Procedures Guide for Right-of-Way Cost Estimation and Cost Management (2009)

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States are required to develop long-range transportation plans. Federal law requires that SHAs develop a statewide transportation plan and that MPOs develop a regional transportation plan [23 U.S.C. 134(g) (2); 49 U.S.C. 5303(f)(2); and regulations 23 CFR 450.322(a)]. The planning horizon for these long-range plans is usually 20 years or more in the future. FHWA advises that it is “prudent” for MPOs to adopt plans with 23- to 25-year horizons so that (during the life of the plan) the plan would not fall below the 20-year threshold at any time (Shepherd, 2005). Approaches by SHAs to statewide transportation planning, or at least terminology, vary across the country. Although some SHAs identify major or even unique minor projects, most statewide transportation plans do not identify specific projects, but rather establish strategic direction for state investment in the transportation system. The MPO regional transportation plan is very dif- ferent. The MPO regional transportation plan identifies specific projects to be implemented over a 20- to 25-year planning horizon. Federal law requires that the statewide and MPO plans be con- sistent and that development of the plans include participation by both groups, along with other stakeholders such as local government agencies. Introduction Planning level cost estimates can significantly affect the overall transportation program and thus the ability of SHAs and MPOs to meet transportation needs. The term “conceptual estimat- ing” is used here to describe the general method of cost estimating during the planning phase. When real estate acquisition is required to support project scope development, ROW require- ments are determined such that a conceptual estimate of ROW cost can be prepared. This con- ceptual ROW cost estimate provides an “order-of-magnitude” cost for planning purposes. The extent of this estimating effort varies depending on project complexity and the anticipated let- ting date for the projects. For example, non-complex or minor projects with minimal ROW requirements can possibly be estimated strictly as a percentage of construction costs. Moderately complex and major projects need at least a limited definition of scope to identify real estate requirements before a conceptual estimate can be prepared. The benefit of performing such esti- mates, in addition to meeting Federal requirements, is that these estimates can support the queue of projects that enter the programming phase of project development. 35 C H A P T E R 4 Conceptual ROW Cost Estimation

Conceptual ROW Cost Estimation Flowchart Figure 4.1 is a generic flowchart for creating a Conceptual ROW Cost Estimate. As shown in Figure 4.1, this conceptual cost estimate for right-of-way is prepared during the planning phase of project development. Conceptual ROW cost estimates support SHA/MPO long-range plans. Figure 4.1 shows the CE/CM steps from Table 3.1 for preparing the Conceptual ROW Cost Estimate and then approving and communicating that estimate for incorporation in a long- range plan. The estimating process is initiated by program planners with assistance from func- tional disciplines and especially ROW staff. The input from program planners is referenced as ROW requirements in Figure 4.1. In many instances, the planner is also the estimator responsi- ble for the ROW component of conceptual estimates. Even if the planner has primary responsi- bility for preparing the estimate, contact should be made with knowledgeable staff in the ROW section [Tool R2.6 (see Appendix A for all tools)]. ROW staff may not be comfortable with con- ceptual estimating techniques, because staff are more attuned to parcel specifics, but staff can provide valuable historical data for preparing this early estimate. As the process steps are performed, the planning estimator uses various inputs to complete the steps necessary to achieve a good conceptual estimate. Projected land market values are the key input for a Conceptual ROW Cost Estimate. Other inputs include historical data to develop typical cost percentages for improvements, condemnations, damages, relocation costs, settle- ments, and labor costs. An inflation or appreciation rate is another important input. Some of the expected cost elements that are not yet definitely defined may be handled as allowances. Finally, the planning estimator should have knowledge of the project’s location-specific conditions. Such knowledge can be gained through area maps or by using free web access to aerial views of the project location. For more complex projects (moderate and major), a site visit is advisable to gain appropriate knowledge of site conditions. Once all of the estimate development steps are performed, the process output is a Conceptual ROW Cost Estimate. This cost estimate will be incorporated in a long-range plan or it may be used to determine planning feasibility (e.g., exclude a project from the long-range plan). These ROW