Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction (2007)

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39 Introduction The programming and preliminary design phase focuses on converting the highest-priority needs included in the state highway agency’s long-range plan into specific projects. This decision point marks the beginning of the project develop- ment process as individual projects are identified for defi- nition, design, and construction letting. The period from project definition in programming to letting the project for construction is typically between 5 and 10 years. This period between programming and construction letting is a function of project complexity and criticality. Programming often marks the beginning of a project- specific effort. Federal law requires that the transportation improvement program (TIP) for a metropolitan area become part of the state transportation improvement program (STIP). It is thus very common for state highway agencies and MPOs to work closely in identifying the likely costs associated with candidate projects. Programming is often referred to as project definition or scoping. The primary goal of programming is to create a baseline scope, cost, and schedule for the project. Once this baseline is approved, the project is included in an authorized priority program. This priority program determines when preliminary design will begin. The target date to commence pre- liminary design could be several years in the future. When preliminary design falls within the first 3 years of the priority program and federal funds are used, the preliminary design cost is included in the STIP. Right-of-way and construction costs will be added to the STIP later, as the STIP is updated regularly. In some cases, if the project needs to be let for con- struction within 3 years, the entire project cost covering pre- liminary design, right-of-way, and construction can be included in the STIP. A project must be included in the STIP if federal funds are used. At the date specified in the priority program, preliminary design of the project development process will commence. During this time, the facility design is prepared, environmental clearance is obtained, right-of-way require- ments are determined, and utility relocations are finalized. As the project nears its construction letting date, construction and right-of-way costs are updated for the STIP. A variety of cost estimation methods are used during pro- gramming and preliminary design, from parametric esti- mation, to standard line items and historical bid-based estimation, to cost-based estimation. These methods should be congruent with the level of scope definition and the com- plexity of the project. During this period, as successive esti- mates are prepared, cost estimation management becomes a critical component for managing cost, scope, and time. This is especially true if project requirements change. Figure 6.1 provides an overview of the cost estimation practice and cost estimation management processes used to prepare baseline project estimates for priority programming and the STIP. The basic steps of the cost estimation process are the same during programming and preliminary design. However, the programming estimate is critical because this estimate establishes the baseline cost (i.e., becomes the proj- ect budget) for managing project development. As shown in Figure 6.1, project scoping for this estimate is based on less than 25% design development. The percent design comple- tion that supports the baseline varies depending on project type, size, and complexity. The level of design completion is often influenced by pressure to move projects into the prior- ity program. Some projects may be included in the priority program with as little as 5% design completion. These proj- ects are less complex, such as paving overlays. The project is defined in terms of the need category and/or project type (e.g., preservation, such as a paving overlay, or a mobility improvement through capacity enhance- ments, such as adding lanes or new structures). This project definition effort sets the basic design parameters and crite- ria for the project. Project complexity is often related to the project’s location and specific location characteristics (e.g., urban setting in high-traffic volumes or rural setting with C H A P T E R 6 Guide for Programming and Preliminary Design Phase

significant changes in terrain) and the relative magnitude of projected cost. Sufficient scoping should be completed to determine the potential cost impact of right-of-way require- ments; utility relocations; environmental mitigation; and public, local government agency, and legislative involve- ment. Programming estimates are typically developed using parametric or historical bid-based tools in combination with historical percentages for certain elements. In some cases, data from past projects that are similar to the one being esti- mated can serve as a basis for line-item estimates or cost- based estimates. The complexity of the project often drives which estimation method or combination of methods might be best used. Preliminary design for a project begins at the point in time specified in the priority program. During preliminary design, the project scope is developed in greater specificity. Project cost estimates are often prepared at various times during this time. These estimates often correspond to design milestones—such as 15%, 30%, 60%, and 80% design completion—as delineated in Figure 6.1. These cost estimates can be developed using his- torical unit cost line-item estimation tools. As design advances, the use of line-item, bid-based estimation is usually more com- mon, but the use of cost-based estimation with a bottom-up approach is often required for major projects. Using historical unit cost data from past or current projects similar to the one being estimated is another cost estimation tool that can be used 40 Update Estimate Basis (Scope/ Location) Prepare Base Estimate Perform Risk Analysis (Set Contingency) Review Total Cost Estimate Historical Data Input from Third Parties Input from Disciplines Market Conditions Project Estimates Baseline Estimate Estimate Updates for STIP Is Estimate on Budget? PR EL IM IN AR Y D ES IG N Priority Program STIP YES NO Monitor Project Scope/Conditions Adjust Cost Estimate Estimate Potential Impact -Cost & Time Traffic Pavements Structures ROW/RES Environmental Construction Utilities Project Milestone • 15%, 30%, 60%, and 80% Design • Project Complexity Project Scoping 5-25% Design Project Complexity PR O G RA M M IN G No Change Change Potential Change? Approve Change? YES YES NO NO IM PA CT NO IM PA CT NO Change Scope/Adjust Budget Design Development/Project Conditions COST ESTIMATION PRACTICE AND COST ESTIMATION MANAGEMENT ESTIMATION MANAGEMENT Obtain Appropriate Approvals Communicate Approval Communicate Approval Communicate Approval Database Document Step Input Milestone Ph as e Legend Decision * * *represents the dynamic nature of the milestone dependant on the practices of the state highway agency Macro Environment To Final Design STIP = statewide transportation improvement plan Project Development Process Figure 6.1. Cost estimation practice and cost estimation management during programming and preliminary design.

during preliminary design. The estimator must be careful that the specific tool or tools used fit the scope and complexity of the project and time available for preparing the estimate. When the project is within 3 or 4 years of the construction letting date, the cost estimate is refined so that right-of-way and construction can be included in the STIP or so that the STIP budget for these major categories can be updated. This estimate is critical because the STIP is fiscally constrained and the cost for each project in the STIP must be closely monitored. During preliminary design, cost estimation management is a critical component in achieving accurate estimates. As the design is developed, successive updated cost estimates should be compared to the baseline cost and any changes communi- cated to the design disciplines. These changes must also be communicated to agency management. As a project moves through programming and into pre- liminary design, there must be a reevaluation of scope and design based on any additional knowledge related to the proj- ect site, market conditions, or the macroenvironment. The flow chart segment on the right side of Figure 6.1 shows three steps and two decision points that are important to manag- ing the budget and identifying potential changes to the base- line budget. Changes could result in potential increases in the budget due to, for example, needed scope additions or design developments. Alternatively, changes could result in a poten- tial decrease in the budget due to, for example, a lower esti- mated quantity. If the project is under the baseline cost, this should also be identified. Timely reaction to potential project changes and to information on the cost and time impact of changes allows management to better manage project funds and keep external constituencies informed about project sta- tus. This timely reaction to changes is especially critical when increased funding is required. The preliminary design effort concludes when the plans and specifications are sufficiently complete to commence prepa- ration of construction documents for advertising the project. This final design phase initiates the preparation of the engi- neer’s estimate during PS&E development (see Chapter 7). Methodology This chapter addresses cost estimation practice and cost estimation management practices as applicable to the pro- gramming and preliminary design phase of project develop- ment. The definition of cost escalation factors and strategies described in Chapter 3 are applicable to this chapter. These definitions aid state highway agencies in recognizing those cost escalation factors that are particularly problematic during the programming and preliminary design phase. Table 6.1 can be used to determine which strategies provide solutions to address the cost escalation problems of concern. Chapter 6 suggests methods and tools that are available for implement- ing the specific strategies of interest. Detailed information about specific tools can be found in Appendix A. During the programming and preliminary design phase, the availability of additional project information and an enhanced level of scope definition support more detailed and accurate project estimates. The strategies and methods applied in this chapter emphasize improving estimation accuracy by properly identifying major cost items and then using appro- priate quantitative analysis techniques to provide consistent estimates throughout design. Strategies and methods to man- age costs as design develops are integral to successfully achiev- ing project cost targets. Table 6.1 identifies the strategies that may be implemented to address specific cost escalation factors. Further, once a strat- egy is selected, the user has a choice of methods, classified as either cost estimation management or cost estimation prac- tices, which are briefly described in each section of this chap- ter. Next, the user is guided to a set of tools for each method. The tools are further discussed in detail in Appendix A. The methods and tools discussed in the context of the eight strategies under the programming and preliminary design phase are considered appropriate for this phase. Methods and tools presented in this chapter and not covered in Chapters 5 or 7 could be used during the other phases if the state high- way agency deems them an appropriate fit within their cul- ture and environment. 6.1 Strategy: Management The management strategy is critical to successful project development, especially during the programming and pre- liminary design. Programming is when the project baseline scope, cost, and time are set. The project team must then manage to this scope, cost, and time as the design is further developed. There are six different methods described under the management strategy area for use during the program- ming and preliminary design phase of project development. These methods are shown in Table 6.2. 6.1.1 Budget Control Why? Budget control is critical to managing project costs as the design develops and more is known about project conditions. This method supports the concept of updating estimates and decisions to change or not change the current budget esti- mate. The identification of changes and making necessary modifications to the budget is reflected through the feedback loop shown on the right side of Figure 6.1. During program- ming, an approved baseline cost is set for the project. Dur- ing preliminary design, as scope definition is refined, there is a clearer identification of possible cost escalation factors. 41

Hence, appropriate evaluation of the impact of such factors must be incorporated into the cost estimation management process. Scope changes are primary contributors to cost escalation, and these changes have to be monitored closely as design detail evolves. The budget control method is employed based on different levels of approvals required for a project to proceed. This method also seeks to periodically identify poten- tial deviations and to assess if a project is on track when com- pared with the baseline budget. As potential deviations are identified, an assessment of their impact on project costs and time are evaluated to determine whether these changes should be approved by management. Timely identification of the impact of potential changes allows project and agency man- agement to make decisions on how best to use the funds allo- cated to the project and to the overall program of projects. Project Complexity It is essential to monitor and control budgets during pre- liminary design, regardless of the project complexity. Cost overruns on a number of small projects can translate into program-level overruns. Budget overruns on larger and more costly projects are often more visible to stakeholders and may result in unwanted scope reduction or undesirable requests for additional funds. Tips for Success Timely tracking and identification of cost items that may lead to project overruns are necessary to manage the baseline project scope, cost, and schedule. Using a formal procedure and reporting process that requires quantifying the potential impact of changes to the project is essential for successful implementation of this method. Integrating this change man- agement process into the agency’s project management approach is also critical. If the budget control method is not followed, then there may be a reduced level of funds for other projects in the program. Tools B1.2 Constrained Budget B1.3 Standardized Estimation and Cost Management Pro- cedures 42 Strategies Cost Escalation Factors M an ag em en t Sc o pe an d Sc he du le O ff- Pr ism Is su es Ri sk D el iv er y an d Pr oc u re m en t D oc u m en t Q ua lit y Es tim at e Qu al ity In te gr ity Section 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 Bias √ √ Delivery and Procurement Approach √ √ √ √ Project Schedule Changes √ √ √ √ Engineering and Construction Complexities √ √ √ √ √ Scope Changes √ √ √ √ Scope Creep √ √ √ Poor Estimation √ √ √ √ √ Inconsistent Application of Contingencies √ √ Faulty Execution √ √ √ Ambiguous Contract Provisions √ In te rn al Contract Document Conflicts Local Concerns and Requirements √ √ √ √ √ Effects of Inflation √ √ √ √ Scope Changes √ √ √ Scope Creep √ √ Market Conditions √ √ √ √ √ Unforeseen Events √ Ex te rn al Unforeseen Conditions √ Table 6.1. Link between strategies and cost escalation factors during a project programming and preliminary design phase.

