
ning, programming, and preliminary design. There is some variance between SHAs regarding
when estimates are performed relative to a specific SHA project development process and the
number of estimates prepared in each of the development phases. The following section covers
the practices used in each phase to prepare ROW cost estimates; both tools and general estimat-
ing approaches used by SHAs are presented. Planning will be covered first, followed by program-
ming, and then preliminary design.
Planning Estimate
The ROW planning estimate is generally the first estimate produced to quantify ROW cost.
The typical timeline for the planning estimate is 10 to 20 years prior to the forecasted construc-
tion letting time. These estimates are generally based on tentative ROW requirements given that
the project is being projected to occur in the distant future. Another factor that contributes to
the uncertainty of these early estimates is the inability to predict future changes in real estate
values caused by issues such as government-introduced zoning changes, market conditions, and
varying appreciation rates.
In many agencies, this estimate is not prepared by the ROW section, but by the planning divi-
sion and the ROW section is consulted as needed, if consulted at all. Four of the nine interviewed
agencies do not involve their ROW personnel at this point and resort to gross historical costs, com-
parable projects, or a percentage of the estimated construction cost to create the ROW estimate.
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Appendix D D-3
ROW requirements at the planning phase are usually based on a preliminary or conceptual
project scope definition; therefore, ROW requirements are imprecise and will likely change. In
addition, often several project alignments being considered, which adds uncertainty to the esti-
mate. Five interviewed agencies (three SHAs and the cities of Chicago and Phoenix) develop a
bottom-up ROW cost estimate completed by ROW personnel as part of their planning estimate.
They believe this effort provides them with a more accurate prediction of future project cost.
This subsection discusses and reviews four practices used by SHAs for the planning-level ROW
cost estimate:
1. Early Scope Definition;
2. Conceptual Cost Estimate Map;
3. Percent-based ROW Cost Estimate; and
4. Unit Cost Estimate Approach.
In general, project scope definition is an integral part of establishing the estimate basis; this
also holds true for the ROW cost estimate. Many of the SHAs interviewed do not spend much
time defining the project scope during the early stages of project development and conse-
quently, this lack of definition increases the uncertainty with respect to ROW requirements.
Another problem identified was the failure to communicate ROW requirements to ROW staff.
A tool that may be useful in communicating ROW requirements effectively is a conceptual cost
estimate map, which is discussed following early scope definition. Planning-level ROW cost
estimates are typically completed by a unit-cost approach or a percent-based approach. These
approaches will be discussed last in this section to highlight the pros and cons of each. These
approaches lack accuracy and consistency since there are many complexities inherent in esti-
mating the cost of ROW.
Early Scope Definition
Scope definition is critically important to the development of a cost estimate. In the case of a
ROW cost estimate, scope definition is directly related to the completeness of the stated project
ROW requirements. Consequently, if project scope does not explicitly define the ROW require-
ments, an accurate ROW cost estimate cannot be produced.
One SHA attempts to increase the exactitude of early project scope definition through a field
visit of the project site (or multiple sites if there is more than one potential alignment). This visit
is completed by an individual from the planning division along with the project manager. Dur-
ing the visit, likely project designs and pertinent project scope information such as the facility
type, the number lanes, and access points are discussed. Following a thorough study of the infor-
mation gathered as a result of the site visit, the planner communicates the ROW requirements
to the ROW estimator. In this agency the estimate is completed based on research of land values
(tax assessor records), condemnation rates, and other location specific attributes. The level of
effort and detail used by this agency is in contrast with percent-based or unit-cost estimate
approaches used by other agencies, which do not consider location-specific attributes. It has been
shown through the literature and is evident through the interviews that location specific attri-
butes have a large effect on estimate accuracy.
Some SHAs argue that developing this level of detail during the planning process is a waste of
staff resources, since there are likely to be many future changes to the project scope. In the case
of the Chicago and Phoenix and at least two of the SHAs, this is not true because they work hard
early in planning to develop a definitive project scope. In many cases SHAs could significantly
improve project estimates if an increased effort was made to better define the project scope
including ROW requirements. This commitment does, however, dictate a greater investment of
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D-4 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
time and resources early in project development, but according to those agencies that make the
investment, it enhances control of project cost.