cost estimates may be updated periodically, but typically no less than every 5 years. More detailed discussion of Figure 4.1 is provided next. Determine Conceptual ROW Estimate Basis Step The foundation for every estimate is the source information that affects the estimator’s deci- sions and judgments. This source information is termed the basis of the estimate. Therefore, in Figure 4.1, the first step is Determine Conceptual ROW Estimate Basis. The ROW estimator should document the ROW requirement assumptions—both those provided by the planning team and others made in support of estimate development. Project Complexity Project complexity can be described by attributes such as those shown in Tables 3.4 through 3.6. If the project is classified as complex or major, the required inputs that describe the estimate basis should be sufficiently broad to encompass different alternative solutions without the neces- sity of creating individual estimates. Establishing the study area boundaries for real estate land val- ues, expected inflation/appreciation rates, and other ROW cost items should be broadly defined to cover all the alternative project limits. Moderately complex projects may not require alterna- tive analysis; however, there may still be potential improvements and displacements to consider. The study area can possibly be reduced for these types of projects. As a result, the type of infor- 36 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Conceptual ROW Cost Estimation 37 PLANNING ROW Project Development: Define Project Scope: Planners & Functional Disciplines perform field visit to determine Conceptual ROW Scope Document ROW Requirements Determine Conceptual ROW Estimate Basis Review ROW requirements as documented per project type and scope Create ROW Project Estimate file Prepare Conceptual ROW Base Estimate Review estimate basis Document observations from field visit Calculate potential area of land by land type Develop cost basis for each ROW element Convert cost basis to estimate for each element Document estimate assumptions including uncertain items Summarize all estimate elements for total ROW cost Determine Conceptual ROW Risk & Set Contingency Identify, document and evaluate major risks Assign a percentage contingency to account for risks Compile total cost estimate (base plus contingency) Conceptual ROW Cost Estimate To Programming Historical Data -Removal of Improvements -Relocation Assistance -Support Costs Real Estate Appreciation Rate ROW Requirements Land Market Values Field Visit by Estimator (Improvements, Damages, Existing Conditions, etc.) Review Conceptual ROW Cost Estimate Review estimate basis and assumptions Verify completeness and cost data Review contingency amount based on identified risks Condemnation Rate Future Development (Community Planning) Approve and Communicate Conceptual ROW Cost Estimate Obtain management approval Authorize communication of the estimate Transportation Need Long Range Plan >20 years Modifications Figure 4.1. Conceptual right-of-way cost estimating process flowchart for planning.

mation documented in the Determine ROW Estimate Basis step for a moderately complex proj- ect as compared with a complex project would be less descriptive of the project’s specific ROW requirements and more descriptive of the selected historical data used to create the estimate. The discussion that follows is based on knowing only the project location with a broad perspective on the study area and the assumption that no specific designs have yet been developed. Planning Phase Inputs Typically, the planning inputs for right-of-way consist of broad concepts such as length and a basic project type (e.g., lane expansion) from which a width can be assumed. All that may be known is the location of the project and general project limits, that is, from Point A to Point B with an approximate width. Conceptual ROW requirements are most often determined by program planners. The intent is to provide sufficient scope definition such that an order-of- magnitude conceptual estimate can be prepared. Although project plans do not yet exist, typically the planner will describe ROW requirements using • Schematic plans or aerial photographs with the project study area marked. The study area is influenced by requirements such as the limits of the project, number of lanes added, and other key project elements. • Information on unique site characteristics that may affect different ROW elements (e.g., expected project structures that affect ROW width requirements). Process Step Description The ROW estimator should 1. Review ROW requirements for the project. Study the area schematic plans and/or aerial pho- tographs to gain an appreciation for the general area of the project. Specific site conditions identified as potential effects on ROW costs should be noted. 