B1.4 Summary of Key Scope Items (Original/Previous/ Current) B1.5 Variance Reports on Cost and Schedule 6.1.2 Communication Why? The fundamental communication goal is the timely trans- fer of information between project team participants, agency management, and external stakeholders. Project communica- tion management tools and techniques ensure the timely and appropriate collection and dissemination of project informa- tion. Through active communication efforts within the agency and with external entities, project team participants can compile and appropriately address the project’s engineering and construction complexities as well as local government concerns and requirements. In Figure 6.1, the communica- tion method is influenced by inputs from disciplines, third parties, and market conditions. Steps that either directly or indirectly facilitate communication include obtaining appro- priate approval and communicating approval. The communication effort begins in programming, when the baseline estimate is prepared and the project is included in the priority program. At this point in project development, the project budget is often released to various constituencies. Unambiguous communication of the scope, cost, and time required to design and let the project for construction is 43 MANAGEMENT STRATEGY Manage the estimation process and costs through all stages of project development Cost Estimation Management Cost Estimation Practice Budget Control B1.2 Constrained Budget B1.3 Standardized Estimation and Cost Management Procedures B1.4 Summary of Key Scope Items (Original/Previous/Current) B1.5 Variance Reports on Cost and Schedule Communication C1.1 Communication of Importance C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency C1.4 Definitive Management Plan C1.5 Proactive Conveyance of Information to the Public C1.7 Year-of-Construction Costs Computer Software C2.1 Agency Estimation Software C2.2 Commercial Estimation Software Consistency C4.1 Cradle-to-Grave Estimators C4.2 Estimation Checklist C4.3 Estimation Manual (Guidelines) C4.4 Estimator Training C4.5 Major Project Estimation Guidance C4.6 Standardized Estimation and Cost Management Procedures C4.7 State Estimation Section Gated Process G1.2 Cost Containment Table Recognition of Project Complexity R1.1 Complexity Definitions Table 6.2. Programming and preliminary design phase management strategy: Methods and tools.

critical. Communication of uncertainty associated with the cost estimate is essential. Preliminary design involves a significant level of scope def- inition; hence, proper communication of all additions and/or modifications to the scope is essential to achieving an accu- rate estimation. Detailed scope definition also translates into reduced design ambiguity. Proper communication channels established between project participants must promote a better understanding of the impact that design has on project cost. The communication method is also discussed in the scope and schedule, off-prism issues, risk, and integrity strate- gies of this chapter. Project Complexity In complex projects, which involve a large number of stakeholders, there is an increased need for skillful commu- nication. These projects are often highly visible within gov- ernment agencies and to the public. Failure to communicate changes to the appropriate entities and project participants involved with complex projects may result in a lack of confi- dence in the state highway agency’s cost estimates, and the credibility of the agency could be compromised. Tips for Success The identification and formulation of an effective com- munication plan is the key to efficient and effective commu- nication. The requirements and deliverables promised to stakeholders must be identified and matched with corre- sponding deliverables that a project team produces. Project cost should be communicated in year-of-expenditure dollars. Tools C1.1 Communication of Importance C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency C1.4 Definitive Management Plan C1.5 Proactive Conveyance of Information to the Public C1.7 Year-of-Construction Costs 6.1.3 Computer Software Why? The estimation process at the programming and prelimi- nary design phase uses a variety of estimation approaches. Most commercial and agency-developed estimation software bases estimates on line items using bid histories or uses a cost- based approach. Line-item-based approaches do not always suit early programming estimates. These estimates usually have to be created using parametric techniques. As the design is prepared, the use of historical bid-based estimates becomes a more common approach. The use of computer software helps in extracting and summarizing historical cost data. This supports standardization of information presentation across the agency. Computers may also help reduce calculation errors and provide summary reports in numerous ways. When esti- mating line-item costs, computer software can also assist in analyzing multiple alternatives rapidly. In Figure 6.1, computer software can be used extensively in the maintenance and retrieval of historical data. Computer software also is used to prepare base estimate and perform risk analysis. Project Complexity Larger, more complex projects involve a significant number of cost items. Further, many project participants are often involved in preparing estimates for complex projects. In this environment, computer software can aid in performing numerous calculations quickly, reducing errors, and improv- ing efficiency. Computer software can also aid in making changes rapidly, especially when the project team is evaluating a number of alternatives based on estimated costs. Tips for Success Computer software is useful for making calculations and, in particular, summarizing information in a manner that aids in checking estimate results. However, the output of estima- tion software is only as good as the input. Estimation software that provides some mechanism for checking the output (i.e., through comparisons of cost elements using percentages, ratios, and/or appropriate ranges against historical averages) will enhance the usefulness of the software. Tools C2.1 Agency Estimation Software C2.2 Commercial Estimation Software 6.1.4 Consistency Why? An estimate is a permanent document that serves as a basis for business decisions. It must be in a form that can be understood, checked, verified, and corrected. There must be consistency. Consistency ensures that estimates are prepared following a single standard. Estimation consistency is important, especially across state highway agency districts and regions, because esti- mates are easier to review when they are prepared in a similar format. Consistency is achieved by instituting project manage- ment procedures that serve as guides for the cost estimation 44

management process. Agency management should ensure that the agency’s estimators, or other project team members involved in preparing estimates, have developed standard prac- tices and use procedures that are documented in a manual of practice and that all project participants involved in cost esti- mation are trained and knowledgeable in the established pro- cedures. In Figure 6.1, the consistency method influences each step in the process and the types of information used to pre- pare the baseline estimate and the estimate updates. Consis- tency influences cost management steps, as well. Project Complexity Complex projects require the involvement of many different project participants, often representing different organiza- tions or agencies. Complex projects also span a considerable period of time. Consistency in cost estimation management is essential to bridge the gap between these different project participants and to integrate the flow of information during project development. Although consistency is likely more important for complex projects, it is certainly still important for smaller and less complex projects because the number of these types of projects is generally high within state highway agencies. Consistent cost estimation management across these smaller projects will provide program-level consistency in cost estimation. Tips for Success Adequate training and knowledge of agency procedures and practices are important for this method to be successfully implemented. Using the same estimators throughout project development further contributes to achieving estimate consis- tency. When different organizations or agencies are involved in a project, consistency can be achieved if common procedures are implemented on a project-specific basis. Tools C4.1 Cradle-to-Grave Estimators C4.2 Estimation Checklist C4.3 Estimation Manual (Guidelines) C4.4 Estimator Training C4.5 Major Project Estimation Guidance C4.6 Standardized Estimation and Cost Management Pro- cedures C4.7 State Estimation Section 6.1.5 Gated Process Why? The project estimated early in project development is often not the project actually built. Scope changes to the original concept usually result from a better understanding of the needs that drive a project, and with most scope changes there is a resulting increase in project cost. In order to ensure that designers are aware of how scope changes will affect project cost, it is advantageous to require submittal of a cost estimate along with each design submittal. Using a gated process can focus decision making during project development. A gated process involves identification of critical project development milestone points. At these pre- determined milestones, a cost estimate is prepared to support a management review of scope, cost, and schedule before the project can proceed to the next milestone. This gated process prevents a project from moving forward without proper reviews and approvals. This method can reduce potential cost escalation. Setting an approved baseline cost at the end of the programming is an example of a gate in the project develop- ment process. In Figure 6.1, gates can be placed at critical points, such as at review and approval steps, to support baseline cost estimates for priority programming and to meet key project requirements such as when a project is included to the STIP. Project Complexity Complex projects involve many components that may eas- ily be overlooked as the estimate is developed. A thorough review prior to releasing the project for further development facilitates scope, cost, and time control. This type of review “at a gate” in project development may ensure a more reliable estimate and potentially reduce cost growth. Tips for Success The placement of these gates at appropriate points on the project development time line and in conjunction with cost estimate development is critical if this method is to be suc- cessful. Standardizing these gates for all projects will further aid in developing consistent and accurate estimates. It is important that the review process at each gate be effective and expeditious to ensure that the project is not delayed. Tool G1.2 Cost Containment Table 6.1.6 Recognition of Project Complexity Why? Understanding the impact on project complexity can influ- ence the choice of design estimation methods. The impact of complexity on method selection would influence the prepara- tion of the base estimate and, perhaps, the estimate reviews. 45