Conceptual Cost Estimate Map
The conceptual cost estimate map is a tool used by designers to communicate ROW require-
ments to ROW personnel. This map is used in conjunction with early scope definition. The term
"conceptual" is used since it captures the early "conceptual" scope. Typically, the project designer
provides the ROW estimator with an aerial photograph or drawing of all possible project align-
ments. The approximate ROW boundaries are drawn on these documents to communicate the
ROW limits to the estimator. This easy-to-read tool clearly portrays the ROW requirements. One
caution with this method is that the clear representation may convey more accuracy than is
the case at such an early stage of planning.
One SHA does not complete early scope definition but still uses a conceptual cost estimate
map to show the proposed location of the project. This SHA provides an aerial photograph to
the ROW division, but the photograph does not include any lines denoting ROW boundaries.
Approximate cross sections are then applied by the ROW division to determine the ROW
approximate requirements.
Percent-based ROW Cost Estimate
Three of the SHAs interviewed use a percent-based ROW cost estimate procedure to develop
a planning cost estimate. The percent-based cost estimate involves applying a percentage value
to the estimated construction cost to determine the ROW cost portion for the planning estimate.
During the interviews it was not clear how these percentages were determined. It seems that the
percentage value was established so far in the past that staff could not explain how the percent-
age value was derived. The percent-of-construction estimate approach is advocated by SHAs
for planning estimates based on the supposition that a more detailed ROW cost estimate would
increase staff workload and require a more complete definition of scope. Using a percentage pro-
vides a quick and easy method for computing a ROW cost estimate when ROW requirements
are lacking.
Although the percentage-based approach is quick and easy, two SHAs are of the opinion that
these estimates are usually inaccurate and contribute to the cost escalation experienced on proj-
ects. The research findings seem to support this belief, as this percentage based estimate does not
take into account location specific factors that effect ROW cost.
One SHA in particular used this percent based method as recent as 2004 but has transitioned
away from such a procedure. The percentages were published in a state-wide estimating guide,
which defined the percentage to be used based on project type. Another SHA completed a study
on past planning estimates with the objective of exploring the basis and accuracy of planning level
ROW cost estimates. This SHA is one of those where the ROW section does not provide the
planning-level ROW estimate. The study was initiated by the ROW section as a result of some incon-
sistency related to cost escalation issues between planning estimates and later ROW estimates. This
was really an attempt to understand the approach used by the planning division. The agency found
that these percent-of-construction estimates are only a close approximation about half of the time.
Unit-Cost Approach
Another method utilized during planning to develop a ROW estimate, again typically where
the ROW section is not charged with creating the estimate, is the use of unit-cost values (per
acre or sq. ft). These unit costs are typically derived from historical data or by simply contacting
the district/region where the project is located and asking for a cost value. Such values are often
little more than a guess. Like percentage-based ROW estimates, these can prove to be poor
OCR for page 95
Appendix D D-5
approximations of ROW cost as the issues that affect costs such as improvements, damages, and
access issues (all location-specific attributes) may not be addressed using the unit-cost approach.
Programming and Preliminary Design Estimates
NCHRP Report 574 found that project cost estimates completed during the programming and
preliminary design stages of project development are similar (Anderson et al., 2007a). The com-
munication of ROW requirements, the cost estimation process steps, and the cost estimation
tools that are used to create these estimates are similar. Therefore, the critical review in this sec-
tion discusses programming and preliminary design ROW cost estimation together.
In general, and depending on project complexity there may be a number of cost estimates
prepared during the programming phase. The last programming estimate is usually completed
based on a preferred alternative. Once this estimate is approved, the project is placed in a prior-
ity program. This authorized priority program may span a period of 5 to 10 years prior to the
construction letting date. It should be noted that the length of the priority program varies from
state to state depending on both the structure of the agency and the state laws that govern SHA
business. During preliminary design several estimates may be developed. At some point, the
ROW cost estimate is typically completed for inclusion in the State Transportation Improve-
ment Program (STIP). After its inclusion in the STIP, the project is fiscally constrained. In some
states, the priority program is the same as the STIP or perhaps 1 year further out from letting
than the STIP (4 years for federally funded projects).
Although there are many similarities between ROW cost estimates completed during pro-
gramming and the cost estimates completed during preliminary design, there are several differ-
ences that are noted in this section. These differences typically stem from: (1) the level of scope
definition (i.e., ROW requirements) upon which these estimates are based; and (2) the level of
detail and information used to prepare these estimates (e.g., acres versus parcel estimates).
Scope definition is refined as the project development process proceeds, therefore the ROW
requirements become better defined as the project moves from programming through prelimi-
nary design. The preferred highway alignment is typically chosen during the programming phase
and ROW boundaries and rough parcels are known with more certainty than at the planning
phase. These ROW requirements are identified on aerial photographs or schematic drawings,
which are provided to the ROW section by the project manager or the lead designers. By the time
the preliminary design estimates are developed, the majority of ROW boundaries are definite
and exact parcels are identified.