2. Document the requirements in a ROW Cost Estimate File. Documentation is extremely important (all assumptions should be documented) to ensure initial ROW requirements are identified and can be easily retrieved later when the project enters the programming phase and a baseline estimate is prepared. Tools A plan view of the study area for the project is one document that the ROW estimator can use (see Figure 4.2). This plan view inscribed on an aerial photo or topographic map of the study area can provide additional insights into structures and the geography of the study area that may affect ROW costs such as improvements (e.g., structures, utilities, and potential access points). Another tool is early scope definition where the planner collaborates with other functional dis- ciplines, including ROW staff, to visit the site location and mark on an aerial photograph the expected project limits as based on the physical constraints found on the ground. Tips Planning and other functional disciplines including ROW staff (even when ROW staff are not responsible for preparing the estimate) should interact frequently when developing the early ROW requirements for a project. This is especially important for projects (or corridors) in the complex and major categories. Other practices that support early ROW estimating are use of the following: • Early scope definition to document physical features in the general area where real estate is required; 38 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

• Aerial photographs or web aerial views to provide insights into structures or other site char- acteristics that will affect ROW costs; and • Existing SHA mapping, county profiles, or web aerial views to study the surrounding area. Outputs An output of this step is a list of ROW requirements; these requirements form the basis for the planning level conceptual cost estimate. This list should be documented in a project ROW Cost Estimate File (Tool D4.1). Thus, the main output of this step is a project ROW Cost Esti- mate File. This file will be populated with additional information as subsequent steps in the cost estimating process are performed. Prepare Conceptual ROW Base Estimate Once the estimate basis is documented, the planning ROW estimator can prepare the concep- tual ROW base estimate. This estimate is an order-of-magnitude estimate of anticipated costs, given normal project conditions. It is important that all elements of ROW costs be covered. This should not, however, include a contingency to cover risks due to unknown events or unknowns related to the information used to prepare the estimate. The key output of this step is a concep- tual ROW base cost estimate without contingency. This is typically the first ROW estimate pre- pared for a proposed project. Project Complexity Two types of complexity must be considered by ROW estimators. First there is “project com- plexity,” and Tables 3.4 and 3.5 provide guidance for such a determination. Complexity in terms of the total project would lead an estimator to develop the cost basis data sufficiently broadly to encompass the different alternative solutions while not having to create separate base cost data for evaluating each solution. Conceptual ROW Cost Estimation 39 Figure 4.2. Aerial photo with the gross boundaries for a proposed project identified.

Second, there is complexity of the expected ROW activities. This type of complexity will influ- ence estimator actions when preparing the Baseline and any Updated ROW estimates. Answers to the following questions can indicate a complex ROW situation may exist: • Will estimating the value of parcels be difficult because market data (e.g., comparable sales) are insufficient or non-existent? • Is the anticipated value of the proposed acquisition over some minimum amount based on SHA averages for similar types of property? • Are buildings, wells, signs, and so forth affected? • Is the anticipated value of the proposed acquisition severing any buildings from the remainder? • Are trees, shrubs, or any other landscaping efforts involved? • Does moving the proposed ROW line require analysis of possible proximity damages? • Is access to the property changed or limited? • Is the current highest and best use of the property going to be changed as a result of the pro- posed acquisition? • Does a significant amount of the total compensation involve items other than land value? • Is there reason to believe this parcel will proceed to condemnation? • Is more land than actually needed being acquired? • Does the proposed acquisition affect the sewage disposal system or property drainage? • Are there any other considerations that complicate the valuing of this parcel? If the answer to any of these questions is yes (or even maybe), the parcels may have sufficient complexity to classify the project as complex in terms of ROW activities. “Yes” answers should alert estimators to carefully consider assigned cost and that more questions need to be asked. In preparing conceptual estimates, the estimator is still dealing with a general area containing all alternative alignments, and it would be difficult to answer these specific parcel questions. How- ever, once an alignment is determined, the estimator must start considering a definition of com- plex in terms of