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Procedures Guide for Right-of-Way Cost Estimation and Cost Management (2009)

Chapter: Chapter 7 - ROW Cost Management

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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Suggested Citation:"Chapter 7 - ROW Cost Management." National Academies of Sciences, Engineering, and Medicine. 2009. Procedures Guide for Right-of-Way Cost Estimation and Cost Management. Washington, DC: The National Academies Press. doi: 10.17226/14289.
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Page 87

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During the final design phase of project development, Plans, Specifications, and Estimate (PS&E) documents for the project are prepared and the ROW appraisal and acquisition process often begins. A transition of activities occurs between estimating ROW cost and managing real estate acquisitions during this phase of project development. Typically, no further ROW cost esti- mates are prepared. However, as ROW acquisition expenditures begin to occur, ROW personnel and the design team should be tracking how these actual expenditures compare with the current baseline ROW cost estimate. This comparison indicates whether the acquisition process is pro- ceeding within the allocated budget or if there is a potential for a budget overrun or reduction. Introduction When real estate is necessary for a project, a key milestone that transitions ROW cost estimat- ing activities to the appraisal and acquisition process occurs when final ROW plans are com- pleted. This milestone generally initiates ROW appraisal and purchase activities. If SHA policy is to have right-of-way purchased before the start of construction, then this milestone may com- mence several years before the letting date for projects with significant ROW requirements (major projects). One Florida district, however, requires that ROW requirements be delineated at the 60-percent design stage so that acquisitions can begin earlier and not delay the project schedule. Any ROW changes after the 60-percent design milestone require a special ROW and design staff meeting to make a recommendation “for or against” the change and the recommen- dation must be approved by management. The time required to purchase right-of-way for a moderately complex project probably would be less as a result of minimal ROW requirements. Florida reports that the acquisition process for a typical project is from 18 to 24 months in duration. The complexity of ROW acquisition actions will influence when acquisitions must begin to support a specified con- struction letting date. During final design, project ROW budgets are included in the STIP. If cost changes are antic- ipated, a budget amendment may be necessary. Cost management is needed to determine when potential amendments to the STIP are required to cover ROW cost. The determination of the need for an amendment is based on a comparison of actual spending versus what is budgeted. This comparison will identify a potential budget overrun or reduction. When these comparisons are performed routinely during the acquisition process, the information will allow the project development team to manage the effect of these potential changes effectively. In this way, the project team is provided with an “early warning system” to aid in managing project funds and ultimately program funds. 80 C H A P T E R 7 ROW Cost Management

ROW Cost Management 81 ROW Cost Management Flowchart Figure 7.1 represents the ROW Cost Management Process during final design. The initial step in this process focuses on assessing any changes to ROW requirements based on the final ROW plans. Changes in requirements are converted to estimated costs, then budgets or plans are adjusted accordingly. Once the appraisal and acquisition process begins, comparisons of actual costs versus budgeted costs are assessed periodically. These assessments may lead to potential cost adjustments in the budget or a reevaluation of design effects. Before property appraisals begin, each parcel in the final ROW plan should be examined and compared with the most recent ROW requirements used to complete the latest updated ROW cost estimate. ROW personnel must identify whether there are potential changes in scope, general site conditions, or specific parcel conditions that will affect acquisition cost. For example, design changes that have occurred since the last Updated ROW Cost Estimate was completed qualify as potential changes that may affect final project ROW cost. This cost management step additionally provides a check to identify errors or omissions in previous estimates. The decision milestone, shown in Figure 7.1, represents the decisionmaking process that must occur based on the output of the first step. If cost changes are discovered, their effect should be evaluated based on the latest updated ROW budget and a decision made to recom- mend a budget adjustment or possibly the necessity for design changes to control ROW cost. Additionally, a change might be considered if there is a potential for a reduction in proj- ect cost. As appraisals and acquisitions are executed, actual cost data should be recorded for each par- cel. This second step of ROW Cost Management involves checking the appraisal amounts and acquisition cost against the estimate values in the last updated ROW budget. As the appraisal and acquisition activities progress, appraisal data and acquisition costs should be recorded and tracked in a database system that provides up-to-date parcel expenditure information. This database system should be able to generate cost summaries easily. Tracking ROW acquisition costs as they occur enables SHA management to balance expenditures against the budget and to forecast the expected total ROW cost at the completion of all acquisition actions, including condemnations. This tracking should occur continuously throughout the appraisal and acqui- sition process. The Cost Management Loop—shown as a dashed line in Figure 7.1—indicates the need for this management process to be cyclical. Acquisition summaries should be generated at mile- stones such as at the 30-percent, 60-percent, and 90-percent points of property acquisition or when the ROW manager deems pertinent. The cost management loop denotes this cyclical reporting and comparison between the actual expenditures and the budget. If the forecasted cost is expected to exceed the current ROW budget amount, management must either institute a budget adjustment with the appropriate steps for requesting additional funds or develop a proposal for reducing either ROW cost or other project cost items. The proj- ect manager should be notified immediately, and the basis for the budget adjustment with sup- porting assumptions and calculations must be documented. The cyclic ROW Cost Management process continues until all acquisitions are completed. Following the completion of all acquisitions, the project is ready to be let for construction. This ROW management process will eliminate or reduce ROW cost escalation problems and provides “lessons learned” data that can be applied to future ROW cost estimates.

