INDEPENDENT COST ESTIMATES AND COST REVIEWS Michael Peek, PE CCE CFM Office of Engineering and Construction Management

Click to LOOK INSIDE! EINSTEIN’s Abbreviated Guide To INDEPENDENT COST ESTIMATES AND COST REVIEWS Michael Peek, PE CCE CFM But what should it really cost? E = Mc 2 = TPC =

Why Independent Cost Estimates and Cost Reviews? Support Secretarial/Acquisition Executive decision making Logical “next step”… increase focus on front-end planning Address External Stakeholder Concerns – Consistent with GAO Best Practices Guidelines (GAO-09-3SP) – Adopt Industry Standards Requirements addressed in DOE O 413.3B Statutory requirement … mandated in FY2012 Consolidated Appropriations Act (P.L ) We cannot solve our problems with the same thinking we used when we created them. Albert Einstein

With the implementation of DOE Order 413.3B, Program and Project Management for the Acquisition of Capital Assets, the Office of Engineering and Construction Management is required to conduct an Independent Cost Review (ICR) and/or develop an Independent Cost Estimate (ICE) to support the Secretarial Acquisition Executive’s (SAE)/Acquisition Executive’s (AE) decision at various Critical Decision (CD) milestones … RequirementDOE O 413.3B Cost Reviews (App C, Sec 18.) For projects > $750M, OECM must conduct ICR prior to CD-0 For projects > $100M, OECM must conduct: Prior to CD-1, ICE and/or ICR Prior to CD-2, ICE Prior to CD-3, ICE (if warranted) DOE O 413.3B Requirements If you can't explain it simply, you don't understand it well enough. Albert Einstein

FY2012 Consolidated Appropriations Act Requirements (P.L ) Sec 308: None of the funds made available in this title may be used to approve critical decision-2 or critical decision-3 under Department of Energy Order 413.3B, or any successive departmental guidance, for construction projects where the total project cost exceeds $100,000,000, until a separate independent cost estimate has been developed for the project for that critical decision. A perfection of means, and confusion of aims, seems to be our main problem. Albert Einstein

Best Practices GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs, March 2009 (GAO-09-3SP) Association for the Advancement of Cost Engineering International (AACEI) – Recommended Practices – Professional Practice Guides Society of Cost Estimating and Analysis (SCEA) – Cost Estimating Body of Knowledge (CEBok) DOE G Cost Estimating Guide, May 2011 The only source of knowledge is experience. Albert Einstein

High Quality Cost Estimate Characteristics: – Comprehensive … addresses all known costs appropriate for the level of project definition – Well-documented... basis of estimate allows for independent replication and updating – Accurate … is free from errors and omissions – Credible … is well structured and presented in an industry accepted format Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction. Albert Einstein

Basis of Estimate A well prepared Basis of Estimate (BOE): – Documents overall project scope … – Facilitates review and validation of the cost estimate … – Alerts project team to potential cost risks and opportunities … – Record of key communications made during estimate preparation … – Establishes initial baseline for scope, quantities and cost for use in cost trending … – Source of support during dispute resolutions … – Provides historical relationships between estimates … Everything should be made as simple as possible, but not simpler. Albert Einstein

Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted. Albert Einstein Identify/Focus on Cost Drivers – Cost drivers require a detailed independent estimate – Early technical, cost and schedule risk identification Methodology – Bottom-up – Parametric Cost Models & Cost Estimating Relationships – Engineering judgment – Vendor quotes/vendor proposals Updated throughout the project cycle … – Trend should cost versus will cost The Cost Estimate

Historical Cost Data – Identify useful Cost Estimating Relationships … focusing on 10 selected projects Percent of TPC devoted to specific project phases Evaluation of Program Cost Estimates Start-up & Commissioning CERs of special interest WBS Best Practices Handbook – Product oriented … collaborate on standardization by project type… – Common element structure to capture cost data for common scope across projects … Other Initiatives I have no special talent. I am only passionately curious Albert Einstein

Evaluating existing data sources and estimating tools across DOE … – Oak Ridge; EM CBC – PARS II & ACDB OECM Promote cost estimating consistency … – Common framework within each Program – Increased sharing of existing cost data Address inflation indices … Program Office/PMSO and EFCOG support critical for success … Other Initiatives The only thing that interferes with my learning is my education. Albert Einstein

Bottom Line A cost estimate is only as good as the project’s components … Upfront planning - design maturity and technology readiness … Risk identification and management … Stable funding commitments … Properly resourced staffing - numbers and skill sets … Credible and consistent contract management and alignment … Optimized oversight and reporting … Anyone who doesn't take truth seriously in small matters cannot be trusted in large ones either. Albert Einstein

Take Aways Independent Cost Estimates and Independent Cost Reviews should: Enable Risk Informed Cost Effective Decisions Support Mission, Program and Project Execution  Emphasis on Program and Project Accountability  Should Cost vs. Will Cost Be based on industry accepted standards and processes Strive not to be a success, but rather to be of value. Albert Einstein

Questions? OECM I Unthinking respect for authority is the greatest enemy of the truth. Albert Einstein