Further, communication of project complexity and the asso- ciated estimate uncertainty is critical during programming and early in preliminary design. An understanding of project complexity will allow for the determination of appropriate risk and contingency, as depicted in Figure 6.1. As presented in Table 2.2, agencies should estimate base (or known) costs separately from risk and contingency (or unknown) costs. Recognition of project complexity is a critical step in deter- mining the uncertainty of a project estimate. Project Complexity Through the act of definition and recognition of project complexity, a proper contingency can be developed. Also, a set of lessons learned for each level in the complexity scale can be developed. This will allow personnel throughout the agency to benefit from previous project knowledge. This knowledge should eliminate some of the relearning that takes place dur- ing the development of many projects. Tips for Success Recognition of the project’s complexity early in its devel- opment can aid in ensuring that all criteria for a project of a given complexity are introduced into the cost estimation practice and cost estimation management processes. Criteria can include the size of staff required for the project, the nec- essary level of review, the level of definition at certain project milestones, and the necessary authorization level for the proj- ect, in addition to changes in scope, schedule, and quality. Complexity can also address the project setting (rural or urban). The definition levels and criteria should be estab- lished for use throughout the agency, and each project should be cataloged as a certain complexity early in project develop- ment. Changes related to complexity should be noted and communicated as they become apparent. Tool R1.1 Complexity Definitions 6.2 Strategy: Scope and Schedule Controlling project scope and schedule changes requires sound cost estimation practice and cost estimation manage- ment methods. These methods must identify and quantify changes in scope and schedule in a timely manner so that decisions can be made to mitigate or accept the impact asso- ciated with the change. Controlling scope and schedule can only be achieved if there are a valid project baseline, effective tools to convey information, and proactive ways to evaluate scope and schedule when preparing cost estimates. There are four different types of cost estimation management methods and two different cost estimation practice methods applica- ble to the scope and schedule strategy. These methods are listed in Table 6.3. 6.2.1 Buffers Why? Buffers are used as a means to ensure integrity in the processes of developing and tracking scope, cost, and sched- ule elements during project development. They are designed to safeguard projects against external and internal influences that might misrepresent the level of definition of the project scope and the accuracy of the project schedule and budget estimate. In Figure 6.1, buffers can be included as part of the “prepare base estimate,” “perform risk analysis,” and “review total cost estimate” steps to enable estimators to indepen- dently develop estimates based on the best information available. Project Complexity Manipulative pressures, especially from external third parties, may influence estimates that are developed for high- profile projects. Although such pressures are typically present with more complex projects that often affect a larger number of stakeholders or with projects that have a greater impact on the environment, the establishment of buffers at some mini- mum standard should also be considered for smaller, less complex projects. Tips for Success Establishing a minimum standard to protect the project scope and cost from external and internal manipulative influences is important to creation of accurate estimates. Careful evaluation of such influences and how these influ- ences should be mitigated during programming and early in design is important. Tools B2.1 Board Approvals B2.2 Constrained Budget B2.3 Management Approvals 6.2.2 Communication Why? Project communication management ensures the timely and appropriate generation, collection, dissemination, storage, 46

and ultimate disposition of project information. Scope and schedules changes are prevalent in the programming and pre- liminary design phase of project development. Proper com- munication of these changes is crucial to cost estimation management. Communication is important in interfacing with external participants, especially when changes originate from third parties. Communication influences the inputs received from agency disciplines and third parties. The com- munication method directly guides how the “communicate approval” step is performed (see Figure 6.1). Project Complexity In complex projects, which involve a large number of stake- holders, there is an increased need for skillful communication. These projects are often highly visible to government agencies and the public. Failure to communicate scope and schedule changes to the appropriate entities and to involved project participants in a timely manner may result in a lack of confi- dence in the state highway agency’s cost estimate and sched- ule. As a consequence, the credibility of the agency could be compromised. Tips for Success A project communication plan is critical to ensure that this strategy is successfully implemented. This plan should outline who is responsible for what aspects of project communica- tion. This plan must especially focus on how project changes are communicated as the project is developed during pro- gramming and preliminary design. Tools C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency C1.4 Definitive Management Plan C1.7 Year-of-Construction Costs 6.2.3 Creation of Project Baseline Why? To properly track cost and the impact of changes due to better definition of project conditions, all projects must be 47 SCOPE AND SCHEDULE STRATEGY Formulate definitive processes for controlling project scope and schedule changes Cost Estimation Management Cost Estimation Practice Buffers Constructability B2.1 Board Approvals C5.1 Constructability Reviews B2.2 Constrained Budget B2.3 Management Approvals Communication Value Engineering C1.2 Communication of Uncertainty V2.1 Value Engineering C1.3 Communication within State Highway Agency C1.4 Definitive Management Plan C1.7 Year-of-Construction Costs Creation of Project Baseline C6.1 Cost Containment Table C6.2 Estimation Scorecard C6.3 Scope Change Form C6.4 Scoping Documents Delivery and Procurement Method D1.2 Delivery Decision Support Identification of Changes I1.1 Cost Containment Table I1.2 Estimation Scorecard I1.3 Project Baseline I1.4 Scope Change Form Table 6.3. Programming and preliminary design phase scope and schedule strategy: Methods and tools.

monitored against a performance benchmark as the design is developed. Hence, a project cost baseline consistent with a defined scope and schedule must be established. The estab- lishment of this baseline over the timeline of project devel- opment can be variable. One practice is to set this baseline when the scope of all major cost items can be adequately defined (i.e., 80% of cost lies in 20% of the project elements). This typically occurs during programming when an appro- priate level of design completion is achieved (10% to 25%), although when the project baseline cost is set varies depend- ing on agency policy. Setting a cost baseline ensures that scope changes and their impact can be documented and eval- uated against the project budget. Deviations can be mapped over time for reconciliation with periodic estimation updates. This mapping process cannot successfully occur without a baseline. The baseline estimate document is the output of fol- lowing all the steps shown on the left side of Figure 6.1 dur- ing programming. Project Complexity Complex projects involve many work items, and the probability of change is higher because it is difficult to define these work items early in design development. Hence, record- ing potential scope changes and periodically evaluating them for inclusion in the baseline scope ensures that the project will remain on schedule and on budget. Early detection of deviations from the baseline schedule and cost helps the proj- ect participants make necessary budget adjustments, recog- nize if additional funds are needed, and avoid substantial cost overruns. Tips for Success Project baselines are best established only when critical cost elements have been sufficiently defined. This means that the design basis and project definition is completed to a level of detail such that critical scope items can be properly esti- mated. Documenting the scope basis and assumptions that support the baseline cost estimate is also critical. This docu- mentation will be the benchmark from which changes can be identified and assessed as potential deviations from the base- line scope and schedule. Tools C6.1 Cost Containment Table C6.2 Estimation Scorecard C6.3 Scope Change Form C6.4 Scoping Documents 6.2.4 Delivery and Procurement Method Why? The use of alternate project delivery and procurement meth- ods for transportation projects is increasing. The impact of these methods on project cost and time must be considered when preparing estimates and managing estimated costs. The design-build delivery method is considered to be a vehicle for controlling scope. This is particularly the case when a request for proposal is based on a well-described design basis and design criteria. The detailed design is then left to the design- build contractor. The design-build contractor can better control the schedule and reduce overall project time by over- lapping design and construction. The delivery and procure- ment method would influence the preparation of the base estimate and the performance of the risk analysis. Project Complexity The effort required to prepare a conceptual design for a design-build project increases as project complexity increases. Thus, the state highway agency must be prepared to dedicate an adequate level of resources and time to completely develop the request for proposal (RFP), including the cost estimate and proposed schedule to support the design-build approach. Tips for Success A decision support tool to help select the appropriate deliv- ery and procurement approach should be used during pro- gramming when setting the baseline cost. An early decision to use design-build can help the project team plan for the activ- ities needed to support the preparation of the RFP, including development of an engineer’s estimate and schedule that is compatible with the design-build approach. Tool D1.2 Delivery Decision Support 6.2.5 Identification of Changes Why? Every project should have an established baseline for both scope and cost. The project baseline scope and cost estimate is used to measure performance throughout proj- ect development and construction. Different agencies that already practice baselining of their projects report doing so usually when an identified need becomes a real project and is budgeted. 48

The identification method is normally positioned to inter- cept inputs impacting scope and cost. In Figure 6.1, identifica- tion of changes would filter the input from disciplines and the input from third parties. It would also identify any downstream changes to the “determine estimate basis (scope/location)” step and be used frequently as a basis for performing the steps on the right side of Figure 6.1. The method is also tied closely to the “creation of a project baseline” method (see Section 6.2.3). Project Complexity Establishing reliable baseline definitions of scope and cost in the early stages of project development for large projects is difficult, primarily because of the many unknowns at that point in time. Further, large projects tend to have more ele- ments to properly scope and estimate. As such, identifying potential changes requires a more systematic approach. Thus, it is with the complex projects that the use of this method will yield the greatest benefits. Tips for Success Engineering and construction complexities caused by the project’s location or purpose can make early design work very challenging and lead to internal coordination errors between project components. Constructability problems that need to be addressed may also be encountered as the project devel- ops. Early identification of such issues and a structured sys- tem for controlling their impacts is essential to achieving estimate quality. Tools I1.1 Cost Containment Table I1.2 Estimation Scorecard I1.3 Project Baseline I1.4 Scope Change Form 6.2.6 Constructability Why? Construction knowledge and experience must support development of construction schedules. This focus is partic- ularly useful when evaluating alternate construction staging plans to integrate with traffic management strategies. Traffic control and construction staging is often one of the most complex aspects of designing a project. Often designers do not fully understand the impact that a particular traffic con- trol scheme has on ease and efficiency of construction. This impact will translate into a schedule that will likely change when the project is bid. If the traffic management design is developed with construction input, the result should be a more cost-effective and timely project. The constructability method would influence the type of input received from the disciplines. Constructability would impact the “update esti- mate basis” step in Figure 6.1 and influence the accuracy of the cost estimate and schedule. Project Complexity The more complex a project, especially if the project is set in a highly congested urban environment, the more attention should be given to the integration of traffic control and con- struction sequencing. This effort will provide a better base- line schedule for the project and, hence, increased accuracy of the estimated project duration. The cost estimate should reflect an efficient construction approach. Tips for Success Constructability analysis is most successful when the process is formalized and is an integral part of the programming and preliminary design project phase. Identifying constructability experts is also critical in achieving successful constructability programs. A constructability expert must be able to work effec- tively with project designers and provide meaningful input as designs are developed. Tool C5.1 Constructability Reviews 6.2.7 Value Engineering Why? Value engineering is a process that can be used to facilitate scope control and to contain or reduce project cost. Value engineering has its largest impact during programming and early in preliminary design, up to about 30% design comple- tion. A significant project impact can be achieved during this period because the design has not been fixed. Thus, the pri- mary objective of value engineering is value improvement. Value improvements might focus on exactness in scope defi- nition, the functionality of designs, constructability of designs, and/or the project schedule. Value engineering also provides a vehicle for project teams to interact in a creative atmosphere. Value engineering contributions are made via input from disciplines and impact the “update estimate basis” step with respect to the scope of the project (see Figure 6.1). 49

