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Transport Infrastructure (non ICT)

Project Cost Estimating Manual

Fifth Edition March 2012

TRADEMARKS ACKNOWLEDGEMENT
Terms mentioned in this document that are known or understood to be trademarks, whether registered or not, have been identified. Where trademarks have been confirmed as registered in Australia, this has been indicated by the addition of the symbol, otherwise the symbol is used. While all care has been taken to identify trademarks, users should rely on their own inquiries to determine trademark ownership. Use of a term in this document as a trademark should not be regarded as affecting the validity of any trademark.

IMPORTANT INFORMATION
The requirements of this document represent Technical Policy of the department and contain Technical Standards. Compliance with the departments Technical Standards is mandatory for all applications for the design, construction, maintenance and operation of road transport infrastructure in Queensland by or on behalf of the State of Queensland. This document will be reviewed from time to time as the need arises and in response to improvement suggestions by users. Please send your comments and suggestions to the feedback email given below.

FEEDBACK
Your feedback is welcomed. Please send to mr.techdocs@tmr.qld.gov.au. DISCLAIMER This publication has been created for use in the design, construction, maintenance and operation of road transport infrastructure in Queensland by or on behalf of the State of Queensland. Where the publication is used in other than the departments infrastructure projects, the State of Queensland and the department gives no warranties as to the completeness, accuracy or adequacy of the publication or any parts of it and accepts no responsibility or liability upon any basis whatever for anything contained in or omitted from the publication or for the consequences of the use or misuse of the publication or any parts of it. If the publication or any part of it forms part of a written contract between the State of Queensland and a contractor, this disclaimer applies subject to the express terms of that contract. COPYRIGHT Copyright protects this publication. Except for the purposes permitted by and subject to the conditions prescribed under the Copyright Act, reproduction by any means (including electronic, mechanical, photocopying, microcopying or otherwise) is prohibited without the prior written permission of the department. Enquiries regarding such permission should be directed to the Contracts and Technical Capability Branch, Queensland Department of Transport and Main Roads. State of Queensland (Department of Transport and Main Roads) 2012

http://creativecommons.org/licences/by-nc-nd/2.5/au

Revision Register
Rev No 1 2 3 4 5 6 7 Manual contents revised Manual contents revised Manual contents revised Reference selection Description of Revision Draft Release, July 2002 First 2004 Edition, February Amended by Date July 2002 Feb 2004 April 2004 Dec 2004 Eric Wellings and Keith Brownjohn PCEM Management Team PCEM Management Team Dec 2007 July 2009 Feb 2012

First Edition Version 1.1, April 2004 Second Edition, December 2004 Third Edition, December 2007 Fourth Edition, May 2009 Fifth Edition, Mar 2012

Manual Management Plan


Purpose This plan outlines the manual management process for the Project Cost Estimating Manual (PCEM). The Department of Transport and Main Roads was subject to an independent federal audit of its estimating practices in 2007. This Manual incorporates the findings of that report, and accommodates the May 2011 edition of the Federal Government Best Practice Cost Estimation Standard for Publicly Funded Road Construction. Roles This manual is managed through the following roles: Role Manual Customer Manual Sponsor Manual Manager Regional/District Champions Manual Review Team Members Position/ Person General Manager Program Development and Management Executive Director Program and Project Delivery Director (Program Delivery Improvement) Nominated Person Manager (Estimating) PDI Manager (Delivery strategy) PDI Director (Program Delivery Improvement) PDI Project Manager (Estimating) MIP Regional/District Estimating Champion x 2

Amendment and Review Strategy Transport and Main Roads welcomes feedback about this manual. Please send feedback via the feedback form included in this manual and fax to Transport and Main Roads technical reference Centre (07 3834 2612), for the attention of The Manual Manager, who will acknowledge all feedback, suggested changes and improvement requests. The Manual owner and review team are responsible for ensuring the manual is updated to meet the departments needs. To this end the Manual Manager, in collaboration with the manual review team will: Review feedback and comments; Monitor the context/ environment the manual operates in / contemporary developments; and Recommend appropriate action to the Manual Sponsor.

Manual Availability The PCEM is available in PDF format on the Transport and Main Roads website (www.tmr.qld.gov.au).

Department of Transport and Main Roads

Project Cost Estimating Manual

Table of Contents
Page
1 INTRODUCTION.........................................................................................................................................1 1.1 Purpose and Application ......................................................................................................................1 1.2 Manual Structure..................................................................................................................................1 1.3 Relationship to other systems..............................................................................................................1 1.4 References...........................................................................................................................................2 1.5 Glossary of Terms................................................................................................................................2 1.6 Acronyms and General Definitions ......................................................................................................8 ESTIMATING POLICY AND ENVIRONMENT..........................................................................................11 2.1 Policy Statement ................................................................................................................................11 2.1.1 Background.................................................................................................................................11 2.1.2 Issues..........................................................................................................................................11 2.1.3 Related Policies and Standards..................................................................................................11 2.2 Estimating Principles..........................................................................................................................11 2.3 Applicability ........................................................................................................................................11 2.4 Estimating Rationale ..........................................................................................................................12 2.5 Estimating Practices ..........................................................................................................................12 2.6 Transport System Manager (TSM) Framework .................................................................................12 2.7 Transport Infrastructure Portfolio Management and Estimating ........................................................13 2.8 Program Management Framework ....................................................................................................14 2.9 OnQ Project Management Framework ..............................................................................................14 2.10 Integrating TSM, Portfolio, Program and OnQ Project Management Frameworks with TMR Business Rules (QTRIP)...............................................................................................................................14 2.11 Procurement Management and Estimating....................................................................................15 2.12 OnQ and Estimating .......................................................................................................................16 2.13 Estimate Categories .......................................................................................................................18 2.14 Estimate Development ...................................................................................................................19 2.15 Estimate Structure ..........................................................................................................................19 2.16 Project Types..................................................................................................................................21 2.17 P90 Estimating for Projects ............................................................................................................21 2.18 Performance Standards and Measurement ...................................................................................22 2.19 Taking Account of Optimism Bias ..................................................................................................25 ESTIMATING PROCESSES.....................................................................................................................27 3.1 Process Overview ..............................................................................................................................27 3.2 Project Scope Definition.....................................................................................................................27 3.2.1 Project Definition.........................................................................................................................30 3.2.2 Physical Scope Criteria...............................................................................................................30 3.2.3 Factors Influencing Estimates: Common Scope Issues .............................................................30 3.3 Estimate Planning ..............................................................................................................................31 3.4 Resource Planning.............................................................................................................................32 3.4.1 General .......................................................................................................................................32 3.4.2 Work Method Studies (Constructability) .....................................................................................32 3.5 Cost Estimate Development ..............................................................................................................32 3.6 Risk and Contingencies .....................................................................................................................33 3.6.1 Categories of Cost Change ........................................................................................................34 3.7 Escalation...........................................................................................................................................34 3.8 Estimate Reviews...............................................................................................................................34 3.8.1 Reality Checks ............................................................................................................................34 3.8.2 Peer Review................................................................................................................................35 3.8.3 Concurrence Review ..................................................................................................................35 3.8.4 Program Review .........................................................................................................................36 3.9 Estimate Approvals ............................................................................................................................36 3.10 Estimating Responsibilities.............................................................................................................36 3.10.1 Estimate Preparation ..................................................................................................................36 3.10.2 Estimate Review .........................................................................................................................37
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Project Cost Estimating Manual 3.10.3 4

