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CopyrightAACEInternational AACE

InternationalRecommendedPractices

AACEInternationalRecommendedPracticeNo.18R97

COSTESTIMATECLASSIFICATIONSYSTEM

ASAPPLIED

IN

ENGINEERING,

PROCUREMENT,

AND

CONSTRUCTION

FORTHEPROCESSINDUSTRIESTCMFramework:7.3CostEstimatingandBudgeting

Rev.November29,2011Note:AsAACEInternationalRecommendedPracticesevolveovertime,pleaserefertowww.aacei.orgforthelatestrevisions.

Contributors:

Disclaimer:Theopinionsexpressedbytheauthorsandcontributorstothisrecommendedpracticearetheirown

anddonotnecessarilyreflectthoseoftheiremployers,unlessotherwisestated.

PeterChristensen,

CCE

(Author)

LarryR.Dysert,CCCCEP(Author)

JenniferBates,CCE

JefferyJ.Borowicz,CCECEPPSP

PeterR.Bredehoeft,Jr.CEP

RobertB.Brown,PE

DorothyJ.Burton

RobertC.Creese,PECCE

JohnK.Hollmann,PECCECEP

KennethK.

Humphreys,

PE

CCE

DonaldF.McDonald,Jr.PECCEPSP

C.ArthurMiller

ToddW.Pickett,CCCCEP

BernardA.Pietlock,CCCCEP

WesleyR.Querns,CCE

DonL.Short,IICEP

H.LanceStephenson,CCC

JamesD.Whiteside,IIPE

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AACEInternationalRecommendedPracticeNo.18R97

COSTESTIMATECLASSIFICATIONSYSTEM AS

APPLIEDINENGINEERING,PROCUREMENT,AND

CONSTRUCTIONFORTHEPROCESSINDUSTRIESTCMFramework:7.3CostEstimatingandBudgeting

November29,2011



PURPOSE

AsarecommendedpracticeofAACEInternational,theCostEstimateClassificationSystemprovidesguidelinesfor

applyingthegeneralprinciplesofestimateclassificationtoprojectcostestimates(i.e.,costestimatesthatareused

toevaluate,approve,and/orfundprojects).TheCostEstimateClassificationSystemmapsthephasesandstagesof

projectcostestimatingtogetherwithagenericprojectscopedefinitionmaturityandqualitymatrix,whichcanbe

appliedacrossawidevarietyofprocessindustries.

Thisaddendumtothegenericrecommendedpractice(17R97)providesguidelines forapplyingtheprinciplesof

estimateclassificationspecificallytoprojectestimatesforengineering,procurement,andconstruction(EPC)work

fortheprocessindustries.Thisaddendumsupplementsthegenericrecommendedpracticebyproviding:

asectionthatfurtherdefinesclassificationconceptsastheyapplytotheprocessindustries;and

achart

that

maps

the

extent

and

maturity

of

estimate

input

information

(project

definition

deliverables)

againsttheclassofestimate.

Aswiththegenericrecommendedpractice,anintentofthisaddendumistoimprovecommunicationsamongallof

thestakeholdersinvolvedwithpreparing,evaluating,andusingprojectcostestimatesspecificallyfortheprocess

industries.

The overall purpose of this recommended practice is to provide the process industry definition deliverable

maturitymatrixwhichisnotprovidedin17R97.Italsoprovidesanapproximaterepresentationoftherelationship

ofspecificdesign inputdataanddesigndeliverablematuritytotheestimateaccuracyandmethodologyusedto

produce the cost estimate. The estimate accuracy range is driven by many other variables and risks, so the

maturityandqualityofthescopedefinitionavailableatthetimeoftheestimate isnotthesoledeterminateof

accuracy;riskanalysisisrequiredforthatpurpose.

Thisdocumentisintendedtoprovideaguideline,notastandard.Itisunderstoodthateachenterprisemayhave

its own project and estimating processes and terminology, and may classify estimates in particular ways. This

guidelineprovidesagenericandgenerallyacceptableclassificationsystemforprocessindustriesthatcanbeused

asabasistocompareagainst.Thisaddendumshouldalloweachusertobetterassess,define,andcommunicate

theirownprocessesandstandardsinthelightofgenerallyacceptedcostengineeringpractice.