Project Complexity The FHWA mandates the use of value engineering on fed- erally funded National Highway System projects with an esti- mated cost greater than $25 million, but small-dollar projects have successfully employed value engineering. Value engi- neering is effective on projects with alternative solutions that vary with scope and cost, on capacity improvement projects that widen an existing highway (especially in high-volume traffic environments), on projects requiring major traffic control, and on interchanges on multilane facilities. Tips for Success Value engineering is most successful when it is performed early in project development so that the proposed improve- ments can be easily incorporated into the design. Value engi- neering is a structured process. It is important to use a knowledgeable and experienced facilitator and have a value engineering team with diverse backgrounds. The value engi- neering process should be conducted away from the office environment to ensure focus and creativity. The period for conducting a value engineering process is typically 3 to 5 days. Tool V2.1 Value Engineering 6.3 Strategy: Off-Prism Issues During programming and preliminary design, the off-prism strategy plays an important role in cost estimation manage- ment and cost estimation practices. As the project’s scope is defined and then developed through design activity, the design often incorporates the influence of community interest and concerns. In some cases, this could include a requirement for a context-sensitive design. This type of design may add cost to a project, and this possibility should not be overlooked when preparing estimates during programming and preliminary design. During this phase, environmental analysis and clear- ance activities are completed. The results of these activities may introduce compliance and mitigation requirements that must be also addressed in estimates for design and construction work. Further, macroeconomic events can significantly influ- ence cost. These events may drastically influence cost, but historical data may not reflect significant increases due to lack of material and subsequent material price increases. There are five different off-prism methods described in Table 6.4 for use during the programming and preliminary design phase of project development. 6.3.1 Communication Why? Failure to account for off-prism issues in the cost estimation process can result in cost overruns. The uncertainties related to off-prism issues have to be identified during programming and throughout preliminary design to mitigate risks associ- ated with these issues. Communication of these uncertainties, the risks, and the associated potential cost impact is a critical method in cost estimation management. Effective communi- cation of off-prism issues must occur within the state highway agency and between all external project stakeholders to achieve project success. The communication method influences the “communicate approval” step in Figure 6.1. 50 OFF-PRISM STRATEGY Use proactive methods for engaging external participants and assessing the macroenvironmental conditions that can influence project costs Cost Estimation Management Cost Estimation Practice Communication Estimate Review—Internal C1.1 Communication of Importance E3.2 Off-Prism Evaluation C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency Right-of-Way Identifying Off-Prism Issues R2.5 Right-of-Way Estimator Training I3.1 Environmental Assessment R2.6 Separate Right-of-Way Estimators I3.2 Percentage of Total Project Cost Public Involvement P3.1 Meetings Table 6.4. Programming and preliminary design phase off-prism strategy: Methods and tools.

Project Complexity The importance of off-prism issues to complex and large- dollar projects is paramount. Complex project are affected by a multitude of external and internal elements that require careful and timely evaluation, especially since larger projects are often high-profile projects from a community perspective. Tips for Success The establishment of a functional communication protocol is essential for the state highway agency to effectively provide information addressing community interests and concerns while maintaining internal awareness of off-prism issues. A focus on cost estimate attributes tied to scope and schedule and explained in a simple format will keep the public informed. Tools C1.1 Communication of Importance C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency 6.3.2 Right-of-Way Why? Failure to account for all relevant scope elements when preparing a cost estimate adversely affects the accuracy of an estimate. Some of these elements include right-of-way, utili- ties, and environmental elements. The impact of these ele- ments will vary for every project, and input from appropriate project team participants must be evaluated to prepare accu- rate estimates. Scope definition is continuously refined over preliminary design and improves the clarity of project require- ments. Hence, an early determination of the parameters related to right-of-way, utilities, and environmental issues, and inclu- sion of these issues in cost estimates, will improve the accuracy of the estimate. In Figure 6.1, this method guides the type of input received from disciplines when performing the “prepare base estimate” step. Project Complexity Right-of-way becomes an issue more often when adding system capacity. If a project is located in a highly urbanized area, right-of-way may be costly and acquisition of property can demand considerable time. Utilities can be a problem for projects in any area, but are more likely for projects in urban areas. Environmental compliance may require that land be purchased for creating a new wetland to replace existing wetlands displaced by the project. While this issue is not dependent on complexity, it may be more difficult to solve in an urban setting. Tips for Success The location of the project is critical when implementing this method in the off-prism strategy context. The identification of all factors that may impact project scope, cost, and time must be clearly identified so they can be properly addressed in the cost estimate. Estimators should not work in a vacuum because they may fail to consider off-prism issues and other information provided by other state highway agency disciplines. Interaction with others is critical to preparing accurate estimates. Tools R2.5 Right-of-Way Estimator Training R2.6 Separate Right-of-Way Estimators 6.3.3 Public Involvement Why? Public opinion and concerns about various aspects of a project must be accounted for early in scope development. Early involvement of the public may help prevent future mod- ifications to project scope. This would decrease the impact that scope creep or scope changes have on project costs. The fact that projects are developed in and around communities that will be affected augments the need to consult and incor- porate the public in the scope definition process. Input from third parties, as shown in Figure 6.1, provides information from the public that can be used to prepare the base estimate and perform the risk analysis. Project Complexity Projects proposed in densely populated areas or growing urban or suburban regions are highly sensitive to public opinion. Failure to consult and consider public opinion can cause project scope to change over time. Hence, assessment of the public concerns is very important when developing the project scope. Tips for Success Setting up amiable mechanisms to educate and explain the benefits of a project to the local community and seeking their cooperation during construction are the aims of this method. This cooperation and input is particularly important during programming when decisions are made regarding the project scope and when preparing baseline cost estimates. 51

Tool P3.1 Meetings 6.3.4 Estimate Review—Internal Why? Cost estimates are merely predictions and can therefore be wrong. Thus, all estimates must be reviewed to ensure that they do not contain discrepancies, errors, or omissions. Consulting peers and subject matter experts always improves an estimate. This is particularly helpful in assessing the impact of off-prism issues on project costs and risks. This method supports the “review total cost estimate” step (see Figure 6.1). In this case, the peers and experts are likely from the disciplines most closely impacted by off-prism issues, such as environmental, right-of-way, real estate services, and utilities. Project Complexity Complex projects may have several cost elements that esti- mators may be unfamiliar with and that require an expert opinion in estimating their cost. Estimate reviews provide the opportunity to minimize ambiguities related to cost by obtain- ing input from the appropriate experts and peers within the state highway agency. Tips for Success Conducting reviews at appropriate times during estima- tion development and consulting the right expert peers will help mitigate cost escalation. The integrity of such reviews is essential for this method to be successful. Tool E3.2 Off-Prism Evaluation 6.3.5 Identifying Off-Prism Issues Why? Projects are often influenced by the views of external par- ticipants and other conditions, such as those related to envi- ronmental compliance, that impact project scope and cost. The identification of off-prism issues is most beneficial when conducted during programming. During preliminary design, scope development progresses significantly, which in turn provides more information on project elements. Assump- tions about off-prism conditions made during programming can be validated, and their impact on cost should be reevalu- ated. In Figure 6.1, input from third parties and information on current market conditions are inputs that can help imple- ment this method when performing the “update estimate basis” and “prepare base estimate” steps. Project Complexity Projects of greater complexity may gain the most benefits from proactive efforts to identify off-prism issues, such as environmental concerns, and assess their cost impact. Envi- ronmental issues are more related to the location of the proj- ect. Environmental regulations and design considerations to accommodate mitigation requirements must be considered when developing cost estimates (e.g., noise reduction near a residential community may require installing noise walls or upgrading existing wetlands). Larger projects can be more substantially impacted by the macroeconomic environment than less complex projects. Tips for Success To enhance the success of identifying off-prism issues and mitigating possible negative impacts, agencies must start this effort early in project development. Continuing this endeavor throughout project development will ensure that the scope and cost reflect the impact of off-prism issues. Communicating off-prism issues to upper management should be accomplished quickly because most of these types of issues have or will have political implications. The ability to evaluate and attribute the most appropriate percentage to cover the cost of different issues will improve early estimate accuracy. Tools I3.1 Environmental Assessment I3.2 Percentage of Total Project Cost 6.4 Strategy: Risk When effectively applied during programming and pre- liminary design, risk may be the single most important strategy that will help control project cost escalation. Many different approaches to account for risk are used by state highway agen- cies. These approaches have led to inconsistent application of contingencies. The methods suggested to implement the risk strategy provide a consistent and valid approach to assigning cost and time contingencies in a cost estimate. Table 6.5 lists five different methods applicable to the risk strategy used dur- ing the programming and preliminary design phase of project development. 52

6.4.1 Communication Why? Communication has been discussed in earlier strategies of this Guidebook. Communicating project uncertainty is criti- cal to understanding what risks the project might encounter and what the potential cost and time impact of these risks would likely be if they are not mitigated. As applicable to the risk strategy, communication predominantly means keeping all project team members and external parties informed about project uncertainties and constraints. Conveying risk-related information in an easy-to-understand manner is extremely important. The communication of risk analysis results is crit- ical during the “communicate approval” step (see Figure 6.1). Project Complexity Inherently, project complexity typically increases the risk of project cost and schedule increases. Therefore, the importance of communication, particularly communication of estimate uncertainty and the risks associated with that uncertainty and the potential cost consequences is essential to improving stake- holder confidence in the accuracy of the cost estimate. Tips for Success The ability to anticipate possible risk-related constraints on both a macro and micro level and the timely communication of their potential impact on project cost is a key to method success. Tools C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency 6.4.2 Identification of Risk Why? At the programming and preliminary design phase, there is a continuous process of scope clarification. An increased level of scope information facilitates better identification of possible risks. Necessary risk mitigation actions can be iden- tified and adequate contingencies can be included in cost esti- mates to reduce the potential for cost overruns. Input from disciplines and third parties will contribute to identifying risks during the “risk analysis” step, as shown in Figure 6.1. Project Complexity Complex projects are accompanied by larger ambiguities; hence, there is a greater need for risk identification and miti- gation. Formalized and structured risk-related procedures are critical to properly identifying risks for complex projects. Tips for Success The use of appropriate risk identification techniques must be instituted during programming, when the baseline proj- ect cost is set. Risks must be continuously reassessed during 53 RISK STRATEGY Identify risks, quantify their impact on cost, and take actions to mitigate the impact of risks as the project scope is developed Cost Estimation Management Cost Estimation Practice Communication Risk Analysis C1.2 Communication of Uncertainty R3.1 Analysis of Risk and Uncertainty C1.3 Communication within State Highway Agency R3.2 Contingency—Identified R3.4 Estimate Ranges R3.5 Programmatic Cost Risk Analysis Identification of Risk Delivery and Procurement Method I2.1 Red Flag Items D1.1 Contract Packaging I2.2 Risk Charter D1.2 Delivery Decision Support Right-of-Way R2.1 Acres for Interchange R2.2 Advance Purchase (Right-of-Way Preservation) R2.3 Condemnation R2.4 Relocation Costs Table 6.5. Programming and preliminary design phase risk strategy: Methods and tools.