parcels. Moderately complex projects, under the Table 3.4 definition, may not require alternative analyses; however, a few potential improvements and/or displacements within the study area may need to be considered. The study area for moderately complex projects can probably be reduced compared with that of a complex or major project. The Prepare Conceptual ROW Base Estimate step may be repeated, depending on the planning horizon in which the project falls (i.e., years out from letting time period) and the complexity of the project. Whenever scope changes are made, it is necessary to cycle through the estimate preparation steps again so that there are no cost blackout periods during project development. The types of cost information needed to create a revised conceptual estimate will be the same; however, the actual data to support an estimate usually change with time. For example, total acreage may be the same, but the approximations of percentages of land that is residential, commercial, indus- trial, and agricultural could differ. Inputs The first and most important input is the estimate basis as documented in the ROW Cost Esti- mate File (Tools D4.1 and R2.8). The file should include schematic drawings or aerial photo- graphs showing the study area and all supporting field notes. The information contained in the file is used by the ROW planning estimator to develop data for the various elements of the ROW cost estimate. As shown in Figure 4.1, other critical inputs are needed in order to develop the ROW cost esti- mate. The three main elements are 40 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

1. Land Market Values. Cost ($) per acre by type: residential, commercial, industrial, and agri- cultural. These values are frequently based on historical data, using tax assessor data or county records on sales activity to reflect approximate real estate values close to the project location. This cost could also include land with structures. Ranges are frequently available to the plan- ning estimator. 2. Historical Data. Percentages can support the determination of appropriate costs for – Removing improvements from purchased real estate; – Reduction in value due to damages; – Potential for settlements due to condemnation; – RAPs, based on percentages of land costs (e.g., residential, commercial, and agricul- tural); and – Labor costs, including external labor for titles, appraisals, appraisal reviews, negotiation and so on considered on a percentage basis of land costs. 3. Real Estate Appreciation Rate. ROW cost index to capture expected real estate appreciation occurring between the time when the base cost estimate is prepared and when acquisition will occur. These data are often provided by an SHA financial division. A critical input that Figure 4.1 calls attention to is the need for a field visit by the ROW plan- ning estimator. Although aerial photographs provide insights, a field visit will crystallize these insights and help to identify potential effects of ROW acquisition on existing facilities such as structures and access points. The site visit can identify any changes to the site that occurred after the aerial photograph was taken. Insights of other disciplines may be required, depending on the complexity of the project. For example, a quick assessment of any potential environmental impacts may necessitate an increase in the estimated acres for environmental mitigation. Simi- larly, inputs may be necessary from utilities and railroads functional groups. The need for such input may result from observations obtained via the planning estimator’s site visit. Process Step Description The ROW estimator should 1. Review the estimate basis to understand the location-specific characteristics that affect real estate cost, including existing conditions and physical site limitations that might affect right- of-way. 2. Document observations from a field site visit. Listed items should include potential improve- ments and damages due to ROW acquisition and confirmation of the assumed conditions. This information can influence the appropriate estimating data used for assigning land val- ues and percentages to cover other ROW cost elements. 3. Calculate potential area of land by land type. Estimate total acreage of land in the area of the project based on gross boundaries. The land area should be estimated by land usage type, based on a combination of information from aerial photographs and county profiles. This evaluation provides an estimate of the land as follows: % agriculture, % residential, % com- mercial, and % industrial. 4. Develop a cost basis for elements such as land values, percentage adjustments to account for improvements, relocation assistance, support costs, and other related costs. Land val- ues could come from historical data. Such data could include just the land value or could incorporate other costs such as improvements and damages. If they are not already avail- able, develop percentages to account for other cost elements such as percentage of the total land cost that would require administrative settlements at a set percent higher than the esti- mated costs. 5. Convert cost basis to estimate of costs for each element (agricultural acres times $ per acre) based on current-day dollars. Conceptual ROW Cost Estimation 41

