FHWA Major Projects Estimate Training Florida TEA Conference and Workshop 2005

FHWA Major Projects Estimate Training

Florida TEA Conference and Workshop 2005

FHWA Major Projects Team:

Rodney Barry, Team Leader, (202)366-1561

Jim Sinnette, Engineering, (202)366-0479

Daniel C. Wood, Engineering, (202)366-4661

John Broadhurst, Finance, (202)366-5604

Chris Allen, Risk Management, (202)366-4104

Phil Barnes, Stewardship/Oversight,(202)366-0733

SAFETEA-LU

Title I – Federal-Aid Highways

Subtitle I (Miscellaneous)

Section1904. Stewardship and Oversight• Major Projects now $500 million• Value Engineering – More than 1 analysis for

major projects.• Finance Plans still required

– $100 million projects

• Project Management Plans now required

SAFETEA-LU

Title I – Federal-Aid Highways

Subtitle I (Miscellaneous)

Section1904. Stewardship and Oversight

• Project costs.--The Secretary shall develop minimum standards for estimating project costs and shall periodically evaluate the practices of States for estimating project costs, awarding contracts, and reducing project costs.

14 States with $1 billion projects (TEA-21)

Active States

DC

14

20 States with $500 million projects (SAFETEA-LU)

Active States

DC

20

33 States with active and future $500 million projects

Active States

Future States

DC

20

13

Cost Estimate Training for Major Projects

• 2 Pilots in DC in FY 2005

• 1 Course in Atlanta – September 2005

• 1 Course in Austin – October 2005

• 2 Courses in St. Louis and Denver – December 2005

• Dwight Sangrey of Golder Associates will be delivering a course to the Minnesota DOT and to Eastern Federal Lands Highway Division

Why?

• History of Cost Estimating issues with Major Projects

• Government Auditing Agencies (GAO, DOT IG)

• NCHRP 20-7 (152), Flyvbjerg, LA County Metro Transportation Planning Authority, etc.

Another Resource: July/August 2004 issue of Public Roads

Why?

• On a recent survey, FHWA Division Offices were asked what was needed to improve cost estimating:

• Responses:– Nothing (32%)– Guidance (25%)– Best Practices (23%)– Other (11%)– Training (9%)

Why?

• SAFTEA-LU– A financial plan shall–

• ``(A) be based on detailed estimates of the cost to complete the project; and

• ``(B) provide for the annual submission of updates to the Secretary that are based on reasonable assumptions, as determined by the Secretary, of future increases in the cost to complete the project.

0

2000

4000

6000

8000

10000

12000

14000

16000

Mill

ion

Dol

lars

1 2 3 4 5 6 7 8 9

Year

"BIG DIG" Cost Estimate

Inflation

Change in Scope,Schedule, Pricing

Original Scope

85 87 89 91 92 94 00 01 02

LESSON 1: Recent exampleEvolution of Cost for Boston Central Artery & Tunnel

LESSON 2: Past ExampleInterstate Highway System Case Study 1954 to 2000

• Authorization in 1956 for 41,000 miles of high quality highway for estimated $27 B... ($1955)

• Scope later increased to 42,500 miles

• Revised estimate of cost in 1958 was $41B ($1957)

• Original planned build-out schedule was 1975

• By 1980 … 40,000 miles completed—up to 42,793 today

LESSON 2: Past ExampleEvolution of Cost for US Interstate Highway System

0

20

40

60

80100

120

140B

illi

on

Do

llar

s

1 2 3 4 5 6 7 8

Year

Interstate Highway System

Scope Inflation

Base Inflation

Add. Scope

Base

1955 60 65 70 80 90

Again…scope & inflation are the changes

LESSON 3: Current Example

• East Span of the San Francisco – Oakland Bay Bridge

– Earthquake Retrofitting (just under $1 billion)

– Things happened …

– Now over $6 billion …• July 2005 Newspaper Reports

– And scheduled for completion in 2012

As a result FHWA has begun implementing the following:

“Major Project Program Cost Estimating Guidance”

http://www.fhwa.dot.gov/programadmin/mega/cefinal.htm

And

Cost Estimate Training for Major Projects

Cost Estimating Guidance and Training

• Guidance and Training are based on the concept of including estimates of all costs at all stages of a project.– Deterministic with contingencies = VDOT

– Risk-based probabilistic = WS DOT

• For Major Projects, there appears to be initial successes with risk-based probabilistic estimates, like WS DOT’s CEVP– Utah and Pennsylvania Turnpike have already used

CEVP.– EFLHD is planning to use a risk-based assessment on

one of their $10 million projects– Nevada, Minnesota, Texas have all expressed interest

