Agenda Agenda Agenda Agenda 3:00 3:45 Introduction to AACE - - PDF document

3/25/2014 1 UH Construction Management UH Construction Management UH Construction Management UH Construction Management AACEi AACEi AACEi AACEi Houston Gulf Coast Section Houston Gulf Coast Section Houston Gulf Coast Section Houston Gulf Coast Section RICS South Central Chapter RICS South Central Chapter RICS South Central Chapter RICS South Central Chapter

March 21, 2014

Agenda Agenda Agenda Agenda

3:00 – 3:45 Introduction to AACE & RICS 3:45 – 4:15 Risk Assessment: Identification & Qualitative Analysis (David McNamara) 4:15 – 4:45 Probabilistic Analysis for Lump Sum Contracts (Jay O’Connor) 4:45 – 5:15 Risk Intelligence (James Arrow) 5:15 – 5:45 Panel Q&A (Industry Young Professionals) 5:45 – 6:00 Reception

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1

RICS Overview

150,000 150,000 30,000 30,000 5,000 5,000

• Over 180,000 members and candidates working in more

than 146 countries worldwide have already recognized the importance of securing RICS status

RICS: an international standards setter

2

RICS’ training

• APC-related training

– Becoming a supervisor/counsellor – Preparing for the critical analysis – Preparing for final assessment

• Soft skills:

– Time management – Client management – Business development – Contract management – Team management

• Technical

– Sustainability and the property lifecycle – Red Book compliance, reporting, and valuation – Property for non-property professionals

Benefits of Membership

• Membership provides access to an international network of

more than 180,000 experts in all asset classes, enabling inter-disciplinary best practice support, career advancement, and business development opportunities

• RICS offers access to members specialising in every aspect
• f real estate, property and valuing assets in every asset

class

• RICS offers access to proprietary industry research

capabilities

• Access to RICS products including RICS training, the RICS

Online Academy, and the APC Portal

3

RICS’ online academy

• Virtual learning environment - wide-ranging resources, e-learning, free podcasts
• Enables anyone to study online, in their own time
• Typical areas:

– APC-related: Introduction to the APC, Critical Analysis, Final Assessment, training for APC Supervisors and Counsellors – General business skills: Creating Professional Presentations, Creating Win-Win Negotiations, Preparing for a Successful Interview – Technical: ethics, valuation, risk management

• More information:

– www.rics.org/onlineacademy

Becoming a member

4

APC pathways

Property

• Arts & antiques
• Commercial property practice
• Facilities management
• Housing management & development
• Machinery & business assets
• Management consultancy
• Property finance & investment
• Residential property practice
• Residential survey & valuation
• Valuation
• Valuation of businesses and intangible

assets Built environment

• Building control
• Building surveying
• Infrastructure
• Project management
• Quantity surveying & construction
• Taxation allowances

Land

• Environment
• Geomatics
• Minerals & waste management
• Planning and development
• Rural

Details of competencies for each pathway at www.rics.org/apcguides

Americas

Receive Resume Determine Pathway Establish Competency Pre- Assessment and Assessment Election

Staff Staff Candidate Member Staff Staff Candidate Member

Receive Resume Determine Pathway Establish Competency

Pre- Assessment and Assessment

Election

Step 1 Step 2 Step 3 Step 4 Step 5

5

Assessment of Professional Competence

To qualify for membership in RICS, professionals must demonstrate that they are competent to practice in their chosen profession and meet the relatively high standards required by RICS

• To demonstrate competency, candidates are

assessed

• RICS defines competence as “having the skill or

ability to perform a task or function”

• The RICS competencies are not just a list of tasks
• r functions, but are also based upon attitudes and

behaviours.

• Senior professionals may be either:

– leaders, operating at a senior level within an

• rganisation, exercising extensive leadership and

management skills, or – expert specialists, recognised for their depth of knowledge and expertise in their specialist area

• If you are senior in terms of high-level leadership and

management, your assessment will focus on management skills

• If you are senior in terms of specialist expertise the

focus of your assessment will be on your technical specialism.

