The [AACE] Estimate Classification System Applied to the DOE CD Process

1. The [AACE] Estimate Classification System Applied to the DOE CD Process Michael R. Nosbisch, CCC PSP President - Elect

2. Outline • Introduction • AACE International • Estimating-specific • DOE Relationship • DOE Cost Estimating Guide (413.3-21) • Estimate Classification • CD Requirements • “Mapping” Recommendations • Conclusion

3. Introduction • Key AACE members present to be recognized • Michael Nosbisch Background • VP of Project Controls for Parsons Government Group (2005 – 2009) • Became active in EFCOG PMWG during this time • VP of EVM for SM&A (2009 – present) • Lead EVM Instructor for DOE’s PMCDP • Consultant to several DOE contractors • President – Elect of AACE (2010 – present) • Presented on AACE to this group a few years ago in Idaho Falls • Current BoD “sponsor” for cooperative agreement with DOE

4. AACE International • Founded in 1956, currently largest global organization dedicated to furthering concepts of total cost management and cost engineering • 8 regions • 91 sections • 7,708 members • According to 2010 Membership Survey, 22% of respondents were Estimators by primary job function

5. AACE International • Cost Engineering defined as the collective set of practice areas that includes the following: • Business and program planning • Cost estimating • Economic and financial analysis • Cost control • Program and project management • Planning and scheduling • Cost and schedule performance measurement • Change control • Total Cost Management (TCM) is the "process" through which these practices are applied • TCM Framework free download from website • Will soon be available as web-enabled, process flow diagram tied to all AACE technical products

6. AACE International • Estimating-specific • Certified Estimating Professional (CEP) • One of four “specialty” certifications currently offered • Introduced in 2008, currently there are 110 CEPs in database • Intent is to recognize specialists who meet established set of estimating criteria by examination, experience, education and ethical qualifications • Recommended Practices (RPs) • 17R-97: Cost Estimate Classification System • 18R-97: Cost Estimate Classification System: As Applied in Engineering, Procurement, and Construction for the Process Industries (JAN 2011) • 19R-97: Estimate Preparation Costs: As Applied for the Process Industries • 31R-03: Reviewing, Validating and Documenting the Estimate • 34R-05: Basis of Estimate • 40R-08: Contingency Estimating: General Principles

7. AACE International • DOE Relationship • Cooperative agreement first signed in 1997 • Reauthorized in 2002 and 2007 • Current DOE “sponsor” is OECM • Key elements: • Advance “state-of-the-art” of TCM through increased communication and dialogue • Apply established cost engineering/cost management principles, proven methodologies, and latest technology • Develop new cost engineering/cost management methodologies and technology in pursuit of optimum resource utilization • Encourage utilization of cost management standards and practices and their continual improvement/advancement

8. DOE Estimating Guide (413.3-21) • AACE Estimate Classification System (1998 version included as Appendix J) Reprinted from AACE RP No. 18R-97, Cost Estimate Classification System – As Applied in Engineering, Procurement and Construction for the Process Industries

9. DOE Estimating Guide (413.3-21) • DOE “Suggested” Estimate Classifications • Only difference lies in specific Techniques (DOE) vs. Methodology (AACE) • Additional table included in Guide showing “secondary characteristics” is an exact reprint from the AACE RP Reprinted from Table 4.2, U.S. Department of Energy Cost Estimating Guide

10. DOE Estimating Guide (413.3-21) • AACE Estimate Classification System (2011 version) Reprinted from Figure 1, AACE RP No. 18R-97 (2011), Cost Estimate Classification System – As Applied in Engineering, Procurement and Construction for the Process Industries

11. DOE Estimating Guide (413.3-21) • Critical Decision (CD) Requirements • CD-0 • Cost estimate range (i.e., order of magnitude) • Due to lack of detail or design during early project formulation • An estimate of costs to be incurred prior to CD-1 could also be required • For developing Conceptual Design for project • CD-1 • Prior to approval of CD-1, project team should develop definitive estimate of near term preliminary design cost • For PED funding request • Life-cycle cost estimate (LCC) of likely alternatives that are being considered • After selecting alternative, project team develops total project cost (TPC) range

12. DOE Estimating Guide (413.3-21) • Critical Decision (CD) Requirements (cont’d) • CD-2 • Single point estimate that will represent entire project, utilizing current scope and associated design parameters • 70-90% confidence level (CL) • CD-3 • Cost estimate based on Final Design [or sufficiently mature to start construction] • May incorporate actual bids received from contractors used to establish project’s requirements for construction or execution • CD-4 • Final Estimate at Completion (EAC) • In accordance with project’s approved WBS

13. Mapping Recommendations • CD-0: • Cost estimate range: Class5 • Rationale: • At best, will use stochastic methods to develop cost ranges • Assumptions will be made for drivers having significant impact on project cost • Estimate of costs to be incurred prior to CD-1: Class3 • Rationale: • Resources needed to support Conceptual Design effort should be known within range of -20% to +30% • Acquisition strategy and scope of work for Conceptual Design should also be known

14. Mapping Recommendations • CD-1: • Estimate of near term preliminary design cost: Class 3 • Rationale: Class 3 is minimum requirement to be definitive estimate; for less complex projects Class 2 would be appropriate • LCC of likely alternatives that are being considered: Class5 • Rationale: Data for some of life cycle costs will be available, but most will be projections, which will be applied to Class 5 estimate of project • TPC range: Class 4 • Rationale: • This estimate uses as its basis scope that is at best only 15% defined • There is still an overabundance of unknowns that will require allowances rather than definitive estimates

15. Mapping Recommendations • CD-2: • Single point estimate representing entire project: • Low risk projects (left of 50% below): Class 3 • High risk projects (right of 50% below): Class 2 • Rationale: Class 3 requires 10-40% of full project definition; Class 2 requires 30-70% of full project definition Reprinted from Figure 3, DOE O 413.3B

16. Mapping Recommendations • CD-3: • Cost estimate based on Final Design [or sufficiently mature to start construction]: • Low risk and final design complete: Class 1 • If low risk and final design not complete: Class2 • If high risk (final design or not): Class 2 • Rationale: For high risk, one of a kind or complex projects, some of detail will still not be fully developed • CD-4: • Final Estimate at Completion (EAC): N/A • Rationale: Based on actual costs (no longer an estimate)

17. Conclusion • Currently soliciting input from: • AACE (Estimating Committee) • EFCOG (Cost Estimating Subgroup) • Once received/compiled, goal will be to formalize • New AACE RP or Addendum to existing? • Revision to DOE Estimating Guide?

18. Questions?