Planning ProgrammingPreliminary Design Final Design A/B/A Construct

Where Uncertainties (Risks) Need to be Resolved

Environment

Right of Way

Governance/Stakeholders

Financing

Civil & Environmental Justice

Multi-modal Systems

Teaming

Options/Alternatives

Geotechnical

Structures

Pavements

Hydraulics

Stormwater

Tunnels

Intelligent Transportation

Permitting

Contracts

Insurance/Bonds

Construction Methods

MOT

Market Conditions

Disputes

Weather

Security

SCOPE

Cost Risk Contribution By Item

00.020.040.060.08

0.10.12

78 87 96

105

114

123

132

141

Total Project Duration (months after Jul/02)

Pro

bab

ilit

y

Base Schedule

0

0.05

0.1

0.15

0.2

1200

1320

1440

1560

1680

1800

1920

2040

2160

Total Project Cost (Current $M)

Pro

bab

ility

Base Cost

also:••uncertainty in escalated cost•••prioritized list of activities (for VE)••effectiveness of risk management••chance of meeting milestones••cash flow

CEVP Results & Deliverables

RICH SOURCE OF INFORMATION

Quantified risk registry can feed & focus VE & Risk Management

Current $ or YOE $

% Current $M1 14.9% 6.6 43. Additional cost for Vehicles due to decision delay 2 9.0% 4.0 50. Dispute Resolution and Litigation (other than listed separately)3 9.0% 4.0 49. Clarity of Contract Documents4 8.5% 3.8 55. Cashflow and debt-service cost (5% on $100M)5 6.7% 2.9 Aggregate Identified Minor Risks (or Opportunities)6 4.4% 2.0 Unidentified Risks7 3.4% 1.5 63. Geotechnical Instrumentation (ECIS) for Tunneling8 3.4% 1.5 45. Utilities, Cost sharing at 50:50 may change9 2.7% 1.2 23. Ground Control (grouting,etc.) (tunnel)10 2.3% 1.0 64. Maintenance and Protection of Traffic11 1.8% 0.8 54. Delay reaching FFGA

Contribution to Expected Cost Risk

Risk Rank

Risk Event

•prioritized list of delay risks

Using Results of a Risk-Based Analysis

• Project Assessment & Validation

• Risk Management

• Communication

• Financial Management

Cost Risk Contribution By Item – March 2003

1 14% Future Leadership & Management

2 11% Contracting Process

3 11% Guideway Design Cost Risk

4 10% ROW Acquisition Uncertainty

5 8% Additional Parking Required

6 8% Urban Design Risk

7 6% other risk items

8 6% Utility Relocation Issues

9 5% Other Scope Risk

10 5% W. Seattle Bridge Design Risk

all others 17%

Rank Relative Contribution to Risk Cost

Rank

Comparison of Probability Mass Functions

66

75

84

93

10

2

11

1

12

0

12

9

13

80

0.05

0.1

0.15

0.2

0.25

Pro

ba

bilit

y

Total Project Duration (months after Jan/03)

Jul-02 Mar-03

Uncertainty Decreases with Design Development

Ultimate cost (or schedule)

design level1% 5% 30%

Significant risks realized

Few risks realized

Risk Management or other ?

Range of Initia

l Estim

ate

CommunicationsCEVP – Washington State DOT

2002 -- Developed CEVP for proposed “mega-projects” in Seattle area (assessment & communication)

Success led to broad application within WSDOT:

More than 150 projects

$10M up to $4B

CREM staff function

In use by 150+ staff

S R 1 6 7 , T a c o m a t o P u y a l l u p N e w F r e e w a y C o n s t r u c t i o n

1 0 Y e a r - P r o j e c t i n

F u l l

D e s c r i p t i o n :

• C o m p l e t e s S R 1 6 7 f r o m P u y a l l u p t o t h e P o r t o f T a c o m a w i t h a s i x l a n e f r e e w a y • I n c l u d e s a n H O V l a n e i n e a c h d i r e c t i o n f r o m S R 1 6 1 n e a r P u y a l l u p t o I - 5 • I n c l u d e s f o u r l a n e s b e t w e e n I - 5 a n d S R 5 0 9 n e a r t h e P o r t o f T a c o m a

S c h e d u l e :

B e g i n C o n s t r u c t i o n R a n g e : 2 0 0 5 - 2 0 0 6 E n d C o n s t r u c t i o n R a n g e : 2 0 1 0 - 2 0 1 2 I n f l a t i o n e s c a l a t i o n i s t o y e a r 2 0 0 8 , a p p r o x i m a t e m i d p o i n t c o n s t r u c t i o n

C E V P R e s u l t :

