The U.S. Department of Energy (DOE) has released a document providing uniform guidance and best practices that describe the methods and procedures recommended for use at DOE in preparing cost estimates for construction projects and other work.
DOE’s new “Cost Estimating Guide” (DOE G 413.3-21) references, and includes as an attachment, AACE RP 18R-97, “Cost Estimate Classification System -- As Applied in Engineering, Procurement, and Construction for the Process Industries,” as the model for the estimate classifications being used within DOE. The guide incorporates certain recommendations made by AACE International (Association for the Advancement of Cost Engineering) President-elect Michael Nosbisch, who was invited to present them to the April meeting of the Energy Facility Contractors Working Group Cost Estimating Subgroup at DOE’s Y-12 Facility in Oak Ridge, Tenn.
The guide does not impose new requirements or constitute DOE policy, nor is it intended to instruct federal employees about how to prepare cost estimates. Rather, the publication may be used to provide information based on accepted standard industry estimating best practices and processes, including practices issued by the Government Accountability Office’s (GAO) “Cost Estimating and Assessment Guide” (GAO-09-3SP), to meet federal and DOE requirements and facilitate the development of local or site-specific cost-estimating requirements. GAO recommended that DOE cost-estimating guidance be provided following the GAO Twelve Steps of a High-Quality Cost Estimating Process to improve the quality of its cost estimates.
DOE’s Expectations for Quality Cost Estimates
In Appendix L of the new document, DOE outlines its expectations for quality cost estimates.
“It is important that cost estimators and the program office validate that all cost elements are credible and can be justified by acceptable estimating methods, adequate data, and detailed documentation,” DOE stated. "This crucial step ensures that a high-quality cost estimate is developed, presented, and defended to management. This process verifies that the cost estimate adequately reflects the program baseline and provides a reasonable estimate of how much it will cost to accomplish all tasks. It also confirms that the program cost estimate is traceable and accurate and reflects realistic assumptions.
“Verifying the quality of the point estimate is considered a best practice. One reason for this is that independent cost estimators typically rely on historical data and therefore tend to estimate
more realistic program schedules and costs for state-of-the-art technologies. Moreover, independent cost estimators are less likely to automatically accept unproven assumptions associated with anticipated savings. That is, they bring more objectivity to their analyses, resulting in estimates that are less optimistic and higher in cost. An independent view provides a reality check of the point estimate and helps reduce the odds that management will invest in an unrealistic program that is bound to fail.”
There are four characteristics of a high-quality, reliable cost estimate, according to DOE. “It is well-documented, comprehensive, accurate, and credible."
An estimate must be thoroughly documented, including source data and significance, clearly detailed calculations and results, and explanations of why particular methods and references
were chosen, DOE stated. Data must be traced to their source documents. An estimate must have enough detail to ensure that cost elements are neither omitted nor double counted. All cost-influencing ground rules and assumptions are detailed in the estimate’s documentation.
"An estimate must be unbiased, not overly conservative or overly optimistic, and is based on an assessment of most likely costs. Few, if any, mathematical mistakes are present; those that areminor. Any limitations of the analysis because of uncertainty or bias surrounding data or assumptions are discussed. Major assumptions are varied, and other outcomes are recomputed to determine how sensitive they are to changes in the assumptions. Risk and uncertainty analysis is performed to determine the level of risk associated with the estimate. The estimate’s results are cross-checked, and an independent cost estimate conducted by a group outside of the acquiring organization is developed to determine whether other estimating methods produce similar results.”