In general, this section covers the critical review of the different practices, tools, and approaches
used to complete the preliminary design and programming estimates found through the research.
Specific tools covered in this section are the cost estimate map employed to communicate ROW
requirements; estimate documents utilized in preparing estimates; estimate accuracy definition
to communicate the certainty/uncertainty in estimates; and estimating software. The remainder
of this section covers the practices and approaches which include the use of historical data in esti-
mates; the use of appraisers as estimators; a parcel-by-parcel cost estimate approach; estimate
reviews; and specific risk analysis and application of contingency practices.
Cost Estimate Map
The cost estimate map provided to ROW estimators at programming and preliminary design
is similar in format to the conceptual cost estimate map discussed in the previous section on plan-
ning, but it provides more project detail. ROW boundaries are now specified but with greater
certainty. Additionally at programming, the map should include rough parcel boundaries and
approximate ROW areas. The map provided at preliminary design will include even more detail
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D-6 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
with greater certainty as a function of the project development evolution. Parcel boundaries and
ROW areas of each parcel are identified. The map shows other details relevant to the ROW such
as access points to the highway, the type of takings, and access rights that are needed for con-
struction. A cost estimate map is a good tool that aids the ROW estimator in understanding the
real estate requirements and in establishing a basis for the ROW estimate.
Parcel-by-Parcel Cost Estimate Approach
A parcel-by-parcel cost estimate approach is characterized by the feature that the cost of each
parcel is estimated on an individual basis. By treating each parcel as a unique piece of real estate
it is possible to capture site specific unique cost affecting conditions. The alternative approach is
to complete the estimate on an overall basis (total acres) at a macro-level by considering only
gross parcel area and land type (e.g., residential, commercial, etc.). When completing a parcel-
by-parcel estimate, the cost estimator determines a cost for each individual parcel, capturing
ROW quantities and parcel attributes in detail. This estimate approach is similar to completing
an appraisal since parcels are appraised one by one. The interviews found that the parcel-by-
parcel cost estimate approach is used by only one SHA for the programming estimate; at the
same time, the majority of SHAs interviewed utilized it for developing a preliminary design ROW
cost estimate.
It appears that this approach to ROW cost estimating may produce a more accurate cost esti-
mate because it incrementally captures the individual values in manner similar to property
appraisals, and therefore more realistic acquisition values are used to develop the estimated.
This causes the estimator to consider the required ROW real estate in more detail. For exam-
ple, this is especially effective for estimating costs of damages because the cost effect must be
considered for each individual parcel. It is difficult to accurately place a value on the damages
from a partial taking unless one considers the effect on the particular business or residence
located on the parcel.
Documented Cost Estimate Procedures
All SHAs interviewed have a published set of ROW procedures and these procedures are typ-
ically posted on the Internet. The majority of these procedures focus on the agency's appraisal
and acquisition processes. Very few of the documented procedures discussed ROW cost estima-
tion or ROW cost estimate management processes. Caltrans is one agency that has a ROW man-
ual which includes ROW cost estimation. Chapter 4 of the Caltrans ROW manual (www.dot.ca.gov/
hq/row/rowman/manual/ch4.pdf) discusses ROW estimating. The chapter has four sections, the
first of which outlines the general purpose and procedures behind the ROW cost estimation and
management process. Section 2 discusses preparation of the actual estimate including all cost
parameters. The chapter discusses in detail each aspect of ROW that may affect cost and pro-
vides specific guidance on each while the third section focuses on real estate inflation. The last
section covers updating estimates, which focuses on management of the cost estimates.
The Ohio Department of Transportation (ODOT) has a manual titled, "Cost Estimating Pro-
cedures for Acquiring Right of Way" (2300 Cost Estimation . . . 2007). The ODOT procedure
focuses on ROW 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. ROW cost estimates are prepared at several of these steps. The first estimate is
prepared to coincide with the first PDP step. Subsequent ROW estimates are updated based on
the first estimate. The level of detail regarding ROW requirements increases as the PDP steps
are preformed. Multiple updates of the ROW estimate are prepared to support alternative selec-
tion, for example. On minor projects fewer ROW estimates are prepared as the alignment is not
subject to alternative analysis. Similar estimating approaches are followed. In general, ROW cost
estimating techniques are discussed and the use of supporting information is identified. Cost val-
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Appendix D D-7
ues are provided for many estimate elements. An estimate form is used to capture all costs and
summarize costs for a total ROW estimate.