82 Procedures Guide for Right-of-Way Cost Estimation and Cost Management No Assess ROW Scope, Conditions, and Cost Compare final ROW plan requirements with previous requirements Identify specific changes in ROW requirements by parcel Estimate Cost Impact on each affected parcel Compare with current budget for impacted parcel Evaluate Potential Cost Impact Compare actual ROW cost against current budget by parcel Determine cost impact on total ROW budget Adjust ROW Budget Document change including changes to estimate basis and assumptions Notify Project Development Team of modified budget To Construction Actual Parcel Cost Data FINAL DESIGN ROW Project Development: Finalize ROW Requirements Finalize ROW Plans Appraisal & Acquisition Activities Select Parcels Appraise Property Acquire Property Obtain ROW Clearance Initiate and perform ROW condemnation (if necessary) Recommend Budget Adjustment? YES Cost Management Loop No Adustm ent ROW Requirements (Final ROW Plan) Forecasted Total ROW Cost (W/Deviations) From Preliminary Design Updated ROW Cost Estimate Figure 7.1. Right-of-way cost management flowchart.

Assess ROW Scope, Conditions, and Costs Final ROW plans are completed during the final design phase of project development. These drawings must be checked against the ROW requirements that were the basis for the most recent updated ROW cost estimate. The intent of this assessment is to determine if there are significant changes in ROW requirements that affect the estimated cost. This assessment serves to verify the estimated cost for each parcel based on the description in the final ROW plans. Project Complexity Project complexity will influence the level of effort required to assess changes in ROW require- ments. In addition, the amount of documentation will increase correspondingly for more com- plex projects. Complex and major projects probably will have more complicated parcel takes with the potential for damages and evaluation of existing improvements as well as increased cost risk because of administrative settlements. Moderately complex projects will normally require less effort and documentation. However, the extent of the effort and documentation is influ- enced not only by the number of takes but, to a large extent, by the complexity of the individual acquisitions. Final Design and Cost Estimate Inputs The key input for the ROW Cost Management process at this stage of project development is the final ROW plans generated by the design team. All necessary parcels should be identified at this time as well as the level of effect to each regarding remainder property, access, and compli- ance with local zoning regulations. The other two pieces of necessary information are the latest ROW cost estimate (the updated cost estimate generated by the ROW Cost Estimate System tool) and the Updated ROW Cost Estimate File. Process Step Description The ROW estimator should 1. Compare final ROW requirements as shown on the ROW plans against the previous state- ment of requirements. This step should be a final check of the ROW requirements expressed on the final plans against those that served as the basis for the most recent Baseline or Updated ROW Cost Estimate. This comparison should be performed on a parcel by parcel basis. 2. Identify specific changes in ROW requirements by parcel. As significant changes are identi- fied, these changes should be documented in terms of their effect on a parcel such as more land required, effect on remaining access, and compliance with local zoning requirements. 3. Estimate cost impact on each affected parcel. Depending on the effect, a change in cost is esti- mated for each estimate element affected by the change (e.g., cost of additional land when more land is required then included in the previous parcel estimate). 4. Compare the new parcel estimate with the current budget. Once all changes in cost for a par- cel are evaluated, the revised total ROW cost can be compared with the budget to see if the magnitude of the change warrants a budget adjustment. Tools The ROW Cost Estimate System could contain a workbook for easily tracking updated costs resulting from changes in requirements. The Updated ROW Cost Estimate File would be the repository documenting any requirement changes. The Tool Variance Reports on Cost and Schedule (Tool B1.5) describes a mechanism for tracking changes and alerting project person- nel of changes. ROW Cost Management 83

