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94 Industry Problem State highway agencies face a major challenge in controlling project budgets over the time span between project initiation and the completion of construction. Project cost increases, as reflected by budget overruns during the course of project development, are caused by any number of factors, such as an inadequate project scope definition at the time of planning or programming, insufficient information on the extent of util- ity relocation requirements, insufficient knowledge of right- of-way costs, added environmental mitigation costs necessary to avoid impacts, traffic control requirements, and work-hour restrictions. The objective of this Guidebook is to assist state highway agencies in achieving better estimate consistency and accuracy during planning and project development. Guidebook Development The Guidebook was developed after a focused review of cur- rent state highway agency estimation practices and an exten- sive examination of recent estimation research. Over half of the state highway agencies, representing all parts of the country, provided input on their current estimation practices and the problems they are experiencing. By a critical review of the lit- erature and state highway agency information, the root causes of problems in cost estimation practice and cost estimation management were identified. The information also permitted the identification of viable and successful approaches to cost estimation practice and cost estimation management. An analysis of estimation literature and the information provided by the state highway agencies led to the develop- ment of eight strategies to address 18 factors that cause cost increases as experienced by state highway agencies during planning and project development. These eight strategies are linked to over 30 recommended methods for implementing the eight strategies and to over 90 tools for executing the spe- cific methods. A Strategic Approach The cost escalation factors that lead to project cost increases have been documented through a large number of studies and matched to cost estimate changes that occur during project development. Each factor presents a challenge to a state high- way agency seeking to produce accurate project cost estimates and managing project costs. These factors can all be addressed by using a strategic approach to estimation and cost manage- ment that is structured around the eight strategies and the fol- lowing three elements: ⢠Planning and project development process phases, ⢠Project complexity, and ⢠Basic cost estimation practice and cost estimation manage- ment steps. Cost estimation practice and cost estimation management are processes that require the completion of a number of spe- cific cost estimation steps. The cost estimation process neces- sitates completion of four basic steps that are applicable to the process across each development phase. These cost estima- tion steps are usually preformed sequentially and repeatedly as project development proceeds: 1. Determine estimate basis. 2. Prepare base estimate. 3. Determine risk and set contingency. 4. Review total estimate. There are five cost estimation management steps. Imple- mentation of these steps varies by project phase. The cost esti- mation management steps are also preformed repeatedly as project development proceeds: 1. Obtain appropriate approvals. 2. Determine estimate communication approach. C H A P T E R 9 Path Forward
95 3. Monitor project scope/project conditions. 4. Evaluate potential impact of change. 5. Adjust cost estimate. Keys to Success Disciplined cost estimation management and cost estima- tion practices should be applied in the context of the eight global strategies. This research has determined that 10 key principles must be followed to ensure creation of consistent and accurate estimates. Each individual principle in itself can help improve cost estimation management and cost estima- tion practice. However, maximum improvement of these two processes will only occur if the 10 key principles are incorpo- rated into the agencyâs business practices throughout the organization. Within each group, the key principles are pri- oritized as follows. Cost estimation management: 1. Make estimation a priority by allocating time and staff resources. 2. Set a project baseline cost estimate during programming or early in preliminary design, and manage to this estimate throughout project development. 3. Create cost containment mechanisms for timely decision making that indicate when projects deviate from the baseline. 4. Create estimate transparency with disciplined communica- tion of the uncertainty and importance of an estimate. 5. Protect estimators from internal and external pressures to provide low cost estimates. Cost estimation practice: 1. Complete every step in the estimation process during all phases of project development. 2. Document estimate basis, assumptions, and back-up calcu- lations thoroughly. 3. Identify project risks and uncertainties early, and use these explicitly identified risks to establish appropriate contingencies. 4. Anticipate external cost influences and incorporate them into the estimate. 5. Perform estimate reviews to confirm that the estimate is accurate and fully reflects project scope. Challenges Implementing new concepts involves facing the challenges that accompany change. State highway agencies must con- sider several challenges when deploying this Guidebook: ⢠Challenging the status quo and creating a cultural change requires leadership and mentoring to ensure that all steps in the cost estimation management and cost estimation processes are performed. ⢠Developing a systems perspective requires organizational perspective and vision to integrate cost estimation manage- ment and cost estimation practice throughout the project development process. ⢠Dedicating sufficient time to changing agency attitudes toward estimation and incorporating the strategies, methods, and tools from this Guidebook into current state highway agency practices is difficult when resources are scarce. ⢠Dedicating sufficient human resources to cost estima- tion practice and cost estimation management beyond the resources that have previously been allocated to estimation processes. Meeting these challenges will ultimately require a commit- ment by the agencyâs senior management to direct and support change. The benefit of this commitment will be manifested in projects that are consistently within budget and on schedule and that fulfill their purpose as defined by their scope. This benefit will also improve program management by allowing for better allocation of funds to projects to meet the needs of the ultimate customer, the public.
