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At some point in project development, a project is incorporated in the Stateâs priority pro- gram. The priority program includes projects that are typically within 10 years or less from their anticipated letting date. The first 4 years of the priority program typically constitute the State Transportation Improvement Program (STIP). The priority program is the output from the pro- gramming phase of project development. Once projects are included in a priority program, the SHA must manage both the project scope and cost as development continues in the next phase, Preliminary Design. Introduction When real estate is required as a component of a projectâs scope, those requirements must be stated such that an estimate of ROW cost can be developed. Multiple cost estimates may be pre- pared during this phase, depending on project complexity and the requirement to evaluate alter- native solutions that satisfy the transportation need and purpose as previously documented in the planning phase. The cost estimate at the culmination of the programming phase often becomes the Baseline ROW Cost Estimate used to manage ROW costs as design proceeds. Proj- ect ROW costs cannot be controlled effectively if there is no baseline scope, cost, and schedule for the ROW component of a project. The benefit of preparing a baseline cost estimate, tied to a baseline ROW scope and schedule, is that such an estimate provides project management a basis from which to control project cost as design proceeds and ROW requirements are further refined. It is also possible that modifications can be made to the project design that aid in main- taining the ROW budget. Baseline ROW Cost Estimation Flowchart Figure 5.1 illustrates a generic flowchart for creating a Baseline ROW Cost Estimate. As shown in Figure 5.1, this Baseline ROW Cost Estimate is prepared during the programming phase of proj- ect development. The final output of this cost estimating effort is a Baseline ROW Cost Estimate that is part of the Total Project Baseline Cost Estimate for the project included in the priority program. Figure 5.1 shows the cost estimating and cost estimate management steps for preparing and then approving and communicating the Baseline ROW Cost Estimate for the projectâs incorpo- ration in the priority program. 49 C H A P T E R 5 Baseline ROW Cost Estimate
50 Procedures Guide for Right-of-Way Cost Estimation and Cost Management PROGRAMMING ROW Project Development: Define Project Scope: Identify ROW area and/or rough parcels needed (impacted) Document ROW Required on rough conceptual plan or aerial photo (schematic) Determine Baseline ROW Estimate Basis Review ROW required as documented per project type and scope Request clarification of uncertain ROW requirements Document requirements in project estimate file Approve & Communicate Baseline ROW Cost Estimate Obtain Management approval Authorize communication internally and externally Determine Baseline ROW Risk & Set Contingency Identify risks Assess and analyze risks Assign contingency Document risk analysis and basis for contingency Compile baseline ROW cost estimate (base plus contingency) Review Baseline ROW Cost Estimate Determine Level of Review Review estimate basis & assumptions Verify completeness and Cost Data Review contingency amount based on identified risks Prepare Estimate package for approval Baseline ROW Cost Estimate To Preliminary Design Scope Development ROW Requirements Input from Environmental, Utilities, Railroad Prepare Baseline ROW Base Estimate Review estimate basis Document observations from field visit Calculate total acreage by land type based on potential parcel area 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 base cost Real Estate Inflation Rate Land Market Values Field Visit by Estimator (Improvements, Damages, Existing Conditions, etc.) Condemnation RateHistorical Data -Removal of Improvements -Relocation Assistance -Support Costs Future Development (Community Planning) Represents the dynamic nature of the milestone dependent on the practices of the State highway agency. * Priority Program 10 years * From Planning Modifications Figure 5.1. Baseline right-of-way cost estimate.
The baseline ROW estimating process is initiated with input from the programming phase through the project manager and other project development team disciplines. This input is in the form of ROW requirements to support the basic design features of the project, the required environmental features (especially those to support environmental mitigation), and any util- ity and railroad needs. As the process steps are performed by the ROW estimator, various inputs are needed. These inputs include ROW-specific information such as land values, histor- ical condemnation rates, appreciation rates, and historical data related to damages, relocation costs, support costs, and so forth. Input must also be provided by the staff of key disciplines such as environmental, utility, and railroad. Finally, the ROW estimator should visit the site to understand the site-specific conditions and to assess the possibility of future land develop- ment effects. Once each step is performed, the final output is the Baseline ROW Cost Estimate. This esti- mate is incorporated in the Total Project Baseline Cost Estimate. The project baseline esti- mate becomes the project cost identified in the priority program. Because even a small change in the location of a ROW line, or a change in access control or drainage retention placement, particularly in commercial areas, can affect the ROW cost estimate by millions of dollars, this ROW cost estimate may reflect several iterations through the illustrated estimating process before the baseline cost is established. These iterations may be necessary to support the selec- tion of a preferred alternative or as the scope of a complex project is refined during the pro- gramming phase. The asterisked wavy line in the right side rectangle of Figure 5.1 indicates the dynamic nature of the priority program milestone. Some SHAs program projects 9 or 10 years before their expected construction letting date. Other SHAs only program a project when the project is ready to be included in the STIP. In the latter case, the STIP becomes the priority program. This mile- stone would then be the latest time in which a baseline ROW estimate should be established for a project. Determine Baseline ROW Estimate Basis The ROW estimator needs definitive information for preparing an accurate cost estimate. The first step in Figure 5.1, Determine ROW Cost Estimate Basis, is critical because the ROW esti- mator must document all known ROW requirements based on input from the project develop- ment teamâproject manager and lead design staff. Project