Tips Determine a standard percentage change, increase or decrease, to guide decisionmaking con- cerning the need to recommend a cost adjustment to the current budget (e.g., overall increase of 5 percent over or under the budget). Outputs If the forecasted ROW cost differs significantly from the budget, either by an increase or a decrease, a potential cost adjustment to the current baseline budget can be recommended by the ROW team. These changes should be supported by analyses using the ROW Cost Estimat- ing System and data found in the Updated ROW Cost Estimate File. Evaluate Potential Cost Impact Once the appraisal and acquisition process begins, actual acquisition and other expenditures are recorded against purchased parcels. The process objective of the Evaluate Potential Cost Impact step is to identify potential changes to the latest updated budget based on a new fore- casted cost of right-of-way derived from a projection of the actual acquisition costs. Project Complexity Similar to the first process step, project complexity influences the level of effort required to evaluate the forecasted ROW costs versus the current budget. In addition, the amount of docu- mentation for tracking actual costs will correspondingly increase in the case of projects having complicated ROW requirements—complex projects. Actual Acquisition Cost Inputs Actual parcel expenditures are recorded as acquisition proceeds. Actual expenditures would include all costs related to acquiring the real estate (i.e., all estimate elements). The latest updated budget, including changes from the Assess ROW Scope, Conditions, and Cost process, is the other input. Process Step Description The ROW estimator should 1. Compare the actual ROW cost for a parcel against the latest updated cost estimate for that parcel. First, determine if all actual costs are known for the parcel. If so, then determine the deviation between the total actual costs and the budgeted amount for the parcel. If only part of the actual costs is known for a parcel, estimate the remaining costs required to complete the parcel acquisition. The expended costs plus the estimated costs to complete the acquisi- tion is the total forecasted cost for the parcel. Compare the forecasted parcel cost with the lat- est updated parcel cost estimate (this could be a database summary that highlights differences greater than a set value). When there is a substantial deviation between the forecasted parcel cost and the updated cost estimate for the parcel, document the deviation. 2. Determine the cost impact to the total ROW budget from changes in the forecasted cost for the individual parcel. Summarize all parcel costs expended to date and all forecasted parcel costs. Compare the total forecasted cost (sum of all parcel forecasts) with the total budget with amendments. Determine whether a substantial difference exists between the total updated budget and total forecasted cost. 84 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

Tools The ROW Cost Estimate System (Tool R2.8) contains a workbook (tab) that is used to track actual ROW costs as parcels are acquired. Within the worksheets of the system, cells should be provided by category for inserting estimated costs to complete an acquisition. This workbook should, both electronically and in printed format, be able to provide the difference between the parcel forecasted cost and the latest updated parcel cost estimate. A simple example of this type of worksheet is shown in Figure 7.1. This example is taken from the FDOT Right-of-Way Work Program Cost Estimating System (see R2.8). A ROW Formal Database (Tool R2.9) would be another tool that supports the steps of this process. These types of systems can track the cost of each parcel from appraisal through acquisition and provide reports for management informa- tion and decisions. Such a database is additionally a source of recent historical data and market trends for land values when preparing future ROW estimates. The TxDOT uses a Geographic Information System (GIS)-based electronic tracking database to track the status of ROW acquisitions for its projects. The database stores information by par- cel number and owner names and includes information on easements, rights-of-entry, special commissioner assignments, review status (e.g., date received, date approved), acquisition cost, and other pertinent information. (Cambridge Systematics, 2006) GIS-based tools to track the status of individual properties, including the color-coded map- ping systems used in Texas and Minnesota, are an easy and effective way to ascertain the status of individual parcel acquisitions. The cross reference of GIS, property maps, and property owner names helps not only during the acquisition process but also for future property management and disposal of excess land. (Cambridge Systematics, 2006). Tips Use actual expenditures as the basis for identifying overall cost trends related to ROW acqui- sitions. Actual land values can be determined and used to estimate the probable cost of the remaining acquisition actions. Administrative costs for relocating property owners based on early purchases can also be used to update estimated administrative cost. Perform updates early but probably not before 20 to 25 percent of the actual acquisition costs have been recorded. Effective pursuit of innovative data management processes requires agency investment in per- sonnel, document management systems, equipment, electronic monitoring, and training. Doc- ument management systems become more critical as knowledgeable employees leave, taking institutional history with them. MnDOT invested significant resources in turning its old ROW maps and utility permits into an electronic format, but believes that the investment has made data-gathering more efficient and effective. (Cambridge Systematics, 2006) Outputs This step can identify potential changes, resulting from forecasts projecting higher ROW costs, to the current budget. Conversely, this step might also reflect the effect of a declining real estate market with a potential project cost savings as a result. These changes would be highlighted in the ROW Cost Estimate System and would serve to guide management decisions. If a cost increase is forecasted, the project development team should be responsible for devel- oping and presenting solutions that will bring the ROW cost within the budgeted amount. As NCHRP Synthesis 292 recommended; “Delegate authority for project decisions to project per- sonnel, rather than retaining authority at a more remote level.” Or, stated another way, make the project development team responsible for managing the budget (Waters, 2000). ROW Cost Management 85