6. Document estimate assumptions (i.e., write down any assumptions made when developing the cost basis from historical data or other sources). Document the logic behind initial assumptions and log the source of all supporting data. 7. Apply the appropriate inflation/appreciation rate to estimate cost at time of purchase and summarize estimate elements for the total base cost estimate of right-of-way for the project. Tools A basic tool used to prepare ROW cost estimates in many SHAs is a Cost Estimate System (Tool R2.8). This system should be able to produce estimates based on different levels of available infor- mation. Typically, worksheets or a series of spreadsheet tabs are used to create such systems. The Cost Estimate System could have tabs to cover historical percentages for some of the estimate ele- ments. The Cost Estimate System at the planning level could be very simple, but should provide sufficient information so that the basis, assumptions, and limitations that support the develop- ment of the cost estimate are documented and easy to review. Some ROW estimators and plan- ners have developed their own computer spreadsheets for generating these early estimates. Tips Although the conceptual estimate is prepared based on very limited information, the planning estimator should consider • Keeping the estimate approach simple because time to prepare these early estimates is usually limited. • Using the expertise of functional disciplines to help provide data and supporting information. • Documenting every component of the estimate, even when limited information is available. • Making a site visit for complex (or major) projects. • Remembering that the conceptual cost estimate prepared during planning is the initial ROW cost estimate. It is often revised during planning, but eventually it becomes the starting point for future ROW estimates when a project enters the programming phase. • Using tax assessor data, which has low data gathering costs and may be collected by in- house staff familiar with computers or court houses (not Appraisers). Note: such data have disadvantages—potentially data may be dated, estimated property values may be under- stated or overstated by auditors, and data may not reflect current local development activity that may drive a road improvement projects. • Using market data from county records. This can be accomplished quickly, with less experi- enced staff and, hence, is less costly; however, the accuracy of such data can be suspect in many instances. Outputs Two main outputs are related to this step. The first, a Conceptual ROW Base Estimate, would be generated by the ROW Cost Estimate System tool. The second is the ROW Cost Estimate File. This file will be populated with information related to the cost basis for each estimate element and assumption and limitation statements regarding the cost values derived from historical data- bases or other sources. Determine Conceptual ROW Risk and Set Contingency The acquisition of even a few real estate parcels can be extremely complex and fraught with uncertainty. Planners must consider a multitude of technical, organizational, and human fac- tors when estimating ROW costs. Often, the engineering and construction complexities are 42 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

overshadowed by economic, societal, and political challenges to the acquisition. The outcome of meeting these challenges has too often resulted in significant cost escalation. An analysis of the risks and uncertainties involved in a project, even at the conceptual level, and a thoughtful assignment of a contingency to address these risks can help to avoid cost escalation later in the project. Inputs The primary input for identifying risks is a review of the ROW requirements and base esti- mate assumptions contained in the ROW Cost Estimate File. Anytime a planning estimator makes an assumption, risk is introduced into the estimate. The level of risk will depend on the assumption. The second input is the Conceptual ROW Base Cost Estimate itself. The estimator should review the estimate for risks. Additionally, the estimator must remove any contingency from estimate line items and state the estimate’s contingency as a separate amount. All of these items will be found in the ROW Cost Estimate File. Process Step Description At the conceptual estimate stage, the risk and contingency process will necessarily be succinct because of the limited information available. The two primary steps for this risk analysis process involve (1) identifying, documenting, and evaluating major risks; and (2) assigning a percent- age contingency to account for those risks. To avoid any “double counting” of contingency, the ROW estimator must ensure that no contingency is included the conceptual ROW base estimate and that the overall