Cost Estimating Process Improvement and Organizational Integration Project

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Cost Estimating Process Improvement and
Organizational Integration Project
Transportation Estimators Association Saratoga
Springs, New York October 3, 2008
Mike Ginnaty, PE Cost Estimating Project
Manager Minnesota Department of Transportation
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Cost Estimating Process Improvement and
Organizational Integration Project
Objectives

• Cost Escalation Background
• Why we needed to do this project
• What is the basis for this project
• Cost Estimating Project Overview
• Phased project
• Status of where we are at with the project
• What we are trying to accomplish
• Basis of a Cost Estjmate
• Project Scoping
• Implementation
• Communications
• Peer Review/Risk Analysis Workshop
• Strategies and Action Plans

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Cost Estimating Process Improvement and
Organizational Integration Project

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Cost Estimating Process Improvement and
Organizational Integration Project
Minnesota Case Studies
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Cost Estimating Process Improvement and
Organizational Integration Project
I-494/US 61 Wakota Bridge over Mississippi River
N
St Paul
US 61
I-494
Project purpose 250M, add capacity, reduce
congestion, river bridges I-494 90,000 Average
Daily Traffic(ADT) US 61 50,000 ADT 6 miles US
61 4 lane to 6 lane reconstruction 6
miles I-494 4 lane to 6 lane reconstruction, 10
lanes on river bridges 9 projects, 6
interchanges, 31 bridges, 5 cities, 2
counties construction years 2002 -2007
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Cost Estimating Process Improvement and
Organizational Integration Project
I-494/US 61 Wakota Bridge over Mississippi River
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Cost Estimating Process Improvement and
Organizational Integration Project
Start Paving
End Project
Start Grading
TH 14 Janesville Bypass
To Mankato
To Rochester
Project purpose Continuation of four-lane
expansion between Mankato and Rochester 2004 AADT
6500-8600 4-Lane Divided Expressway on New
Alignment 3 Interchanges (2 had or will have work
on adjoining projects) Bond Accelerated
Project Construction Years 2004 - 2006
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Cost Estimating Process Improvement and
Organizational Integration Project
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Cost Estimating Process Improvement and
Organizational Integration Project
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Cost Estimating Process Improvement and
Organizational Integration Project
NCHRP Report 574 Key Principles to overcome Cost
Escalation (obtained thru literature review,
State/Federal guidebooks, DOT practices)
Cost estimating management Make estimating a
priority by allocating time and staff resources
Set project baseline cost early and manage
throughout Create containment mechanisms for
cost escalations Communicate estimate meaning
and uncertainty Protect estimators from
internal and external pressures
Cost estimating practices Complete every step
in a structured estimating process Document
estimate basis, assumptions, deviations
Identify project uncertainties early and
establish contingencies Anticipate external
cost influences, incorporate into estimates
Perform estimate reviews and obtain management
approvals
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Cost Estimating Process Improvement and
Organizational Integration Project
Cost Estimating Process Improvement and
Organizational Integration Project Goal To
achieve accuracy, consistency and accountability
in cost estimation and cost management efforts
during the planning, programming and
preconstruction phases of program delivery.
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Cost Estimating Process Improvement and
Organizational Integration Project
Project Phases
October 3, 2008
Project Communications and Outreach
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Cost Estimating Process Improvement and
Organizational Integration Project
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Cost Estimating Process Improvement and
Organizational Integration Project
Project Phases
Phase 1 Data Gathering define what we are
were doing Phase 2 Desired Solutions
Implementation Plan develop vision and policies
to support vision, define desired Mn/DOT
processes, identify roles and responsibilities
and organizational change strategies, develop
strategic communication plan. Phase 3
Reference Manual develop Mn/DOT cost estimating
technical reference manual to support desired
solutions. Phase 4 Training develop training
materials and curriculum to promote the new
processes structure changes.
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Cost Estimating Process Improvement and
Organizational Integration Project
Phase I

• Data Gathering
• Execute internal project communications,
• Examine and assess Mn/DOT cost estimation and
  cost management processes,
• Prepare synthesis of national best practices in
  cost estimating,
• Define target opportunities for improvements
  and implications for organizational change,
• Prepare scope for remaining project phases.