INTRODUCTION

For the purposes of this addendum, the term process industries is assumed to include firms involved with the

manufacturing and production of chemicals, petrochemicals, and hydrocarbon processing. The common thread

amongthese

industries

(for

the

purpose

of

estimate

classification)

is

their

reliance

on

process

flow

diagrams

(PFDs)

and piping and instrument diagrams (P&IDs) as primary scope defining documents. These documents are key

deliverables indeterminingthedegreeofprojectdefinition,andthustheextentandmaturityofestimate input

information.

Estimates forprocess facilitiescenteronmechanicalandchemicalprocessequipment,andtheyhavesignificant

amountsofpiping,instrumentation,andprocesscontrolsinvolved.Assuch,thisaddendummayapplytoportions

of other industries, such as pharmaceutical, utility, metallurgical, converting, and similar industries. Specific

addendumsaddressingtheseindustriesmaybedevelopedovertime.

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18R97:CostEstimateClassificationSystem AsAppliedinEngineering,Procurement,and

ConstructionfortheProcessIndustries

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This addendum specifically does not address cost estimate classification in nonprocess industries such as

commercial building construction, environmental remediation, transportation infrastructure, hydropower, dry

processessuchasassemblyandmanufacturing, softassetproductionsuchassoftwaredevelopment,andsimilar

industries.

It

also

does

not

specifically

address

estimates

for

the

exploration,

production,

or

transportation

of

mining or hydrocarbon materials, although it may apply to some of the intermediate processing steps in these

systems.

Thecostestimatescoveredbythisaddendumareforengineering,procurement,andconstruction(EPC)workonly.

It does not cover estimates for the products manufactured by the process facilities, or for research and

development work in support of the process industries. This guideline does not cover the significant building

constructionthatmaybeapartofprocessplants.

Thisguidelinereflectsgenerallyacceptedcostengineeringpractices.Thisaddendumwasbaseduponthepractices

ofawiderangeofcompaniesintheprocessindustriesfromaroundtheworld,aswellaspublishedreferencesand

standards. Company and public standards were solicited and reviewed, and the practices were found to have

significant commonalities. These classifications are also supported by empirical process industry research of

systemicrisksandtheircorrelationwithcostgrowthandscheduleslip[8]

.

COSTESTIMATECLASSIFICATIONMATRIXFORTHEPROCESSINDUSTRIES

PrimaryCharacteristic SecondaryCharacteristic

ESTIMATE

CLASS

MATURITYLEVELOF

PROJECTDEFINITION

DELIVERABLESExpressedas%ofcomplete

definition

ENDUSAGETypicalpurposeof

estimate

METHODOLOGYTypicalestimatingmethod

EXPECTEDACCURACY

RANGETypicalvariationinlowandhigh

ranges[a]

Class

5

0%to

2%

Concept

screening

Capacityfactored,

parametricmodels,

judgment,oranalogy

L:

20%to

50%

H: +30%to+100%

Class4 1%to15%Studyor

feasibility

Equipmentfactoredor

parametricmodels

L: 15%to30%

H: +20%to+50%

Class3 10%to40%

Budget

authorizationor

control

Semidetailedunitcosts

withassemblylevelline

items

L: 10%to20%

H: +10%to+30%

Class2 30%to75%Controlor

bid/tender

Detailedunitcostwith

forceddetailedtakeoff

L: 5%to15%

H: +5%to+20%

Class1 65%to100%Checkestimate

orbid/tender

Detailedunitcostwith

detailedtakeoff

L: 3%to10%

H: +3%to+15%

Notes:[a]

The

state

of

process

technology,

availability

of

applicable

reference

cost

data,

and

many

other

risks

affect

the

range

markedly.

The

+/ valuerepresentstypicalpercentagevariationofactualcostsfromthecostestimateafterapplicationofcontingency(typicallyat

a50%levelofconfidence)forgivenscope.

