CEVP Cost Estimate Validation Process TEA Conference 2004

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CEVP Cost Estimate Validation ProcessTEA
Conference 2004

• Jay Drye, P.E.
• Assistant State Design Engineer

• Monica Bielenberg, P.E.
• CREM Program Manager

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Why an Estimate is Not a Number

• Estimates are uncertain . . .
• Ultimate project cost and schedule cannot be
  known with certainty during estimating and design
  
• Project cost and schedule are functions of many
  variables
• scope and strategy
• other policy
• technical (e.g., associated unit costs and
  quantities)
• They are essentially a snapshot in time

• . . . Therefore single number estimates are
  dangerous
• Number hits the street before estimate is
  complete or more often does not include all of
  the uncertainty inherent to a project

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Estimate Refinement
Cost or Schedule
estimate
1
3
10
20
30
Design Level
4
Uncertainty in Traditional Estimating
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Traditional Estimating
Risk Assessment
Geotech
20
40
Enviro
ROW
Risk or Opportunity
30
Contingency
10
Unknown

• All known and unknown risks are equally weighted
• Expresses very little knowledge of project risks

• Ability to weight known risks according to
  potential impact to project cost and schedule
• Better defines those risks we can identify and
  refine the amount of unknown risks

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Poor assessments of uncertainty lead to poor
estimates . . .

• Impacts of poor cost and schedule estimates
  include
• Cost and schedule over-runs or under-runs
• Reduction in scope
• Resource competition
• Media attention / negative publicity
• Public mistrust

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Impacts of Uncertainties WSDOT

• We have a strong estimating track record
• Construction generally completed within 10 of
  Engineers Estimate
• Cost of change orders during construction 6-7 of
  bid price
• Overall programs delivered within 3-5 of total
  budgeted biennial program

However . . . we have our share of black-eyes
too SR 167 1990 150 million 2000
972 million
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A New Tool Emerged CEVP

• Evaluate estimate
• Break down known items, uncertain or risky
  items (contingencies, allowances, etc)
• Build back up
• Better defined, more accurate numbers
• Include uncertain risk/opportunity events
• Run simulation model
• Integrated cost and schedule model
• Express costs and durations to complete the
  project in terms of ranges (distributions)
• Prioritize critical risk and opportunity factors
  to enable more-effective project management

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CEVP Participants and Process Steps
Review Project Scope and Strategy (Flow Chart and
Assumptions)

• Workshops, interviews
• preparatory
• base/risk assessment (1 or 2)
• risk management / updates

• Participants
• project team
• review team
• facilitator / elicitor
• base assessments
• risk assessments
• technical experts (validate)
• modeler

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CEVP - Base Cost Determination

• Determine the base costs - the most probable
  cost that can be expected if the project goes as
  planned
• Remove all contingency - i.e. provision for
  unknowns (representing uncertainty - risk and
  opportunity)
• Consider at the particular stage of the project
• What are our assumptions? Where do they come
  from? How valid are they, how do we know?
• What do we know we know? (components, units,
  prices)
• What do we know but cant quantify? (allowances)
• What do we know we dont know? (uncertainty of
  items)
• What dont we know that we dont know?
  (uncertainty)

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CEVP - Develop Project Flow Chart

• Develop the project schedule (flow chart) of
  major activities required to complete the project

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Identify Risk Opportunity Events(Assess Impact
Probability)
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Risk Event - Detail
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Evaluate Uncertainty
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CEVP Results

• Combine base costs, risk and opportunity events,
  with probabilities, to create potential ranges of
  cost schedule

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Schedule comparison after Risk Management was
initiated
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What does it take to do CEVP?

• A knowledgeable/committed owner (who wants to
  know the potential cost)
• A well-shaped project estimate
• Available/involved project team members
• Sufficient independent subject matter experts
• Skilled risk and cost elicitors (debiasing)
• Risk modeling - technology and experience
• Time / available funding

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CEVP produced very useful results
transportation department effort to plan more
accurately and manage money more effectivelySo
give DOT some credit for those intimidating
estimates. They should show us that its way
past time to pass a funding package and get to
work. Delay will only increase the
cost. Spokesman-Review June 2002
The Transportation Department developed its new
numbers through a new process called cost
estimate validation or CEVP, which features
another layer of review by outside expertsThe
agencys Urban Corridors Administrator
characterized it as an effort to deal more openly
and honestly with risks and uncertainties.
Seattle Times, June 2002 Giving citizens a
range of costs, including full disclosure of the
variables, is not only politically smart, but
its common sense Seattle Post-Intelligencer,
June 2002
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CEVP

• CEVP has been registered by WSDOT to recognize
  their sponsorship of its development and to
  ensure that the term is not loosely applied in
  other settings to cost review procedures that
  contain less than all the tools and controls that
  have been incorporated into the process, as used
  at WSDOT.

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Questions ? ? ?