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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

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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.