Complexity Overall, project complexity can be described by attributes as shown in Tables 3.4 through 3.6. If the project is classified as complex or major, the necessary input requirements typically increase and are transformed during the programming phase with enhanced project definition. Normally, several alternative solutions are explored when scoping major projects in the pro- gramming phase. Each possible solution must be evaluated. At the time of these evaluations, definitive information on ROW requirements is still limited. This will change once a preferred alternative is selected. As a result, the type of information documented in the Determine ROW Cost Estimate Basis step might have limited descriptive detail of ROW requirements. The dis- cussion that follows is based on having a known preferred alternative for a complex project. Thus, for moderately complex projects, the inputs from programming would change somewhat, but the process step, tools, and outputs of the step would remain the same. It is also assumed that the ROW estimators are only beginning to identify parcels and that the parcel criteria questions defining complex ROW actions still cannot be answered. Baseline ROW Cost Estimate 51
Programming Phase Inputs Although the absence of preliminary plans regarding ROW limits at this stage in project devel- opment is not uncommon, the project team should be able to provide sufficient information concerning anticipated ROW requirements so that a credible baseline estimate can be prepared. Project ROW requirements may be stated by one or more the following methods: ⢠Location plotted on aerial photographs or USGS maps to include tax map information (i.e., rough parcel descriptions). ⢠Location of the centerline on aerial photographs or USGS maps. ⢠Provision of existing road ROW limits with approximate locations of parcels. ⢠Provision of preferred alignment with construction limits stated. ⢠Utilities shown on aerial photos or USGS maps. ⢠Identification of possible railroad acquisition issues. ⢠Identification of topographical features. Input from environmental, utilities, and railroad sections will address ⢠Environmental. Is mitigation required for the project? What type of mitigation is required? What resource agencies will be involved in mitigation? What is the method of mitigation? ⢠Utilities. What is name of the company having utilities requiring verification? What is the name of the company having utilities requiring relocation? What additional information is needed concerning utility company involvement in the project? What is the Stateâs utility relo- cation obligation? (Utility relocation work is eligible for Federal-aid participation as a con- struction cost item to the extent the state is obligated to pay for such work.) ⢠Railroad. What is the description of affected railroad facilities or right-of-way? Are branch lines or spurs affected and, if so, what is the cost effect? What types of agreements or rights are required from the railroad? Process Step Description The ROW estimator should 1. Review ROW requirements for the project. Study aerial photographs, maps, or web aerials to (1) understand the extent of required project right-of-way in terms of a rough number of parcels affected; (2) note unusual features or complexities in terms of potential whole takes or partial takes; and (3) identify the potential number of condemnations, the potential for damages due to partial takes, the probability of future improvements and possible access issues, and the potential for needing temporary easements during construction. The ROW estimator should list any critical issues and concerns (e.g., red flag items) that contain an ele- ment of uncertainty or those which could increase the cost of right-of-way. 2. Request clarification, from the project manager and/or design team leader, about uncertain ROW requirements. This may require discussions with development team members repre- senting environmental, if mitigation is required; utilities, to understand whether utility place- ment or access issues exist on existing or future right-of-way; and railroads, to identify issues in acquiring property related to this area. The ROW estimator should list any uncertain ROW requirements not adequately resolved or still being evaluated. 3. Document the requirements in the ROW Cost Estimate File (D4.1). Documentation is extremely important to ensure that changes in ROW requirements from the baseline scope can be identified when the preliminary design phase commences. Tools Several tools can be used to perform this step. The most important tool is R2.5, ROW Estima- tor Training. Estimators need to be trained to recognize the factors that affect ROW cost. Another tool is the use of specialized ROW estimators, Tool R2.6. 52 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
A more specific tool is the use of a Cost Estimate Map (Tool R2.7). These maps document ROW requirement inputs. A key component of such a map is the identification of the approxi- mate location of parcels in the context of the projectâs preferred alignment. Tool R2.1 presents a method for handling the question of real estate requirements for interchanges at this early stage of project development. The ROW Cost Estimate File is an important tool. At this time in project development, the file will primarily include information related to the project requirements. This file will expand to include more material as the estimating steps are accomplished. It will contain documenta- tion concerning estimate assumptions, the cost data used, the cost estimate proper, and other related information generated through the preparation of the baseline ROW base estimate and the determination of the baseline ROW risk and contingency. The file is a critical input to the review baseline ROW cost estimate step and will eventually form the basis for tracking and assess- ing potential changes to the baseline ROW cost estimate. The ROW Cost Estimate file first pre- pared in the planning phase is also a good starting point. Tips The estimate basis must be documented in detail and the file should include all schematic drawings and clear statements about assumptions, including such approaches as the use of Advance Purchase (Tool R2.2), Condemnation Costs (Tool R2.3), and Relocation Costs (Tool R2.4). The documentation additionally must identify limitations that affect estimate accuracy. Other considerations include ⢠Preliminary parcel identification, which helps in assessing potential effect on structures, pos- sible future improvements, potential damages, and other costs. ⢠Effect on access point changes for local businesses, residents, and other properties. ⢠Temporary construction easements (these may be treated as a risk and covered in contingency