The senior professional route

6

Senior Professional Route (to MRICS)

Membership requirement:

• Seniority to be proven based on position within profession, size of

project/budgets managed, expert specialist knowledge and experience

• 10+ years experience, hold a senior position – a degree is no longer a

mandatory requirement Process:

• Submit:

– Résumé and application form (incl. mandatory & technical skills) – Continuing professional development (CPD) record – 3 x 500 word case studies

• Successfully complete a final assessment interview

More information: www.rics.org/seniorprofessional

Professional Experience Route (PER)

Minimum requirements for application:

• A full bachelor’s degree or an equivalent

professional qualification

• 5+ years’ relevant experience post degree

that demonstrates:

– An advanced application of a broad range/depth of technical competencies – Shows responsibility for working on complex assets/projects and ‘sign off’ – Includes an ability and responsibility for providing recommendations and reasoned advice to clients – A high level of business acumen

7

Qualifying for PER

• 3. Preliminary assessment

Assessor reviews candidate submission and advises on next steps, either approving a candidate to go to final assessment or providing a skills gap report

• 5. Final assessment

Candidate attends a structured one-hour interview. If successful qualifies for membership

• 1. Enrolment

Candidate completes application form to confirm suitability

• Work experience (companies, roles, achievements) including management experience
• Qualifications and training
• Payment
• 4. Ethics module

’Approved candidates’ complete online ethics module and test and make regulatory declaration

• 2. Submission

Candidate completes submission to demonstrate competency achievement

• Summary of experience 2,000–3,000 words against the technical competencies required
• Case study of 2,000 words
• Record of CPD for the past 12 months – minimum 20 hours

Workshop Workshop

NEW YORK - LONDON - BRUSSELS - DUBAI - NEW DELHI - HONG KONG - BEIJING - SYDNEY

3/25/2014 1 Use of Probabilistic Analysis in Preparation for Lump Sum Contract Negotiations AACE & RICS UH Outreach

Jay O’Connor Mar 21, 2014

Biography

• BS Construction Science Texas A&M
• MS Construction Management Texas A&M
• 30+ years with Owners’ and contractors’ organizations
• Currently working for Chevron’s Project Resources Company in an

Estimate Assurance role.

• Career spent in Estimating, Planning and Risk Analysis
• Worked internationally

3/25/2014 2 Project Life

• FID

– Financial Investment Decision – Final Investment Decision

• Pre-FID

– Pre FEED / Identify & Assess, Concept Selection – FEED / Project Definition

• Post-FID

– EPC / Execution

Pre-Feed FEED Engineer, Procure & Construct Identify & Assess Concept Selection Project Definition Execution Pre-FID Post-FID

Lump Sum Bid

• Process begins during FEED
• Submitted by contractors at end of FEED
• May be tendered on sole source or competitive basis

– Sole source: open book estimate converted to lump sum – Competitive: closed book benchmarked against FEED estimate – Competitive FEED with open book estimates converted to lump sum for competing technologies

• The tendered value of the bid is rarely the awarded value of the

contract

• The awarded value of the contract is never the final value of the

contract

3/25/2014 3 Contingency Analysis Results Contractual Risk / Opportunity Variables

3/25/2014 4 Tornado Diagram – Adjustments by Owner Project Risk Tornado Diagram

3/25/2014 5 Labor Tornado Diagrm Points to Consider

• Results are only as good as the risk analysis model
• Risks and opportunities must properly modeled to achieve desired

information

• Process works can work well in sole source environment
• Process works best in competitive environment.

3/25/2014 6 Benefits

• Results help:

– Identify points to focus on during negotiations – Set target value for negotiation points – Set target value for final negotiated price

• Results can be used by Economist to set target price of contract
• Identify risk variables that have the largest impact to the project
• Provides a complete analysis of the project

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AACE & RICS Outreach at UH

March 21, 2014 Risk Planning for Capital Projects David McNamara, VP Faithful+Gould

Agenda

• What is Risk?
• Introduction to AACE Recommended Practices (risk framework)
• Qualitative Process >>> Quantitative approach
• Risk Matrix and Reporting
• Expected Value Overview
• Estimating Cost Risk Contingency
• Monte-Carlo example – Doors
• Applications in Execution Stage

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What is Risk?