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Cost Estimating Process Improvement and
Organizational Integration Project
Phase I Findings Potential Barriers and Challenges
High staff workloads Priority of cost
estimating initiative Lack of awareness about
importance and need Concern over one size
fits all approach Organizational change
impacts Department support
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Cost Estimating Process Improvement and
Organizational Integration Project
Vision Department-wide priority on
estimating, managing and controlling costs
Reliable and accurate estimates Statewide
uniformity and consistency Improved
communication and credibility with external
stakeholders Clear accountability
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Cost Estimating Process Improvement and
Organizational Integration Project
Policy Recommendations

• Cost Estimating Policy
• Overarching policy approach to cost
  estimating and cost management
• Addresses total project cost, gates,
  documentation and communication
• Addresses dedicated staff, human
  resource needs, training and education
• Uncertainty, Risk and Contingency Policy
• Contingency based on formal risk
  analysis
• Acknowledge uncertainty risk elements
  from the early planning estimate
• Addresses how risk uncertainty are
  included
• Addresses who is involved in risk
  analysis and review.
• Projects will have contingency, there is no
  program contingency.

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Cost Estimating Process Improvement and
Organizational Integration Project
Policy Recommendations

• Cost Estimate Communications Policy
• Ensure costs are communicated consistently
  and uniformly
• Specifying when estimates are
  communicated and how risk and
• uncertainty are included
• Reflects total project costs, inflation
  adjusted with contingency
• Ranges vs point numbers
• Project Cost Management Policy
• Project costs will be managed against a
  baseline once in STIP
• Projects will be managed to the project
  scope
• PMs responsible for cost management and
  reducing uncertainty risk
• as projects advance
• Changes to baseline cost estimate
  require management approval

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Cost Estimating Process Improvement and
Organizational Integration Project
Policy Recommendations

• 5. Program Cost Management Policy
• Districts will manage program within
  budget constraints
• Specify when program adjustments will
  or will not be allowed
• Address District/Central Office review
  and approval
• Changes to baseline cost estimate
  require management approval There is no
  Program level contingency
• Other Emerging Policies to be determined
• Design Build projects
• Unplanned or advanced projects
• Performance Measures to be determined upon
  policy acceptance and manual development.

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Cost Estimating Process Improvement and
Organizational Integration Project
Total Project Cost Estimate
Base Estimate Pre-letting Engineering
Construction Engineering Project Construction
Costs Detours and Haul Roads Traffic
Management Communications/Public Involvement
Right-of-Way Utilities Railroads
Municipal/Local Issues Turn-backs
Landscaping Environmental Clean-up/Mitigation
Incentives
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Cost Estimating Process Improvement and
Organizational Integration Project
Total Project Cost Estimate Continued

• Contingency
• Pre-letting Contingency
• Total for Base Estimate Elements
• Post-Letting Contingency
• Supplemental Agreements/Change Orders
• Cost Overruns
• Incentives
• Total Project Cost Estimate Base Estimate
  Contingency

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Cost Estimating Process Improvement and
Organizational Integration Project
Project Gates

• Entry into 10 year plan
• Proceed to scoping
• Entry into STIP (Baseline Estimate)
• Remain in STIP
• Proceed to Letting
• Solicit/Approve Contractors Bid Price
• Proceed to Construction (Not in this Project)

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Cost Estimating Process Improvement and
Organizational Integration Project
Technical Reference Manual Outline