preliminary engineering to validate the assumptions used to identify risks in the baseline cost estimate. This approach will reduce ambiguities in project scope as the design is completed. Tools I2.1 Red Flag Items I2.2 Risk Charter 6.4.3 Right-of-Way Why? Land acquisition and related issues have always constituted a significant cost estimate risk. During programming, there remains considerable uncertainty related to right-of-way requirements, so the risks remain high and must be accounted for in baseline cost estimates. However, as preliminary design proceeds, there is clarity on project alignment that in turn enables designers and right-of-way estimators to identify the financial and legal aspects of the required land acquisition. Input from disciplines is critical to performing the “risk analysis” step, as shown in Figure 6.1. Project Complexity Complexity in this case revolves around several circum- stances, such as real estate values, public or business opposi- tion, and compensatory conditions. The more right-of-way needed for the project, the more risks that will have to be con- sidered, including assessment of the potential cost impacts due to adverse settlements when parcels are taken. Further- more, on larger projects, the time impact of acquiring parcels may be the most critical risk because estimated project dura- tions could be extended significantly if delays are encoun- tered in acquiring parcels. Tips for Success Early land acquisition may be a key to success for this method. Design efforts to define right-of-way needs in con- junction with specialized advice from real estate personnel can reduce the impact of right-of-way on project cost and time. Tools R2.1 Acres for Interchange R2.2 Advance Purchase (Right-of-Way Preservation) R2.3 Condemnation R2.4 Relocation Costs 6.4.4 Risk Analysis Why? Every project scope, cost estimate, and schedule has uncer- tainty. Uncertainty can be translated into project risks. These risks require a contingency amount to protect the project against cost increase and time increase. The level of uncer- tainty is highest when developing the cost baseline during pro- gramming, when project scoping reflects a low level of design completion (5% to 25%). As the extent of project definition increases during preliminary design, the level of uncertainty decreases. Some form of risk analysis is necessary to identify and evaluate the impact of risks. Based on this risk analysis, an appropriate level of contingency can be added to the cost esti- mate and schedule. Risk analysis also supports risk mitigation of identified risks. This risk analysis must start during pro- gramming and continue throughout project development. This method, along with input from reliable sources both within the project team and external to the project team, sup- ports the “perform risk analysis” step. Project Complexity Complexity is often correlated with additional project risks. Identification, assessment, and evaluation of risks on a micro level in complex projects can help alleviate cost escalation due to inconsistent application of contingency. Alternatively, macro-level issues such as market conditions can create sig- nificant risks for very large projects. The macro-level risks require careful analysis because these risks can impact both cost and time. The risk analysis effort will vary with project size, type, and complexity. With project complexity comes added risk; therefore, the attempt to account for risk using a single-percentage contingency amount based on the con- struction value of the expected contract often fails. Tips for Success There must be a clear description of what the contingency amount included in a cost estimate and project schedule cov- ers in terms of project risks. The contingency must be deter- mined through a careful analysis and identification of specific risks. Simply using a percentage for contingency likely will make managing risks difficult because risks are not specifi- cally identified. Tools are available to implement a risk analy- sis. These tools should be used consistently and tailored to fit the project type, dollar size, and complexity. Tools R3.1 Analysis of Risk and Uncertainty R3.2 Contingency—Identified 54

R3.4 Estimate Ranges R3.5 Programmatic Cost Risk Analysis 6.4.5 Delivery and Procurement Method Why? The use of alternative project delivery and procurement methods for transportation projects is increasing. The impact of these methods on project cost and time must be considered when preparing estimates and managing estimated costs. The influence of project delivery and procurement is critical to the “prepare base estimate” and “risk analysis” steps (see Figure 6.1). The project delivery and procurement method impacts the risks that the state highway agency will assign to the contractor and that the contractor will have to price and manage. With design-build project delivery, the design-build contrac- tor takes on increased risk and will price this risk based on the level of scope definition, understanding of proposed contract terms and conditions, and project complexity. The impact of risks the design-build contractor is expected to carry must be covered in the state highway agency’s cost estimate. The decision to use design-build project delivery should be made during programming, when baseline budgets are established. Other procurement methods may ultimately accelerate construction, such as when cost plus time (A+B) contracting and incentive/disincentive approaches are used in design- bid-build project delivery. These types of procurement meth- ods shift risk to the contractor. Again, the uncertainty associ- ated with this risk shifting and the impact on cost and time must be included in the risk analysis and the cost estimate. The packaging of a project in terms of a single contract or multiple contracts must be considered early in design. If mul- tiple contracts are used, the dollar value of a single contract may decrease, so the contractor may have less risk to price. Smaller contracts tend to encourage a greater number of bid- ders. The state highway agency would then take on the nor- mal risk associated with a typical design-bid-build project. However, there may be increased risk to the state highway agency, because it has to manage the interface between con- tractors when multiple contracts are used. The uncertainty associated with this risk shifting and the impact on cost and time should be included in the risk analysis. Project Complexity Larger projects that are more complex may require a greater effort to adequately identify the potential risks and how these risks will impact project costs in relation to pro- posed project delivery and procurement approaches. This need is most apparent when design-build project delivery is employed. If project delivery and procurement approaches are selected to accelerate construction on any size of project, then the use of the risk strategy must account for the poten- tial uncertainty related to the impact of acceleration. Tips for Success How a project is delivered must be considered when per- forming the risk analysis. Thus, evaluating the impact that project delivery and procurement approaches have on cost and time is necessary when implementing a project-level risk strategy. Tools D1.1 Contract Packaging D1.2 Delivery Decision Support 6.5 Strategy: Delivery and Procurement Once a project is considered for programming, the state highway agency management should begin to examine whether an alternative project delivery method would better fit the project than the traditional design-bid-build approach. Perhaps the most important decision is the use of design- build verses design-bid-build. During programming and pre- liminary design, if design-build is selected, then management must determine the level of design needed to support an RFP. If design-build is selected, then the engineer’s estimate will be prepared based on less definitive information and must account for all engineering costs and costs related to other project factors. One key factor is the risk that the design-build contractor will evaluate when proposing on a design-build project based on limited design information. When the traditional design-bid-build approach is selected and other alternative procurement methods are used to accel- erate construction, then cost estimates must reflect the impact that acceleration has on construction costs. This impact may be reflected in higher unit costs. The method shown in Table 6.6 provides insights into the issue of project delivery and procurement considerations during programming and preliminary design. This method is considered a cost estimation management method. 6.5.1 Delivery and Procurement Method Why? The impact of alternative project delivery methods on proj- ect cost and time must be considered when preparing estimates and managing estimated costs. Some project delivery methods, such as design-build, will require an engineer’s estimate at an early point in preliminary design. In design-build project deliv- ery, the design-build contractor takes on increased risk and will 55

price this risk based on the level of scope definition, proposed project responsibilities identified in the RFP, and project com- plexity. Early estimates must reflect the impact of using the design-build delivery approach. The influence of project delivery and procurement is important to the “prepare base estimate” and “risk analysis” steps (see Figure 6.1). Other procurement methods may accelerate construction, such as when cost plus time (A+B) contracting approaches are used with design-bid-build project delivery. Costs for poten- tial incentives must be included when cost estimates are pre- pared. The impact of construction acceleration might require increases in labor, material, and equipment costs. These types of impacts must be considered when preparing early cost esti- mates, especially when historical unit costs are used. The packaging of a project in terms of a single contract or multiple contracts or establishing project limits must be con- sidered early in design. Decisions that impact the number of contracts will influence the design processes and the costs of construction. The earlier decisions are made on project deliv- ery and procurement approaches, the better the opportunity to incorporate appropriate costs into the estimates congruent with the delivery and procurement approach selected. Project Complexity The larger and more complex the project, the earlier deci- sions should be made with respect to delivery approach. Even with smaller and less complex projects, where procurement approaches such as cost plus time or incentives and disincen- tives are used, an early decision will enable cost estimates to properly reflect the impact that alternative delivery and con- tract approaches have on project cost and schedule. Tips for Success Prior to setting a baseline, the use of a decision support tool to identify the appropriate delivery and procurement approach may be beneficial to preparing an estimate consistent with the project delivery approach. The point here is to include costs in the estimate that reflect the impact of delivery and procure- ment approaches such as an engineer’s estimate for a design- build project. Tools D1.1 Contract Packaging D1.2 Delivery Decision Support 6.6 Strategy: Document Quality The document quality strategy is perhaps most critical during the programming and preliminary design phase of a project, when plans and specifications are being developed. Document quality includes both design documents and the documents that the contractor will eventually use to price and construct the project. The methods suggested address both areas. The three different methods applicable to the document quality strategy are described in Table 6.7. 6.6.1 Computer Software Why? The use of computer software facilitates consistent prac- tices, which in turn support the document quality strategy. The ability of computer software to provide a structured for- mat for preparing estimates promotes accurate data inclusion by multiple participants. Using templates to prompt project participants for general and specific project information will increase the quality of the project documents. The use of computer software is also discussed in the management, esti- mate quality, and integrity strategies of this chapter. Computer software is extensively used in the extraction of historical data, computations for risk analysis, and preparation of estimates (see Figure 6.1). Project Complexity With increased project complexity, there is an increased need to document adjustments and alternative evaluations as 56 DELIVERY AND PROCUREMENT STRATEGY Apply appropriate delivery methods to better manage cost because project delivery influences both project risk and cost Cost Estimation Management Cost Estimation Practice Delivery and Procurement Method D1.1 Contract Packaging D1.2 Delivery Decision Support Table 6.6. Programming and preliminary design phase delivery and procurement: Methods and tools.

cost estimates are prepared. Considering the potential for many adjustments due to additions, omissions, and alternative design solutions, it is essential to track adjustments accurately. Computer software enables the estimator to easily incorporate adjustments when more detail is available. A comparative analysis can be performed, especially for alternatives, to pro- duce quality documents supporting project estimates. Tips for Success Successful implementation of computer software to encour- age quality documents requires the agency to accurately iden- tify minimum quality standards and to use computer software that portrays the information in a meaningful manner. Since all projects are not the same, the flexibility and ease with which changes can be incorporated and tracked with computer soft- ware makes the use of computers and supporting software imperative to the document quality strategy. Tools C2.1 Agency Estimation Software C2.2 Commercial Estimation Software C2.4 Simple Spreadsheet 6.6.2 Constructability Why? The quality of the documents used to prepare estimates impacts the quality of the estimate in terms of accuracy. Thus, design documents that provide the basis for cost estimates must accurately portray the design intent. Implementing con- structability analysis will enhance project documents by reduc- ing the potential for errors and omissions and will produce designs that are constructible. Constructability reviews can pro- vide guidance as to the project construction phasing and stag- ing approaches required to cost-effectively build the project. In this way, constructability will influence both “update design basis” and “prepare base estimate” steps (see Figure 6.1). Project Complexity As project complexity increases, the need for construction knowledge and experience in reviewing designs becomes crit- ical. Construction input can aid the designer in developing designs that can be constructed more efficiently. This need is especially important for very large and complex projects, such as those in urban areas under high-traffic volumes. These types of projects require continuous input from con- struction experts beginning with project definition during programming and throughout preliminary design. Tips for Success Constructability is most successful when the process is for- malized and is an integral part of the programming and pre- liminary design phase of project development. Identifying and using appropriate constructability experts is also critical in achieving successful constructability reviews. A constructabil- ity expert must be able to work effectively with project design- ers and provide meaningful input on design documents. Tool C5.1 Constructability Reviews 6.6.3 Estimate/Document Review Why? During the estimate review activity identified in Figure 6.1, there should also be a check on the quality of any documents used to prepare the estimate, even if the documents are con- sidered preliminary. This is perhaps more important as pre- liminary design progresses and the plans and specifications 57 DOCUMENT QUALITY STRATEGY Promote cost estimate accuracy and consistency through improved project documents Cost Estimation Management Cost Estimation Practice Computer Software Constructability C2.1 Agency Estimation Software C2.2 Commercial Estimation Software C5.1 Constructability Reviews C2.4 Simple Spreadsheet Estimate/Document Review E1.1 Estimate/Document Review—External E1.2 Estimate/Document Review—Internal Table 6.7. Programming and preliminary design phase document quality strategy: Methods and tools.