Adjust ROW Budget Once a potential budget deviation is identified, this process step documents the budget devi- ation and the actions by both the project development team and management. If a budget adjustment is necessary, such action will, in most SHAs, have to be coordinated with Program Management. Project Complexity Similar to the first and second process steps, project complexity influences the level of effort required to evaluate forecasted ROW costs versus the current budget. In addition, the amount of documentation for tracking actual costs will increase correspondingly because more cost items will probably be necessary for more complex projects. Inputs Specific potential cost changes in the ROW budget are identified in the ROW Cost Estimate System. The Updated ROW Cost Estimate File should be the repository for documenting the basis for estimated costs to complete the acquisition of each parcel and describing the reasons for potential changes to the current ROW budget. Process Step Description The ROW estimator should 1. Document changes, including changes to the estimate basis and assumptions. The Updated ROW Cost Estimate File is modified to include the basis for any potential changes to the cur- rent budget as a result of parcel forecasts that are either over or under the estimated values. 2. Notify the project development team of any potential budget modification, noting the rea- son for a ROW budget change, so that the team can respond appropriately. Tools The ROW Cost Estimate System provides the hardware for capturing potential cost changes, and the Updated ROW Cost Estimate File contains the basis for estimated costs to complete each parcel acquisition. A change management form is used to document the potential change in cost and the rationale behind the change (Tool B1.5). Tips Budget control is a collaborative process. ROW and other project development functions can- not operate in isolation, handing off their work product to the next downstream activity. Poten- tial deviations in acquisition costs must be documented because this is critical to providing the project development team with current information on actual acquisition costs are affecting the total ROW budget. Early notification of budget deviations provides the project development team and management with information for making informed decisions to address potential cost overruns. Outputs The output of this step is a documented forecast of expected ROW cost and an analysis of potential deviations from the ROW budget. This forecast should accompany the project team’s 86 Procedures Guide for Right-of-Way Cost Estimation and Cost Management

proposal for addressing cost deviation and maintaining project cost within budget. The forecast is supported by documentation in the ROW Cost Estimate System and in the Updated ROW Cost Estimate File. Chapter Summary ROW Cost Management during Final Design was the focus of this chapter. The general process for tracking and managing actual ROW expenditures against the latest updated cost estimate (or budget) was presented. A final check of the latest updated ROW cost estimate is made based on final ROW plans. This check compares current cost estimates for each parcel with the latest budget for each parcel. As the appraisal and acquisition process begins and actual expenditures for prop- erties occur, the total forecasted cost is updated periodically so as to reflect actual costs and costs to complete the purchase of remaining parcels. The total forecast is compared with the latest budget. Deviations are documented and actions taken as needed to manage ROW costs. ROW Cost Management 87

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TRB’s National Cooperative Highway Research Program (NCHRP) Report 625: Procedures Guide for Right-of-Way Cost Estimation and Cost Management explores approaches for developing right-of-way (ROW) cost estimates. The report also examines ways to track and manage ROW cost during all phases of project development, including planning, programming, and preliminary and final design.

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