• PREFACE
• SECTION I INTRODUCTION (Establish the purpose
  CE/CM)
• SECTION II ESSENTIALS (Foundation for CE/CM)
• Section II.1 (Project Development and CE/CM
  Processes)
• Section II.2 (Policies)
• Section II.3 (CE/CM Process Key information
  Total Project Cost, Risk and Contingency,
  Roles/Responsibilities)
• SECTION III Practice
• Section III.1 Overview of Cost Estimating and
  Risk Methodologies
• Section III.2 Planning CE/CM
• Section III.3 Scoping CE/CM
• Section III.4 Details CE/CM
• Section III.5 Letting CE/CM
• Section 111.6 Resources and Training
• SECTION IV Appendix (Terms, Estimating Tools and
  Tips)

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TECHNICAL REFERENCE MANUAL TYPICAL TWO PAGE LAYOUT
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Cost Estimating Process Improvement and
Organizational Integration Project
Training Development

• 2 Modules
• Cost Estimating Module
• Cost Management Module
• Project is developing training materials and
  curriculum
• Review Training Materials, October 7 and 8
• Training to be delivered by Mn/DOT late this
  year
• Two sessions, cost estimating and cost
  management

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Cost Estimating Process Improvement and
Organizational Integration Project
Cost Estimating Module 2 Day Course
Cost Estimating Why, When, Who, What and How
Project Development and Cost Estimating and
Cost Management Processes Cost Estimating
Overview Cost Estimating during Project
Development phases Determine Estimate
Basis/Prepare Base Estimate Determine Risk and
Contingency Review and Approval/Communicating
Estimates Wrap-up
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Cost Estimating Process Improvement and
Organizational Integration Project
Cost Management Module 1 Day Course
Cost Management Why, When, Who, What and How
Project Development and Cost Estimating and
Cost Management Cost Management Overview
Cost Management during Project Development Phases
Cost Management Based on Updating Cost
Estimates Cost Management Based on Individual
Changes Wrap-up
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Cost Estimating Process Improvement and
Organizational Integration Project
Communications Plan
Email blasts Newsline articles
Website links to related sites, feedback
loop http//www.dot.state.mn.us/cost-estimating
Website includes Cost estimating vision,
terms, and tips Developing One-Pager (similar
to Wash/DOT) Workshop forums District CO
management, program management project
delivery staff, etc
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Cost Estimating Process Improvement and
Organizational Integration Project
Scoping Process Implement in 2006
The end of scoping is the end of discovery for
a project Early identification of
issues/concerns Help to identify knowns
Help to anticipate unknowns Document and
communicate the risk/contingency Require
approved scoping documents for entry into STIP
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Cost Estimating Process Improvement and
Organizational Integration Project
Office of Project Scoping and Cost Management

• New Office created July, 2008
• Roles and Responsibilities
• Managing policy development (accelerated
  project, D/B)
• Coordinating CE/CM processes and provide
  estimating support
• Coordinating training (CE/CM and scoping)
• Technical Reference Manual updates
• Tool development and maintenance
• Coordinating risk assessments and value
  engineering for major projects
• Providing risk and contingency estimate support
  for districts
• Developing and reporting on performance measures
• Communications (external and internal)

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Cost Estimating Process Improvement and
Organizational Integration Project
Implementation Process
Implementation Team Identified barriers
and gaps Developed strategies (11) to address
barriers and gaps Developed action (104) for
the strategies Prioritized action items (28)
and assigned a timeline.
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Cost Estimating Process Improvement and
Organizational Integration Project
Strategies

• Develop system to accommodate tracking and
  communication of TPCE
• Develop performance measures and incentives
  related to CE/CM and scoping
• Ensure clearly defined structure, roles,
  responsibilities and accountabilities
• Increase awareness, internally and externally
  importance of scoping and CE/CM
• Identify priority areas and required resources
  for implementation
• Provide technical support (training, support
  group)

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Cost Estimating Process Improvement and
Organizational Integration Project
Strategies continued