if unidentified when the estimate is prepared). Outputs The output of this step is a list of ROW requirements that form the basis from which the base estimate is be prepared. This list should be documented in the project ROW Cost Estimate File. Thus, the main output of this step is data in the project ROW Cost Estimate File. This file will be populated with additional information as subsequent steps in the process are performed during the programming phase. Prepare Baseline ROW Base Estimate Once the estimate basis is documented, the ROW estimator can prepare a Baseline ROW Base Estimate. This estimate is considered the most likely or best estimate of costs given normal proj- ect conditions. The base estimate does not include contingency amounts to cover risks and other uncertainties. All elements of ROW costs should have cost amounts calculated based on existing information and the amounts should be exclusive of contingency. ROW estimate con- tingency is considered in the next step. Project Complexity If the project is classified as complex or major, the required inputs to develop the cost basis may improve as the project definition matures during the programming phase. Major projects normally have several possible alternative solutions. Each of these solutions may require independent ROW estimates. Early in evaluating alternatives, data on the cost basis for ROW elements are not as Baseline ROW Cost Estimate 53
detailed as later when the preferred alternative is determined. To support alternative selection, multiple ROW cost estimates are necessary. Therefore, the prepare ROW base estimate step is often repeated and the estimate basis evolves during the selection of a preferred alternative. Although the types of cost elements remain the same, the data to support an element might be different as the alignment is refined. For example, parcels may not be known when comparing alternative solutions. In that case, only total acreage may be used to calculate real estate cost with the percentage of land that is residential, commercial, industrial, and agricultural approximated. Inputs The first and most important input is the estimate basis description documented on the ROW Cost Estimate Map (Tool R2.7). This file and the information contained in it are used by the ROW estimator to develop data for the various elements of the estimate. As shown in Figure 5.1, several critical inputs are needed to support the development of a cost basis for each element that is part of the ROW cost estimate. The four main elements are ⢠Land Market Values. Cost ($) per acre by type (land only or with structures): residential, com- mercial, industrial, and agricultural. Tax assessor data relevant to the project location, discus- sions with local real estate agents, and experienced ROW professionals are good data sources. The tax assessor data should be adjusted to reflect market value. ⢠Historical Data. Such data can support the determination of representative cost for â Removing improvements from purchased real estate; â Damages due to residue properties; â Relocation assistance programs, based on percentages of land costs for residential, com- mercial, agriculture and so on (see Tool R2.4 Relocation Costs); and â Support costs, including external labor for titles, appraisals, appraisal reviews, negotiation, and so on considered on a percentage basis of land costs. ⢠Real Estate Appreciation Rate. ROW cost index to capture expected real estate appreciation in value between the time when the base cost estimate is prepared and when acquisition will occur. ⢠Condemnation Rate. When right-of-way must be secured by condemnation through emi- nent domain procedures, it typically involves the transition of control of the settlement from the agencyâs ROW section to its legal department. The estimator may be able to draw infor- mation concerning the percentage of parcel expected to go to condemnation from past expe- rience or from the agencyâs legal department (see Tool R2.3 Condemnation) if there is an indi- cation of parcel impact. A critical input shown in Figure 5.1 is the field visit by the ROW estimator. Although aerial photographs provide certain insights, a field visit will clarify these insights and help in identify- ing the potential effect of whole or partial takes on existing facilities such as structures and access points. Process Step Description The ROW estimator should 1. Review the estimate basis to understand the location-specific characteristics, including existing conditions and limitations, that might affect project right-of-way. The ROW estima- tor has substantial specific and definitive information to consider and evaluate in developing the baseline ROW cost estimate. Although parcels are roughly identified, specific cost ele- ments, such as improvements and/or damages, may still require the use of historical data to arrive at an estimated costs. 54 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
2. Document observations from the field visit to include potential improvements and dam- ages resulting from partial takes and whole takes with structures and confirm the estimate basis prepared in the first step. This information will help refine estimating data used for land values, with and without structures, and percentages or other historical data use to estimate ROW cost elements. 3. Calculate land areas by use. Use parcel information when parcels are specifically identified to help determine total area by land use. The Cost Estimate Map tool can provide prelimi- nary parcel information for calculating areas and distributing areas by land use or type. 4. Develop a cost basis for various cost elements such as land values, relocation assistance, support costs, improvements, damages, and condemnations. Land values should be based on current market activity in the project area. Land with structures can be based on assessed value per auditorâs tax data adjusted to current market value. Both land and land and structures cost estimate values should reflect highest and best use. The number of relocations should be quantified. Typical relocation costs are based on occupancy: resi- dence, business, or farm. Damages to the remainder in partial takes should be based on the experience of a qualified acquisition expert. These costs should be related to past proj- ects from the general geographical area. Estimate data for potential settlementsâeither to avoid condemnation or for properties that go to condemnationâoften are based on his- torical data (e.g., 10 percent of the properties will settle for 50 percent more than the esti- mate of the value of the property). Cost data should be developed to cover staff or con- sultant labor for title searches, appraisals, appraisal reviews, negotiations, relocation assistance, closing, and project management of ROW efforts. The data should be based on historical data for the individual property. 