Table1CostEstimateClassificationMatrixforProcessIndustries

Table1providesasummaryofthecharacteristicsofthefiveestimateclasses.Thematuritylevelofdefinitionisthe

sole determining (i.e., primary) characteristic of Class. In Table 1, the maturity is roughly indicated by a % of

complete definition; however, it is the maturity of the defining deliverables that is the determinant, not the

percent.Thespecificdeliverables,andtheirmaturity,orstatus,areprovidedinTable3.Theothercharacteristics

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aresecondaryandaregenerallycorrelatedwiththematuritylevelofprojectdefinitiondeliverables,asdiscussed

in the generic RP[1]

. The characteristics are typical for the process industries but may vary from application to

application.

Thismatrix

and

guideline

outline

an

estimate

classification

system

that

is

specific

to

the

process

industries.

Refer

tothegenericestimateclassificationRP[1]

forageneralmatrixthatisnonindustryspecific,ortootheraddendums

for guidelines that will provide more detailed information for application in other specific industries. These will

provide additional information, particularly the project definition deliverable maturity matrix which determines

theclassinthoseparticularindustries.

Table1illustratestypicalrangesofaccuracyrangesthatareassociatedwiththeprocessindustries.Dependingon

thetechnicalandprojectdeliverables(andothervariables)andrisksassociatedwitheachestimate,theaccuracy

rangeforanyparticularestimateisexpectedtofallintotherangesidentified(althoughextremeriskscan leadto

widerranges).

Inadditiontothedegreeofprojectdefinition,estimateaccuracyisalsodrivenbyothersystemicriskssuchas:

Levelofnonfamiliartechnologyintheproject.

Complexityoftheproject.

Qualityofreferencecostestimatingdata.

Qualityofassumptionsusedinpreparingtheestimate.

Experienceandskillleveloftheestimator.

Estimatingtechniquesemployed.

Timeandlevelofeffortbudgetedtopreparetheestimate.

Systemic risks such as these are often the primary driver of accuracy; however, projectspecific risks (e.g. risk

events)alsodrivetheaccuracyrange[3]

.

Anotherwayto lookatthevariabilityassociatedwithestimateaccuracyranges isshown inFigure1.Depending

uponthetechnicalcomplexityoftheproject,theavailabilityofappropriatecostreferenceinformation,thedegree

ofproject

definition,

and

the

inclusion

of

appropriate

contingency

determination,

atypical

Class

5estimate

for

a

processindustryprojectmayhaveanaccuracyrangeasbroadas50%to+100%,orasnarrowas20%to+30%.

Figure1alsoillustratesthattheestimatingaccuracyrangesoverlaptheestimateclasses.Therearecaseswherea

Class 5 estimate for a particular project may be as accurate as a Class 3 estimate for a different project. For

example, similar accuracy ranges may occur for the Class 5 estimate of one project that is based on a repeat

projectwithgoodcosthistoryanddataandtheClass3estimateforanotherprojectinvolvingnewtechnology.Itis

forthisreasonthatTable1providesrangesofaccuracyrangevalues.Theaccuracyrange isdeterminedthrough

riskanalysisofthespecificproject.

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Figure1ExampleoftheVariabilityinAccuracyRangesforaProcessIndustryEstimate

DETERMINATIONOFTHECOSTESTIMATECLASS

The cost estimator makes the determination of the estimate class based upon the maturity level of project

definitionbasedonthestatusofspecifickeyplanninganddesigndeliverables.Thepercentdesigncompletionmay

be correlated with the status, but the percentage should not be used as the Class determinate. While the

determinationof

the

status

(and

hence

class)

is

somewhat

subjective,

having

standards

for

the

design

input

data,

completenessandqualityofthedesigndeliverableswillservetomakethedeterminationmoreobjective.

CHARACTERISTICSOFTHEESTIMATECLASSES

Thefollowingtables(2athrough2e)providedetaileddescriptionsofthefiveestimateclassificationsasappliedin

theprocessindustries.Theyarepresentedintheorderofleastdefinedestimatestothemostdefinedestimates.