Due to the lack of published guidance, ROW estimators, managers, and supervisors rely heav-
ily on their experience to guide them in developing estimates. Experienced estimators are criti-
cally important to creating good cost estimates, but the ROW process is a complex undertaking
and an effective set of procedures is essential in providing a reference for ROW estimators. Many
experienced estimators are close to reaching retirement age. Therefore, the need for well defined
and documented processes is becoming more important.
ROW/Design Tradeoffs
ROW staff can provide valuable insight about the cost effects of design decisions. Using such
information the project design team can actively control cost escalation problems and may even
reduce overall project cost. However, very few of the SHAs interviewed maintain effective coor-
dination mechanisms between the design team and ROW staff, specifically communication to
discuss the effect of design decisions on ROW costs. Even minor design changes can have signif-
icant effects on ROW cost, both increasing cost but just as importantly in reducing cost. One of
the major factors in cost escalation is related to condemnation costs and awards greater than the
appraised value following a court decision. ROW/Design tradeoffs offer the advantage of poten-
tially affecting fewer properties and fewer condemnations. Another advantage of such coopera-
tion is the ability to reduce the overall cost of projects and potentially provide funds within the
SHA budget for more projects. Additionally, project delays caused by delayed ROW acquisitions
can be a large contributor to project cost escalation even greater than the increase in ROW cost.
Involving ROW personnel in design analyses can help to avoid costly project delays resulting
from delays in ROW acquisition.
Historical Data
Most SHAs do not use robust historical data when preparing a ROW cost estimate during pro-
gramming and preliminary design of a project. With the exception of one SHA, no interviewed
agency use historical data. A major reason that historical data plays only a minor role in cost esti-
mates is the recognition that the real estate values are volatile. When determining real estate
values for ROW, it is necessary to use the most recent comparable sales in the area. Year-to-year
inflation is not constant and can even differ by area; therefore, dated historical data is of little
value when attempting to estimate real estate values. Historical data is only useful in areas where
prices are relatively stable. However, when scope definition is not definitive (i.e., during planning),
recent historical data may offer the best estimating methodology, but such data should not be
the sole basis for the estimate. Whenever historical data is used, contingency should be applied
for the uncertainty involved in predicting future values based upon past behavior, but even this
is difficult.
Historical data is more useful in estimating demolition costs, relocation costs, and support costs
(indirect costs). These items tend to correspond with historical data and lack the complexity asso-
ciated with estimating real estate values, condemnations, and real estate inflation. Support costs
include the work-hours and costs related to completing the cost estimates, appraisals, and acqui-
sitions which must be charged to the project. These costs can be estimated relatively easily and
accurately based upon the size of the project, number of parcels, and other project attributes.
It is difficult to predict cost estimate parameters such as condemnation or real estate inflation
using historical data, but some insight may be gained by understanding the general trends and
tendencies shown by historical data. Condemnation rates can be predicted with some accuracy
since they are governed by state laws and SHA policies, but there is still uncertainty, especially
related to the human factor. Historical data showing past real estate inflation rates may offer some
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D-8 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
insight into predicting the future inflation rate, but the historical relationship is tenuous as land
values are volatile and dependent on many factors including government zoning decisions.
Estimate Documents
To ensure that all major cost items for ROW are included in the estimate, several SHAs uti-
lize standardized cost estimate sheets or data sheets. All aspects of the ROW estimate are listed
as line items on these sheets. Such standardized sheets help the estimators track all cost items and
serve to present the cost estimate data in an easy to understand format. Standard formatting is
important for reviewing and updating estimates. Although most SHAs use some sort of estimat-
ing sheet, it is important to standardize these so that when reviews and communication of the
estimates occur, the estimates are easy to read and understand. As discussed in previously, cost
estimate sheets vary from one SHA to another, but the main elements of the estimate are typi-
cally (1) land; (2) improvements; (3) relocation costs; (4) damages; and (5) condemnations.
Other costs that may be included are support costs, demolition costs, and utility relocation. How
these costs are documented depends on SHA policies and procedures. Figure 1 shows an exam-
ple of a partial cost estimate sheet used by Caltrans.
Appraisers Employed as Cost Estimators
The ROW cost estimators at one SHA are licensed and experienced appraisers. This does not
seem to be a common agency practice. Employing appraisers as ROW estimators appears be
effective for this SHA as the appraiser turned estimator brings valuable knowledge and experi-
ence to the cost estimating process. These estimators can potentially produce better estimates
because they understand the actual appraisal process and how the appraisers in the field derive
a value for each parcel.