5. Convert cost basis to estimate of costs for each element. The quantity of land and other quantities and the cost data are input to the Cost Estimating System. These systems should be able to make the appropriate calculations and identify possible input errors. 6. Document estimate assumptions, including items such as a list of issues, concerns, and uncertain base estimate elements for later analysis in the risk and contingency step. The esti- mate documentation should describe the source of cost data (e.g., tax assessor), the basis for any adjustments made to reflect current market conditions, and historical data used to derive other ROW cost elements. 7. Apply the appropriate inflation/appreciation rate to estimate the cost at the time of acqui- sition and summarize all elements of the estimate for inclusion in the total baseline ROW base estimate. The Cost Estimate System will provide totals for all estimate elements and the total base ROW costs (without contingency). Tools A basic tool used to prepare ROW cost estimates is a Cost Estimate System (Tool R2.8). This system should be structured so that it can be tailored to fit the level of information avail- able for the different estimates prepared as project development progresses. Typically, elec- tronic spreadsheets are used for creating such systems. Some SHAs have very sophisticated electronic spreadsheets that are comprehensive in covering most or all of the cost elements related to acquisition of right-of-way. An example spreadsheet from Caltrans is shown in Fig- ure 5.2. The tabs of the spreadsheet show some of the components required for preparing a cost estimate and include Instructions, Basic Input, Worksheet 1 and 2 (which cover estimate inputs and calculate estimated costs), Mitigation Parcels, and information on railroads, and utility impacts. The ROW Cost Estimate File (Tool D4.1) should be populated with additional information beyond what is included in the ROW Cost Estimating System shown in Figure 5.2. Baseline ROW Cost Estimate 55
Tips Tax assessor data relevant to the project location, discussions with local real estate agents, and experienced ROW professionals are good data sources. However, all three sources have disadvantages. The pros and cons of using tax assessor data were discussed previously under the Prepare ROW Base Estimate step in the planning phase (see Chapter 4). Local realtors are familiar with local market activity, local development plans, and local zoning and health department requirements, but these individuals may lack understanding of basic eminent domain valuation concepts and âdamages to the residue.â ROW professionals are trained in valuation issues (e.g., damages); familiar with local zoning, health department, and building department procedures; and adept at identifying items that affect scope, cost, and schedule; but such professionals introduce higher labor costs and their scarcity often creates timeliness issues. In urban areas, where road widening or a new alignment is required, particular atten- tion should be paid to structures. However, if a total take is assumed, a false estimate may be the result. SHAs need to recognize the need to provide ROW estimator training, Tool R2.5, or to use sep- arate ROW estimators, Tool R2.6. Trained estimators know how to document correctly and clearly disclose all estimate basis assumptions in the ROW Cost Estimate File. Trained estima- tors carefully consider the effect of environmental issues, potential utility relocations, and nec- 56 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure 5.2. Caltrans right-of-way cost estimating spread sheet.
essary interfaces with railroads. Finally, they know about the best data available for calculating the cost of all base estimate elements. Outputs There are two main outputs related to this step. The first output is the baseline ROW base esti- mate. This output would be generated by the Cost Estimate System tool. The second output would be the expanded ROW Cost Estimate File. The cost estimate file would now be populated with additional information related to the estimate basis for each estimate element and with assumptions and limitations regarding the basis cost values supporting the estimate. The esti- mate will delineate the costs of each cost element and a total cost for all project-required real estate acquisitions and ROW actions (without contingency). Determine Baseline ROW Risk and Contingency At the time a Baseline ROW Cost Estimate is established, there are still uncertainties about project scope and future events. The next step in the estimate preparation process is to deter- mine ROW risk and set the contingency amount that should be added to the base estimate. An understanding of risk and uncertainty and the establishment of an appropriate contingency are fundamental to creating a realistic Baseline ROW Cost Estimate. The development of a baseline estimate permits the use of cost-based performance measures in managing project cost. If a con- tingency is overestimated, the baseline estimate will not be a useful cost control mechanism. If the contingency is underestimated, the baseline estimate will inhibit the design team from achieving a proper project scope because of overly burdensome cost constraints. Project Complexity Project complexity is the key indicator as to the tools that should be used in analyzing risk and setting the contingency amount. Major or complex projects (see Tables 3.4 and 3.5) may require sophisticated risk analysis processes and stochastic estimating techniques (e.g., Monte Carlo modeling). Stochastic estimating techniques can be beneficial when reviewing multi- ple alternatives on complex projects because such techniques help to enlighten decisionmak- ers about the uncertainty of the estimates relating to the alternatives. These cost uncertain- ties are expressed through ranges of possible costs in a stochastic estimating process. For example, a decisionmaker may prefer an alternative that is slightly more expensive if it will yield less cost uncertainty when compared with a slightly less expensive alternative with greater uncertainty. Setting of contingencies on minor or non-complex projects (see Table 3.6) should require little more than the use of red flag lists, standard contingency ranges, and estima- tor judgment. Inputs The experienced judgment of the ROW estimator and the development team members are the primary input to determine baseline ROW risk and set the contingency amount. Anytime an esti- mator needs to make an assumption, risk or uncertainty is present in the estimate. The estima- tor and project team should keep a list of (1) assumptions, (2) estimate basis uncertainties, and (3) project issues and concerns in the ROW Cost Estimate File. These assumptions, uncertain- ties, issues, and concerns form the basis for the risk analysis that is considered when setting the contingency amount. The following sections present process sub-steps and tools that assist in Baseline ROW Cost Estimate 57
