Total Cost Management Estimating Webinar

Introduction

• Presenter: Lou Vadotto, President of the AACE Australia Section
• Host: Cameron Baker, Secretary of the AACE Australian Section
• Focus: Total cost management estimating
• Topics: Total cost management, work breakdown structures, estimate process, basis of estimate, contingency
• Format: Presentation followed by Q&A

Total Cost Management Overview

• Definition by AACE: Sum of practices and processes to manage total life cycle cost and investment in strategic assets
• Project Life Cycle Stages:
  • Concept Studies
  • Pre-feasibility Study
  • Feasibility Study
  • Financial Closure
  • Project Readiness
  • Execution Phase
  • Handover to Operations
• Key Concept: Plan, Do, Check, Act
  • Plan: Asset solutions or project activities
  • Do: Execute project in accordance with plan
  • Check: Measure performance
  • Act: Correct or improve performance

Cost Estimating and Budgeting

• Estimating: Quantifying cost and pricing resources (quantities, labor, materials, equipment, time)
• Budgeting: Allocating estimated cost into cost accounts for performance measurement
• Recommended Practices:
  • Plan the estimate
  • Develop work breakdown structure
  • Document and estimate review

Work Breakdown Structure (WBS)

• Purpose: Captures scope of work by area and facility
• Structure:
  • Areas/Facilities
  • Commodity/Discipline Codes
  • Work Packages
• Use: Estimating, contract pricing, progress measurement, historical data

Estimating Process

• Critical to Project Success:
  • Scope documentation (quantities, labor, equipment, materials)
  • Reflects execution strategy and schedule
  • Risk Profile
• Classes of Estimate:
  • Class 5 (Concept) to Class 1 (Check/Tender)
  • Maturity of project definition increases accuracy

Basis of Estimate

• Importance:
  • Document assumptions, methodology, execution strategy
  • Supports change management
• Contents:
  • WBS and commodity structure
  • Estimate methodology
  • Labor rates, unit construction buildups, productivity
  • Risk register

Contingency Analysis

• Purpose: Determine appropriate contingency based on estimate and schedule characteristics
• P50 and Other Percentiles: Used to establish project budget and management reserves
• Contingency Ranging Example: Illustrates typical accuracy ranges and management reserve calculations

Conclusion and Recommendations

• Importance of Documentation: Critical for budget creation and change management
• Stakeholder Alignment: Essential to align estimate with project management and execution plans
• Historical Data Utilization: Encourage feedback loop to improve future estimates

Q&A Highlights

• Discussion on Escalation, Project Definition, and Benchmarking:
  • Recommendations for handling escalation
  • Adequate project definition before funding approval
  • Importance of accurate benchmarking and historical data

Resources

• Recommended Reading: AACE's Recommended Practice 119 R-21 for contingency determination

This note captures the key discussions and insights from the webinar on total cost management estimating, focusing on practical applications and industry standards. It provides an outline for effective project cost management and estimation practices.