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OCR for page 19
4
Suggestions for Improving the Early
Estimating Procedures for Federal Agencies
,.
As discussed in the preceding chapters, inaccu-
ste estimates are not the only cause of budget-
related problems on federal projects, and the proce-
dures currently used by federal agencies to prepare
early estimates are not inferior to the procedures
used by most private owners. Nevertheless, the
committee age that federal procedures for pre-
paring early estimates could be and should be im-
proved, and the committee has prepared a list of
suggestions for the consideration of the agencies.
These suggestions, which are discussed below, were
distilled from a large number of ideas generated in
the course of the committee's discussion. Some of
the suggestions tend to complement one another,
while others are unrelated.
INTERAGENCY COOPERATION
Estimating is a field in which a free and continu-
ous flow of information is vital- as illustrated by
the flow diagram in Figure 1, Chapter 2. Federal
agencies are in a unique position to interchange
information to their mutual benefit; however, indi-
cations are it is an underused opportunity. The
committee believes that there are four areas in par-
ticular in which agencies could benefit from greater
cooperative action: standardization of tenninol-
ogy, standardization of estimate formats, joint re-
search efforts, and pooling of cost data.
Standardization of Terminology
As shown in Appendix E and as discussed in the
preceding chapter, different federal agencies use
different terminology for cost estimates. While the
differences in terminology have not caused any
serious problem to the committee's knowledge, they
certainly have made the committee's task much
more difficult and have probably created problems
for others who work with budgets and estimates for
a number of different agencies (e.g., members of
Congress, congressional staff personnel, Office of
Management and Budget personnel, and private A-
E firms). The absence of consistent terminology
probably has also contributed to the general lack of
interagency cooperation that the committee ob-
served, particularly with regard to the collection
and use of cost data. The committee suggests-that
agencies agree on terminology for construction cost
estimates and budgets. The agencies might con-
sider, for example; adapting the terms that the
committee has used, which are defined in Chapter
1. In any event, conflicting use of the same termi-
nology should be eliminated where possible.
Standardization of Estimating Formats
There has been considerable discussion among
estimators for a number of years about the relative
merits of trade (CSI) and elemental (UNIFORMS
methods of organizing construction estimates.
Proponents of the elemental method believe it is
the best method for organizing estimates because
costs can be presented in terms of building systems,
which is in accord with the way most engineers,
architects, and owners think of a building. Propo-
19
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20
nents of the ;rade approach note that most con~ac-
tors use Me CSI format, and furthermore, constnuc-
tion specifications are assembled using a CSI se-
quence. The committee believes that both ap-
proaches have merit, but the committee suggests
the use of the elemental method for early estimates
and the trade method for the later and more detailed
estimates. Automated estimating systems like
CACES permit estimates prepared in one format to
be translated into the other format.
Joint Research Efforts
The committee has seen relatively little evidence
of interagency cooperation on research related to
cost engineering or the sharing of the results of
research carried out by individual agencies. Agen-
cies discuss their research work in Federal Con-
s~uction Council meetings, but they do not initiate
any joint research activities Trough the council or
make extensive use of information that is presented
at council meetings. For example,. the.committee
understands mat no agency has adopted a computer
estimating system developed by another agency
(e.g., the 1391 Processor or CAGES).
The committee saw a great deal of interest on
the part of the agencies in cost engineering in gen-
eral and a desire to improve the accuracy of their
cost estimates. However, agencies seem to have
differing views on how estimates should be pre-
pared and the need for or value of research. Agen-
cies also probably suffer from the "not invented
· here" syndrome.
The committee believes Hat agencies would
benefit greatly if they could overcome impediments
to cooperative research efforts and the sharing of
research results. Joint sponsorship of research might
help eliminate the `4not invented here" problem by
giving all the participating agencies a feeling of
ownership of research results.
Pooling of Cost Data
The committee also has observed Hat although
historical cost data are kept by most agencies, such
information is seldom shared by the agencies ex-
cept in the Department of Defense. Some agencies
have expressed the view Hat the pooling of cost
data would be of little value because different agen-
cies construct very different facilities. There may
be some truth in this argument. For example, the
health care facilities construct by He Indian Health
Service are very different from the health care fa-
EARLY COST ESTIMATES FOR FEDERAL CONSTRUCTION PROJECl S
cilities constructed by the Veterans Administration
and the Department of Defense. On the other hand,
the large hospitals constructed by the Veterans
Administration would appear to be generally com-
parable to the large hospitals constructed by the
Department of Defense, and the cost data of one
agency should be usable by the other agency.
Similarly, although the industrial plants of the
Deparanent of Energy are unique to that agency,
other facilities constructed by DoE (e.g., laborato-
ries, office buildings, and warehouses) are not
unique, and DoE data on the cost of such facilities
might be of benefit to other agencies. Finally, at
the elemental level He cost of an item is unrelated
to the type of facility being constructed; thus, data
on the cost of brick, for example, could easily be
shred.