creating these lists of risks, but the key input is the experienced judgment of the estimator and development team members. Process Step Description The ROW estimator, with input from other development team members, should 1. Identify risks. Review the lists of assumptions, uncertainties, issues, and concerns generated during the preparation of both the Conceptual ROW Cost Estimate and the prepare base- line ROW base estimate step. In more complex projects, risk identification workshops or discipline-specific interviews can be conducted in addition to reviewing the issue lists. The final step should be to review historical risk checklists or similar completed projects, but these lists should only be reviewed at the end of the analysis, so that the estimators do not miss any project-specific risks not contained on the lists. 2. Assess/Analyze risks. Assess risks through a qualitative review of the probability of the risks occurring and the cost and time effects of the risk occurring. If the project is complex, con- duct a quantitative risk analysis to more accurately estimate the cost and time effects of the risks and their probability of occurrence. 3. Assign contingency. Assign an appropriate contingency amount based on the identified risks and any historical information concerning cost growth from unidentified risks. On non- complex projects, this contingency can be assigned using a simple percentage based on historical data and estimatorâs judgment. On more complex projects, contingency can be assigned through a stochastic modeling of the identified risks. 4. Document risk analysis and the basis for the contingency amount. At a minimum, keep a transparent list of risks and uncertainties. This list should be kept in the ROW Cost Estimate File. It should be summarized and included any time the cost estimate is communicated. On more complex projects, maintain a risk register that provides, at a minimum, a detailed description of the risks, their probability of occurrence, their effect if they occur, strategies to mitigate/manage the risks, an assignment of ownership for the risks, and a schedule to resolve each risk. Proactive corridor preservation strategies can be used to manage ROW cost risk [See Tool R2.2 Advanced Purchase (ROW Preservation)]. 5. Compile the total ROW cost estimate (base estimate plus contingency). The contingency value is entered into the Cost Estimate System. Tools Tools exist for each of the four sub-steps in risk identification and setting of contingency. These tools, however, are not necessarily ROW specific. They are the same tools used for risk identification and setting contingency in the Total Project Cost Estimate. The primary issue in choosing an appropriate tool concerns the level of project complexity. Risk Identification Tools Four tools to assist in identifying risk are 1. Red Flag Items (Tool I2.1), 2. Risk Workshops (Tool R3.5), 3. Risk Charters (Tool I2.2), and 4. Risk Checklists (Tool I2.3). Red Flag Items (Tool I2.1) are a list of assumptions, issues, and concerns that is created at the earliest stages of project development and maintained as a checklist while the project progresses through development (see also Chapter 4, Conceptual ROW Risk and Set Contingency Process Description). It is perhaps the simplest form of risk identification and risk management. The list 58 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
helps estimators to better understand the required contingency and helps managers to more effectively control scope growth. Risk Workshops (see Tool R3.5) are used to identify risks that can influence project cost, scope, or schedule. They are typically used only for major or complex projects and are almost always part of a more comprehensive approach to identifying, analyzing, and managing risks. The Washington State DOT conducts rigorous risk identification workshops as part of the Cost Risk Analysis (CRA) process. Workshop agenda and other information are provided on the WSDOT CRA website (www.wsdot.wa.gov/Projects/ProjectMgmt/RiskAssessment/). A Risk Charter (Tool I2.2) is the third tool used for risk identification. In addition to risk iden- tification, the Risk Charter is used to communicate, monitor, and control risks. It is appropriate for large or complex projects that have significant uncertainty. The charter organizes risks that can affect cost estimates. A Risk Charter typically is based on either a qualitative or quantitative assessment of risk, rather than simple engineering judgment. The identified risks are listed with relevant information for quantifying, controlling, and monitoring. As part of a comprehensive risk management plan, the Risk Charter will help to control project cost escalation. The risk char- ter may include relevant information such as ⢠Risk description, ⢠Status, ⢠Date identified, ⢠Project phase, ⢠Functional assignment, ⢠Risk trigger, ⢠Probability of occurrence (%), ⢠Impact ($ or days), ⢠Response actions, and ⢠Responsibility (task manager). Risk Checklists (Tool I2.3) are the fourth risk identification tool. Risk Checklists are devel- oped from historical analysis of risks identified or realized on past projects. A summary of ROW risks from various projects conducted by Caltrans and WSDOT are ⢠Accelerating pace of development in the project corridor; ⢠Changes in land use/demographics in the project corridor; ⢠Difficult or additional condemnation; ⢠Excessive relocation or demolition (including unanticipated remediation) (either globally or for particular parcels); ⢠ROW staffing shortages; ⢠Process delays (e.g., ROW plan development by team, plan approval process); ⢠Railroad coordination/acquisition problems; ⢠Utility coordination/relocation delays; ⢠Objections to ROW appraisal taking more time and/or money; ⢠Variations in estimate quantities (e.g., acres by land use); and ⢠Variations in cost basis used for estimate elements (e.g., tax assessor data versus current mar- ket value). Risk Assessment/Analysis Tools The goal of risk assessment and analysis is to quantify risks for the purpose of developing an appropriate estimate contingency and to support cost management. SHAs are beginning to inte- grate risk assessment and analysis into their project management plans. Caltrans and WSDOT provide good examples of the application of comprehensive risk management for major projects. Baseline ROW Cost Estimate 59