are approved. As discussed in other sections, a very effective management approach for establishing the reliability of a cost estimate is to subject the estimate to review and verification. Project Complexity The formality of a project estimate review and the depth of the review will vary depending on the type of project and proj- ect complexity. In the case of routine, straightforward proj- ects, a formal review may not be necessary. However, as project complexity and scope increase, it is necessary to con- duct formal reviews. When very complex projects are being estimated, management should require an external review of the estimate by qualified professionals. Tips for Success Knowledgeable and experienced individuals who bring a broad perspective to the project and estimate formulation should be assigned to conduct these reviews. To be of value, the review must closely examine the assumptions that form the basis of the estimate. Tools E1.1 Estimate/Document Review—External E1.2 Estimate/Document Review—Internal 6.7 Strategy: Estimate Quality Both cost estimation management and cost estimation practices are critical to achieving accurate and consistent cost estimates during the programming and preliminary design phase. Agencies should seek to implement the methods iden- tified in Table 6.8. It must not be forgotten that success in estimation practice is linked to the environment created by agency management. Eleven methods are applicable to estimate quality for use during the programming and preliminary design phase of project development. Management support for internal esti- mate reviews is usually not an issue, but, in the case of com- plex projects, management should have procedures in place for organizing and conducting external reviews. 6.7.1 Computer Software Why? Estimate development at the programming and prelimi- nary design phase involves a series of repetitive operations, use of historical data, and complex predictive analysis. Also, as the design progresses (from 5% to 80%), it will be necessary to periodically update the cost estimate. Computer software pro- vides a platform to easily review, update, and modify esti- mates. The need for greater accuracy is met by cost-modeling techniques using computer software. Predictive analysis of various parameters (like market conditions) can identify cost influences. The ability to track changes efficiently is another useful feature of computer software. The use of computer soft- ware is also discussed in the management, document quality, and integrity strategies of this chapter. Computer software is extensively used in the maintenance and retrieval of historical data. Computer software can efficiently perform a large num- ber of computations in support of the “estimate preparation” and “risk analysis” steps (see Figure 6.1). Project Complexity Large and complex projects may benefit more from com- puter software because these projects involve increased levels of detail and more calculations. This is particularly the case when multiple alternatives are being considered during the programming and/or early in preliminary design. As alterna- tives are analyzed, scope adjustments reflecting different sce- narios are frequent and must be estimated quickly. Computer software aids in timely cost analysis. For more complex proj- ects, tracking changes is also facilitated by computer software. Tips for Success The level of user skills and the flexibility of the software will determine the success of computer software. In addition, tem- plates and output formats will enhance multiple-user environ- ments and maintain consistency. Finally, computer software should facilitate automatically changing cost items that are estimated on a percentage basis. Tools C2.1 Agency Estimation Software C2.2 Commercial Estimation Software C2.3 In-House Conceptual/Parametric Estimation Software 6.7.2 Consistency Why? Estimations must be structured and completed in a consis- tent manner. Consistency is achieved by instituting operating procedures that serve as guides for all who prepare estimates. Consistency influences how information is used, such as input from disciplines, input from third parties, market conditions, and historical data (see Figure 6.1). Consistency is also required when preparing the base cost estimate and performing a risk analysis. Estimate consistency enables analysis, evaluation, validation, and monitoring of item costing. 58

Project Complexity Consistent practices and procedures facilitate a multiple-user interface, minimize errors and omissions, and strengthen reporting and data-sharing activities. This becomes essential in the case of large and complex projects because they involve multiple disciplines and often require specialized input that must be acquired and integrated by estimators. Tips for Success Consistency in how information is used and how cost estimates are prepared is essential to producing accurate estimates. However, each project has different issues and con- ditions that influence the type of information used and the approaches to preparing the estimate. Tools C4.1 Cradle-to-Grave Estimators C4.2 Estimation Checklist C4.3 Estimation Manual (Guidelines) C4.4 Estimator Training C4.6 Standardized Estimation and Cost Management Pro- cedures C4.7 State Estimation Section 59 ESTIMATE QUALITY STRATEGY Use qualified personnel and uniform approaches to achieve improved estimate consistency and accuracy Cost Estimation Management Cost Estimation Practice Computer Software Communication C2.1 Agency Estimation Software C1.7 Year-of-Construction Costs C2.2 Commercial Estimation Software C2.3 In-House Conceptual/Parametric Estimation Software Consistency Design Estimation C4.1 Cradle-to-Grave Estimators D2.1 Analogous or Similar Project C4.2 Estimation Checklist D2.2 Agency Estimation Software C4.3 Estimation Manual (Guidelines) D2.3 Cost Based, Bottom Up C4.4 Estimator Training D2.4 Historical Bid Based C4.6 Standardized Estimation and Cost Management Procedures D2.5 Historical Percentages C4.7 State Estimation Section D2.6 Major Cost Items using Standardized Sections D2.7 Parametric Estimation D2.8 Spreadsheet Template D2.9 Trns•port Creation of Project Baseline Document Estimate Basis and Assumptions C6.1 Cost Containment Table D4.1 Project Estimation File C6.3 Scope Change Form Gated Process Estimate Review—External G1.1 Checklists E2.1 Expert Team G1.2 Cost Containment Table Right-of-Way Estimate Review—Internal R2.1 Acres for Interchange E3.1 Formal Committee R2.2 Advance Purchase (Right-of-Way Preservation) E3.3 In-House/Peer R2.3 Condemnation E3.4 Round Table R2.4 Relocation Costs E3.5 Year-of-Construction Costs Project Scoping P2.1 Estimation Checklist P2.2 Scoping Document P2.3 Work Breakdown Structure Table 6.8. Programming and preliminary design phase estimate quality strategy: Methods and tools.

6.7.3 Creation of Project Baseline Why? For costs and the impact of changes to be tracked, all proj- ects have to be monitored against a performance benchmark. Hence, a project cost baseline consistent with a defined scope and schedule must be established. A practice is to set this base- line when the scope of all major cost items can be adequately defined (i.e., 80% of cost lies in 20% of the project elements). This typically occurs during programming, although when the cost baseline is set may vary depending on agency policy. Fur- ther, setting a baseline provides a benchmark against which deviations and their impact can be documented and evaluated to ensure successful project delivery within budget. Deviations can be mapped over time for reconciliation with future esti- mates. Completing all the cost estimation steps, which are ini- tiated during programming, leads to an approved baseline estimate, as shown in Figure 6.1. Project Complexity A cost baseline is required for every project, regardless of the project’s size or complexity. The level of effort for creat- ing the baseline cost may change and is substantial for large and complex projects. These large projects will likely require a greater percent of design completion prior to setting a base- line cost. A baseline cost can be set on less complex projects with a lower design completion (5% to 10% for a paving preservation project). Tips for Success It is necessary to create cost baselines when the major cost elements of a project have been defined and scope has been established. The baseline cost, schedule, and scope must be developed in sufficient detail to ensure that tracking of devia- tions can be accomplished. The timing of creating a cost base- line is best set during programming. The ability to identify deviations from the baseline and evaluate their impact in a timely manner is ultimately what makes this method successful. Tools C6.1 Cost Containment Table C6.3 Scope Change Form 6.7.4 Gated Process Why? Critical milestones are often identified in the project devel- opment process, where decisions are made before a project can proceed to the next stage. At these decision milestones, cost estimates are prepared to aid in decision making. This mechanism of not permitting a project to move past a mile- stone point without proper approvals will allow for checks to ensure that cost estimates reflect the known scope and project conditions. Setting an approved cost baseline at the end of programming is an example of a gate in the project develop- ment process. A second gate may be when environmental clearance is obtained. A third gate may be when the construc- tion estimation for the STIP is prepared and construction is approved for inclusion in the STIP. The cost estimation prac- tice and cost estimation management processes depicted in Figure 6.1 must coincide with gates in the project develop- ment process. Project Complexity Complex projects involve many components that may eas- ily be overlooked as the estimate is developed. A thorough review prior to releasing the project for further development provides a reasonable mechanism for ensuring that the proj- ect is ready to move forward to the next stage of design. This type of review at a gate in project development can ensure a more reliable estimate and control cost growth. Tips for Success The placement of gates over the project development time line is critical for this method to be successful. Another important aspect is that the review process at each gate must be effective and be performed in a timely manner to ensure that project development is not delayed. Tools G1.1 Checklists G1.2 Cost Containment Table 6.7.5 Right-of-Way Why? Right-of-way costs are a significant component for many projects. Land acquisition requirements must be consistent with the scope of the project. To obtain realistic projections of right-of-way cost, appropriate experts must evaluate geo- graphic, demographic, and market information. Other costs for acquiring land must be factored into estimates so that the estimates include all costs associated with right-of-way. Pos- sibilities of litigations and other public concerns must also be accounted for in the estimate. Scope inputs from design disciplines and third parties are critical to preparing base esti- 60

