The below 12 Step Program for Creating a Credible Construction Estimate is a valuable tool for any real propery owner or services provider.
#1 Define estimate’s purpose
■ Who will use the estimate and how.
■ Required level of detail, and overall scope.
#2 Develop estimating plan
■ Responsible individuals for estimating approach, estimate development (IGE), reviews, and scheduling as well as final scope of work development and approval
#3 Define program characteristics
■ Data and technology requirements (tools, manpower, training, support, data maintenance, deployment)
#4 Determine estimating structure
■ Define/select a work breakdown structure (WBS) and or a common data architecture (i.e. expanded CSI MasterFormat, expanded UNIFORMAT)
■ Identify potential validation methods/techniques, including a cost estimating checklist
#5 Identify assumptions
■ Clearly define what the estimate includes and excludes
■ Identify global and program-specific assumptions, such as the estimate’s base year, including time-phasing and life cycle
■ Identify program schedule information by phase and program acquisition strategy
■ Identify any schedule or budget constraints, inflation assumptions, and travel costs
■ Specify equipment the government is to furnish as well as the use of existing facilities or new modification or development
■ Identify prime contractor and major subcontractors
■ Determine technology refresh cycles, technology assumptions, and new technology to be developed
■ Describe effects of new ways of doing business
#6 Obtain data
■ Create a cost data collection and maintenance plan with emphasis on collecting current and relevant technical, programmatic, cost, and risk data
■ Investigate possible data sources and ensure local market, current, and granular costs are used.
■ Collect data and normalize them for cost accounting, inflation, learning, and quantity adjustments
■ Do not exclusively use historical data and economic factoring
■ Do not use ‘national average cost data’ and location factoring
■ Analyze the data for cost drivers, trends, and outliers and compare results against rules of thumb and standard factors derived from historical data
■ Interview data sources and document all pertinent information, including an assessment of data reliability and accuracy
■ Maintain and Store data for future estimates
#7 When appropriate compare vendor estimate to an independent owner generated cost estimate
■ Develop the cost model, estimating each WBS element, using the best methodology from the data collected,a and including all estimating assumptions
■ Express costs in constant year dollars
■ Time-phase the results by spreading costs in the years they are expected to occur, based on the program schedule
■ Sum the WBS elements to develop the overall point estimate
■ Validate the estimate by looking for errors like double counting and omitted costs
■ Compare estimate against the independent cost estimate and examine where and why there are differences;
■ Perform cross-checks on cost drivers to see if results are similar
■ Update estimate as more data become available or as changes occur and compare results against previous estimates
#8 Conduct sensitivity analysis
■ Test the sensitivity of cost elements to changes in estimating input values and key assumptions
■ Identify effects on the overall estimate of changing the program schedule or quantities;
■ Determine which assumptions are key cost drivers and which cost elements are affected most by changes
#9 Conduct risk and uncertainty analysis
■ Determine and discuss with technical experts the level of cost, schedule, and technical risk associated with each WBS element
■ Analyze each risk for its severity and probability
■ Develop minimum, most likely, and maximum ranges for each risk element
■ Determine type of risk distributions and reason for their use
■ Ensure that risks are correlated
■ Do not rely upon statistical analysis methods (e.g., Monte Carlo simulation) to develop a confidence interval around the point estimate.
■ Do not rely upon historical data
■ Identify the confidence level of the estimate
■ Identify the amount of contingency funding
■ Recommend that the project or program office develop a risk management plan to track and mitigate risks
#10 Document the estimate
■ Document all steps used to develop the estimate so that a cost analyst unfamiliar with the program can recreate it quickly and produce the same result;
■ Document the purpose of the estimate, the team that prepared it, and who approved the estimate and on what date
■ Describe the program, its schedule, and the technical baseline used to create the estimate
■ Present the program’s time-phased life-cycle cost
■ Discuss all ground rules and assumptions
■ Include auditable and traceable data sources for each cost element and document for all data sources how the data were normalized
■ Describe in detail the estimating methodology and rationale used to derive each WBS element’s cost (prefer more detail over less)]
■ Describe the results of the risk, uncertainty, and sensitivity analyses and whether any contingency funds were identified ]
■ Document how the estimate compares to the funding profile
■ Track how this estimate compares to any previous estimates and actual costs
#11 Present estimate to management for approval
■ Develop a briefing that presents the documented life-cycle cost estimate
■ Include an explanation of the technical and programmatic baseline and any uncertainties
■ Compare the estimate to an independent cost estimate (IGE) and explain any differences
■ Compare the estimate (life-cycle cost estimate (LCCE)) or independent cost estimate to the budget with enough detail to easily defend it by showing how it is accurate, complete, and high in quality
■ Make the content clear and complete so that those who are unfamiliar with it can easily comprehend the competence that underlies the estimate results
■ Act on and document feedback from leadership
■ Request acceptance of the estimate
#12 Update the estimate to reflect actual costs and changes
■ Update the estimate to reflect changes in technical or program assumptions or keep it current as the program passes through new phases or milestones
■ Report progress on meeting cost and schedule estimates
■ Perform a post mortem and document lessons learned for elements whose actual costs or schedules differ from the estimate
■ Document all changes to the program and how they affect the cost estimate
(Adapted from Sources: GAO, DHS, DOD, DOE, NASA, SCEA, and industry)