Department of Transport and Main Roads

Estimate Approvals .................................................................................................................... 37

TMR ESTIMATE STRUCTURE ............................................................................................................... 39 4.1 Construction Contractors Costs ....................................................................................................... 41 4.1.1 Direct Job Costs......................................................................................................................... 41 4.1.2 Indirect Job Costs ...................................................................................................................... 42 4.1.3 Off Site Overheads and Margin ................................................................................................. 43 4.2 Principals Costs................................................................................................................................ 43 4.2.1 Concept Phase Costs ................................................................................................................ 44 4.2.2 Development Phase Costs ........................................................................................................ 45 4.2.3 Implementation Phase Costs ..................................................................................................... 45 4.2.4 Finalisation Phase Costs ........................................................................................................... 45 4.2.5 Project Management Costs (All phases).................................................................................... 46 4.2.6 Principals Obligations (3 phases).............................................................................................. 46 4.3 Contingency Allowances ................................................................................................................... 47 4.3.1 Design Development Changes .................................................................................................. 47 4.3.2 Standards and Policy Changes.................................................................................................. 48 4.3.3 Third Party Influences ................................................................................................................ 48 4.3.4 Revised Functionality ................................................................................................................. 48 4.3.5 Principals Costs......................................................................................................................... 48 4.3.6 Planned Risks ............................................................................................................................ 48 4.3.7 Project Delay (Escalation allowance)......................................................................................... 48 4.3.8 Changes during Implementation Phase..................................................................................... 48 4.3.9 Property/ Land Acquisition ......................................................................................................... 49 4.3.10 Unmeasured (Unidentified) Items .............................................................................................. 49 4.3.11 Quantification of Contingencies ................................................................................................. 49 4.4 Escalation.......................................................................................................................................... 50 4.4.1 Cost Escalation Road Input (CERI) Index.................................................................................. 50 ESTIMATE DOCUMENT DEVELOPMENT BY PHASE .......................................................................... 51 5.1 Pre Project Phase ............................................................................................................................. 51 5.1.1 Strategic Estimates .................................................................................................................... 51 5.2 Estimating in the Concept Phase ...................................................................................................... 56 5.2.1 Project Proposal Estimates........................................................................................................ 56 5.2.2 Options Analysis Estimates ....................................................................................................... 57 5.2.3 Business Case Estimates .......................................................................................................... 57 5.2.4 Benefit Cost Analysis ................................................................................................................. 58 5.3 Estimating in the Development Phase .............................................................................................. 60 5.3.1 Preliminary Design Estimates .................................................................................................... 61 5.3.2 Detailed Design Estimates......................................................................................................... 61 5.3.3 Estimate for Comparison with Tender (EFCT)........................................................................... 63 5.4 Estimating in the Implementation Phase........................................................................................... 64 5.4.1 Construction Estimate ................................................................................................................ 64 5.4.2 Regular Updates of the Cost Estimate....................................................................................... 64 5.4.3 Periodic Forecasting .................................................................................................................. 64 5.4.4 Contract Variations..................................................................................................................... 65 5.5 Estimating in the Finalisation Phase ................................................................................................. 66 5.5.1 Requirements............................................................................................................................. 66 5.5.2 Learnings ................................................................................................................................... 66 5.5.3 Post Implementation Review ..................................................................................................... 66 5.6 Exceptions with Minor Works ............................................................................................................ 67 ESTIMATING ROLES AND RESPONSIBILITIES ................................................................................... 69 6.1 Overview ........................................................................................................................................... 69 6.2 Senior Management Roles and responsibilities................................................................................ 69 6.3 Regional/District Roles and Responsibilities..................................................................................... 69 6.4 Project Roles and Responsibilities.................................................................................................... 70 PRESENTATION OF ESTIMATES .......................................................................................................... 73 7.1 Work Breakdown Structure (WBS).................................................................................................... 73 7.1.1 The WBS Levels ........................................................................................................................ 73 7.1.2 Construction Activities................................................................................................................ 74 7.2 Project Cost Estimates ...................................................................................................................... 77

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7.3 Works Management System Estimating Module (WMS: Estimating).............................................77 7.3.1 Works Management System.......................................................................................................77 7.3.2 WMS Estimating Module ............................................................................................................77 7.3.3 WMS eDocuments Module .........................................................................................................78 7.3.4 WMS System Maintenance and Further Information..................................................................78 7.4 Supporting Information.......................................................................................................................78 7.5 Communication of Project Cost Estimate ..........................................................................................78 7.5.1 Project Estimating Control Checklist (PECC) .............................................................................79 7.5.2 Estimate Categories ...................................................................................................................79 8 BENCHMARKING AND QUALITY ASSURANCE ...................................................................................81 8.1 Benchmarking ....................................................................................................................................81 8.1.1 Gathering suitable information to benchmark against ................................................................81 8.1.2 Benchmarking methods ..............................................................................................................81 8.2 Quality Assurance (QA) .....................................................................................................................82 ESTIMATING TOOLS AND TECHNIQUES..............................................................................................83 9.1 Estimating Methods............................................................................................................................83 9.1.1 Global Estimate (Benchmark rates)............................................................................................83 9.1.2 Unit Rate Estimate (based on historic rates) ..............................................................................83 9.1.3 First Principles (Basic Cost) Estimate ........................................................................................84 9.1.4 Hybrid (Unit Rate/First Principles) Estimate ...............................................................................84 9.2 Selecting the Appropriate Method......................................................................................................84 9.2.1 Recommended Method ..............................................................................................................84 9.3 Probabilistic Estimating......................................................................................................................85 9.3.1 Overview .....................................................................................................................................85 9.3.2 Requirements..............................................................................................................................85 9.3.3 Probability Distributions ..............................................................................................................85 9.3.4 Monte Carlo analysis ..................................................................................................................85 9.4 Estimating Tools.................................................................................................................................86 9.4.1 Works Management System (WMS) ..........................................................................................86 9.4.2 Smart Cost ..................................................................................................................................86 9.4.3 Expert Estimation (EE) ...............................................................................................................86 9.4.4 @Risk .........................................................................................................................................87 9.4.5 ProjMan.......................................................................................................................................87

