Cost estimating and risk in complex projects

© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 1© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence

Cost Estimating and Risk in Complex ProjectsAPM Project Controls event – 2nd October

© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 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





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


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





Stake holder positioning/negotiation

AFFORDABLEPROGRAMS

ALTERNATIVEESTIMATES SHOULD COST

CROSSCHECK AT THE MAIN WORKPACKAGE

LEVEL

TECHNICAL INPUT SHEET

SHOULD COST/ PROPOSAL CONGRUITY

SHOULD COST RE-CALCULATION

ROM on solutions

Detailed estimates

WP oriented

PROPOSAL

RFQ

LAUNCHED PROGRAMS

Suppliers


From a business capture POV

Top Down Estimate

1

2

3

4





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


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


Top down to bottom up

HW /SW Component

& Cots

Assembly

System.System

Activities

Assemblyactivities

HW/SW Comp. & cots

Actvities

Customer Project WBS


Top Down to Bottom up comparison

Top Down Estimate





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






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


Top down results

Project Description

CustomerProject

Base lineTop downestimated

Generic Mapping applied to the Project





Set the base line, Design-to-Cost,

Good project control , Managing the base line

MANAGEMENT

Financial Strategy

Detailed Technical StrategySchedule and Cost at Completion

Strategy

Objectives

Decision Support

Budgeting, Financial Control,

Procurement

Delivery

Solutions

Bid/No Bid Decision, Evaluating Alternatives, Market Strategy Check

Capacity Analysis, Make or Buy,

Supplier Assessment,Risk Analysis

Across the total stakeholder community





Any Questions


Thank you Andrew Langridge

[email protected]

07977431234

mailto:[email protected]


Back up Slides


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 27© 2013 Financial Executives International

One Toolset - Two Visions


The change makers


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


Contract management begins with the business requirement

Business improvement /

change

Benefits Analysis

requirementsTender

generationprocess

Tender Marking schema

Check

Cost and schedule

generation

tender

Tender Process

Project delivery Steady State

KPI

Project Controls

SLA

Check

User ExperienceVoice of the customer


The change deliverers


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


PRICE Cost Engineering Framework – work flow example


PRICE Systems – Cost Engineering Framework


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


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.


Realisor

Visual requirements analysis

Compare alternative approaches

Map the customers needs to your capability

Visual presentation of your solution benefits to your client


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


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

Reduces effort needed to create estimates

Clear visualisation of project phases

Local cost object and structure library


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.


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


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 assuranceSensitivity analysis identifies the biggest

drivers fast

Risk and Uncertainty adjusted cumulative frequency graphs (S-Curves)


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 costsKnowledge Driven Estimation

Detailed estimation to challenge suppliers


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


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