While it is possible that the idea of pooling cost
data on facilities constructed by many different
agencies might prove impractical for administra-
tive or organizational reasons, the committee be-
lieves that the idea should at least be explored.
THE IMPORTANCE OF A-E ESTIMATORS
In recent years federal agencies have come to
rely on the private sector for most activities related
to design of federal facilities, including He prepa-
ration of estimates. Thus, a large percentage of the
early estimates used by federal agencies to request
funds from Congress are prepared by estimators
employed by A-E firms or by independent consult-
ants who are subcontractors to A-E fogs with prime
design contracts. These private estimators also
develop most of the subsequent higher level esti-
mates that are prepared to help ensure that a project
stays within budget.
Since, as discussed previously, accurate estimates
are one of the keys to a successful project, the
qualifications of estimators employed by A-E firms
is a legitimate concern of the agencies. However,
to the committee's knowledge the qualifications of
the estimators to be used by an A-E are seldom a
major consideration in the selection of an A-E firm
for a design contact. In fact, it is sometimes not
even discussed. The committee feels that this is a
serious shortcoming of the A-E selection process
and that cost estimating capability should be more
heavily weighed in A-E selection criteria.
Agencies should also take steps to ensure that
design fees include adequate money for estimating
and that money earmarked for estimating is actu-
ally used for Hat purpose.
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SUGGESTIONS FOR IMPROVING THE EMMY ESTIMATING PR'EDURES
USE OF PARAMETRIC ESTIMATES
As discussed in the preceding chapter and AD
pendix D, the Air Force and several private corpo-
rations have developed parametric estimating sys-
tems in which the estimated cost of constructing a
proposed facility can be predicted by modifying the
known cost of constructing a similar facility in the
past on the basis of certain key parameters.
Some committee members feel that parametric
estimating techniques have advantages over tradi-
tional estimating techniques, especially for early
estimates. These members believe that traditional
estimates are prone to error because they depend on
the identification of every possible cost item in a
project and the assignment of accurate cost values
to those items. Since the likelihood of an item
being missed or of a cost being incorrectly esti-
mated is high, proponents of paramedic estimating
believe it is better to start with a complete and
accurate estimate and merely adjust to reflect the
situation win regard to the proposed facility.
Other committee members are skeptical of the
claims made for parametric estimating. They feel
that the validity of the formulae used to adjust costs
on the basis of parameters has not yet been suffi-
ciently validated to justify the widespread use of
the techniques. These members tend to support the
decision of Congress not to accept parametric esti-
mates as a basis for requests for funding. (lIow-
ever, Congress has authorized further investigation
of the technique.)
On the other hand, Air Force personnel have
investigated He accuracy of their parametric esd-
mating system and they believe that the system
produces estimates that are at least as accurate as
estimates prepared using more traditional methods
(see Bridges and Gregory, 1988~.
The consensus of the committee is that paramet-
ric estimating is most appropriate when the facility
being estimated is similar to a building for which
cost data is available. The committee believes that
pararne~ic estimating is sufficiently promising that
21
all agencies should consider using the technique
more extensively.
USE OF PROBABILISTIC ESTIMATING
Periodically over the past 15 years it has been
suggested that agencies could benefit from greater
use of probabilistic estimating techniques such as
range estimating (see Consulting Committee on Cost
Engineering, 1983~. Range estimating, as discussed
in Appendix D, is a technique that permits an esti-
mator to quantify his confidence/uncertainty about
an estimate. There is of course a degree of uncer-
tainty about all estimates, but the uncertainty is
highest early in the design process, particularly in
unusual projects and projects with many unknowns.
With probabilistic estimates, a number of pos-
sible construction costs for a project are determined,
and the probability of each value being the low bid
is calculated. If an estimator's confidence in his
data is high, the range or spread of possible costs
will be narrow and the probabilities attached to the
values near the mean will be high. Conversely, if
an estimator's confidence in his data is low, the
range of possible costs will be wide and the proba-
bilities attached to values near the mean will be
low.
As in the case of parametric estimating, He
commit members were split on the value of proba-
bilistic estimates. Some members felt that proba-
bilistic estimates more accurately reflect the real
world, and thus are inherently better than single-
value estimates. However, other members note
that probabilistic estimates are more time-consum-
ing to prepare than traditional estimates and that
they can also be more difficult to interpret.
The majority of committee members agreed that
there is a benefit to viewing project budgets in
terms of probability and risk. It is the committee's
recommendation, therefore, that agencies consider
preparing early estimates as probabilistic esti-
mates~specially for unusual and high-risk proj-
ects.
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Representative terms from entire chapter:
parametric estimating