10 RISK MANAGEMENT AND CONTINGENCY OVERVIEW...................................................................89 10.1 Risk.................................................................................................................................................89 10.2 Contingency....................................................................................................................................89 10.3 Risk Management within TMR .......................................................................................................89 10.3.1 Risk Context................................................................................................................................90 10.3.2 Planned and Unplanned Risks ...................................................................................................91 10.3.3 Risk Assessment ........................................................................................................................91 10.3.4 Statistical Techniques.................................................................................................................95 10.4 Contingency Limitations .................................................................................................................96 10.5 Applying Contingencies..................................................................................................................96 10.6 Quantification of Contingencies......................................................................................................97 10.7 Reviewing Contingencies ...............................................................................................................97 10.8 Categories of Cost Change ............................................................................................................97 11 PROJECT MANAGEMENT ...................................................................................................................99 11.1 Project Classification ......................................................................................................................99 11.2 Project Templates...........................................................................................................................99 11.3 Project Phases .............................................................................................................................100 11.4 Project Knowledge Areas (Elements)...........................................................................................100 11.5 Project Cost Management............................................................................................................101 11.5.1 General .....................................................................................................................................101 11.5.2 Cost Planning............................................................................................................................102 11.5.3 Cost Control ..............................................................................................................................103

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Project Cost Estimating Manual Annexure A: Site Visit Checklist Annexure B: Estimate Peer Review Checklist

Department of Transport and Main Roads

Annexure C: Work Breakdown Structure Construction Activities Annexure D: Work Breakdown Structure Principals Activities Annexure E: Contingency for Strategic Estimates Annexure F: Extracts from Nation Building Program Notes on Administration, March 2006 Annexure G: Description of Estimate Categories Annexure H: Escalation Calculator Annexure I: Project Cost Estimating Control Checklist Annexure J: Estimate Report Format Annexure K: Land Resumption Flowchart Annexure L: Yellow Form Project Cost Estimate Summary and Approval Form (M4755)

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1
1.1

INTRODUCTION
Purpose and Application

The purpose of this manual is to provide rules and standards for the preparation of cost estimates in support of all transport infrastructure projects developed in accordance with the TSM framework by the Department of Transport and Main Roads (TMR). This manual covers the preparation of estimates in support of the identification, selection, development, implementation and finalisation of projects that form the Queensland Transport and Roads Investment Program (QTRIP). The use of reliable cost estimate information includes: a) b) c) d) e) f) Justification for a candidate project to be accepted as a project (for example strategic or proposal estimates); Justification of a project's business case (for example cost/benefit analysis); Justification for design cost approval both preliminary and detailed; Comparison of tenders; Estimation of variations and alternative project completion options; and Ongoing cost control during the project's concept, development, implementation and finalisation phases.

Costs are accumulated during all phases of a project from concept to finalisation. Consequently, total project cost estimates must include all cost components, some of which some are becoming increasingly significant. For example: land acquisition, relocating public utility plant and environmental offsets, to name a few. This manual provides information on a range of processes and techniques to suit the varying circumstances under which estimates are developed. It does not however specify the organisational structure required to produce estimates. Direction is given as to those positions authorised to sign at various stages of the estimate development and approval. Project cost management, of which project cost estimating is a part, is to be applied in the context of OnQ, TMR's project management methodology. As such, it is highly advised that readers understand the OnQ methodology and processes as well as the processes in the Preconstruction Processes Manual before reading the Project Cost Estimating Manual. This will provide the comprehensive foundation needed for estimating in the Transport and Main Roads environment.

1.2

Manual Structure

This manual is structured to provide increasing levels of detail as the reader progresses. Up front the manual provides an overview of the transport infrastructure delivery estimating function at TMR. Topics introduced include estimating policy, operational position in regard to integration with program and project management, life cycle stage identification, reporting guidance, estimate structure, estimating principles and rationale, standards and performance requirements and the project types. A clear relationship exists between the defined estimating process and the estimate structure. For this reason the generic estimating process is described followed by a description of the estimate document structure. This is foundational knowledge for any estimate on any type of project. The development processes for each estimate document are then detailed. These are arranged in order of the sequence of estimate stages. The final section sweeps up the tools and techniques available to aid in estimate development.

1.3

Relationship to other systems

This manual has been structured as a reference on project cost estimating for project managers and estimators, within the context of TMRs Transport System Manager framework (TSM), Program Management Framework (PMF), Queensland Transport and Roads Investment Program (QTRIP) and OnQ project management methodology. The departments various manuals and annexures are intended to be complementary. However, where a conflict occurs, the manual with the latest publication date takes precedence.

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Note: Any such conflict should be reported to the manual owner through the feedback process so that necessary corrective action can be taken.