mates with appropriate contingencies covering right-of-way risks (see Figure 6.1). Project Complexity Typically, more complex projects that intersect with urban neighborhoods, historical sites, or environmentally sensitive areas require greater effort in estimating right-of-way costs. Tips for Success Identification and evaluation of several alternatives may lead to an economical solution when scoping right-of-way requirements during programming and early in preliminary design. Early identification of parcels that will be taken is crit- ical to estimating right-of-way costs. Tools R2.1 Acres for Interchange R2.2 Advance Purchase (Right-of-Way Preservation) R2.3 Condemnation R2.4 Relocation Costs 6.7.6 Communication Why? The project development process duration can be 2 years to over 10 years. The identification of project duration, and especially when construction will occur, is critical to account- ing for inflation effects. Capturing future inflation will pro- duce more realistic estimates. Estimate credibility will be increased when the estimate includes future inflation. In Fig- ure 6.1, assessing market conditions when preparing base estimates and performing a risk analysis is influenced by this method. Project Complexity Complex projects typically have longer project duration from programming through construction than simple proj- ects. The dollars added to account for inflation can be sub- stantial in complex projects. These dollars must be included in cost estimates to properly reflect the estimated costs when construction is scheduled to be completed. Tips for Success Clearly communicating the estimated cost in year-of- expenditure dollars is critical. This approach ensures that project stakeholders are informed of all costs related to the project and that these costs are visible. Tool C1.7 Year-of-Construction Costs 6.7.7 Design Estimation Why? Project scope definition is continuously refined during the programming and preliminary design phase. The focus of programming is related to developing a baseline cost estimate. As the project moves into preliminary design, periodic esti- mate updates will be required. At some point during the pre- liminary design, the latest cost estimate becomes the basis for updating the STIP or for including construction cost into the STIP. Design estimation must produce consistent and accu- rate estimates at all points during the preliminary design. Estimators must incorporate more detailed data into their estimate by consulting with the design team. Design estima- tion must follow the steps shown in Figure 6.1, starting with the “update estimate basis” step and continuing through the “review total cost estimate” step. The critical step is “prepare base estimate.” Project Complexity Complex projects will impact the tools used rather than the method itself. Some large projects may not fit standardized procedures typically used to estimate projects, so a cost-based, bottom-up approach may be the only way to estimate these projects. If the agency has adequate historical data on similar complex projects, these data are often used to develop early cost estimates. A combination of different tools may be required. Also, many different disciplines may be involved in developing cost estimates for large projects. Design estimation must be sufficiently flexible to accommodate these subsequent inputs and to ensure that project estimates are consistent. Smaller and less complex projects still can rely on spreadsheets and historical bid-based approaches. Tips for Success The level of scope definition and adaptation of standard- ized sections from previous projects will help in developing accurate early estimates. This is a scope-driven approach. During programming, the focus should be on the 20% of the items that contribute to 80% of the cost. Proper use of appro- priate software is essential to successfully implement the design estimation method. Software, to be effective, must be supported by well-trained estimators. The tools that support 61

design estimation must fit the application in terms of scope, available data, and time to prepare the estimate. Tools D2.1 Analogous or Similar Projects D2.2 Agency Estimation Software D2.3 Cost Based, Bottom Up D2.4 Historical Bid Based D2.5 Historical Percentages D2.6 Major Cost Items using Standardized Sections D2.7 Parametric Estimation D2.8 Spreadsheet Template D2.9 Trns•port 6.7.8 Document Estimate Basis and Assumptions Why? A critical component of preparing an estimate is docu- mentation of the basis and assumptions used to derive costs. Such documentation will provide a vehicle for confirming to management that the estimate is accurate and follows sound practice. Further, with appropriate documentation, there is a means of tracking changes from the baseline cost relative to estimate basis and assumptions. This will aid in explain- ing cost impacts due to these changes. Because many disci- plines are involved in estimate preparation, providing good documentation on the estimate basis and assumptions will help others who may update the estimate in the future. A substep of the “prepare base estimate” step in Figure 6.1 is to document the estimate basis and assumptions (see Table 2.2). This method would influence how the documentation is prepared. Project Complexity Large and complex projects require greater estimate efforts. Many times, multiple estimators are engaged to perform proj- ect estimation. Thus, all estimators must follow a set standard for documenting estimate basis and assumptions. On larger projects, a center point of contact for ensuring that proper documentation occurs is often required. The documentation of this information is crucial in maintaining consistent cost estimation practices. Tips for Success Creating standard procedures and educating estimation personnel about the procedures is the key to success for this method. Good state highway agency estimation manuals sup- port good estimation practice. Tool D4.1 Project Estimation File 6.7.9 Estimate Review—External Why? Cost estimates are merely predictions and can therefore be wrong. All project estimates should be reviewed for the valid- ity of their basis; however, the formality and depth of the review will vary depending on the type of project and its com- plexity. External estimate reviews are conducted for complex projects and projects employing new technology. A lack of in- house competency in specialized areas will lead to the need for consulting external experts. Some project elements may require, for example, unique construction methods where expert review would be helpful in confirming estimated costs. At times, external estimate reviews are important to confirm that good estimation practices are being followed. These reviews typically focus on the estimate basis, assumptions, and methodology. This method supports the “review total cost estimate” step (see Figure 6.1). Project Complexity The formality of a project estimate review and the depth of the review at this stage in project development will vary depending on the type of project and project complexity. When very complex projects or projects involving new con- struction methods are being estimated, management should require that there be an external review of the estimate by qualified professionals. This external review should include a risk analysis that identifies the critical elements of the esti- mate, identifies the high and low cost limits for each critical element, and assigns a probability to the actual cost. On very large projects or projects with unique design fea- tures, using external experts to provide an unbiased review of project estimates is sound practice. This type of review can help ensure estimate consistency and accuracy. Further, an expert review team can ensure estimate credibility for large projects that are most often highly visible to the public. Tips for Success Selecting an external expert team with the right qualifica- tions is critical to obtaining a credible estimate review. A team approach may also provide a more unbiased review. An inde- pendent review by an individual is often appropriate for spe- cialized construction methods. Tool E2.1 Expert Team 62

6.7.10 Estimate Review—Internal Why? All estimates must be reviewed to ensure that they do not contain any discrepancies, errors, or omissions. Consulting peers and subject matter experts adds value to an estimate and can identify possible weaknesses. Estimates are based on many assumptions, and these assumptions need to be justi- fied as the estimate is reviewed. Reviews provide feedback to estimators about the completeness and accuracy of their work. This method supports the “review total cost estimate” step shown in Figure 6.1. Project Complexity Complex projects may have cost elements that estimators are unfamiliar with and require an expert review. Estimate reviews provide the opportunity to minimize ambiguities by imparting appropriate expertise from within the agency. Tips for Success Conducting reviews at an appropriate time during the esti- mation development process and consulting suitable experts will minimize project cost estimate changes. The integrity of such reviews is essential for this method to be successful. Tools E3.1 Formal Committee E3.3 In-House/Peer E3.4 Round Table E3.5 Year-of-Construction Costs 6.7.11 Project Scoping Why? Thorough and accurate scoping during programming enhances the quality of the baseline cost estimate. Defini- tive scoping efforts at the very beginning have been shown to be more cost-effective than scope control efforts in the latter stages of the project development process. Scoping provides the input for the estimate basis shown in Figure 6.1. It also can help structure the scope in a framework that provides a systematic breakdown of the scope into project deliverables. Project Complexity Projects of all levels of complexity will benefit from project scoping efforts, even in the earliest stages of the project devel- opment process. Larger, more complex projects will especially benefit from the project scoping effort. Good documentation of the project scope eliminates errors and omissions in the estimate. Estimate reviews can be further facilitated if the scope is properly structured and documented systematically. Tips for Success The agency should consider developing standard manage- ment practices and a standard set of forms to document the project scope. Because project scope is often revisited during preliminary design, standard practices provide an audit trail of how the project’s scope was developed, structured, and changed. Management needs to complete scope forms early and update them regularly as changes are made. Doing so will allow management to track project scope, and estimators will always know what should be included in the estimate. Scope forms provide a graphic view of what has changed since the previous estimate was completed. Tools P2.1 Estimation Checklist P2.2 Scoping Document P2.3 Work Breakdown Structure 6.8 Strategy: Integrity The establishment of management structures that shield estimators from external and internal pressures to produce a low project estimate will support accurate project estimation. Estimate reviews to ensure integrity are repetitive, taking place to some extent whenever the estimate is modified. Agencies should institute cost estimation management and cost esti- mation practices as identified in Table 6.9 to ensure estimate integrity. Eight methods are applicable to the integrity strategy described in Table 6.9 for use during the programming and preliminary design phase of project development. 6.8.1 Communication Why? Communication has been discussed in earlier strategies of this Guidebook. As applicable to the integrity strategy, it is predominantly focused on keeping all project team members and external parties informed and updated with respect to the current estimated project cost. Efficient communication channels must be established, and the exchange of informa- tion must be clear and succinct. Efforts must be made to ensure that the significance of cost information, which is communicated, is interpreted appropriately. Communica- tion of uncertainty and any discrepancies observed must be 63

brought to the notice of peers immediately for remedial pro- cedures. In Figure 6.1, several steps that are concerned with the transmission of information and approvals are supported by this method. Inputs from disciplines, third parties, and project requirements have to be communicated without ambiguity. Project Complexity Complex projects are highly visible to project stakeholders. Proper communication of estimate information is critical to maintaining stakeholder support. Further, proper communi- cation of changes in project costs and the reasons for these changes is needed to ensure the credibility of the agency with respect to cost estimation management for large and complex projects. Tips for Success Training personnel on tools that are useful to communi- cate project cost information is helpful. Developing mech- anisms to describe project cost information in a simple and understandable manner is important for successful communication. Tools C1.2 Communication of Uncertainty C1.7 Year-of-Construction Costs 6.8.2 Computer Software Why? The use of computer estimation software in all phases of project development can increase estimate integrity. One way to maintain estimate integrity is to control the bias that can be introduced into the estimation process. Bias can be intention- ally or unintentionally introduced into an estimate due to pressures, real or perceived. One way to reduce bias is to use standardized computer software. Computer software can be programmed to highlight abnormalities within the estimate by checking cost ratios between related elements or whether historical data used in the estimate are outside of predeter- mined ranges. Such identification helps in recognizing errors and the existence of bias. The use of computer software is also discussed in the management, document quality, and estimate quality strategies of this chapter. In Figure 6.1, the “mainte- nance of historical databases” step and the “use of complex calculations” step are supported by computer software. Com- 64 INTEGRITY STRATEGY Ensure that checks and balances are in place to maintain estimate accuracy and to minimize the impact of outside pressures that can cause optimistic biases in estimates Cost Estimation Management Cost Estimation Practice Communication Consistency C1.2 Communication of Uncertainty C4.3 Estimation Manual (Guidelines) C1.7 Year-of-Construction Costs C4.5 Major Project Estimation Guidance C4.6 Standardized Estimation and Cost Management Procedures Computer Software Estimate Review—External C2.1 Agency Estimation Software E2.1 Expert Team C2.2 Commercial Estimation Software C2.3 In-House Conceptual/Parametric Estimation Software Design to Mandated Budget Estimate Review—Internal D3.1 Design to Cost E3.1 Formal Committee E3.3 In-House/Peer E3.4 Round Table E3.5 Year-of-Construction Costs Validate Costs V1.1 Estimation Software Verify Scope Completeness V3.1 Estimation Checklist Table 6.9. Programming and preliminary design phase integrity strategy: Methods and tools.