The probability or threat of quantifiable damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, that may be avoided through preemptive action.

What preemptive actions can be taken:

• Eliminate the risk –Remove it completely
• Mitigate the risk – Take action to minimize the risk
• Transfer the risk – Pass on the risk through an agreement to someone else
• Accept the risk – Monitor, track and prepare for risk

Risk can effect both time and money

AACEI Recommended Practices

AACEI has published Recommended Practices regarding Project Risk

62R-11 RISK ASSESSMENT: IDENTIFICATION AND QUALITATIVE ANALYSIS:

Defines Risk Management expectations, requirements, and practices for identifying and qualitatively analyzing risk drivers. In the strategic arena, the risk focus tends to be on the state of the current asset, the business environment, and other issues that differentiate alternative asset solutions. In project control, the risk focus expands to more specific project conditions, plans, deliverables, and events affecting a defined project scope.

44R-08 RISK ANALYSIS & CONTINGENCY DETERMINATION USING EXPECTED VALUE:

Defines general practices and considerations for risk analysis and estimating cost contingency using expected value methods. This recommended practices (RP) applies specifically to using the expected value method for contingency estimating in the risk management “control” step (i.e., after the risk mitigation step), not in the earlier risk assessment step where it is used in a somewhat different manner for risk screening.

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1. Decide on the level of residual risk that the company/project is willing to accept 2. Recognize situations where these events can happen 3. Minimize unwanted events that impact business results 4. Mitigate the effect of events that cannot be prevented, 5. Manage consequences and take action

Why use a risk process?

Recognize the areas where unwanted risk can happen Minimize the unwanted events and risks Mitigate the effects of the events, manage consequences

Risk Process (strategic)

Ref: AACE International Recommended Practice No. 62R-11

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Risk Identification

• Value improving practices
• Estimators and schedulers responsible for key

planning tasks (and basis documents)

• Brainstorming – Interactive Workshops
• Checklists of risks, issues, and concerns
• Third party experts
• Operator
• Lessons learned
• Historical/similar work
• Project turnover documents
• Safety incident records
• Scope management records (change orders)
• Maintenance records
• Safety meeting records
• Insurance requirements
• Process reviews
• Hazard analysis
• Decision analyses

Tasks, Techniques, and People that can help identify risk:

Ref: AACE International Recommended Practice No. 62R-11

Qualitative Process

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AACEI Example Risk Matrix AACEI Example Risk Matrix (Cont)

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Typical Risk Matrix

The purpose of the matrix is to assist the team in determining which risks need a comprehensive Mitigation Plan (A-High Probability and I-Most Severity needs a detailed plan)

Risk Register

A Risk Register is the Key tool in Risk Management for tracking and monitoring risks

Risk Register lists risks and risk owners (team member responsible for managing risk) Risk Register is updated regularly to reflect status

• Status of Risk
• Notes for future updates
• Follow up tasks and actions

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Cost Contingency Calculation using Expected Value

Expected Value = Probability of Risk Occurring X $ Impact if it Occurs

Ref: AACE International Recommended Practice No. 44R-08

Cost Contingency Calculation using Expected Value

Pros: quantitative, simple to understand, simple to calculate, and it explicitly links risk drivers with their impacts so that they can be managed

This calculation has long been a fundamental method used in decision tree analysis and risk screening:

Expected Value = Probability of Risk Occurring X $ Impact if it Occurs

Cons: Requires estimating competency, impact estimates, and experience for probability

Calculation using Expected Value

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Monte-Carlo Simulation

When analyzing the resulting distribution curve, contingency is the difference between the base estimate cost and the cost at whatever level of confidence of under-run management desires.