1.4

References

DITRDLG (June 2008) Best Practice Cost Estimation for Publicly Funded Road and Rail, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra. DOIT (May 2011) Best Practice Cost Estimation for Publicly Funded Road and Rail Construction, Department of Infrastructure and Transport, Canberra. DOIT (2009) Nation Building Program Notes on Administration, Department of Infrastructure and Transport, Canberra. QLD Government Financial Accountability Act 2009, Part 4, Section 61(b) QLD Government Financial and Performance Management Standard 2009, Part 2 Division 4 and 28 Flyvbjerg, B. in association with COWI (2004) Procedures for Dealing with Optimism Bias in Transport Planning Guidance Document, for the British Department of Transport, included as Appendix 7 of Evans and Peck 2007, A Review of the Reliability of Cost Estimation of TMR Projects funded under Auslink, Brisbane. Project Management Institute, A Guide to the Project Management Body of Knowledge (PMBOK Guide) 4th ed, Project Management Institute, Newtown Square, 2008 Project Management Institute, A Guide to the Project Management Body of Knowledge (PMBOK Guide) 3th ed, Project Management Institute, Newtown Square, 2004 Standards Australia 2009 Communicating and consulting about risk (HB 327:2010) Standards Australia 2009 Governance, Risk Management and Control Assurance (HB 254-2005) Standards Australia 2009 Risk Management Principles and Guidelines (AS/NZS ISO 31000:2009) Standards Australia 2009 Risk Management Risk assessment techniques (IEC/ISO 31010) Standards Australia 2009 Risk Management Vocabulary (ISO Guide 73:2009) TMR (2005) Preconstruction Processes Manual, Department of Transport and Main Roads. Brisbane. TMR (2002) Road Planning and Design Manual, Department of Main Roads, Brisbane. TMR (2012) Standard Specification Roads Fourth Edition, Department of Transport and Main Roads. Brisbane. TMR (2012) QTRIP Guidelines 2012-13 to 2015-16, Department of Transport and Main Roads, Brisbane. TMR (2012) Project Management Reference Guide, Department of Transport and Main Roads, Brisbane. Roads and Traffic Authority of New South Wales (2008) Project Estimating, RTA, Sydney. TMR (Nov. 2011) WMS Estimating Module User Guide, Department of Transport and Main Roads, Brisbane. TMR (Nov. 2011) WMS eDocuments Module User Guide, Department of Transport and Main Roads, Brisbane. TMR (2011) Cost-benefit Analysis Manual Road projects, Department of Transport and Main Roads, Brisbane.

1.5

Glossary of Terms

Accountability The final responsibility for completion of tasks and achievement of results within delegated authority and to established performance standards. Activity An element of work performed during the course of a project. An activity normally has an expected duration, cost and resource requirement. Activities can be subdivided into tasks. Actual Cost The final out-turn dollar expenditure on a project.

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Department of Transport and Main Roads Anticipated Final Cost

Project Cost Estimating Manual

The sum of expenditure to date, plus the forecast expenditure, in out-turn dollars, to complete the project. Base Date The calendar date at which the current project estimate has been calculated, (i.e. before escalation). Base Estimate The base estimate is the total contract works costs and principals costs, not including project risk contingencies and escalation. Benchmarking Gathering, collating, and analysing historical data and storing it for future use. Bill of Quantities A building industry term, not used in this manual. It refers to a list of work items, their measurement and quantities but excluding a unit rate / lump sum. Budget The budget is the approved amount of funding for a project. This may be different to the estimates throughout the project life cycle. Business Case Estimate An estimate prepared during the concept phase to support the projects Business Case. Candidate Project A body of work identified in TSM Phase 3 that with approval may become a project. Cash Flow Cash flow is the project base estimate plus contingency amount expenditure profile across the financial years the funds are expected to be spent. Component A definable part of a project, including stages of planning, design and construction that contribute to the total project cost. Concurrence Review An independent third party review of a project estimate where the estimator, sponsor and reviewer agree regarding the estimate metrics. Construction / Contract Price The agreed contractor's tendered price for a particular project component. Construction Estimate An estimate produced after acceptance of the successful tenderer just prior to the implementation phase. Contingency A financial reserve included in the projects estimate to offset uncertain or unpredictable factors relating to the delivery of project objectives. Contingency Reserve The amount of funds, budget or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organisation. (PMBOK 2008) An estimate of costs associated with identified uncertainties and risks, the sum of which is added to the base estimate to complete the project cost estimate. Contingency is expected to be expended during the project development and construction process if the risk eventuates. Cost Escalation Roads Input Index (CERI) The escalation index for TMR infrastructure projects in Queensland.

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Project Cost Estimating Manual Cost Estimating

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The process of estimating the cost of the resources needed to complete project activities. Current Risk (previously known as Inherent Risk) The exposure arising from a specific risk before any specific treatment action has been taken to manage it. Detailed Design Estimate The estimate of all components of a project prepared prior to calling of tenders for construction, and based on final designs, construction specifications and project documentation. It is expressed in out-turn dollars. Escalation The anticipated increase in project costs over time as a result of various factors such as inflation, market conditions, supply constraints and project complexity. Estimate A document recording the calculated cost prediction to undertake a specific amount of work. It is prepared in a systematic manner appropriate to the size and complexity of the work, and to a level of accuracy commensurate with the available information and the intended use of the information developed. It may include some prior expenditure. Estimated Final Cost See Anticipated Final Cost. This term is used in Projman. Estimate for Comparison with Tenders (EFCT) The estimate costed with reasonable rates used to assess tenders bids. This only considers contract scope, not the whole project. Estimated Total Project Cost (ETPC) The Total Project Cost is the sum of the Base Estimate plus Contingency plus Escalation, expressed in P90 values. This is also referred to as the Total Out-turn Cost. See also Total Project Cost definition. Expert Estimation TMRs preferred application to compile first principle estimates. Estimate Report A report containing the estimate and details of the estimating processes, assumptions, inputs etc. First Principles (Basic Cost) Estimating A detailed estimating method based on a detailed: work breakdown structure, work methods, production rates and resource requirements. The estimate is structured to provide details of direct costs, on-site overheads, off-site overheads, contractor contingencies and margin. Global Estimating A very approximate estimating method based on an all inclusive unit rate, such as $/km of road. Also known as Order of Magnitude estimating. Indirect Costs These are costs not directly attributable to work items. For construction activities these costs include on-site overheads (such as site supervision) and off-site overheads (contractors corporate/business costs). They are exclusive of contractors contingency and profit. Inflation An allowance for the rising cost of the project due to rise and fall factors external to the project definition. Management Reserve Management reserves are budgets reserved for unplanned changes to project scope and cost. The project manager will be required to obtain approval before obligating or spending management reserve. Management Reserve is administered at the program level.

