Final Report for NCHRP Report 574: Guidance for Cost Estimation and Management for Highway Projects During Planning, Programming, and Preconstruction (2006)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

i SUMMARY Project cost escalation is a major problem for State Highway Agencies (SHAs). Over the time span between the initiation of a project and the completion of construction many factors influence a project’s final costs. Managing large expenditure construction projects requires the coordination of a multitude of human, organizational, technical, and natural resources. Quite often, the engineering and construction complexities of such projects are overshadowed by economic, societal, and political challenges. This research developed a Guidebook on highway cost estimation practice and cost estimation management aimed at achieving greater consistency and accuracy between planning, programming and preliminary design, and final design. The Guidebook provides appropriate strategies, methods, and tools to develop, track, and document realistic cost estimates during each phase of the process. The research was divided into ten tasks spanning equally over two phases. Phase I of the research involved tasks that included an extensive literature review, SHA interviews to assess current practice, a critical review to determine general deficiencies in current practice, and the formulation of strategies, methods, and tools to address cost escalation. The literature review, described in this report, involved researching, gathering, and processing information and literature relevant to cost estimation practice and cost estimation management, but it was found that literature on cost management in the transportation area was virtually nonexistent. As a result, many other sources were examined. The transportation literature more often addresses problems that are frequently associated with larger and more complex projects. To augment the literature analysis, interviews and discussions were conducted with 23 state SHAs to determine current state-of-practice in this area. The individual factors that lead to the cost escalation of projects were identified through a large number of previous studies and research projects. The current research compiled information from those previous studies and aligned causal factors with project development phases to identify the core estimation assumptions that are the root causes behind cost escalation and lack of project estimate consistency and accuracy. The research team categorized these factors into internal and external influences and mapped them to the various project phases. The main methodology used to develop a potential list of strategies, methods, and tools was first focused on linking strategies to causes of cost escalation. Eight overarching strategies were identified by means of this approach. By identifying a set of high-level strategies, which focus on the critical causal factors, a strong argument can be made for management action. Methods and tools that would likely be effective in implementing the eight strategies are, therefore, directed at the mitigating root causes of estimation problems in a focused approach. The strategies, methods, and tools are matched to project development phase where they would be implemented. Thus, a preliminary list of strategies, methods, and tools was the major deliverable of Phase I.

ii Eight strategies are identified as follows: Management Strategy – Manage the estimation process and cost through all stages of project development; Scope/Schedule Strategy – Formulate definitive processes for controlling project scope and schedule changes; Off-prism Strategy – Use proactive methods for engaging those external participants and conditions that can influence project costs; Risk Strategy – Identify risks, quantify their impact on cost, and take actions to mitigate the impact of risks as the project scope is developed; Delivery and Procurement Method Strategy – Apply appropriate delivery methods to better manage cost, as project delivery influences both project risk and cost; Document Quality Strategy – Promote cost estimate accuracy and consistency through improved project documents; Estimate Quality Strategy – Use qualified personnel and uniform approaches to achieve improved estimate accuracy; and Integrity Strategy – Insure checks and balances are in place to maintain estimate accuracy and minimize the impact of outside pressures that can cause optimistic biases in estimates. A NCHRP Panel review resulted in a realignment of research tasks for the second phase of the research to achieve an improved end product. Phase II of the research involved tasks including the simultaneous development and recommendation of the strategies, methods, and tools leading to the preparation of a draft Guidebook, which was presented to the industry for critiquing. The research team performed these tasks in an iterative approach to continuously improve the content of the Guidebook based on industry practitioner’s comments. The draft Guidebook was developed in parts and critiqued with ten SHAs before a final draft could be completed and presented to the Panel. The comments from each critiquing process were analyzed and significant comments were incorporated into the Guidebook as the critiquing process progressed. The steps followed by the research team in the development of this Guidebook are detailed in this report. The final draft Guidebook contents are structured around a strategic approach to addressing cost escalation. Eighteen cost escalation factors are identified. Eight strategies are proposed to address these cost escalation factors. Over 30 methods are identified and described to implement the strategies. Finally, over 90 tool applications are presented to support the execution of the methods. The Guidebook strategies, methods, and tools are aligned with three main project development phases: planning; programming and preliminary design; and final design. A suggested implementation plan is provided. The plan covers implementation by an individual SHA. Ideas for an industrywide implementation effort are also outlined. Ten key principles are provided to successfully implement the results of this research. They are:

iii Cost Estimation Management 1. Make estimation a priority by allocating time and staff resources. 2. Set a project baseline cost estimate during programming or early in preliminary design and manage to it throughout project development. 3. Create cost containment mechanisms for timely decision making that indicate when projects deviate from the baseline. 4. Create estimate transparency with disciplined communication of the uncertainty and importance of an estimate. 5. Protect estimators from internal and external pressures to provide low cost estimates. Cost Estimation Practice 1. Complete every step in the estimation process during all phases of project development. 2. Document the estimate basis, assumptions, and back-up calculations thoroughly. 3. Identify project risks and uncertainties early and use these explicitly identified risks to establish appropriate contingencies. 4. Anticipate external cost influences and incorporate them into the estimate. 5. Perform estimate reviews to confirm the estimate is accurate and fully reflects project scope. The Guidebook is a stand alone volume from this final report.