Distribution of possible cost outcomes at different levels of confidence, based upon a probabilistic assessment. Software can assess up to 10,000 possible outcomes.

Pros: Quantitative, deterministic, simple, industry software can produce automated summary (GIGO) Cons: Tends to focus on project- specific items and ignores systemic risks (risks created by other mitigations)

Example – estimating cost contingency

Using Monte-Carlo Simulation Risks are analyzed for :

• Quantity
• Price
• Productivity *

* Productivity used on labor elements on reimbursable contracts

Monte-Carlo Distribution 5.00% 5.00% 1.00 0.80 0.60 0.40 0.20 $ 3 5 6 ,1 $ 4 ,1 $ 4 7 5 ,1 P20 P50 P75 90.00%

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(Choose Probability (P) range and tally for entire items under review)

Risk Parameter

What is the probability of a variance from current plan?

$356,100 $400,100 $476,100 P0 P20 P50 P75 P90 P100 Quality – What is likelihood design will change?

• Price Increase?

Unit x Price – What is likelihood estimate reflects actual costs?

• Current estimate is $360,100

Result: Range of costs with associated probabilities (P20, P50, P90)

In Project Execution Stage

Risk Management in execution is all about monitoring against your plan:

• Risk (contingency) Management Plan
• Maintain Risk Register with regular input from Risk Owners
• Cost associated with risk needs to be part of the budget
• Agreed method of forecasting remaining amounts (Contingency Drawdown Plan)

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In Project Execution Stage

RISK REGISTER

Cost Estimates $ MM

Min Exp.

Risk Title

Risk Level

ID

Added cost due to delay in mechanical completion Medium: 16 2485 Quantity validation by LSPB Medium: 17 2518 4 6 12 2 5 10 Min Exp. Max

Quantitative Risk Analysis (Estimated Cost) = 16 MM USD

Delay in supply of PLA equipment due to over commitment to suppliers Medium: 10 2731 LS contractor could not meet the planned progress Medium: 13 3116 Air shipment and premium cost to meet MC date High: 20 3128 2 4 6 Delay in completion of Control Building will delay the MC 2941 0.3 0.5 0.6 Medium:15 Delay in supply of Process Automation hardware at site can delay the start up 2940 0.9 1 1.1 Medium:10 Delay in supply of long lead equipment at site will delay the MC of project Medium: 13 3424 0.5 0.8 2

In Project Execution Stage

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References

For more information, please visit these links:

http://www.aacei.org/non/rps/62R-11.pdf http://www.aacei.org/non/rps/44R-08.pdf

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AACE International

The Association for the Advancement of Cost Engineering International

www.aacei.org www.aacei.org

AACE International

AACE International provides its members and the community with Total Cost Management educational materials to enhance their corporate and personal success. With more than 8,000 members worldwide. AACE International is one of the largest organization serving project controls management professionals. AACE International has members in 82 countries and currently includes more than 91 local sections.

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AACE International

Our Vision To be the recognized technical authority in cost and schedule management for programs, projects, products, assets, and services Our Mission To provide technical programs, research, recommended practices, professional development and expertise through:

• technical products
• continuing education
• professional certification

AACE International

AACE CERTIFICATION

Since 1977, AACE certified over 3,000 project controls professionals as: CCP - Certified Cost Professional Since 2000, AACE has certified over 500 young professionals as: CCT- Certified Cost Technician Since 2004, AACE has certified over 1,200 Planners and Schedulers as: PSP – Planning and Scheduling Professionals Since 2005, AACE has certified over 500 professionals as: EVP – Earned Value Professionals Since 2006, AACE has certified over 200 professionals as: CEP – Certified Estimating Professionals Since 2007, AACE has certified over 80 Claims professionals as: CFCC – Certified Forensic Claims Consultant Since September 2013, AACE has certified 17 professionals as: **NEW** DRMP – Decision and Risk Management Professional Since September 2013, AACE has certified 8 young professionals as: **NEW** CST – Certified Scheduling Technician

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Risk Intelligence & Risk Intelligence & measuring excellence in measuring excellence in Project Risk Management Project Risk Management

AACEi & RICS UH Outreach – MAR 2014 James Arrow DRMP FRICS

BIO of James Arrow BIO of James Arrow

• A certified Decision & Risk Management Professional and a

Fellow of the Royal Institution of Chartered Surveyors.