• Integration with scoping initiative, value
  engineering and project development process
• Enhance departments ability to accurately
  identify impact of inflation on project costs
  and apply to cost estimates
• Identify additional tool and database development
• Develop strategies for implementing CE/CM on
  2010-2013 projects
• Reduce set-asides as a percentage of the state
  road construction budget

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Cost Estimating Process Improvement and
Organizational Integration Project
Actions (28 Items)

• Define Total Project Cost Elements (TPCE) (S1)
• Total project cost tracking system (S1)
• Develop Performance Measure (S2)
• Role of Project Scope and Cost Management Office
  (S3)
• Role of District and Expert Office Implementation
  (S3)
• Communication for internal and external (S4)
• Identify Resources for implementation (S5)

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Cost Estimating Process Improvement and
Organizational Integration Project
Actions Continued

• Provide Training (S6)
• Identify Integration inconsistencies with
  scoping, value engineering and project
  development processes (S7)
• Clarify Inflation for categories (S8)
• Tool Development (S9)
• Short-term Implementation (S10)

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Cost Estimating Process Improvement and
Organizational Integration Project
Implementation
Full Implementation of CE/CM Policies and
processes for FY 10-13 STIP All Projects need
a scoping document, Total Project Cost
Estimates, Management approval of Baseline
Estimate, Changes need to be approved by
Transportation Program Committee (Central
Office) We are developing a one-pager for
consistent communications.
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Cost Estimating Process Improvement and
Organizational Integration Project
Pilot Implementation For Chapter 152 Bonding
Projects
We are using some of these policies for our
bonding projects associated with recently passed
funding package We held a Peer Review/Risk
Analysis workshop on April 3-4 Bonding
projects will have Total Project Cost Estimates
We are developing a one-pager for consistent
communications. Bonding projects are also
expected to have an approved scoping report
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Cost Estimating Process Improvement and
Organizational Integration Project
NCHRP Report 574 Key Principles to overcome Cost
Escalation (obtained thru literature review,
State/Federal guidebooks, DOT practices)
Cost estimating management Make estimating a
priority by allocating time and staff resources
Set project baseline cost early and manage
throughout Create containment mechanisms for
cost escalations Communicate estimate meaning
and uncertainty Protect estimators from
internal and external pressures
Cost estimating practices Complete every step
in a structured estimating process Document
estimate basis, assumptions, deviations
Identify project uncertainties early and
establish contingencies Anticipate external
cost influences, incorporate into estimates
Perform estimate reviews and obtain management
approvals
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Cost Estimating Process Improvement and
Organizational Integration Project
Upcoming NCHRP Reports
8-60 Guidebook on Risk Analysis Tools and
Management Practices to Control Transportation
Project Costs 8-49(02) Right of Way
Utilities project is being proposed
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Cost Estimating Process Improvement and
Organizational Integration Project
Estimate
transitive verb Inflected Form(s)
estimated estimating 1archaic a esteem
b appraise2 a to judge tentatively or
approximately the value, worth, or significance
of b to determine roughly the size, extent, or
nature of c to produce a statement of the
approximate cost of noun 1 the act of
appraising or valuing  calculation2 an opinion
or judgment of the nature, character, or quality
of a person or thing lthad a high estimate of his
abilitiesgt3 a a rough or approximate calculation
b a numerical value obtained from a statistical
sample and assigned to a population parameter4 a
statement of the cost of work to be done
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Cost Estimating Process Improvement and
Organizational Integration Project
Mn/DOT Overview
Comprehensive approach to the process of
estimating for the various phases of project
development, Planning, Scoping, Design and
Letting. Track your assumptions through the
project development process to verify.
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Cost Estimating Process Improvement and
Organizational Integration Project
Thank you for your attention to learn about our
cost estimating project.
Mike Ginnaty, PE Cost Estimating Project
Manager Minnesota Department of
Transportation mike.ginnaty_at_dot.state.mn.us Office
[phone] Cel [phone]