Risk Analysis
ROW cost risks are associated with schedule, real estate inflation, condemnations, damages,
and potential future development. This risk issue is critical when preparing estimates in general
and can be particularly important to determining contingency amounts for a ROW cost estimate.
Performing a risk analysis alerts the project participants of cost risks during the estimating
process. Only two SHAs out of the nine interviewed complete a detailed or formal risk analysis
for the ROW cost estimate. A formal risk analysis is one in which a systematic approach is used
to identify major risks. The risk analysis completed for ROW cost consists of considering sched-
ule risks, risks associated with real estate value inflation, and condemnation risks, plus others
that are deemed critical to a particular project. Based on the risk analysis the estimator would
add an appropriate contingency amount to the cost estimate.
The Washington State DOT (WSDOT) requires that projects follow its formal Cost Risk
Assessment (CRA) or its Cost Estimate Validation Process (CEVP) in the case of projects of sig-
nificant size (greater than $20 million for CRA and greater than $100 million for CEVP at the
time of this report). Both of these processes focus on the total project cost estimate. As part of
both the CRA and CEVP risk assessment processes, ROW personnel participate in risk work-
shops when the project involves purchase of ROW. This workshop first validates the cost of the
project and its component parts (including ROW) and then assesses estimate uncertainty in
terms of cost variation and potential risk events. Through this process, the ROW cost estimate
is reviewed and then specific risks are identified. These risks are assessed in terms of probability
of occurrence and the magnitude of effect. The cost effect of the ROW risks are then included
with the overall project cost estimate as a form of contingency. The ROW risks are highlighted
in the workshop report and managed by the project team, which includes ROW personnel.
Another SHA completes an in-depth look at all project risks, which begins with the field visit
completed by the estimator. This field visit is used by the estimator to "size up" the project. It
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Appendix D D-9
Figure 1. ROW cost estimate sheet used by Caltrans.
provides the opportunity to judge the complexity and severity of effects that will result from
takings. The estimator must make a judgment call of "high," "medium," or "low" in terms of
invasiveness relative to the takings. This will later affect how parcel specific costs and risks are
quantified such as damages and improvements. Also during the field visit, the estimator takes
note on the geography of the land and current land use as well as trying to make assumptions for
possible future development. It should be noted that analyzing the possible future development
in an area can be difficult to predict, especially on vacant parcels, but the estimator has a better
grounding for making a judgment to account for risk. Following the field visit, the estimator will
complete the risk analysis by identifying and evaluating all factors that may affect the project.
Contingencies are applied based upon the risk analysis. Specifically related to condemnations,
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D-10 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
the estimator will estimate a percentage of parcels that go to condemnation versus a percentage
that will settle. These percentages are a direct reflection the estimator's rating of "high,"
"medium," or "low" in terms of invasiveness as made during the field visit. A contingency is
then applied for the costs of litigation. Risks are considered for environmental issues, title
issues, or other miscellaneous issues where a dollar amount will be applied to the estimate
based upon the probability of occurrence and severity. The potential risks of real estate infla-
tion are considered in addition to considering any unknowns that have not been addressed
throughout the risk analysis.
Application of Contingency
Contingency should be applied to cost estimates to account for the unknown or uncertain
events (Anderson et al., 2007b). Only four of the SHAs interviewed confirmed the use of contin-
gency amounts in their ROW estimates. Each SHA uses percentages for contingency values,
except in the case of WSDOT, which uses range estimates when conducting a CRA or CEVP risk
analysis.
One of SHA is restricted by agency policy from applying contingency to anything but con-
demnation. A second SHA applies contingency as a rate that ranges from 20 to 25 percent
depending on the judgment of the estimator. The third agency applies a set factor for three sep-
arate cost areas in the programming phase ROW estimate. These are: (1) schedule; (2) adminis-
trative; and court costs; and (3) market appreciation. These contingency rates are built into the
agencies estimating sheets and therefore are applied to every ROW estimate. Although these con-
tingency factors are not the product of a risk analysis, the agency reports that they appear to be
basically accurate for most projects.