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Department of Transport and Main Roads Margin (contractor) An allowance that includes the contractor's corporate overheads and profit. Memorandums of Understanding

Project Cost Estimating Manual

A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It most often is used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement. OnQ TMRs Project Management Framework that provides direction and guidance for effective management and delivery of projects. Optimism Bias The tendency for people to be overly optimistic regarding project costs and planned durations. Out-turn Dollars The dollars of the period in which the work will be performed. Estimates prepared at a particular date can be converted to out-turn dollars by applying the appropriate escalation rates to the projects planned cash flow. P50 Estimate An estimate with a 50% confidence of not being exceeded at project completion, while not being overly conservative. P90 Estimate An estimate with a 90% confidence of not being exceeded at project completion, while not being overly conservative. Pareto Approach Pareto analysis suggests that 80% of a problem may be attributable to only 20% of causes. Peer Review A review of the project estimate by an independent, experienced estimator from within TMR. Portable Long Service Leave As the building and construction industry is project driven, it would be impossible for most workers to accrue enough service with one employer to be eligible for long service leave. Portable Long Service Leave provides long service leave entitlements to workers in the building and construction industry as they move between projects. Portable Long Service Leave Levy The Portable Long Service Leave Levy is collected solely to fund the Building and Construction Industry Portable Long Service Leave Scheme. If the work is being done for a local government, government entity or non-Queensland government entity, the local government or entity is responsible for payment of the levies and fee. Project Proposal Report (PPR) The Project Proposal Report (PPR) is a funding proposal template to document the information required for federally funded projects under the Nation Building Program. It equates to a Business Case for state funded project in the QTRIP. Principal Arranged Insurance Principal Arranged Insurance is insurance arranged by an agency representing a Principal to cover the agency, Principal, contractors and subcontractors and other service providers in respect of risks under contracts let by the Principal. The premiums may be paid by the agency or by each contractor to the Principal.

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Project Cost Estimating Manual Principals Costs

Department of Transport and Main Roads

Principals Costs are those costs which TMR incurs to conceptualise, develop, deliver and finalise a project and can also be referred to as the Non-Construction activities. May include, community consultation, environmental assessment, design planning, services relocation, resumptions and so on. Preliminary Design Estimate The estimate of all components of a project prepared based on advanced design. It provides a check of the alignment between the project estimate and the approved scope/budget. It occurs immediately prior to the Detailed Design stage. It is expressed in out-turn dollars. Probabilistic Estimating A method of generating estimates which takes into consideration that quantities measured (or allowed for) can change, rates assumed can vary and risk with a probable outcome can materialise. Program A group of related projects managed in a coordinated way in order to obtain benefits and control not available from managing them individually. Program Management Framework TMRs operational model for qualifying, selecting and managing projects through their life cycle. Program Manager The person responsible for leading and managing a group of projects. The program manager interacts with each project manager to provide support and guidance on individual projects. Program of Work The planned durations for performing activities and the planned dates for reaching milestones. Project A temporary endeavour undertaken to create a unique product, service or result. It has a clearly defined start and end time, a structured set of activities and tasks, a budget and a specified business case. Project Estimate A term generally referring to an estimate prepared for a project, often referring to the whole project cost. Project Manager The person responsible for managing a project and achieving its objectives. Manages all activities necessary to deliver the project or services to the required quality standard and within the time and cost constraints. Project Life Cycle All of the activities necessary for a project throughout its life, from beginning to end, normally dissected into a number of sequential phases. The generic project life cycle has four stages: concept, development, implementation and finalisation. Project Schedule Term not used in this manual. See either Schedule of Rates or Program of Work. Program of Work The planned durations for performing activities and dates of reaching milestones. Projman A standardised Regional/District based financial information system. Proposal Estimate A project estimate in out-turn dollars, prepared to support a projects proposal document. Provisional Items Items included in an estimate which cannot be accurately quantified.

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Department of Transport and Main Roads Public Utility Plant

Project Cost Estimating Manual

Public Utility Plant (PUP) includes, but is not limited to, infrastructure related to the distribution of communications, electricity, water, sewerage, gas, etc. Qualitative Risk Analysis The process of prioritising risk for subsequent analysis or action by assessing and combining probability of likelihood and impact. (PMBOK 2008) In regards to estimating and risk assessment, this approach draws upon the softer skills such as past experience, asking stakeholders the right questions, decision making, problem solving and common sense review by appropriate personnel and is more reliant on the project teams experience. Quantitative Risk Analysis The process of numerically analysing the effect on project objectives of identified risk (PMBOK 2008). In regards to estimating and risk assessment, this approach draws upon the use of tools, techniques, templates, software, etc, and the use of specialist risk estimating software, such as @Risk. Queensland Transport and Roads Investment Program (QTRIP) The QTRIP is the program of works Transport and Main Roads plans to deliver over the upcoming four years. Range Estimate An estimate which reports the pessimistic, optimistic and most likely values. Reality Check The action of comparing an estimate and/or its items to previous benchmarked values. Risk - Project A project risk is the effect of uncertainty on project objectives (Adapted from AS/NZS ISO 31000); the chance of something happening that will have an impact upon project objectives. Risk is measured in terms of consequences and likelihood. Schedule See Schedule of Rates Schedule of Rates The list of all project items, quantities and rates, whether the rates have been entered or not. Scope The scope is the work that must be undertaken to deliver a product, service or result with the specified features and functions. Scope Creep Increase in project scope not anticipated at the start of the project (often unapproved). Smart Cost A library of resources associated with TMR standard work items, which is updated every 6 months with current rates. It is used by the Expert Estimation tool in the preparation of project estimates. Stage A logical construct to describe the division of work within a project phase. Standard Work Item Groups A specific group of construction work using in TMR Standard Specifications. Strategic Estimate An estimate in current dollars prepared to support TMR Strategic Road Network Planning processes. Total Completion Cost The actual cost of a project.

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Project Cost Estimating Manual Total Project Cost The estimated Total Completion Cost. Transport System Manager (TSM)

Department of Transport and Main Roads

The overarching operational framework for infrastructure planning and delivery in TMR Uncertainty Uncertainty represents unknown or ill-defined variables causing a loss or profit. The point is that the agency causing the loss or profit can not be named. Value Management A structured, analytical process that seeks to achieve value for money by providing all the necessary functions at the lowest total cost consistent with required levels of quality and performance. Variation Approved change to the scope of work. Variation Estimate An estimate prepared to support a change request for variation in the approved scope of work. Works Management System (WMS) A departmental application used to develop and present estimates in accordance with TMR estimate format. WMS also develops contract documents and incorporates these estimates into the tender documents.