• 7 years domestic (UK) and 14 years international experience

(including Australia, Japan, Singapore, Canada and Venezuela) providing Project Controls services on projects ranging from infrastructure to energy.

• An active member of AACE International’s DRMP task force

and was recently nominated as AACE’s ICEC (International Cost Engineering Council) representative.

• Currently, an independent Risk Management consultant

working for Shell International, Projects and Technology division.

• Something You Don’t Know About Me – Air sports were a

hobby of mine.

2

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• Risk Intelligence refers to an individual’s or an
• rganization’s ability to weigh risks effectively.

It involves:

– classifying, – characterizing and calculating threats; – perceiving relationships; – learning quickly; – storing retrieving, and acting upon relevant information; – communicating effectively; and – adjusting to new circumstances.

• Intelligent Risk Management strategies provide:

– protection through resilience and – value through agility.

Risk Intelligence Definition Risk Intelligence Definition

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An unprecedented era of change. An unprecedented era of change.

Industrial Age: Ordinary, Standard, Cheap. The Factory Worker. Means of production – Factory / fixed facility. Information Age: Fast, Remarkable, Human. The Knowledge Worker. Means of production – Laptop / mobile device.

Information Exchange. What works for you today? How will that remain successful?

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Some of us lag behind the advancing wave of change and some of us are slightly ahead.

Advancing wave of change. Advancing wave of change.

• Didn’t you get the text I emailed you?
• Is the cloud big enough to Skype?
• An older confusion of ideas:

“On two occasions I have been asked [by members of parliament], ‘Pray Mr. Babbage, if you put into the machine wrong figures, will the right answers come out?” Charles Babbage (1864).

RM Starts at the Executive Level RM Starts at the Executive Level

Definition Risk Performance Risk Organization Risk Background Risk

L M H Risk Exposure

(potential impact on project outcome)

Volatility

(longevity of risk to project outcome)

L M H Key

= Conventional (operational) Risk Management = Systemic, Strategic & Contextual Risk Management.

H, M, L = High, Medium, Low.

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Preparedness is Paramount Preparedness is Paramount

Risk Exposure

(potential impact on project outcome)

Volatility

(longevity of risk to project outcome)

Key

= Conventional (operational) Risk Management = Systemic, Strategic & Contextual Risk Management.

Risk Management Maturity Model. Risk Management Maturity Model.

“[although] it appears that risk management is a mature discipline, it is still developing, and there is some way to go before its full potential is realised.”

• Dr. D
• Dr. D Hillson

Hillson 2003 2003

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Advantage through Superior Risk Control. Advantage through Superior Risk Control.

Advantage through Superior Risk Control. Cost Impact $

(Indicative / Not to Scale)

Capability

(Risk Management Maturity)

1 2 4 Key

= Absolute Risk Impact = Residual Risk Impact = Increasing benefit (savings) from Risk Management relative to increasing capability.

3

Increasing benefit derived from Risk Management as Capability or Maturity increases (progressively engaging the whole enterprise).

Total Cost of Risk Total Cost of Risk (Risk

(Risk-Based Competitive Advantage) Based Competitive Advantage)

Cost $

(Indicative / Not to Scale)

Capability

(Risk Management Maturity)

1 2 4 Key

= Cost of Risk Management = Residual Risk Impact

3

Maximum benefit is achieved when both the Cost of Risk Management and Residual Risk Impact are equal (and so the Total Cost of Risk is

• ptimum).

= Cost of Risk

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Intelligent Intelligent Risk Network & Information Exchange Risk Network & Information Exchange

• Those who forget history are doomed to repeat it.
• History is a poor predictor of future events.