Figure 5.3 is a flowchart of the Caltrans Risk Management Process. (Caltrans Project Risk Man- agement Handbook, 2007). Both Caltrans and WSDOT approach risk management on a total project basis, and ROW esti- mates and risks are one part of the comprehensive process. Specific tools for assessing and analyz- ing risks are Analysis of Risk and Uncertainty (Tool R3.1) and Programmatic Cost Risk Analysis (Tool R3.5). Assign Contingency Two general tools exist for assigning contingency: (1) assignment of contingency through a percentage and (2) assignment of contingency through a stochastic estimating process. Assign- ment of contingency through a percentage was discussed in Chapter 4, Conceptual ROW Risk and Set Contingency process description. The process applies to the Baseline ROW Cost Esti- mate as well, but the percentages change with the increased specificity of scope definition. The use of stochastic estimates to set contingencies is currently used by SHAs only on the most complex projects. It is generally part of a comprehensive risk management process facilitated by experts from outside the SHAs who are experienced in this type of analysis. Although the sto- chastic estimating processes can be complex to conduct, the results are fairly intuitive and help- ful to apply. Figure 5.4 illustrates an output from a stochastic estimate. As seen in Figure 5.4, stochastic estimating methods produce a range of possible cost out- comes. In Figure 5.4, there is a 10-percent chance that the project will cost less than $651 mil- lion, a 50-percent chance that the project will cost less than $668 million, and a 90-percent chance that the project will cost less than $693 million. Owners will typically choose to budget the project at the 80- or 90-percent certainty level. If the project in Figure 5.4 is budgeted at the 90-percent certainty level, the contingency can be expressed as the 90-percent cost minus the mean, or $25 million in this case ($693 â $668 = $25 million). Again, in this comprehensive esti- mating approach, ROW estimation is treated one of many components of the Total Project Cost Estimate. However, these risk tools can be used specifically for the ROW cost component of a project. Specific tools for assigning contingencies are Contingency-Percentages (Tool R3.3) and Programmatic Cost Risk Analysis (Tool R3.5). Document Risk Analysis and Basis for Contingency The primary tool for documenting risk analysis and basis for contingency is the ROW Cost Estimate File, which should contain the information from, or reference to, the tools used to iden- tify risks, assess/analyze risks, and assign contingency. These will be important communication tools as the Baseline ROW Cost Estimate is approved and released. Tips Reliance on experienced judgment is essential for determining ROW risk and setting contin- gency. Even the most sophisticated tools rely heavily on estimator judgment as input. Although agency policy should specify the upper and lower bounds for contingency percentages based on historical data, the final assignment of contingency should be left to the estimatorâs overall understanding of the projectâs scope and completeness of the base estimate. A comprehensive approach to identifying, assessing, and documenting risks identified by all members of the project team is essential. Red Flag Lists and Risk Charters are excellent tools to capture risks, but a comprehensive approach involving all team members throughout the proj- ect development process is needed to ensure that all risks are identified. 60 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
Baseline ROW Cost Estimate 61 Draft Project Initiation Document (Responsibility of Project Manager and Project Team) Draft Project Workplan with Critical Path (Responsibility of Project Manager and Support Unit) Risk Assessment (Responsibility of Project Manager and Project Team) Assessment Includes: (1) Identification of functional experts (2) Scheduling the team meeting (3) Identification of stakeholders (4) Use of facilitator as needed Draft Workplan and Draft Project Initiation Document (Responsibility of Project Manager and Project Team) Circulate and Respond to Comments (Responsibility of Project Manager and Project Team) Finalize Project Initiation Document and Workplan (Responsibility of Project Manager) Program Project (Responsibility of Project Sponsor) Update Monitor and Control Risks Through the Project Delivery Cycle (Responsibility of Project Manager and Project Team) Circulation Comments may Indicate Additional Risks Conceptualize Project Scope (Responsibility of Project Manager and Sponsor) Figure 5.3. Caltrans risk management process flowchart.
Given that the same methods and tools are used to estimate contingency for both ROW and total project estimates, consistency is provided between the estimates. However, double- counting of risks and contingencies must be avoided. The ROW estimate must be coordinated with the Total Project Cost Estimate to ensure that there are no overlaps or gaps as contingencies are applied to the base estimates. Risk Checklists can be helpful, but they should only be used as a check at the end of the risk identification process to ensure that no significant risks have been overlooked. Avoid starting the risk identification process with checklists because unique project risks that do not appear on the checklists can easily be overlooked. Outputs The outputs of this process step are (1) a list of risks and uncertainties and (2) a contingency amount to apply to the base estimate to arrive at a total Baseline ROW Cost Estimate. The for- mat for the output will vary depending on project complexity and the tools used for risk identi- fication and management. At a minimum, the output should be a list of Red Flag Items tied to a percentage contingency. For complex projects, a Risk Charter containing ROW-specific items will help to generate a range of total project costs to be managed throughout the remainder of the project development process. The use of a transparent contingency amount with an associ- ated list of risks will help to avoid future cost escalation and will help project management con- tain costs as the project development progresses. The use of a transparent contingency will help to communicate estimate uncertainty to internal and external stakeholders. The Baseline Right of Way Cost Estimate is included in the Cost Estimate System once a contingency value is input. Review Baseline ROW Cost Estimate It is always necessary to verify independently that an estimate is complete, matches the proj- ect scope, and is consistent with known site conditions. Because the outcome of this process is 62 Procedures Guide for Right-of-Way Cost Estimation and Cost Management Figure 5.4. Example of a stochastic estimate output.