project estimate does not include a separate contingency value for ROW risk or uncertainty. The outcome of this step is to determine the risk associated with the conceptual ROW estimate and to fix a contingency that can be added to the conceptual ROW base estimate to create a total Conceptual ROW Cost Estimate (base estimate plus contingency). Explicitly communicating the risks and associated contingency to all internal and external stakeholders will eliminate double-counting and misunderstanding about the estimate’s validity. Identifying, documenting, and evaluating project risks associated with a conceptual estimate is the first step and begins by asking all planning team members involved in the ROW planning to make a list of ROW acquisition “issues and concerns.” This can be accomplished as the scope and estimate basis are developed or through a brainstorming session when the estimate is pre- pared. The Ohio DOT (ODOT) calls these risks and uncertainties “red flag items” (see Ohio DOT, Appendix H—Red Flag Summary, http://www.dot.state.oh.us/pdp/PDPmanual/pdfs/H_ Red_Flag_0107.pdf). This agency identifies these red flag items primarily to focus the engineer- ing efforts on the problematic items. These problematic engineering items are generally the issues that cause cost escalation and should be accounted for with a contingency amount in the esti- mate. Additionally, risk checklists can be referenced at the end of the risk identification process so that commonly encountered risks are identified. The FHWA-identified objectives of a formal risk management process are (Molenaar, Diekmann, and Ashley, 2006) as follows: 1. Identify and categorize risks that could affect the project and 2. Document the risks. The outcome of risk identification is a log or list of possible risks. The second step is to set a percentage contingency to account for the cost consequences of the identified risks and uncertainties. At the conceptual estimate stage, the percentage contingency is most often set from a standard chart of percentages with the selected values dictated by agency policy. These percentages will vary by SHA and with estimator experience. The final step is to compile the total cost estimate (base estimate plus contingency). Conceptual ROW Cost Estimation 43

Tools The primary tools for risk identification and setting of contingency at the conceptual estimate stage are • Red Flag Items (I2.1); • Risk Checklists (I2.3); and • Contingency–Percentage (R3.3). Red Flag Items (Tool I2.1) are a listing of assumptions, issues, and concerns. This list is cre- ated at the earliest stages of project development and maintained as a reference as the project progresses through development. This list, perhaps the simplest form of risk identification and risk management, helps planning estimators understand the purpose of the contingency amount and helps managers to control scope growth effectively. ODOT includes identifying Red Flag Items in their comprehensive approach to ROW cost estimating. Figure 4.3 is an excerpt from their Project Development Process (PDP) manual concerning Red Flag Item identification on ROW estimates for minor projects: Risk Checklists (Tool I2.3) are another tool for risk identification. Checklists should be used only after the project team has, on its own, identified the risks (e.g., through the creation of a Red Flag List). Risk Checklists are developed from analysis of risks identified or realized on past proj- ects. A detailed Risk Checklist is provided in Chapter 5, Determine ROW Risk and Contingency, and in the Tool Appendix. Table 4.1 and Figure 4.4 provide percent contingencies at various project development phases as defined by the Maryland and Ohio DOTs, respectively. These percentages provide a starting point, but each SHA should (1) develop its own policy for an appropriate range of contingen- cies for ROW estimates and (2) ensure that the contingency is included only in the ROW esti- mate or the overall project estimate, but is not applied twice. Tips Each project is unique and reflects a specific situation and geographical location. Therefore, each project should be looked at as a distinctive undertaking. The planning estimator should 44 Procedures Guide for Right-of-Way Cost Estimation and Cost Management 301.6 Red Flags Red Flags, including environmental and engineering issues, are locations of concern within the study area. Red Flags do not necessarily identify locations that must be avoided, but rather, identify locations that will entail additional study, coordination, design, right-of-way, or construction cost. Locations that must be avoided are referred to as “fatal flaws.” The project manager should ensure consultation with the appropriate specialists to determine the level of concern for each Red Flag item. Both environmental and design Red Flags are identified on the Red Flag Summary. Figure 4.3. Ohio DOT red flag example. Project Phase Contingency Planning 35-40% Programming and Preliminary Design 25-35% Final Design 0-25% Table 4.1. Maryland DOT graduated-scale contingency.