The issue of risk analysis and the setting of contingency were raised during the original
NCHRP Project 8-49 study and is a concern when considering ROW cost estimating. Contin-
gency funds are typically applied in response to some project uncertainty or to account for
inadequate scope definition (Anderson et al., 2007b). This should especially be the case for
early estimates, particularly during Planning where there are many uncertainties and project
scope is extremely broad. Condemnations should be one of the major areas looked at for risk
and the application of an estimate contingency, but there are others including real estate infla-
tion/appreciation, potential future development, and project schedule.
Estimate Accuracy Definition
In addition to a detailed risk analysis and the application of contingency, one SHA attempts
to quantify estimate confidence for the benefit of those that use the estimate. This is not a formal
risk analysis but only the estimator's personal assessment. After completion of the estimate, the
ROW estimator assigns a rating of A, B, C, or D. A letter grade of `A' indicates the highest level
of confidence while `D' is the lowest. This becomes important when an estimate must be updated
as a result of SHA policy or a design change because it communicates to others the estimator
opinion of the cost estimate's accuracy. Therefore, in the event of an update or change, the esti-
mator (either a new estimator or the original one) will have a general idea of where the estimate
stands while giving them a point of reference to begin the update. For the same reason it is also
important to note that limitations and assumptions should be recorded for each estimate.
Estimating Software
Standard ROW-specific estimating software was not discovered to be in use by the seven SHAs
and two cities interviewed. However, several SHAs have developed ROW cost estimating programs
or spreadsheet workbooks. The Virginia DOT (VDOT) has developed an in-house estimating
system called Project Cost Estimating System (PCES). This cost estimating program covers all
project related costs including ROW. The system was initially developed by engineering as an
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Appendix D D-11
early estimate tool. PCES appears to be somewhat cumbersome for ROW; however, it does
address all areas of the ROW component. The system requires input for all of the cost areas
of ROW to produce an estimate therefore it serves as a tool to ensure that all cost aspects are
considered. Estimators prepare an estimate in present dollars and the system automatically
applies inflation. Screen captures of the estimating system are shown in Figure 2, Figure 3,
and Figure 4.
Figure 2. Screen capture of VDOT's cost estimating system (PCES).
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D-12 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
Figure 3. Screen capture of VDOT's cost estimating system (PCES).
In addition to the cost estimate system described above, individuals in several SHAs have
developed detailed spreadsheet systems to complete their ROW cost estimates. In general, the
workbooks cover all aspects of the ROW that are covered in the above screen captures and appear
to be used for the same function. Estimating software and the use of estimating workbooks tend
to structure the estimating process and provided consistency from estimate to estimate. This is
especially favorable in large SHA organizations.
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Appendix D D-13
Figure 4. Screen capture of VDOT's cost estimating system (PCES).
Estimate Reviews
Review of ROW estimates is typically limited to an examination by the immediate supervisor
of the estimator. The majority of SHAs require that a supervisor or ROW manager sign off on
the estimate. In most cases the supervisor or manager will perform a quick review of the estimate
to check whether major component costs seem reasonable. For the preliminary design estimate,
one SHA reported performing a number of "mini estimate" checks on project parcels. A "mini
estimate" is an estimate completed on several parcels within the project that may have a high
effect on the ROW cost. High effect parcels are those where a large damage amount is expected
or ones having many improvements. These mini estimates are checked against the correspond-
ing parcels within the actual estimate. Based on the results of this comparison, the cost estimate
is either (1) approved and communicated to design, or (2) it is sent back to the ROW estimator
for further work. Another SHA uses a weekly one-hour meeting involving program managers
along with the director, assistant director, budget supervisor, and engineering supervisors to
review "critical projects." Critical projects are those in which budget, utility, or ROW problems
exist. This allows all of the agency's upper management to consider the projects and their esti-
mates and to provide input.
Every ROW estimate should be reviewed by management. This research and previous
NCHRP Project 8-49 research documented in NCHRP Report 574 confirms this. However, it
was found that the level of review at some agencies is minimal. Especially in cases of large proj-
ects, a higher level review that includes more of an effort by management to scrutinize and eval-
uate estimates should be undertaken.
Final Design
When a project transitions from preliminary design into final design, ROW requirements are
not usually restated. In essence, the ROW process must be completed ahead of other design ele-
ments in the project development process to ensure that all ROW real estate is acquired prior to
construction. Another estimate or estimate update is not typically required since appraisal and
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D-14 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
acquisition have begun. In the case of an ideal project, all parcels will be acquired before con-
struction begins, but this is not always the case. When construction is scheduled to begin, most
states first require one of three things: (1) that all property be acquired, (2) a right of entry is
granted to the SHA by the property owner; or (3) the parcel is in the condemnation process. Oth-
erwise, construction may have to be delayed and that has the potential of affecting overall proj-
ect costs and other aspects of the project. Cost estimating practices relative to final design were
limited to the use of ROW tracking systems which are now discussed. The interviews did not
identify any cost estimating practices that occurred during final design. At this point in project
development, the SHA has begun making appraisals and acquiring properties.