P r o j e c t C o s t R a n g e

B e n e fi t s t h i s p r o j e c t w o u l d p r o v i d e : • P r o v i d e s a k e y l i n k f o r f r e i g h t t o m o v e t o a n d f r o m t h e P o r t o f T a c o m a • R e l i e v e s c o n g e s t i o n b y o f f e r i n g c o m m u t e r s , t r a v e l e r s , a n d s h i p p e r s a n a l t e r n a t i v e t o I - 5 • R e d u c e s c o n g e s t i o n a n d i m p r o v e s a f e t y o n l o c a l r o a d s b y c o n n e c t i n g S R 1 6 7 t o I - 5

R i s k i s s u e s t h a t c o u l d i m p a c t p r o j e c t c o s t o r s c h e d u l e : • P r o j e c t r e q u i r e s t h e a c q u i s i t i o n o f l a r g e a m o u n t s o f p r o p e r t y i n a c o r r i d o r w h e r e l a n d i s r a p i d l y d e v e l o p i n g . D e l a y s i n a c q u i r i n g n e w p r o p e r t i e s w i l l r e s u l t i n s i g n i f i c a n t c o s t i n c r e a s e s t o t h e p r o j e c t . • P r o j e c t w i l l b e c o n s t r u c t e d n e a r H y l e b o s C r e e k , W a p a t o C r e e k , w e t l a n d s a n d w i l d l i f e h a b i t a t . E n v i r o n m e n t a l p e r m i t t i n g a n d m i t i g a t i o n r e q u i r e m e n t s m a y c h a n g e s i g n i f i c a n t l y b e t w e e n n o w a n d c o n s t r u c t i o n , t e n d i n g t o i n c r e a s e c o s t s a n d c a u s e d e l a y s . • P r o j e c t i n c l u d e s a m a j o r n e w i n t e r c h a n g e w h e r e I n t e r s t a t e 5 a n d S R 1 6 7 c o n n e c t . D e s i g n o f t h i s i n t e r c h a n g e a s s u m e s F e d e r a l H i g h w a y A d m i n i s t r a t i o n ( F H W A ) a p p r o v a l o f a n u m b e r o f d e s i g n f e a t u r e s . I f n o t a p p r o v e d b y F H W A , c h a n g e s i n t h e d e s i g n w o u l d r e s u l t i n i n c r e a s e d c o s t a n d t i m e f o r t h e p r o j e c t . • L i m i t e d n u m b e r o f c o n t r a c t o r s a r e q u a l i f i e d a n d a v a i l a b l e t o p u r s u e a p r o j e c t t h i s l a r g e , i n c r e a s i n g c o n t r a c t c o s t s a n d p r o j e c t d e l a y s .

L e v e l o f P r o j e c t D e s i g n :

00 . 0 20 . 0 40 . 0 60 . 0 8

0 . 10 . 1 20 . 1 40 . 1 6

1525

1600

1675

1750

1825

1900

1975

2050

2125

2200

C o s t ( $ M )

Proba

bility

T h e r e i s a 1 0 % c h a n c e t h e c o s t i s l e s s t h a n $ 1 . 6 B i l l i o n T h e r e i s a 5 0 % c h a n c e t h e c o s t i s l e s s t h a n $ 1 . 7 B i l l i o n T h e r e i s a 9 0 % c h a n c e t h e c o s t i s l e s s t h a n $ 1 . 8 B i l l i o n

L o w M e d i u m H i g h J u n e 3 , 2 0 0 3

Communications

• Value of audience understanding– More realistic expectations– Framework for time delay & low probability

risk– WSDOT experience in 2002 is good example

• The public is very savvy when it comes to transportation projects. – WS DOT CEVP – VDOT’s Dashboard

Financial Management (Programming)

0

0.02

0.04

0.06

0.08

0.1

7150

7375

7600

7825

8050

8275

8500

8725

8950

9175

Total Project Cost (Current $10k)

Pro

bab

ility

00.050.1

0.150.2

0.250.3

0.350.4

210

230

250

270

290

310

330

350


Pro

bab

ility

0

0.02

0.04

0.06

0.08

0.1

0.12

1080

1100

1120

1140

1160

1180

1200

1220

1240

Total Project Cost ($100k)

Pro

bab

ility

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

26

26

.8

27

.5

28

.3 29

29

.8

30

.5

31

.3 32


Pro

ba

bil

ity

0

0.05

0.1

0.15

0.2

0.25

13

2

13

8

14

4

15

0

15

6

16

2

16

8

17

4


Pro

ba

bili

ty

0

0.05

0.1

0.15

0.2

0.25

1040

1160

1280

1400

1520

1640

1760

1880

Total Project Cost (Current $k)

Pro

bab

ilit

y

Simulated Program Cost

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

510 520 530 540 550

Program_Cost ($ Million)

Program Combined Cost

QUESTIONS ????