– Inductive Logic, Black Swan.

• Est modus in rebus (RICS Motto).

– There is measure in all things.

• “What gets measured, gets improved”.

– Predictability & Improved Performance. – “A sophisticated approach to risk management can increase a company’s value 3 to 5 percent”. 32

• Project Controls / Project Management professionals:

– most able and best qualified to provide oversight (checks and balances)

• n capital projects.

Measurement as a must. Measurement as a must.

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Measuring Risk Measuring Risk

• “Only 37% of senior executives link key risk indicators [KRI] with

key performance indicators [KPI]”. 36

– For example: – KRI = Competitor’s Market Share. – KPI = Prospects or proposals converted to projects.

• Risk Management Yardsticks

– Approach dependent on capability (see RMM). – Strategic Benchmarks & Tactical Metrics. – A by-product of best practice and continual improvement. – Knowledge capture and transfer at project close-out. – Efficiencies through knowledge sharing at the org & industry level.

The Anatomy of Risk & Performance Variables The Anatomy of Risk & Performance Variables

= General Uncertainty. Key Abbreviations RRC = Risk Review Committee = Systemic, Strategic & Contextual Risk. = Operational Risk.

Consequence

Risk Owner Action Owner(s) RRC Response Action Response Action

Uncertainty Cause

Risk

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Risk Ecosystem (Allies & Acquaintances) Risk Ecosystem (Allies & Acquaintances)

Quantum

(Indicative time money or something else you value)

Relationship Type D C A Key

= Opportunity = Threat

B

Four Relationship Types: D – Looking after #1 C – Tit-for-tat B – Business Professional A – Shared Mission = Headcount / population Reid Hoffman – LinkedIn Co-founder. Why Relationships Matter

“The fastest way to change yourself is to hang out with people who are already the way you want to be.”

• Sharing by Managers and experienced workers,

– driven by their self-interest.

• Knowledge Sharing should be Performance

Driven, not Compliance Driven.

• Elicitation via formal Close-out process,

– must be integrated,

• Silos breakdown!

– Four Steps:

• Plan
• Gather
• Analyze
• Share

How? … Knowledge Sharing How? … Knowledge Sharing

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• 1. Plan.
• Agree anticipated level of effort
• Via interview or workshop? When?
• 2. Gather.
• By corporate support group / SME (Subject Matter Expert).
• Supported by Project Team.
• 3. Analyze.
• Utilize Risk Metrics and consider effectiveness of

communication.

• 4. Share.
• Load Knowledge Base and ensure dissemination &/or

exchange.

• Output used as part of the pre-bid RM process!

Close Close-out Process Steps

• ut Process Steps – RECAP

RECAP (Hidden / Print only)

(Hidden / Print only)

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From PRM Close From PRM Close-out to Knowledge Tree

• ut to Knowledge Tree

18

1 2 3

Transferable Data Attributes

Level 1 = Operational Data (Core Data) Level 2 = Universal Reports (Common / Generic) Level 3 = Specialized Reports (Dept / BU Specific)

Close-out Reporting

Preliminary Close-out data captures will begin to establish a taxonomy or data classification infrastructure.

Knowledge Tree

As the effort incorporates other key reports, the knowledge tree will evolve, branching into other areas and growing deeper into the

• rganization’s data (capturing the

“how & why” and sharing “lessons”). Business Development

Corporate Management PMO General Ledger Change Management Project Risk Primavera Cost Control

Unearth and foster an understanding of an enterprises’ Rewarded & Learnable Risk.

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Est Modus in Rebus Digital Cathedral (literally & figuratively!) Digital Cathedral (literally & figuratively!)