• Gather issues and concerns (or risks) from all parties involved in the project. • Include all risks, no matter how small the effect may seem at this early stage of project devel- opment. • Use a risk checklist at the end of the process to avoid missing commonly experienced risks. • Develop policy regarding percentage ranges of contingencies to ensure consistency and as guidance, but allow planning estimators with project knowledge to choose an appropriate project-specific contingency. • Ensure that the all contingencies have been removed from the base estimate. • Ensure that the contingency is included in only the ROW estimate or the total project cost esti- mate, but not in both. Outputs The outputs of this process step are (1) a list of risks, issues, and concerns and (2) a percent contingency to apply to the base estimate to arrive at the total conceptual ROW cost estimate. The list of risks will provide an early indication of where the planning and engineering teams should expend their efforts and the potential costs effects that estimators should be aware of as they develop future estimates. The use of a transparent contingency amount with an associated list of risks will help to avoid future cost escalation and will help management contain project costs. The use of a transparent contingency will also help to communicate estimate uncertainty to internal and external stakeholders. The Cost Estimate System should incorporate the contin- gency value to provide the total Conceptual ROW Cost Estimate. Review Conceptual ROW Cost Estimate Because Conceptual ROW Cost Estimates, prepared during the planning phase of project development, are based primarily on assumptions by the planning estimator based on experience, these estimates should only be developed by experienced estimators. Except for very routine Conceptual ROW Cost Estimation 45 Figure 4.4. Ohio DOT design completion contingency guidelines for cost estimating of major projects.

projects, there is limited definitive information about scope and ROW requirements at this stage in project development; therefore, the right-of-way estimated reflects gross extrapolations from historical data. Inputs Besides the estimate proper, the reviewer will require the ROW Cost Estimate File. The review will closely examine the assumptions stated as the basis of the estimate and will consider the appropriateness of the contingency factor based on the documentation risk analysis. Process Step Description Conceptual estimates have a substantial range, in terms of precision, in predicting the actual final cost of acquiring the necessary project real estate. This lack of precision results because only preliminary information is known about the project and because estimators must make assump- tions about the dynamics of future real estate market changes. These ROW estimates should, therefore, be reviewed for the validity of their basis (i.e., the underlying assumptions); however, the formality and depth of the review will vary depending on the complexity of the real estate issues. By defining and recognizing project complexity, a proper review can be conducted. Addition- ally, over time, critical issues can be identified based on different levels of project complexity. This list of issues is useful in conducting future reviews. This “institutional memory” should eliminate some of the relearning that often occurs during the development of projects. Although this review is depicted as a single activity, it would normally be repetitive, taking place to some extent whenever a conceptual estimate is revised. The review of a conceptual ROW estimate is particularly important during planning because there are often issues relat- ing to land value market condition projections that are beyond the expertise of project plan- ners. If the estimate was prepared by planning staff, which is common in many SHAs, it should be reviewed by ROW staff. The review will verify that peripheral costs (e.g., damages, improvements, relocation assistance, and court and administrative costs) are accounted for in the estimate. Tools This is an estimate based almost solely on historical cost averages and data representing sim- ilar conditions and location characteristics. An internal review by experienced peers can identify inappropriate use of data and omissions (Tool E3.3). Tips Knowledgeable and experienced individuals who are independent of the project team must conduct this review. The agency should provide training for ROW estimators and those respon- sible for reviews of ROW estimates (Tool R2.5). The need for training has been argued in many forums—Dennis Stork, Exec. V.P. International Right of Way Association stated: When it comes to investing in human capital, it appears that some decision makers focus on the cost, not the value, for their organization or business. One modern way of addressing this issue has been the trend toward “return on investment” for calcu- lating the economic value of educational expenditures (Right of Way Magazine March/April 2006). 46 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

