Cost estimating and risk in complex projects
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The document discusses the challenges and strategies associated with cost estimating and risk management in complex projects, emphasizing the importance of understanding requirements and stakeholder needs. It advocates for a structured approach that includes top-down and bottom-up estimation, risk evaluation, and effective proposal management using frameworks like the Cost Engineering Framework. The document highlights tools and methodologies that can improve project outcomes by ensuring clarity in goals and improving decision-making processes.
Cost estimating and risk in complex projects
- 1. Cost Estimating and Risk in Complex Projects APM Project Controls event – 2nd October © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 1
- 2. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 2
- 3. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 3
- 4. The problem is……. We commit to delivering complex projects when – The project definition is still fluid – The client is still formulating their ideas – We are still worrying the engineers for fast answers – Our knowledge of the detail is still developing © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 4
- 5. This leads to Wild expectations of the initiator Lack of clarity of our solution A “commercially lead” proposal Cutting of budgets with little consideration for effort need to deliver © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 5
- 6. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 6
- 7. Stake holder positioning/negotiation AFFORDABLE Suppliers PROGRAMS ALTERNATIVE ESTIMATES SHOULD COST RFQ SHOULD COST RECALCULATION TECHNICAL INPUT SHEET PROPOSAL SHOULD COST/ PROPOSAL CONGRUITY CROSSCHECK AT THE MAIN WORKPACKAGE LEVEL © 2013 PRICE Systems, LLC All Rights Reserved | LAUNCHED PROGRAMS Decades of Cost Management Excellence 7
- 8. From a business capture POV 1 2 Top Down Estimate 3 4 © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 8
- 9. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 9
- 10. Before we start we need to Ensure we understand the requirements – Don’t waste time combing documents by hand, extraction tools support the timely extraction of details from comments, typically reducing days to hours Visualise the solution – Using the requirement captured from the client documents we can build a visual story board, requirements canvas tools allow us to model several solutions using visual representations © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 10
- 11. Then we need to Generate a top down estimate Map to the WBS / CBS / OBS Make a go – no decision before we invest in detail models Generate bottom up models Compare and contrast results © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 11
- 12. Top down to bottom up Customer Project WBS System. System Activities Assembly Assembly activities HW /SW Component & Cots HW/SW Comp. & cots Actvities © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 12
- 13. Top Down to Bottom up comparison Top Down Estimate © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 13
- 14. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 14
- 15. And the risk is…. We capture risks that are symptoms The ones we capture don’t effect – Cost – Schedule Putting risks over 49% in the risk register Confusing uncertainty with risk Putting a “contingency” on instead of working the problem © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 15
- 16. © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 16
- 17. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 17
- 18. We want to be (estimated) together Initial cost and schedule need to be generated from a technical definition You need to generate the joint confidence level Make sure the estimate is used as the project plan baseline © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 18
- 19. Generic Mapping applied to the Project Project Description Customer Project Base line Top down estimated Top down results © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 19
- 20. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 20
- 21. Across the total stakeholder community Solutions Objectives MANAGEMENT Decision Support Budgeting, Financial Control, Procurement Delivery © 2013 PRICE Systems, LLC All Rights Reserved | Financial Strategy Detailed Technical Strategy Schedule and Cost at Completion Strategy Decades of Cost Management Excellence Bid/No Bid Decision, Evaluating Alternatives, Market Strategy Check Capacity Analysis, Make or Buy, Supplier Assessment, Risk Analysis Set the base line, Design-to-Cost, Good project control , Managing the base line 21
- 22. Where will we spend our time What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 22
- 23. Any Questions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 23
- 24. Thank you Andrew Langridge Andrew.langridge@pricesystems.com 07977431234 © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 24
- 25. Back up Slides © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 25
- 26. What is the Cost Engineering Framework (CEF) The CEF is a total support environment comprised of processes and interoperable companion solutions built around PRICE Systems TruePlanning solution that empowers the organisation with the freedom to select the elements deployed to generate the best return on investment PRICE Systems utilise, where ever possible, the incumbent solutions within a organisation when deploying the CEF reducing the initial investment in both licenses and education Solutions and processes include – Shipley Process for proposal management – Visual requirements analysis – Parametric estimation • TruePlanning • Question Based forecasting • Knowledge based estimation • Data Driven estimation – Sensitivity and stochastic analysis – Detailed estimation – QDV – ERM – Tender preparation – Proposal to Tender comparison – Contract management © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 26
- 27. One Toolset - Two Visions © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 2013 Financial Executives International 27
- 28. The change makers © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 2013 Financial Executives International 28
- 29. Background The capability to measure the effectiveness of a contract in vital to delivering the ROI Measurement has to be more than just delivered goods and services Key performance indicators and Service level agreements should be distilled from the initial benefits analysis Government departments are mandated to use competitive dialogue to ensure solution is both – Value for money – Fit for purpose © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 29
- 30. Contract management begins with the business requirement Business improvement / change Tender Marking schema requirements Tender generation process tender Tender Process Check Benefits Analysis KPI SLA Project delivery Steady State Project Controls Check Cost and schedule generation Voice of the customer © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence User Experience 30