1.6

Acronyms and General Definitions


Terms Definition Best Practice Cost Estimation Standard for Publicly Funded Road and Rail Construction, May 2011 Cost Escalation Road Input Design and Construct Department of Infrastructure and Transport (Formerly DITRDLG) Department of Infrastructure, Transport Regional Development and Local Government (Formerly DoTaRS) Direct Job Costs Department of Transport and Regional Services (became DITLRG, then DoIT) Engineering and Technology Early Contractor Involvement Estimate For Comparison with Tenders General Manager Information Communication Technology Memorandum of Understanding Major Infrastructure Projects Department of Transport and Main Roads Main Roads Specification Main Roads Technical Specification Minor Works Contract

BPCES CERI D&C DoIT DITRDLG DJC DoTaRS E&T ECI EFCT GM ICT MOU MIP TMR MRS MRTS MWC

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Department of Transport and Main Roads Terms MWPC NBP NDRRA NH OnQ OSCR PAI PCEM PD&O PDI PM PMF PUP RCC RICI QTRIP SPIDA RMPC TSM TNRP WBS WMS $OT Nation Building Program

Project Cost Estimating Manual Definition

Minor Works Performance Contract Natural Disaster Relief and Recovery Arrangements National Highway The project management methodology framework used by Queensland Transport and Main Roads Other State Controlled Roads Principal Arranged Insurance Project Cost Estimating Manual Program Delivery and Operations Program Delivery Improvement Project Management Program Management Framework Public Utility Plant Road Construction Contract Roads Input Cost Index Queensland Transport and Roads Investment Program State-wide Program Investment Delivery Application Road Maintenance Performance Contract Transport System manager Transport Network Reconstruction Program Work Breakdown Structure Works Management System Out-Turn dollars

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2
2.1

ESTIMATING POLICY AND ENVIRONMENT


Policy Statement

Transport and Main Roads (TMR) Infrastructure Project Cost Estimating Policy requires all TMR infrastructure projects to be completed in the format prescribed by the Project Cost Estimating Manual (PCEM). TMR is committed to producing accurate and realistic project cost estimates.

2.1.1

Background

TMR supports Queensland government priorities and objectives and develops these into investment strategies based on the states strategic transport needs. Identifying and funding the highest priority works to meet these needs, and managing them through an efficient transport portfolio of work, is critical to realising the benefits each project outcome will deliver to the community. Portfolio, program and project management processes rely on sound strategic estimates, project cost estimates and cost control to ensure decision integrity in relation to conformance with government priorities, project justification and authorisations, and operation of transport infrastructure programming.

2.1.2

Issues

Recent economic fluctuations have highlighted the need for robust estimating practices and provided impetus for increasing scrutiny of TMR estimates from both Federal and State bodies as well as TMR scrutiny of industry provided estimates. The estimating function is significantly impacted by program and project practices. When these estimating practices constrain the estimating function, the result can be inaccurate estimates, project budget shortfalls, delays in project funding and approval and negative perceptions of TMR estimating professionalism.

2.1.3

Related Policies and Standards

TMR Infrastructure Project Cost Estimating Policy and this manual support other TMR policies, standards and frameworks, such as the TMR Transport System Manager (TSM) framework, the Queensland Transport Investment Program (QTRIP) of projects, Program Management Framework (PMF), the Best Practice Cost Estimation Standard for Publicly Funded Road and Rail Construction, May 2011, and the Nation Building Program Notes on Administration, 2009.

2.2

Estimating Principles

TMR's estimating policy is founded on five key principles: Estimates are created in accordance with the requirements of the Program Management Framework (PMF), TMR OnQ Project Management Methodology, Work Breakdown Structure (WBS), and Transport and Main Roads Specifications and Technical Standards; 1. All estimates are prepared on an "unlikely to be exceeded but not excessively conservative" basis for various stages of the project life cycle to provide confidence in project priority, affordability and strategic fit; Estimates are to be presented using the estimate document format which highlights the elements of the estimate structure and relevant project cost attributes; Estimates are subject to a review and approval process to ensure accountability, responsibility, costing standards and control applied to any budget that is to be released; and Estimate performance will be ascertained at all funding approval points.

2. 3. 4.

2.3

Applicability

The Project Estimating Policy requires that all transport infrastructure project and project components undertaken by the Department Transport and Main Roads must comply with this manual. This includes all state and federally funded projects including all Queensland Transport and Roads Investment Program (QTRIP) projects, Nation Building Program (NBP) projects and any restoration programs such as the Transport Network Reconstruction Program (TNRP).

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The content of the PCEM is scalable and allows for Project Managers, Sponsors and Customers to jointly predetermine the level of estimating rigor and documentation required. Individual Divisions, Regional/District and Branch Directors are responsible for the effective implementation of the estimating manual within their areas to develop realistic estimates and ensure their staff, possess the necessary skills and training to undertake estimating activities. Consultants and Contractors performing estimating activities under the control of the Department of Transport and Main Roads are also required to comply with the requirements of this manual.

2.4

Estimating Rationale

TMR estimating rationale is that cost estimating must be exercised in the broader context of project and program management to provide assurance that estimate values are continually dependable. Estimating is an integral part of a system of interdependent core inputs of scope, time, cost and quality. This manual recognises that projects are inherently uncertain and that, irrespective of the stage of a project, there will be incomplete scope information on which to base the project estimate. The aim is to establish as complete a set of project parameters as possible, undertake the TMR risk management process to allocate contingencies to cover probable eventualities, and convey meaningful information concerning the reliability of figures provided. Estimate reliability will be progressively improved during the project life cycle by systematic reviews and approval processes as outlined in the following estimating practices.

2.5

Estimating Practices
Estimators are to ensure that costs are included for all activities in the life of the project using at least level 3 (yellow) of the standard project work breakdown structure (See Figure 7.2). These details are to be captured in corporate systems and preferred software to enable state-wide visibility, reporting, planning, and consistency. Estimates are to be updated and included as part of the preparation of each OnQ template. The estimating lessons learned should be captured in the learnings register for subsequent use in the project managers completion report and to facilitate subsequent benchmarking. Each estimate shall be presented using the standard estimate structure format and have an estimate report that incorporates the scope definition and assumptions on which the estimate has been based. This facilitates rapid review and update of estimates. Estimates are to be reported in out-turn dollars based with an assumed start date and escalation rates to aid in program management.

The following estimating practices/ conventions are to be adopted:

2.6

Transport System Manager (TSM) Framework

The Transport System Manager Framework provides a methodical process for TMR to objectively plan, program and deliver works with feedback loops for improvement. The TSM Framework consists of seven phases, see Figure 2.1 below. Estimating activities are employed in phases 3 to 7 starting with pre project strategic estimates which form the basis of portfolio financial planning and prioritisation.