puter software also provides a secure and reliable environment for estimate review and communication. Project Complexity Highly complex projects may have a greater vulnerability to integrity issues in cost estimation management. The need to meet a desired price may influence the use of data in esti- mation. Computer software can help identify such problems when checks are generated to determine if data are outside a normal range. Tips for Success Secure and reliable features built into computer software can help ensure the success of the software in resolving cost escalation factors associated with integrity. Restricted and endorsed access by all users will assist in identification of responsible defaulters. Tools C2.1 Agency Estimation Software C2.2 Commercial Estimation Software C2.3 In-House Conceptual/Parametric Estimation Software 6.8.3 Design to Mandated Budget Why? In some cases, funding for a project is fixed by an external source, such as the state legislature. The scope of work may or may not be congruent with the allocated project funds. The design to mandated budget method is often used when a project team encounters a predetermined fixed budget. The design that matches the cost estimate and the budget cost of the project are compared. If the estimated cost during design exceeds the budget cost of the project, then one or both need to be reevaluated before continuing with project develop- ment. The scope will be reduced if the current cost estimate is higher than the fixed budget. The scope may be added if the current estimate is substantially less than the fixed budget. This method impacts the entire process shown in Figure 6.1. Project Complexity This method is more likely used on small to medium-sized projects, where the scope is easier to define and control. This method would not be recommended for major projects that are technically complex, although it has been used on some large transportation projects in the nonhighway area. If proj- ects are approved by the state legislature based on a line-item budget, then the size of the project makes little difference when applying this method. Tips for Success Proper identification and evaluation of appropriate designs will increase the likelihood of the project being completed within budget. Cost estimates must be periodically updated to ensure that the current cost is under the fixed budget. Docu- menting areas of scope reduction is important so that project stakeholders understand what is being delivered. Tool D3.1 Design to Cost 6.8.4 Consistency Why? Estimation processes often involve the participation of mul- tiple estimators with diverse backgrounds and approaches to estimation. Practices and regulations can vary from district/ region to district/region within a state. There is a need to establish acceptable and common procedures before any project can be estimated. Procedures and guidelines will lead to consistent approaches to estimating cost and will help to ensure integrity in the estimation process. Procedures should be developed to encompass all steps and inputs shown in Figure 6.1. Project Complexity It may be helpful to develop specific guidelines for esti- mating major projects, such as those with a cost greater than some fixed figure or having certain attributes. Projects less than this cost should follow standard procedures related to cost estimation management and cost estimation practices. Tips for Success Training and education about the procedures and/or guidelines being adopted for every project is mandatory for all project team participants. Choosing the right estimation approach is essential for this method to succeed. Tools C4.3 Estimation Manual (Guidelines) C4.5 Major Project Estimation Guidance C4.6 Standardized Estimation and Cost Management Procedures 65

6.8.5 Estimate Review—External Why? Projects are often accompanied by significant ambiguity. This fact, in addition to lack of specialized personnel within a state highway agency, may necessitate consulting with external subject matter experts regarding project estimates or cost man- agement practices. External expert reviews can be used to vali- date internal reviews. In Figure 6.1, this method supports the “review total cost estimate” step for specialized items of work. Also, the change loop shown on the right side of Figure 6.1 may require expert opinion to assess the impact of potential changes. Project Complexity Agencies generally have staff capable of handling normal issues and a limited extent of complex issues. On very large projects or projects with unique designs, using external experts to provide an unbiased review of project estimates is sound practice. This type of review can help ensure estimate consis- tency and accuracy. Tips for Success Identifying elements that may adversely affect project cost and seeking the right expertise to review these elements on a timely basis are essential for this method to succeed. Also, a thorough review of estimate assumptions and basis is required if an external expert team is used to review an estimate. Tool E2.1 Expert Team 6.8.6 Estimate Review—Internal Why? It is always necessary to independently verify that an estimate is complete and that it matches the project scope. In Figure 6.1, there is an “estimate review” step that is positioned after the “risk determination” step has quantified the project risk and an appropriate contingency amount has been included in the estimate. While this is depicted as a single step, it is nor- mally a repetitive step, taking place to some extent whenever the estimate is modified. Estimate reviews have been discussed in earlier sections of this chapter in several contexts. With respect to integrity, this method revolves around unbiased reviewers and using personnel independent from the project develop- ment team. Candid opinions and timely modifications to estimates at different levels of reviews will improve estimate accuracy. Project Complexity In the case of an uncomplicated overlay project, the review may be limited to verification that all elements are accounted for by the use of a simple checklist. However, as project com- plexity and scope increase, it is necessary to conduct more formal reviews. Complex projects may have several cost ele- ments that estimators are unfamiliar with and require an expert opinion. Estimate reviews provide the opportunity to minimize ambiguities by imparting appropriate expertise from within the agency. Tips for Success Reviewers must have adequate expertise and credibility from the state highway agency viewpoint based on previous project experience. There should be no tolerance for any compromise on the results of internal review evaluations. Reviewers should ensure that all costs include future inflation to the midpoint of construction. Tools E3.1 Formal Committee E3.3 In-House/Peer E3.4 Round Table E3.5 Year-of-Construction Costs 6.8.7 Validate Costs Why? Early estimation procedures involve a large number of assumptions and require validation as the scope is developed and assumptions are reflected in estimated costs. Estimate assumptions and basis must be compared with standard prac- tices. Reasonable adjustments can be made to assumptions and basis for specific project conditions. Review of these assump- tions and basis can ensure that costs are valid and represent the best engineering judgment of project estimators. The per- formance of the “review total cost estimate” step and sub- sequent “estimate approval” step would be guided by this method (see Figure 6.1). Project Complexity Estimate assumptions and a statement of the basis are required for every project. Larger and more complex projects may require more time and effort to fully document and explain assumptions. 66

Tips for Success Assumptions and the basis used to estimate costs must be clearly documented to validate costs and for future evaluation as estimates are updated and used for cost management. Esti- mation software should allow for documenting assumptions as the estimator prepares the estimate. Tool V1.1 Estimation Software 6.8.8 Verify Scope Completeness Why? Projects typically are broken down into many work pack- ages and distributed among different project participants. It is very easy for personnel to overlook certain items of work while preparing estimates under time pressures. Hence, a method to check for completeness of work packages is required. This can be accomplished by generating simple scope checklists and reviewing the estimate for completeness (see Figure 6.1). Project Complexity Complex projects involve a significantly large number of work packages that may be independent or dependent on preceding activities. Ensuring that all elements included in work packages are covered in cost estimates is more time con- suming and more difficult to achieve on large projects, espe- cially during the programming and preliminary design phase, when project scope is evolving. Tips for Success A key to successful use of this method is the careful consid- eration of all critical elements that are shown on the checklist during the cost estimation process and ensuring that the impact of these elements is accurately captured in the estimate. Tool V3.1 Estimation Checklist 6.9 Summary Table 6.10 lists all the methods and tools presented in this chapter for use in the programming and preliminary design phase of project development. This list can be used as a quick reference to help navigate Appendix A for descriptions of the tools. Table 6.10 can also be used as a checklist for selecting tools that should be employed on any one project. The check- list forms a self-assessment tool for agencies to benchmark against. These methods and tools were found in highway agen- cies throughout the country. While no agency was found to possess all of the methods and tools, all methods and tools exist and have the potential to be applied by any single agency. 67

68 Method/Tool Budget Control B1.2 Constrained Budget B1.3 Standardized Estimation and Cost Management Procedures B1.4 Summary of Key Scope Items (Original/Previous/ Current) B1.5 Variance Reports on Cost and Schedule Buffers B2.1 Board Approvals B2.2 Constrained Budget B2.3 Management Approvals Communication C1.1 Communication of Importance C1.2 Communication of Uncertainty C1.3 Communication within State Highway Agency C1.4 Definitive Management Plan C1.5 Proactive Conveyance of Information to the Public C1.7 Year-of-Construction Costs Computer Software C2.1 Agency Estimation Software C2.2 Commercial Estimation Software C2.3 In-House Conceptual/Parametric Estimation Software C2.4 Simple Spreadsheet Consistency C4.1 Cradle-to-Grave Estimators C4.2 Estimation Checklist C4.3 Estimation Manual (Guidelines) C4.4 Estimator Training C4.5 Major Project Estimation Guidance C4.6 Standardized Estimation and Cost Management Procedures C4.7 State Estimation Section Constructability C5.1 Constructability Reviews Creation of Project Baseline C6.1 Cost Containment Table C6.2 Estimation Scorecard C6.3 Scope Change Form C6.4 Scoping Documents Delivery and Procurement Method D1.1 Contract Packaging D1.2 Delivery Decision Support Design Estimation D2.1 Analogous or Similar Project D2.2 Agency Estimation Software D2.3 Cost Based, Bottom Up D2.4 Historical Bid Based D2.5 Historical Percentages D2.6 Major Cost Items using Standardized Sections D2.7 Parametric Estimation D2.8 Spreadsheet Template D2.9 Trns•port Design to Mandated Budget D3.1 Design to Cost Document Estimate Basis and Assumptions D4.1 Project Estimation File Estimate/Document Review E1.1 Estimate/Document Review—External E1.2 Estimate/Document Review—Internal Estimate Review—External E2.1 Expert Team Estimate Review—Internal E3.1 Formal Committee E3.2 Off-Prism Evaluation E3.3 In-House/Peer E3.4 Round Table E3.5 Year-of-Construction Costs Gated Process G1.1 Checklists G1.2 Cost Containment Table Identification of Changes I1.1 Cost Containment Table I1.2 Estimation Scorecard I1.3 Project Baseline I1.4 Scope Change Form Identification of Risk I2.1 Red Flag Items I2.2 Risk Charter Identifying Off-Prism Issues I3.1 Environmental Assessment I3.2 Percentage of Total Project Cost Project Scoping P2.1 Estimation Checklist P2.2 Scoping Document P2.3 Work Breakdown Structure Public Involvement P3.1 Meetings Recognition of Project Complexity R1.1 Complexity Definitions Right-of-Way R2.1 Acres for Interchange R2.2 Advance Purchase (Right-of-Way Preservation) R2.3 Condemnation R2.4 Relocation Costs R2.5 Right-of-Way Estimator Training R2.6 Separate Right-of-Way Estimators Risk Analysis R3.1 Analysis of Risk and Uncertainty R3.2 Contingency—Identified R3.4 Estimate Ranges R3.5 Programmatic Cost Risk Analysis Validate Costs V1.1 Estimation Software Value Engineering V2.1 Value Engineering Verify Scope Completeness V3.1 Estimation Checklist Method/Tool Table 6.10. Programming and preliminary design methods and tools.