Thesedescriptionsincludebriefdiscussionsofeachoftheestimatecharacteristicsthatdefineanestimateclass.

50

40

30

20

10

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

Growthfrom

EstimatedCostsIncludingContingency(%)

MaturityLevelofProjectDefinitionDeliverables(%)

Class

4

Class3

Class

2

Class1

Class5

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Foreachtable,thefollowinginformationisprovided:

Description:ashortdescriptionoftheclassofestimate,includingabrieflistingoftheexpectedestimate

inputs based on the maturity level of project definition deliverables. The minimum inputs reflect the

rangeofindustryexperience,butwouldnotgenerallyberecommended.

Maturity

Level

of

Project

Definition

Deliverables

(Primary

Characteristic):

Describes

a

particularly

key

deliverableandatypicaltargetstatusinstagegatedecisionprocesses,plusanindicationofapproximate

percentoffulldefinitionofprojectandtechnicaldeliverables.Fortheprocess industries,thiscorrelates

withthepercentofengineeringanddesigncomplete.

End Usage (Secondary Characteristic): a short discussion of the possible end usage of this class of

estimate.

EstimatingMethodology (Secondary Characteristic): a listing of the possible estimating methods that

maybeemployedtodevelopanestimateofthisclass.

ExpectedAccuracyRange (SecondaryCharacteristic): typical variation in low and high ranges after the

applicationofcontingency(determinedata50%levelofconfidence).Typically,thisrepresentsabout80%

confidence that the actual cost will fall within the bounds of the low and high ranges. The estimate

confidenceintervaloraccuracyrangeisdrivenbythereliabilityofthescopeinformationavailableatthe

time

of

the

estimate

in

addition

to

the

other

variables

and

risk

identified

above.

AlternateEstimateNames,Terms,Expressions,Synonyms: this sectionprovides other commonly used

namesthatanestimateofthisclassmightbeknownby.Thesealternatenamesarenotendorsedbythis

Recommended Practice. The user is cautioned that an alternative name may not always be correlated

withtheclassofestimateasidentifiedinTables2a2e.

CLASS

5

ESTIMATE

Description:

Class5estimatesaregenerallypreparedbasedonverylimited

information,andsubsequentlyhavewideaccuracyranges.As

such, some companies and organizations have elected to

determine that due to the inherent inaccuracies, such

estimates cannot be classified in a conventional and

systematicmanner.Class5estimates,duetotherequirements

ofenduse,maybepreparedwithinavery limitedamountof

timeandwithlittleeffortexpendedsometimesrequiringless

than an hour to prepare. Often, little more than proposed

plant type, location, and capacity are known at the time of

estimatepreparation.

MaturityLevelofProjectDefinitionDeliverables:

Key deliverable and target status: Block flow diagram agreed

bykeystakeholders.0%to2%offullprojectdefinition.

End

Usage:

Class 5 estimates are prepared for any number of strategic

business

planning

purposes,

such

as

but

not

limited

to

market

studies, assessment of initial viability, evaluation of alternate

schemes, project screening, project location studies,

evaluation of resource needs and budgeting, longrange

capitalplanning,etc.

Estimating

Methodology:

Class5estimatesgenerallyusestochasticestimatingmethods

such as cost/capacity curves and factors, scale of operations

factors, Lang factors, Hand factors, Chilton factors, Peters

Timmerhaus factors, Guthrie factors, and other parametric

andmodelingtechniques.

Expected

Accuracy

Range:

TypicalaccuracyrangesforClass5estimatesare

20%to50%onthelowside,and+30%to+100%onthehigh

side, depending on the technological complexity of the

project, appropriate reference information and other risks (

after inclusionofan appropriatecontingency determination).

Rangescouldexceedthoseshownifthereareunusualrisks.

Alternate

Estimate

Names,

Terms,

Expressions,

Synonyms:

Ratio, ballpark, blue sky, seatofpants, ROM, idea study,

prospect estimate, concession license estimate, guesstimate,

ruleofthumb.

Table2aClass5Estimate

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