Cost Estimating w/ a Crystal Ball

1. Cost Estimating w/ a Crystal Ball 2007 Annual TEA Conference

2. NHI Course • Two pilots • Virginia DOT • Caltrans, next week • History • Probabilistic (Risk Based) • Based on Washington State DOT’s CEVP • Deterministic • FY 2006 2007 Annual TEA Conference

3. FHWA Version of Risk Based Probabilistic Cost Reviews – WHY? Threshold (All costs, PE, CN, R/W, UT, CE, etc.) $500 Million – Major Project $100 to $500 Million – Division discretion “Cost to complete estimates based on reasonable assumptions as determined by the Secretary.” Secretary = FHWA Reasonable assumptions = Risk based analysis (Is not WS DOT CEVP process) 2007 Annual TEA Conference

4. FHWA Version • Similarities with CEVP • Contingency is removed from the estimate • Risks/Opportunities are identified in team workshop environment • Monte Carlo simulation (@Risk vs. Crystal Ball 2007 Annual TEA Conference

5. FHWA Version • Differences w/ CEVP • Developed for one-time use in a DOT • State DOT estimate is not changed • Estimate is not schedule related • Inflation is applied to obtain YOE estimate • Risks can be expressed as a simple “contingency” 2007 Annual TEA Conference

6. FHWA Cost Review • Current Estimate in Excel Format • Understand Estimate Process and Scope • Review of all estimate cost items • Compliance with FHWA Guidance (Checklist) • Brief review of Unit Prices and Quantities • Discuss Risk and Opportunities • Cost Impact and Probabilities 2007 Annual TEA Conference

7. FHWA Cost Review • Run a Monte Carlo Simulation (Crystal Ball) • Develop assumption curves • Run software to generate probability forecast curve • Review sensitivity charts • Prepare Final Report • Use to review Finance Plans • Generate estimate expectations 2007 Annual TEA Conference

8. FHWA Guidance Checklist • Estimate is escalated to year of expenditure dollars for each element of the project. • Process includes risk-based assessments of unknown and all uncertain costs. • Estimate is well documented. • Estimate has been independently validated. 2007 Annual TEA Conference

9. FHWA Guidance Checklist • Estimate is consistent with project scope. • Estimate includes all initial preliminary engineering costs and final design costs. • Estimate includes all right-of-way and administrative costs. • Estimate includes all third party (e.g. utility, railroad) costs. 2007 Annual TEA Conference

10. FHWA Guidance Checklist • Estimate includes all TDM/TSM costs. • Estimate includes all construction costs. • Estimate includes construction contingencies. • Estimate includes construction administration. 2007 Annual TEA Conference

11. 2007 Annual TEA Conference

12. FHWA Guidance Checklist • Estimate includes public outreach cost. • Estimate includes a management reserve. • For planning or conceptual estimates, consideration was given to expressing the estimate as a range. • For projects under design, estimates include a design contingency at each stage of design. 2007 Annual TEA Conference

13. Understand Estimating Process • Estimate prepared March 2007 • Design/Build Procurement • Anticipated Award March 2008 • Prepared by State DOT using an extensive database of unit prices for D/B/B contracts • Design is 30% complete 2007 Annual TEA Conference

14. Presentation • Before leaving • PowerPoint • Findings and Recommendations • Concurrence of State DOT project designers and executives • Final Written Report to Follow 2007 Annual TEA Conference