ROW Tracking Systems
ROW tracking systems are currently in use by several of the SHAs interviewed. In general, a
ROW tracking system is a data base containing information on individual parcels. They provide
a means for assembling and retrieving parcel information easily. Out of the nine interviewed
agencies, three SHAs have ROW tracking systems. These are (1) the Virginia DOT's Right-of-
Way and Utilities Management System (RUMS); (2) the Washington State DOT's Real Estate
Information System (REIS); and (3) the Minnesota DOT's Right-of-Way Electronic Acquisition
Land Management System (REALMS), which is the most advanced of the three identified. Follow-
ing the approval of the ROW estimate at the preliminary design phase, the dollar value for ROW
is input into the system. Further data is input after appraisal and acquisition. These systems serve
as a database of past and up-to-date parcel data across the state and have the potential to be used
for recent comparable sales, predicting possible inflation rates, predicting condemnation rates,
or other ROW-specific parameters or statistics. Instant access and availability of these forms,
reports, and data is a major advantage of the systems, particularly when managing costs during
appraisals and acquisitions, which is discussed in the next section under ROW management. The
Minnesota system is mapped to the business structure of the SHA with approximately 150 forms
and 90 reports that are used throughout the ROW division. This allows all employees of the SHA
to access the forms and reports used in daily operations. Consultants are also being trained on
the system to allow the SHA the versatility to contract out ROW appraisals and acquisition and
still track the parcels.
ROW Estimate Management
This research considered ROW management practices in addition to cost estimation practices.
This is reflected in the list of nine steps. ROW Cost Management uncovered through this research
may be divided into two related but separate categories: (1) cost estimation management and
(2) ROW cost management. Cost estimation management is defined by NCHRP Report 574 as "a
process for evaluating changes in scope and other issues that affect project cost." These evalua-
tions should be preformed for each cost estimate prepared during the project development
process (Anderson et al., 2007a). In other words, the evaluation serves as a check-and-balance
system for all estimates by checking each estimate for changes that affect cost and then evaluating
those changes to determine whether the changes are necessary and/or acceptable. Although sim-
ilar in many ways, ROW cost management can be described as the process in which the actual
ROW costs reflected in appraisal and acquisition are managed to the dollar amount established
as the baseline budget. Both of these ROW management processes are discussed in this section.
ROW Cost Estimation Management During Preliminary Design
ROW cost estimates prepared during programming become part of the project estimate that
is approved for the construction program, consequently used for establishing the baseline cost
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Appendix D D-15
estimate. Following the establishment of the baseline cost estimate and thus at the beginning
of preliminary design, the basis for cost estimation management is established. Any future cost
estimate updates should be checked and managed against this baseline. In particular, NCHRP
Report 574 defines two steps as falling within the realm of cost estimation management, which
usually occur after an estimate is completed. These are
· Obtain appropriate approvals and
· Determine estimate communication approach.
These two steps follow the review of an estimate. Appropriate approvals should be sought only
after an estimate has been reviewed. By signing off on the estimate, management is agreeing that
the cost estimate is completed to the best possible level of accuracy based upon project complex-
ity, scope definition, availability of cost data, and other constraints. If the estimate is not
approved and needs to be changed, it will be return to the estimator. In addition, project scope
and project conditions should be constantly reviewed for any changes that affect estimated cost.
As these changes are identified they should be evaluated for cost effects and the cost estimate
should be adjusted accordingly. After approval, the estimate communication approach used to
communicate the estimate amount to design personnel should be chosen and should consider
the degree of estimate uncertain and the intended use of the estimate.
Only a limited amount of evidence of cost estimation management surfaced during interviews,
but every estimate completed at the preliminary design phase should go through some type of
cost estimation management process. Cost estimation management should be practiced to con-
trol project cost, schedule, and scope (Anderson et al., 2007a). For example, in the event that a
cost increase is identified in subsequent estimates following the baseline estimate, the reason for
this should be examined and evaluated. The SHA should look at the change in cost and see if it
is really necessary. If it is necessary and acceptable, other areas within the estimate should be
examined to find areas where ROW dollars can be saved to bring the estimate back within the
budget set by the baseline estimate. This examination applies both to managing ROW cost and
total project cost.