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Figure 2.1 Transport System Manager Framework in TMR Functional Business Model

Planning Phases 13 incorporate policy and strategy development as well as integrated transport system planning to achieve the objectives of the department and government. Programming Phases 3 and 4 interpret and translate the planning of initiatives into projects and programs to be delivered by TMR and determine and prioritise investment across the portfolio to develop programs within available funding. Delivery Phase 5 implements the planning, policy, investment and programming outcomes. Work under this phase covers the project pre-construction, design and supervision of the whole range of delivery (internal and external) for services and infrastructure. Finalising Phases 6 and 7 Finalises the works and reviews the outcomes Estimating activities are employed in Phases 3 - 6 of the TSM, starting with pre project strategic estimates which form the basis of program and portfolio financial planning and prioritisation. For more information on the TSM Framework, refer to the TSM Portal on the intranet site. http://tmrintranet/Planning-and-management/Managing-TMR.aspx Note that project phases are different to the above TSM phases.

2.7

Transport Infrastructure Portfolio Management and Estimating

The Investment Management Implementation Program is being rolled out by Portfolio Investment Division and is affecting investment decisions across the department. Its focus is to get a clear line of sight of every projects benefits through to the portfolio level. This has resulted in the establishment of four major program streams within the department, along with a Major Program Management Office. Details are available at the following address: http://tmrintranet/Planning-and-management/Transport-infrastructure-portfolio-management-portal.aspx This initiative relies on the production of robust estimates, and reinforces the need to follow the processes covered in this manual.

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2.8

Program Management Framework

TMR manages the majority of its projects within programs of work. Each project is required to identify its estimated total project cost and the estimated next stage costs to the program manager for approval, funding and inclusion in their program. Program managers then report their program commitments and achievements to the portfolio managers.

2.9

OnQ Project Management Framework

Successful project management is characterised by good planning, effective scoping and resourcing, realistic expectations of outcomes and strong management support. The more complex a project, the more important it is to have rigour applied through the adoption and use of a project management methodology. OnQ is the project management framework used and maintained by TMR to direct and guide effective project management. The framework has a methodology that consists of four sequential phases: Concept, Development, Implementation and Finalisation. These phases are distinct from the TSM phases. OnQ provides structured guidance concerning processes and documents used to progress a project from concept to finalisation, taking into account the projects complexity and inherent project risk profile. This includes a Project Proposal, Options Analysis and Business Case in its Concept Phase. For further information on the OnQ Project Management Framework, refer to the TMR intranet website.

2.10 Integrating TSM, Portfolio, Program and OnQ Project Management Frameworks with TMR Business Rules (QTRIP)
TSM Phases 2 and 3 Transport Systems Planning and Corridor Planning respectively - identify candidate projects and from those considered worthy of further investigation, strategic level estimates are created to enable initial prioritisation based in part on affordability. TSM Phase 4 Develop Program - fleshes out the Investment Strategy, with approved Project Proposals being added to the program of works. As the programmed construction commencement date for each project draws closer, Options Analysis and Business Case are completed prior to entering year 2 of the QTRIP. Estimating activities provide key inputs into development of the project Proposal, Options Analysis and Business Case. Within TSM Phase 5 Program Delivery projects progress from their OnQ Concept phase Business Case to OnQ Development Phase, through tendering to preparation and then implementation of their Project Plan, and subsequently to the OnQ Finalisation phase. Estimating activities provide significant input to the business case, as well as preliminary and detailed designs and estimate for comparison with tenders. These estimates are used to update the program on current and expected future commitments. TMRs Queensland Transport and Roads Investment Program (QTRIP) has the following two significant business rules for program development and management: An approved Project Proposal is required prior to developing the QTRIP (i.e. before a new project enters the Indicative Years 3 to 5 of the QTRIP); and An approved Business Case is required prior to entering the Approved Years 1 or 2 of the QTRIP.

Figure 2.2 shows the relationship between the estimating function, the TSM phases, TMR Program Management Framework and TMRs OnQ Project Management Framework.

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Figure 2.2 Relationship between TSM, Program and Project Management


Timeline

Years 20, 15, 10 Planning

Years 8,5 Programming


State Planning Program (SPP)

Years 4, 3, 2, 1 Delivery
Queensland Transport Roads Investment Program (QTRIP)

Review

Transport System Manager

Roads Connecting Queensland

Queensland Infrastructure Plan (QIP)


Defining Governme nt Outcomes 1 Transport System Planning & stewardship 2 Corridor Planning, Stewardship & Operations 3 Investment Strategy (Choice) 4 Program development (scheduling of choice) Program Delivery & Customer Services 6 Program & Customer Services Finalisation 7

Program Management Framework

Program Development
Prepare & Plan Infrastructur e Program Approve & Publish Infrastructur e Program Manage Programs and Funding

Program Management
Monitor and Report Performance Manage Variations Close Project

Concept OnQ
Proposal > Options Analysis > Business Case

Development
Prelim Design Detailed Design Projec t Plan

Implementation
Projec t Plan Mgmt Construction Activities & Admin

Finalisation
Completion Report

Transport Network Reconstruction Program (TNRP) The Federal Government provides funding to support states through its The Natural Disaster Relief and Recovery Arrangements (NDRRA). TMR has established the Transport Network Reconstruction Program (TNRP) office to manage the recovery and reconstruction of Queenslands integrated transport system following the natural disasters in 201011. A Statewide Program Office (SPO) team has been established to support the Regions/Districts as they manage the delivery of TMRs recovery and restoration efforts, and ensure timely access to funding. A number of Guidelines have been established to assist Regions/Districts in the scoping, preparation and lodgement of submissions which includes: TNRP Funding and Development Guidelines; and Submission template. A TMR Portal is available which provide information about the TNRP program including guidelines, tools and templates for staff involved in managing the recovery and reconstruction of the transport system. Any TNRP estimating activities must comply with the principles and content of this Project Cost Estimating Manual.

2.11 Procurement Management and Estimating


An often overlooked facet of estimating is its support to procurement management. On completion of the Detailed Design estimate, estimates are prepared to provide a comparative estimate for the assessment of tenders. When the preferred tenderer is selected, a construction estimate is prepared to then support implementation phase cost management activities.

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Estimate Types

Strategic Estimate

Proposal Estimate

Business Case > Preliminary Design > Detailed Design > EFCT > Construction > Variations > Forecast ESTIMATES

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2.12 OnQ and Estimating


Estimates will be developed throughout the OnQ life cycle in support of management needs. Pre-project strategic estimates are to be in current dollar values and dated. Projects vying to enter the QTRIP are required to have estimates in out-turn dollars showing the base cost, pessimistic, optimistic and most likely values. Where advisable these values are to be statistically derived. The confidence that estimators have in the estimate values are to be advised by a confidence index rating which captures in broad terms the project scope maturity, data available and time provided to produce the estimate. Estimate documents and stages align with the OnQ stages as shown in Figure 2.3. It should be noted that many other estimates are generated in the course of TSM operation. Only those estimates on which approvals are generally based have been shown. It can also be noted that project and estimate stages align except there is an additional estimate stage called procurement within the project development phase and at the end of the detailed design stage. The Estimated Total Project Cost (ETPC) must be updated whenever a project advances to the next approval stage.

