The [AACE] Estimate Classification

System Applied to the CD Process

Michael R. Nosbisch, CCC, PSP
President - Elect
Outline
Introduction
AACE International
Estimating-specific
DOE Relationship
DOE Estimating Guide
Estimate Classification
CD Requirements
Mapping Recommendations
Conclusion
Introduction
Key AACE members to be recognized
Speaker Background
VP of Project Controls for Parsons Government Group (2005
2009)
Became active in EFCOG PMWG during this time
VP of EVM for SM&A (2009 present)
Lead EVM Instructor for DOEs PMCDP
Consultant to several DOE contractors
President Elect of AACE (2010 present)
Presented on AACE to this group a few years ago in Idaho Falls
Current BoD sponsor for cooperative agreement with DOE
AACE International
Founded in 1956, currently largest global
organization dedicated to furthering concepts of
total cost management and cost engineering
8 regions
91 sections
7,708 members
According to 2010 Membership Survey, 22% of respondents
were Estimators by primary job function
AACE International
Cost Engineering defined
Collective set of practice areas that includes the following:
Business and program planning
Cost estimating
Economic and financial analysis
Cost control
Program and project management
Planning and scheduling
Cost and schedule performance measurement
Change control
Total Cost Management (TCM) is the "process" through which
these practices are applied
TCM Framework free download from website
Will soon be available as web-enabled, process flow diagram tied to
all AACE technical products
AACE International
Estimating-specific
Certified Estimating Professional (CEP)
One of four specialty certifications currently offered
Introduced in 2008, currently there are 110 CEPs in database
Intent is to recognize specialists who meet established set of estimating criteria
by examination, experience, education and ethical qualifications
Recommended Practices (RPs)
17R-97: Cost Estimate Classification System
18R-97: Cost Estimate Classification System: As Applied in Engineering,
Procurement, and Construction for the Process Industries (JAN 2011)
19R-97: Estimate Preparation Costs: As Applied for the Process Industries
31R-03: Reviewing, Validating and Documenting the Estimate
34R-05: Basis of Estimate
40R-08: Contingency Estimating: General Principles
AACE International
DOE Relationship
Cooperative agreement first signed in 1997
Reauthorized in 2002 and 2007
Current DOE sponsor is OECM
Key elements:
Advance state-of-the-art of TCM through
increased communication and dialogue
Apply established cost engineering/cost management principles,
proven methodologies, and latest technology
Develop new cost engineering/cost management methodologies and
technology in pursuit of optimum resource utilization
Encourage utilization of cost management standards and practices and
their continual improvement/advancement
DOE Estimating Guide (413.3-21)
AACE Estimate Classification System (1998 version
included as Appendix J)
Reprinted from AACE RP No. 18R-97, Cost Estimate Classification System As Applied
in Engineering, Procurement and Construction for the Process Industries
DOE Estimating Guide (413.3-21)
DOE Suggested Estimate Classifications
Only difference lies in specific Techniques (DOE) vs.
Methodology (AACE)
Additional table included in Guide showing secondary characteristics is an
exact reprint from the AACE RP
Reprinted from Table 4.2, U.S. Department of Energy Cost Estimating Guide
DOE Estimating Guide (413.3-21)
AACE Estimate Classification System (2011 version)
Reprinted from Figure 1, AACE RP No. 18R-97 (2011), Cost Estimate Classification System As
Applied in Engineering, Procurement and Construction for the Process Industries
DOE Estimating Guide (413.3-21)
Critical Decision (CD) Requirements
CD-0
Cost estimate range (i.e., order of magnitude)
Due to lack of detail or design during early project formulation
An estimate of costs to be incurred prior to CD-1 could also be required
For developing Conceptual Design for project
CD-1
Prior to approval of CD-1, project team should develop definitive
estimate of near term preliminary design cost
For PED funding request
Life-cycle cost estimate (LCC) of likely alternatives that are being
considered
After selecting alternative, project team develops total project cost
(TPC) range
DOE Estimating Guide (413.3-21)
Critical Decision (CD) Requirements (contd)
CD-2
Single point estimate that will represent entire project,
utilizing current scope and associated design parameters
70-80% confidence level (CL)
CD-3
Cost estimate based on Final Design [or sufficiently mature
to start construction]
May incorporate actual bids received from contractors used to
establish projects requirements for construction or execution
CD-4
Final Estimate at Completion (EAC)
In accordance with projects approved WBS
Mapping Recommendations
CD-0:
Cost estimate range: Class 5
Rationale:
At best, will use stochastic methods to develop cost ranges
Assumptions will be made for drivers having significant impact on
project cost
Estimate of costs to be incurred prior to CD-1: Class 3
Rationale:
Resources needed to support Conceptual Design effort should be
known within range of -20% to +30%
Acquisition strategy and scope of work for Conceptual Design
should also be known
Mapping Recommendations
CD-1:
Estimate of near term preliminary design cost: Class 3
Rationale: Class 3 is minimum requirement to be definitive estimate;
for less complex projects Class 2 would be appropriate
LCC of likely alternatives that are being considered: Class 5
Rationale: Data for some of life cycle costs will be available, but most
will be projections, which will be applied to Class 5 estimate of project
TPC range: Class 4
Rationale:
This estimate uses as its basis scope that is at best only 15% defined
There is still an overabundance of unknowns that will require allowances
rather than definitive estimates
Mapping Recommendations
CD-2:
Single point estimate representing entire project:
Low risk projects (left of 50% below): Class 3
High risk projects (right of 50% below): Class 2
Rationale: Class 3 requires 10-40% of full project definition; Class 2
requires 30-70% of full project definition
Reprinted from Figure 3, DOE O 413.3B
Mapping Recommendations
CD-3:
Cost estimate based on Final Design [or sufficiently
mature to start construction]:
Low risk and final design complete: Class 1
If low risk and final design not complete: Class 2
If high risk (final design or not): Class 2
Rationale: For high risk, one of a kind or complex projects, some of
detail will still not be fully developed
CD-4:
Final Estimate at Completion (EAC): N/A
Rationale: Based on actual costs (no longer an estimate)
Conclusion
Currently soliciting input from:
AACE (Estimating Committee)
EFCOG (Cost Estimating Subgroup)
Once received/compiled, goal will be to formalize
New AACE RP or Addendum to existing?
Revision to DOE Estimating Guide?
Questions?