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SUMMARY SUMMARY

21 = Organizational level collaboration. = Local & Industry level collaboration. Key

Risk Intelligence

(Risk-based Competitive Advantage)

RM Maturity

(Normalized or Natural, ultimately, “Best in Class”)

Risk Ecosystem

(Partnering Network)

Risk Infostructure

(Risk Data Taxonomy)

Risk Allocation

(Collaboration on optimal risk sharing arrangements)

Mature RM Mindset

(Intra-Enterprise)

PRM Close-out

(Data capture and sharing)

Mature RM Mindset

(Inter-Enterprise)

Strategic Benchmarks & Tactical Metrics

(KPIs & KRIs to achieve the optimal “Cost of Risk”)

Define KSFs

(Risk Appetite & preconditions for target KPIs)

Risk-Based Audit

(Process Integrity Reviews)

Executive Commitment

to Risk Management

Mapping Risk Data Sources How Why When

Risk Intelligence Value Model Risk Intelligence Value Model

KSF = Key Success Factor PRM = Project Risk Management RM = Risk Management Abbreviations KPI = Key Performance Indicator KRI = Key Risk Indicator

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QUESTIONS/COMMENTS? QUESTIONS/COMMENTS?

23

Subtopic Title Subtopic Title

24

Thank you Thank you & & time for pizza! time for pizza!

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AACE International

AACE EDUCATION

Distant Learning -- AACE provides distance learning courses, available via internet and traditional correspondence course format, for professionals who want training on a 24-7 basis Continuing Education -- Awards Continuing Education Credits (CEU’s), Gives Certificates of Attendance, and holds seminars on a wide variety of topics each year at the Annual Meeting Scholarship Program -- Scholarship recipients are full-time students who are selected on the basis of academic performance, extracurricular activities, and an essay

AACE International

AACE TECHNICAL

Development of the Total Cost Management (TCM) Framework – TCM is a systematic approach to managing cost through the project life cycle. (free download) Annual Meeting offers an opportunity to learn, network, and expand professional horizons in a cost-effective manner Professional Practice Guides (PPGs) are a series of reference CDs that should be in every project/cost management professional’s library. Each consists of selected Cost Engineering articles, AACE International Transactions papers, and other previously published documents Recommended Practices (RPs) are a series of documents containing valuable reference information that has been subject to rigorous review process and recommended for use by the Technical Board. (free download)

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Houston Gulf Coast Section – AACE

Located in Houston Texas HGCS membership = 450 Technical Meeting on 2nd Tuesday of each month (September – May) Dynamic speakers from all industries Oil & Gas Majors EPC Companies Software Development Consultants Project Managers from local large and medium size projects Sponsors training events and conferences Leadership Conferences in Downtown Houston each year Project Controls 101 Training Classes Networking with other Professionals; sharing the same concerns; asking the same questions, and seeking the same solutions

www.aacei.org www.aacei.org

3/25/2014 1 Understanding Estimate Accuracy Range AACE & RICS TAMU Outreach

Jay O’Connor Feb 4, 2014

Biography

• BS Construction Science Texas A&M
• MS Construction Management Texas A&M
• 30+ years with Owners’ and contractors’ organizations
• Currently working for Chevron’s Project Resources Company in an

Estimate Assurance role.

• Career spent in Estimating, Planning and Risk Analysis
• Worked internationally

3/25/2014 2 Estimate Accuracy

• From Recommended Practice 17R-97:

– Is an indication of the degree to which the final cost outcome for a given project will vary from the cost estimate – Accuracy is traditionally expressed as a +/- percentage range around the point estimate after the application of contingency

• Cannot be assessed without performing Monte Carlo Analysis
• Typically measured from the P50 value (50% chance of achieving

value)

• Assessed with a 80% probability of the final value will be within

the ranges

• Calculation:

– + Side = (P90 /P50)-1 – - Side = (P10/P50)-1

• Companies and organizations have different risk tolerances. It is

important to understand the evaluation point (P40, P50, P75)

Accuracy Drivers

• Quality of Information use to prepare estimate

– Scope / Design maturity – Material take offs – Equipment and material quotes – Labor rates – Assumptions around labor productivity – Amount of factored costs in the estimate

• Probabilistic schedule

– Time sensitive costs will be directly affected by changes to the schedule

• Discrete risk events that are not modeled in the risk ranges