- 31. The change deliverers © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 2013 Financial Executives International 31
- 32. Why use the Cost Engineering Framework (CEF) Improve the hit rate for winning profitable projects Reduce effort needed to generate winning proposals Create an estimation framework that enables you to do more with less Capitalise user experience Capture Knowledge Leverage learning Respond to changes in prospect requirements faster and with less effort Simplify “red team” reviews Deliver your proposals with confidence and assurance © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 32
- 33. PRICE Cost Engineering Framework – work flow example © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 33
- 34. PRICE Systems – Cost Engineering Framework © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 34
- 35. Shipley Process Supports the develop of business needs, benefit arguments and delivery requirements. Including obtaining the information, validating it and maturing it over any defined timescale to ensure timely production of documents. Shipley describes how to structure the proposal document using the mature information. Shipley provides the rigour to go from an initial concept to a full clearly articulated proposal making best use of time. Covers full proposal life cycle model © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 35
- 36. Visualisation of your clients needs Allows you to master costs, performance and time as part of the PRICE CEF. Enables performance, cost and time information to be captured, visualised and analysed logically, at Subject Matter Expert, Programme Management Office and Board levels. Solution includes dependency and relationship mapping for stakeholders, business needs, risks, objectives, benefits, outcomes, initiatives and requirements into a rich network. Enables models to be continuously matured and updated with ease. Generate proposal document structures and tender evaluation models in accordance with Shipley process. Provides the environment needed to maintain and update the models that underpin concept to proposal approach. The requirements describe the results that initiatives that the solution must output to deliver the outcomes and performance changes described in the benefits analysis. The requirements describe constraints, nature and performance of results. By proposal generation we have a full map of why each requirement exists, the initiatives it relates to, the dependencies between requirements and how we anticipate the fulfilment of each requirement will contribute to performance and ultimately success. This develops a clear understanding of the value of each requirement. It should be noted that requirements and initiatives describe the effort needed by all parties involved in delivery to achieve success, including the organisation issuing the tender. © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 36
- 37. Realisor Visual requirements analysis Map the customers needs to your capability Compare alternative approaches Visual presentation of your solution benefits to your client © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 37
- 38. Question Based Estimation Early day evaluation of the ability of the organisation to deliver to the requirements Alternatives easily review and compared Simple question based interface that the user can maintain Interactive with TruePlanning Questions define the solution System returns matches and automatically calculates inputs © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 38
- 39. Knowledge Bases … Epick Fast, consistent development of WBS for new projects Reuse information effortlessly Web enabled interface for TruePlanning Document and manage all inputs and outcomes Version control Manage Multiple project portfolios Capitalise your organisational knowledge Create local knowledge nuggets Consistent approach to estimation Clear visualisation of project phases Reduces effort needed to create estimates Local cost object and structure library © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 39
- 40. Leverage Actual Insights Representing Your Own History…. TrueFindings Integrated knowledge management, provided through PRICE TrueFindings, takes the refinement of private historical data one step further by enabling the inclusion of your findings into the PRICE TruePlanning cost estimation framework. The insights of that in-house data can also benefit life cycle cost management plans. Just as the PRICE® Cost Models provide the benefit of past experience refined from tens of thousands of projects, PRICE TrueFindings provides the value of historical experience and trends from your own organization within your cost estimation process. Doing so improves confidence in capacity analysis, supplier assessment, and risk analysis for better budgeting, financial control, and procurement. © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 40
- 41. Top down forecasts of Cost, effort and Schedule …TruePlanning Estimation of design, manufacture and in service cost, effort and schedule Estimate Mechanical, Electronic, Software development and Systems Integration effort Technology based inputs removing optimism bias Reduced effort with no loss of fidelity Generate base line schedule for project plan with no additional effort Full Life cycle costing • Design • Systems Integration • In-service © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 41
- 42. Arrisca Fast evaluation of all excel workbooks, MS Project files and TruePlanning projects Sensitivity analysis Uncertainty analysis Risk adjusted s-curves Validation and verification Cost and effort model assurance Sensitivity analysis identifies the biggest drivers fast Risk and Uncertainty adjusted cumulative frequency graphs (S-Curves) © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 42
- 43. CAPPe Knowledge driven detailed estimation tool No need to maintain excel workbooks Generates costs from process plans Define and manage – Parts – Plans – Estimates – Materials Maintain costs for multiple countries and periods Calculates machine, material and labour costs Knowledge Driven Estimation Detailed estimation to challenge suppliers © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 43
- 44. QDV Top down to bottom up comparison Proposal Knowledge management WBS Management Project fiscal modelling Capture basis of estimate Compare top down to bottom up estimates © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 44
- 45. Manage proposal risks ….. riskHive ERM Simple risk construction using structured inputs Low implementation overhead, start fast spend less Focused on supporting business winning Supports top down and bottom up models Supports easy risk registration, no complex screens Unique visualisation drives better risk definition © 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 45