the approved Baseline ROW Cost Estimate that will be used as a cost performance measure throughout the project, the review step at this time is even more critical. A second autonomous review of the estimate will provide managers and decisionmakers with a different perspective or at least a second opinion. Project managers sometimes push for a reduced ROW estimate so a project can go into the program. The review process and the approval process serve to protect estimators from such pressures. In Figure 5.1, an estimate review step is positioned after the project risk has been quan- tified and an appropriate contingency amount included in the estimate. Although this review is depicted as a one-time activity, it is commonly a repetitive step, taking place to some extent whenever an estimate is revised and particularly when the final Baseline ROW Cost Estimate is produced. Inputs The reviewer needs a copy of the Baseline ROW Cost Estimate and the ROW Cost Estimate File with the supporting documentation. If the Baseline ROW Cost Estimate and the ROW Cost Estimate are not contained in the estimated file, the reviewer also needs a copy of the latest scope document for the project. Process Step Description The extent of the estimate review at this stage will vary, depending on the complexity of the real estate issues expected. High-profile projects affecting valuable real estate or those affecting an unusually large number of parcels must be reviewed very carefully, and there must be greater depth to the probing. Recognition of ROW issue complexity will aid in ensuring appropriate review criteria and establishment of an appropriate approval authority. The review should look at (1) the baseline ROW base estimate without contingency or appre- ciation, (2) the selected real estate appreciation factor, (3) the risk analysis and assigned contin- gency value, and (4) the supporting documentation in the ROW Cost Estimate File. To produce these early estimates, estimators make numerous assumptions and the logic behind these assumptions must be documented in the ROW Cost Estimate File. It would be expected that, in the documentation, the estimator identifies any deviation from standard agency practice. Cal- trans specifically directs estimators to input data on all reasonable alternatives using a âworst caseâ forecast (highest cost) and to assume a full take if project design is not far enough along to specify the real estate requirement in detail. If that practice has not been followed in preparing an estimate, the deviation must be documented in the ROW Cost Estimate File. The Caltrans guidance states that an individual estimate file shall contain ⢠The cost estimate map(s) used in preparing the estimate, with the date of original map(s) and dates of subsequent revisions. If, due to size or number, the maps cannot be maintained in the file, a reference should be placed in the file indicating where the maps are located. Regardless of whether the maps are maintained in the file or in another location, they are part of the file and are to be retained in accordance with file retention requirements. ⢠Copies of all memoranda of request and responses. ⢠Copies of all ROW Data Sheets (including attachments) and Estimate Worksheets prepared for the project, along with accompanying ROW Data Sheet Transmittal Memoranda (see Cost Estimate System, Tool R2.8). ⢠Comparable sales and all other data used to prepare the estimate. ⢠A diary, annotated by date and person making the entry, of each action taken regarding esti- mates on the project. The diary shall contain all actions the estimator takes throughout the life of the project. Baseline ROW Cost Estimate 63
In summary, the actions required for an estimate review are to 1. Determine the Level of Review. The depth of an estimate review is a function of project size and complexity. In this step, the Chief of the ROW Section or the project manager must determine the type of review and who should perform the review. 2. Review Estimate Basis and Assumptions. The first component of the review focuses on understanding how the estimate was developed and then on the process and data used to determine cost. 3. Verify Completeness and Use of Estimating Information and Data. This step focuses on ensuring that the estimate reflects the scope of the project as currently described. Fur- ther, the review should assess whether prices and market assumption correctly reflect the situation. 4. Review Contingency Amount Based on Identified Risks. This step evaluates whether or not the contingency amount is realistic in relation to the potential risks and level of uncertainty in the estimate inputs and cost basis for preparing the base estimate. 5. Prepare Estimate Package for Approval. This step focuses on compiling all estimate docu- ments and organizing them into a single package to include cost summaries, detailed esti- mates, estimate basis and assumptions, and quantity calculations. Tools The formality of a baseline ROW cost estimate review and the depth of that review at each stage in project development will vary depending on the type of project and ROW situation complexity. For routine projects that have no complex ROW issues, an internal review should be satisfactory. Internal Review. Consulting peers and subject matter experts can identify possible errors, omissions, and clarifications in estimate basis and assumptions (Tools E3.1, E3.2, and E3.3). Esti- mates are based on many assumptions, which need to be justified as the estimate is reviewed. Issues that sometimes are overlooked include contractual obligations with property owners to relocate fencing, reconstruct gates, or to reconstruct road approaches. The reviewer should ensure that these items are included in either the ROW estimate or the construction estimate, but not double-counted. Reviews provide feedback to ROW estimators about the completeness and accuracy of their work. In many SHAs, internal reviews are not formal but involve either the ROW manager or a senior ROW agent reviewing all estimates and having responsibility for recommending approval of the estimate. Projects with complex ROW issues require reviews in greater depth and pro- active efforts to identify off-prism issues that can affect ROW cost. Projects with more complex ROW issues may require external review. External Review. At the programming phase, only cost estimates for large projects or cor- ridors in urban areas that have extremely complex ROW requirements will be subjected to an external review by qualified professionals (Tool E2.1). There may be certain critical elements of these estimates that require a unique expertise to verify estimated costs. This external review should include the results of a risk analysis that identifies the risks associated with these critical elements, the high and low cost limits for each critical element, and the assigned probability that the risk will occur. It was found that agencies, which use the bond market to fund their projects, subject even early estimates to a systematic review by an external third party. Such agencies may even perform early estimates looking at the effect of specific parcels on pricing and subjecting this pricing to scrutiny during the review. This is very important because bond rating agencies use the reviews as part of their rating evaluation. 64 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
