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Cost Estimating w/ a Crystal Ball

Cost Estimating w/ a Crystal Ball. NHI Course. Two pilots Virginia DOT Caltrans, next week History Probabilistic (Risk Based) Based on Washington State DOT’s CEVP Deterministic FY 2006. FHWA Version of Risk Based Probabilistic Cost Reviews – WHY?.

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Cost Estimating w/ a Crystal Ball

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  1. Cost Estimating w/ a Crystal Ball 2007 Annual TEA Conference

  2. NHI Course • Two pilots • Virginia DOT • Caltrans, next week • History • Probabilistic (Risk Based) • Based on Washington State DOT’s CEVP • Deterministic • FY 2006 2007 Annual TEA Conference

  3. FHWA Version of Risk Based Probabilistic Cost Reviews – WHY? Threshold (All costs, PE, CN, R/W, UT, CE, etc.) $500 Million – Major Project $100 to $500 Million – Division discretion “Cost to complete estimates based on reasonable assumptions as determined by the Secretary.” Secretary = FHWA Reasonable assumptions = Risk based analysis (Is not WS DOT CEVP process) 2007 Annual TEA Conference

  4. FHWA Version • Similarities with CEVP • Contingency is removed from the estimate • Risks/Opportunities are identified in team workshop environment • Monte Carlo simulation (@Risk vs. Crystal Ball 2007 Annual TEA Conference

  5. FHWA Version • Differences w/ CEVP • Developed for one-time use in a DOT • State DOT estimate is not changed • Estimate is not schedule related • Inflation is applied to obtain YOE estimate • Risks can be expressed as a simple “contingency” 2007 Annual TEA Conference

  6. FHWA Cost Review • Current Estimate in Excel Format • Understand Estimate Process and Scope • Review of all estimate cost items • Compliance with FHWA Guidance (Checklist) • Brief review of Unit Prices and Quantities • Discuss Risk and Opportunities • Cost Impact and Probabilities 2007 Annual TEA Conference

  7. FHWA Cost Review • Run a Monte Carlo Simulation (Crystal Ball) • Develop assumption curves • Run software to generate probability forecast curve • Review sensitivity charts • Prepare Final Report • Use to review Finance Plans • Generate estimate expectations 2007 Annual TEA Conference

  8. FHWA Guidance Checklist • Estimate is escalated to year of expenditure dollars for each element of the project. • Process includes risk-based assessments of unknown and all uncertain costs. • Estimate is well documented. • Estimate has been independently validated. 2007 Annual TEA Conference

  9. FHWA Guidance Checklist • Estimate is consistent with project scope. • Estimate includes all initial preliminary engineering costs and final design costs. • Estimate includes all right-of-way and administrative costs. • Estimate includes all third party (e.g. utility, railroad) costs. 2007 Annual TEA Conference

  10. FHWA Guidance Checklist • Estimate includes all TDM/TSM costs. • Estimate includes all construction costs. • Estimate includes construction contingencies. • Estimate includes construction administration. 2007 Annual TEA Conference

  11. 2007 Annual TEA Conference

  12. FHWA Guidance Checklist • Estimate includes public outreach cost. • Estimate includes a management reserve. • For planning or conceptual estimates, consideration was given to expressing the estimate as a range. • For projects under design, estimates include a design contingency at each stage of design. 2007 Annual TEA Conference

  13. Understand Estimating Process • Estimate prepared March 2007 • Design/Build Procurement • Anticipated Award March 2008 • Prepared by State DOT using an extensive database of unit prices for D/B/B contracts • Design is 30% complete 2007 Annual TEA Conference

  14. Presentation • Before leaving • PowerPoint • Findings and Recommendations • Concurrence of State DOT project designers and executives • Final Written Report to Follow 2007 Annual TEA Conference

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