For a project with complicated ROW issues, a field check by the reviewer may be justified. One SHA recommended field reviews that specifically consider the following: • What is affected, • Types of real estate, • Relocation requirements, and • Demolition requirements. The field check should critique the effect that the project will have on the property to be acquired. The FHWA warns that “A very small change in the location of the ROW line, or a change in access control or drainage retention placement, particularly in commercial areas, can affect the ROW cost estimate by many millions of dollars because of required damage payments such as severance or business damages.” Outputs If the review finds no issues, the estimate and summary documentation moves to the Approval step. Some times the review will recommend modifications to the estimate before it is moved forward for approval. In that case, there is a cycle back through the prepare estimate and risk steps before the estimate is advanced for approval. Approve and Communicate Conceptual ROW Cost Estimate Agencies should establish formal estimate approval processes. Approvals obligate agency man- agement and external parties to recognize and acknowledge project scope, schedule, and cost. Inputs The reviewed conceptual ROW cost estimate package, the cost estimate and its documenta- tion are the input for obtaining an estimate approval. Process Step Description To control project cost and achieve accurate project estimates, agencies must have manage- ment structures that screen and control project scope, schedule, and cost. As project complex- ity increases, such management structures become critical. Approval processes promote estimate quality by establishing an organizational structure that shields lower-level staff and estimators from influences that can cause project cost growth. Approval processes place the authority and responsibility for project scope and schedule changes where there is a much broader knowledge base of how the project fits into the agency’s total transportation program. Another important function of approvals is to ensure that management is kept informed of a project’s current scope, schedule, and cost so that surprises are eliminated. The approving authority, by signing off on the estimate, indicates agreement with the esti- mated cost amount and that the estimate can be communicated to other staff in the agency and to external parties. The approval must be given in writing and a copy of the approval document should be kept in the estimate file. How project estimates and estimate precision are communicated is important in controlling expectations. This is particularly true during the earliest stages of project development. Internally, senior management must convey the importance of a project estimate and that the projected cost Conceptual ROW Cost Estimation 47

is based on the stated project scope. If cost is to be managed successfully, scope must be con- trolled during all phases of project development. Communication of cost uncertainty is impor- tant internally and externally. Identification and communication of the project’s early stage uncertainty and the fact that unknowns can affect scope and costs will help in managing project expectations. Tools Tools that establish a set of standards and procedures within an SHA to guide ROW estimate practice through the various stages of project development alleviate cost escalation by consis- tently providing timely feedback to management on the potential effect of changes to project budgets. Procedures provide a basis for managing costs and match responsibility with authority to make decisions regarding changes to current budgets (Tool B1.3, Standardized Estimation and Cost Management Procedures). Tips To support the approval process, estimators must communicate the level of uncertainty and assumptions associated with an estimate so that management and others using the estimate do not make inappropriate decisions (Tool C1.2, Communication of Uncertainty). Externally, communication of estimate uncertainty is possibly more critical to project success than the transmission of an approved estimate to program planners. To maintain credibility with stakeholders, it is important to “tell the public the truth” about project cost and to explicitly iden- tify the precision of an estimate. Transparency in estimate communication is sometimes diffi- cult because external stakeholders often want “one number” before an accurate estimate can be made by even the best estimators and planners, but transparency of costs will be best over the duration of a project. Outputs The approved Conceptual ROW Cost Estimate is transmitted to the program planners for inclusion in the total estimated project budget and eventually in long-range plans. Chapter Summary Conceptual ROW cost estimation during planning was the focus of this chapter. The general process for preparing, reviewing and approving this estimate was presented. The conceptual esti- mate is based on broad assumptions regarding the project requirements for right-of-way. His- torical data are mainly used to develop costs for each estimate element. Even at the planning level, the planner should consider risks before assigning a contingency value to cover estimate uncertainties. Various tools are available to support the development of a conceptual estimate. 48 Procedures Guide for Right-of-Way Cost Estimation and Cost Management