Tips To be successful, the review must closely examine the assumptions that form the basis of the estimation, and knowledgeable and experienced individuals from within the agency must con- duct the review. When software is used to generate the estimate, the information fed into the computer program must be examined during the review. Conducting reviews at appropriate times during the development of programming estimates provides assurance that the estimates are reasonably accurate for the existing knowledge of project scope and site conditions. Output If the review finds no issues with the estimate, the estimate moves to the Approval and Com- municate Baseline ROW Cost Estimate step. Sometimes modifications to the estimate will be necessary before it can be passed forward, so it might cycle back through the Prepare Estimate and Risk steps before advancing. Approve and Communicate Baseline ROW Cost Estimate As the project design develops and more is known about project conditions, budget control is critical to managing project costs. During programming, an approved Baseline ROW Cost Estimate would be used to set the ROW budget for the project. The risk analysis has identified possible cost escalation factors and the approval step makes management aware of the possible effect of such fac- tors. Different levels of approvals will be required as a project proceeds through development. Inputs A summary of the reviewed and acceptable Baseline ROW Cost Estimate package goes for- ward to management for approval before the cost amount is communicated to the project man- ager and the design team. Process Step Description Completing all the cost estimation steps, which are initiated during programming, leads to an approved Baseline ROW Cost Estimate, as shown in Figure 5.1. The review and approval steps support baseline cost estimates for priority programming and ensure that the planned facility meets project requirements so that a project can be entered in the STIP. Scope changes are the primary contributors to cost escalation, and these changes have to be monitored closely as design detail evolves. The ROW estimate has been developed based on an assumed alignment and layout. The requirement that management approve an estimate ensures that agency and project management are aware (1) of the expected ROW cost based on specified assumptions of how project design will proceed; (2) that the total estimated cost is a determin- istic number that will be affected by the identified risk factors as they are realized or resolved; (3) that the contingency amount stated in the estimate is appropriate to counteract the occur- rence of the specific risks events and not an add-on amount to be used for scope changes; and (4) that a specific percentage has been applied to account for real estate appreciation only to a specified date in the future. Tools Budgeting is a balancing act of meeting the agencyâs objectivesâresponding to transportation needsâto the fullest extent possible within the limits of its financial capacity. To optimize the Baseline ROW Cost Estimate 65
agencyâs programs, it is better to establish budget constraints early in the project development process and to demand that estimate reviews and approvals be a critical component of all proj- ect decisions. Tools B1.1 through B1.5 will assist SHAs in establishing a disciplined budget process. Properly communicating the uncertainty involved in an estimate will help to ensure that appropriate decisions are made from the estimate (Tool C1.2). Estimate uncertainty can be com- municated by providing a range estimate rather than a point estimate. Communication of esti- mate uncertainty can also be conveyed by simply listing the assumptions, allowances, unknowns, and contingencies included in an estimate. Tips Management must be informed of project changes and external impacts that affect the proj- ect baselines of cost, scope, and schedule and should have procedures in place that restrict changes unless approved by senior management. As project development proceeds, the agency may be required to alleviate perceived negative effects on the local societal environment as well as the natural environment. Measures may include, but are not limited to, introducing alignment changes. These steps are often taken to respond to issues raised by the local residents, business owners, and environmental groups. All alignment changes must be approved by management with a full understanding of their cost impacts and the Baseline ROW Cost Estimate provides management with a tool to evaluate the effect of changes. Outputs The output of the approval step is a Baseline ROW Cost Estimate. This estimate is used to manage project scope and cost as the design team proceeds to translate the transportation solu- tion into contract documents. How the estimate uncertainty and contingency are communicated both internally and externally is important. Chapter Summary Baseline ROW cost estimation during programming was the focus of this chapter. The gen- eral process for preparing, reviewing, and approving this estimate was presented. The baseline estimate is generally determined for a preferred alternative so ROW requirements are better known. Historical data are not the primary source of land value information because this esti- mate element is based on tax assessor data updated to reflect current market values. Historical data are used to develop the cost basis for the other ROW elements. The effect of structures and other improvements on property values is better known. ROW estimating staff should consider risks to help set a contingency value to cover these risks and other uncertainties related to both the estimate basis and cost basis (scope requirements) used in preparing the estimate. Quantita- tive techniques are recommended for complex projects. Various tools are available to support the development of the baseline cost estimate. Finally, this estimate is critical because the output is used to manage and control costs for right-of-way throughout design. 66 Procedures Guide for Right-of-Way Cost Estimation and Cost Management
