Cost Estimating Process

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All projects benefit from following a thoughtful and deliberate process in developing project cost estimates. The process presented in Figure 1 describes the way WSDOT develops its project cost estimates. It is applied to all levels of project delivery, starting with the planning level estimate and ending with the project design and plan, specification, and estimate (PS&E) level. Each level of estimate may require different estimating inputs, methods, techniques and tools.

The task of cost estimating, by its very nature, requires the application of prudent judgment to the completion of the task.

A short description of each step in the cost estimating process is presented below:

Determine Estimate Basis:

This activity focuses on obtaining project information, including all previously developed project scope and schedule details and data, from which a project cost estimate can be prepared. The level of scope detail varies depending on the project phase, project type, and project complexity, but would include the design matrix and criteria, all assumptions and pertinent scope details. The estimate basis should be clearly documented and forms the beginning of the estimate file that should be prepared for each estimate. Each of the following steps will add information to this file, with the end result being a complete traceable history for each estimate.


Prepare Base Estimate:

This activity covers the development of estimated costs for all components of a project, excluding future escalation. These components may be estimated using different techniques depending on the level of scope definition and the size and complexity of the project. The number and detail of components estimated may vary depending on the project development phase. For example, in the scoping phase the cost estimate covers preliminary engineering, Right Of Way (ROW), and construction. As the design progresses and more details are known, pieces of the estimate become more detailed. Key inputs to this activity include project scope details, Historical Databases and other cost databases, knowledge of Market Conditions, and use of Inflation Rates.

A required component of the base estimate step is the preparation of a Basis of Estimate document that describes the project in words and includes underlying assumptions, cautionary notes, and exclusions. The base estimate should also be based upon, and include as an attachment for reference, the associated schedule for all remaining project activities. For conceptual level base estimates the schedule will be cursory and very broad in its coverage. However, as a minimum it should include the major milestones that WSDOT uses to measure performance and progress on projects. The conceptual level schedule may only include a few activities, but should begin with the development if the project, and include ROW, design, and construction phases.


Review Base Estimate:

This activity is necessary to ensure that (1) assumptions and basis are appropriate for the project, (2) the base cost estimate is an accurate reflection of the project’s scope of work; (3) scope, schedule and cost items are calculated properly and required components are not missing or double counted; and (4) historical data, the cost based estimate data, or other data that was used reasonably reflects project scope and site conditions. Internal specialty groups and/or Subject Matter Experts (SMEs) must participate in reviewing the Base Estimate.


Determine Risks and Set Contingency:

This activity is part of developing a risk management plan for a project, and is an integral component of project management planning – see the Project Management Online Guide. Risk management is an active and ongoing process of maximizing the probability and consequences of positive risk events (opportunities) and minimizing the probability and consequences of negative risk events (threats) to the project objectives. In the context of cost estimating, the cost impact of project risks (favorable or unfavorable) must be included to derive a total project cost.

If necessary, internal and/or external specialists are involved in a workshop format to validate the Base Estimate, provide input on specific issues such as construction staging, and elicit risks for modeling purposes. Formal risk assessment at WSDOT typically occurs in workshops such as Cost Risk Assessment (CRA) and Cost Estimate Validation Process (CEVP) workshops. Formal or informal risk assessment techniques are a valuable and valid tool and should be applied to all estimates. WSDOT’s project risk management policy is found in Secretary’s Executive Order #E 1053.00.


Determine Estimate Communication Approach:

Cost estimate data is communicated to both internal and external constituencies. The communication approach determines what estimate information should be communicated, who should receive this information, how the information should be communicated, and when the information should be communicated. Cost estimate information should be included when the communication plan is developed as part of the project management process. Often the words are as important as the numbers. The Basis of Estimate document can be used effectively as a communication tool to convey key information about the project to others.


Conduct Independent Review and Obtain Management Endorsement:

Estimates are key products of the project management process and are fundamental documents upon which key management decisions are based. Given their importance, all estimates should receive an independent review and then be reconciled and revised as needed to respond to independent reviewer comments. Once independent review comments have been satisfactorily incorporated, estimates should be presented to management staff for approval.

Management approval of estimates developed for initial budgeting or baseline definition is a defined step in the project management process. Revised estimates, typically developed if project requirements change, or as design is developed, should also be reviewed by management staff, revised as necessary to reflect management comments, and then approved. Each revised estimates shall then be incorporated into project cost baselines through the established project change management process.

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