ROW Cost Management During Final Design
For ROW the final design phase of project development typically marks the point where cost
estimation is phased out and appraisal and acquisition actions begin. As plans and specifications
are nearing completion, final ROW plans are usually released. Up to this point in project devel-
opment, the cost management function of ROW should have consisted of managing cost esti-
mate amounts against the baseline estimate (the baseline estimate is often used to program the
project in the STIP). Beginning at final design, the cost management function should transition
from managing subsequent estimates to managing the actual costs (or cost control). These costs
are reflected in acquisitions and should be compared with the preliminary design cost esti-
mate. In other words, parcel-specific cost estimate data should be compared with the parcel-
specific acquisition costs to determine how actual costs compare with the estimated amounts.
If a cost does not match the estimate, deviations should be evaluated and projections of total
final cost made accordingly. NCHRP Report 574 identified three steps related to Cost Man-
agement. They are
· Monitor project scope and project conditions;
· Evaluate potential effect of change; and
· Adjust cost estimate.
It is the goal of ROW Cost Management to complete acquisitions on budget with the
estimates, but even if the management process cannot change the effect of the immediate
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D-16 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
cost escalation problem for that project, lessons can be learned by this process for future
projects.
Summary of Notable Practices
Although many of the SHAs interviewed for this research are struggling with project cost esca-
lation, particularly with the effects of ROW cost escalation, there were some successful practices
identified during the interviews. Table 1 summarizes the noteworthy SHA practices identified
through interviews. The table does not include all practices critically reviewed, but only summa-
rizes the most successful practices identified by this research.
Table 1. Summary of notable practices identified through
SHA interviews.
Project
Development Best Practice Description
Phase
Planning Conceptual Cost Aerial photo or map of each potential alignment showing
Estimate Map approximate ROW boundaries.
A Planner and Project Manager (or Design Engineer) performs a field
visit to discuss probable design parameters relative to ROW. Basic
Early Scope
parameters such as the number of lanes, the number of retention
Definition basins, potential access issues, and expected ROW/Design tradeoff
issues should be provided to the ROW estimator.
Programming
and Aerial photo or detailed map consisting of overall ROW boundaries,
Preliminary parcel boundaries, and ROW areas. The map is provided by the
Cost Estimate
Design Project Manager or Project Engineers to the ROW division when
Map requesting a ROW cost estimate. Maps will most likely vary in detail
between the Programming and Preliminary Design estimates.
ROW/Design ROW personnel provide input into design to discuss effects of design
Tradeoff decisions on ROW costs.
Appraisers as Employ experienced and knowledgeable ROW appraisers as ROW
Estimators cost estimators for improved ROW cost estimates.
Cost Estimate A cost estimate document usually in spreadsheet form which includes
Sheet line items for all cost items of the ROW estimate.
A thorough risk analysis is completed for each cost estimate
completed by the ROW division to include such risks such as time,
Risk Analysis property value inflation, and condemnations among others. In
addition, ROW risks are captured through the WSDOT CRA and
CEVP workshop process.
An approach to quantify confidence in each estimate that is
Estimate completed throughout Project Development. After completion of the
Accuracy estimate, the ROW estimator assigns a rating of A, B, C, or D. A
Definition letter grade of `A' indicates the highest level of confidence while `D'
is the lowest.
A cost estimating tool used throughout the agency's estimation
process for all areas of the project. Particularly for ROW, it addresses
Cost Estimating all areas of ROW (e.g. land value, building value, other
System improvements, damages, etc.) and requires that a value for each of
these areas must be input. This serves to account for all cost items
affecting ROW cost.
Final Design The system has the ability of cost reporting and tracking of each
parcel from appraisal through acquisition and can support forecasting
ROW Tracking
of cost to complete the acquisition process (i.e., cost management). It
Systems is not used as cost estimation tool but may offer potential as a source
of recent historical data and market trends for land values.
ROW Cost A technique of managing actual costs reflected by tracking appraisals
Management and acquisition costs against the preliminary design cost estimate.
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Appendix D D-17
Appendix Summary
Cost estimation and cost estimate management practices currently used by SHAs were
reviewed during the research and analyzed in relation to the project development phases. This
appendix discusses these SHA practices in reference to ROW estimates completed at the various
phases of the project development process. The appendix also discussed ROW management in
relation to both the management of the estimates completed during preliminary design and the
management of actual costs during final design. Additionally, the appendix summarizes the suc-
cessful practices discovered through agency interviews.
