Final Report for NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction (2006) / Chapter Skim
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Pages 63-85
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From page 63... ...
55 CHAPTER 4 STRATEGIES, METHODS, AND TOOLS The main goal of Task 3 is to identify potential strategies, methods, and tools that will improve cost estimation management and cost estimation practice. The deliverable of this task is a set of strategies, methods, and tools.
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56 COST ESTIMATION PRACTICE AND COST ESTIMATION MANAGEMENT STRATEGIES If DOTs are to produce accurate estimates, they DOT must have solid management plans in place that address the management of estimates, and consideration of project risk and complexity. The estimators who assemble the cost information must rely on the expertise and input from many individuals both within and outside the DOT if they are to develop an accurate project estimate.
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57 "a plan of action intended on accomplishing a specific goal," is used as the basis for developing short statements about each global strategy as follows: Management Strategy – Manage the estimation process and costs through all stages of project development; Scope/Schedule Strategy – Formulate definitive processes for controlling scope and schedule changes; Off-prism Strategy – Use proactive methods for engaging those external participants and conditions that can influence project costs; Risk Strategy – Identify risks, quantify their impact on cost, and take actions to mitigate the impact of risks as the project scope is developed; Delivery and Procurement Method Strategy – Apply appropriate delivery methods to better manage cost, as project delivery influences both project risk and cost; Document Quality Strategy – Promote cost estimates accuracy and consistency through improved project documents; Estimate Quality Strategy – Use qualified personnel and uniform approaches to achieve improved estimate accuracy; and Integrity Strategy – Insure checks and balances are in place to maintain estimate accuracy and minimize the impact of outside pressures that can cause optimistic biases in estimates. These eight global strategies address the factors presented in Table 2.2 that cause cost escalation on DOT projects and within their capital programs.
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58 Table 4.1. Link Between Strategies and Cost Escalation Factors Global Strategies M an ag em en t S co pe / S ch ed ul e O ffP ris m Is su es R is k D el iv er y/ P ro cu re m en t M et ho ds D oc um en t Q ua lit y E st im at e Q ua lit y In te gr ity Bias √ Delivery/Procurement Approach √ √ √ Project Schedule Changes √ √ Engineering and Construction Complexities √ √ √ √ Scope Changes √ √ √ √ Poor Estimation √ √ In te rn al Inconsistent Application of Contingencies √ √ √ √ Local Government Concerns and Requirements √ √ √ √ Effects of Inflation √ √ Scope Creep √ √ Pl an ni ng Ex te rn al Market Conditions √ √ √ Inconsistent application of Contingencies √ √ √ √ Faulty Execution √ √ Ambiguous Contract Provisions √ √ Int er na l Contract Document Conflicts √ Local Government Concerns and Requirements √ √ √ Unforeseen Events √ √ Unforeseen Conditions √ √ C os t E sc al at io n Fa ct or s Ex ec ut io n Ex te rn al Market Conditions √ √ The interviews with DOTs identified many specific methods and tools that are currently being used to address most of these strategies.
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From page 67... ...
59 Management Strategy Manage the estimation process and costs through all stages of project development. At the highest level within the DOT, DOT leadership can advance cost management strategies that foster and support estimate accuracy and consistency through all phases of project development.
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60 extensive experience and expertise. DOTs must increase the knowledge, skills, and abilities of their employees and provide a cadre of well-trained professional estimators if they want to achieve estimate accuracy and quality.
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61 significant problems. Later scope changes, during engineering design and construction, have ripple effects and later changes can increase project cost exponentially.
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62 Identify and control the consequences of scope changes Prevent unauthorized or unintended deviations to scope Ensure that each scope change is evaluated, and reviewed and approved at the proper management level. Time Value of Money The scope/schedule strategy must also directly address inflation.
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63 Operationally, every project is executed in the context of a particular political, economic, and cultural environment. Since the early 1970s, researchers who have studied the issue of actual project cost exceeding estimated cost have pointed to time lags and external factors as being significant cost overrun drivers.
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64 conduct a comprehensive risk analysis for all major projects. The purpose of such analyses is first to identify risks by likelihood of occurrence and consequences, and secondly to devise methodologies and strategies for avoiding or managing the risks.
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65 Funding and Budget Management. The sensitivity that the project has funding and budget changes.
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66 Provide a roadmap to project completion; Define process and strategy for each major project element⎯how you get to each milestone; Insure executive endorsement of the process; Rigorous industry outreach, (pre-bid plan availability at 60 percent design (Zanetell 2004) , industry review meeting9)
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67 Site visits Effects of Large Projects Funding and staffing issues are driving DOTs towards larger projects and these large projects are creating well documented problems with cost growth. FHWA has distributed information on lessons learned from major (Mega)
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69 consultants retained for estimation purposes. This guidance document should be specifically written for those responsible for preparing the State's estimates.
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70 Departments need strategic approaches to cost estimation practice and cost estimation management that: Avoid false precision − a big problem is created by early optimism. Relate contingency to the layman's everyday experiences with uncertainty.
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71 Programming and Preliminary Design Phase Strategies, Methods, and Tools Current methods and tools being used by DOTs in support of Programming and Preliminary Design phase estimation are show in Table 4.4. Table 4.4 makes it very clear that in certain strategic areas DOTs may not be prepared to deal with critical issues that influence the quality of their estimates.
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72 Table 4.3. Strategies, Methods, and Tools for the Planning Phase
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73 Table 4.4a. Strategies, Methods, and Tools for the Programming & Advanced Planning/Preliminary Design Phase
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74 Table 4.4b. Strategies, Methods, and Tools for the Programming & Advanced Planning/Preliminary Design Phase
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75 Table 4.5a. Strategies, Methods, and Tools for the Final Design Phase
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76 Table 4.5b. Strategies, Methods, and Tools for the Final Design Phase
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77 CONCLUSIONS This chapter identified eight global strategies for address cost escalation. These proposed strategies were linked to seventeen different cost escalation factors.
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