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Figure 2.3 Estimate Stages and documents in relation to PCEM and OnQ

Pre Project

OnQ Project Activities


Proposal Option Analysis Business Case Preliminary

Estimate Stages Strategic Proposal Option Analysis Business Case Preliminary Design Detailed Design Procurement

Estimate Docs Strategic Proposal Option Analysis Business Case Preliminary Design Detailed Design
Estimate for Comparison With Tenders

Development

Concept

Design Detailed Design

Implementation

Construction

Implementation

Implementation

Final

Finalisation

Finalisation

Reports

TMR prepares project cost estimates that accommodate the level of information and time available to create the estimate. To satisfy reporting requirements where a single estimate figure is required, the pessimistic out-turn estimated cost is to be reported as the estimated Total Project Cost. Many TMR corporate systems require a single estimate cost value. The preferred content to be communicated as an estimated cost is: A cost range with the higher pessimistic out turn cost and lower optimistic out turn cost; An indication of most likely out turn cost followed by; The category of estimate; and The completion date.

The relationship of the cost variables is shown diagrammatically in Figure 2.4. A description of estimate confidence categories follows.

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Figure 2.4 Estimate confidence profiles in the program life cycle

2.13 Estimate Categories


Estimate categories indicate the level of confidence in the figures provided. There are six defined categories as shown in Table 2.1. Category 1 indicates the least amount of information and/or time available to analyse data. Category 6 indicates detailed analysis and review of detailed information from a well defined scope. Estimates will usually move from Category 1 to 6 as a project matures in the project life cycle. However, abnormal circumstances that circumvent normal development progression are allowed for, as the following examples show: A poorly defined priority project with approved unlimited funding is mandated at short notice. The business case estimate resulting from a truncated project development life could be categorised as Category 1 rather than Category 3 as you would expect at business case stage; and A lapsed but previously designed project is initiated decades later. The strategic estimate could be categorised as Category 3, 4 or 5 given the amount of information available and plenty of time to process it.

The benefit of TMR adopting confidence categories is that it enables a level of confidence to be given to cost figures regardless of project stage. The confidence level required of Strategic Estimates is that the actual cost will not exceed the pessimistic estimated cost. For Business Case estimates, the confidence level required is 90 percent (P90) for State funded projects. Note that for projects seeking Federal funding, and for projects where a Benefit Cost Ratio is to be calculated, a P50 estimate is required as well. See Section 5.2.4.

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Department of Transport and Main Roads Table 2.1 Category Descriptors Category 1 Level of project definition Estimate Basis <2% Category 2 1% to 15% Category 3 10% to 40% Category 4 30% to 65%

Project Cost Estimating Manual

Category 5 40% to 80%

Category 6 50% to 100%

No formal scope

Simple scope and strategy Project phase budget or detailed budget QTRIP candidate project details Low Study or feasibility Proposal

Agreed scope, preferred option Detailed budget

Schematic design

Developed design

Contract details

Input to:

Initial budget

Basic cost management

Detailed cost management

Implementation phase budget and cost control Accepted Tender

Information available

Similar projects

Project Plan, Option Analysis, investigations Low Medium to

Schematic design

Detailed design, full drawings and documents Medium high to

Confidence End Usage

Very low Concept screening Pre-Project

Medium Budget, Authorisation, Control Preliminary Design

High Cost control

Budget, Authorisation, Control Business Case

Authorisation, Check Tender Detailed Design

Expected at project stage

Implementation

Further information on Category descriptions can be obtained from Annexure G: Description of Estimate Categories.

2.14 Estimate Development


This section outlines the general estimate development process. A more detailed description of the general process is given in Section 3 and stage specific details are documented in Section 5. As the first and continuing action in producing an estimate, estimators need to doggedly pursue scope clarification and definition. As the project scope evolves, information is gathered concerning all aspects of the project including but not limited to the environment, functions to be provided, operational metrics, design, constructability, work practices, constraints, assumptions, risks, latest prices and development strategy. Analysis of the cost of construction and principals costs are then carried out. These items are maintained as interdependent items and when combined, form the base estimate. The cost is recorded in current dollars. A risk management process is then undertaken to identify risk, quantify their impact on cost, and take actions (if applicable) to treat the impact of risks as the project scope is developed. The base estimate with contingency represents the total project cost in current dollars. Further analysis is then undertaken to determine the likely cash flow and the impact of escalation factors over the project life. The total project cost is then recorded in out-turn dollars nominating the year of completion. Throughout the development of the estimate, sanity checks, reviews and approval to proceed occur.

2.15 Estimate Structure


The estimate structure highlights two major work areas in managing and producing project deliverables and also the necessity to account for risks and escalation. This is shown graphically in Figure 2.5.

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Project Cost Estimating Manual Figure 2.5 Condensed Project Estimate Structure

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It is important that the estimator understands how estimating interfaces with the broader spectrum of project management, as TMR projects are managed in accordance with TMR Standard Work Breakdown Structure (WBS). The WBS provides consistency of process, ease of monitoring, minimises training requirements and provides for the efficient production of estimates and associated contract documents from TMR Works Management System (WMS). Each of the following cost groups have work activities with a unique number assigned according to the standard work items detailed in volumes one and two of Main Roads Standard Specification Roads, Third Edition, in particular MRS11. Further detail on these activities is given in Section 4 and Annexures C and D: 1. Construction Contractors Costs: The contractor construction costs are represented in three Categories: Direct Job Cost, Indirect Job Costs and Offsite Overheads and Margin. The construction contractor work items are detailed in Section 4.1 of this manual. The method chosen for the construction cost estimate preparation depends on both the purpose for which the estimate is required (and therefore the estimates required forecast accuracy) and on the level of available data detail; Principal's Costs: Principals Costs are TMR managed costs for all phases of the project (Refer Annexure D of this manual, including resumptions, PUP, staff, consultants, fees and levies, principal supplied materials). These may be considered difficult to estimate, however these costs can form a significant proportion of a project estimate, and should not be considered impossible to estimate reliably. The simplest way to estimate these costs is to refer to similar completed projects for the costs of these work items. This will provide a basis from which to work. The estimator should then take into account escalation, recognise the differences between the projects and adjust the estimate accordingly. An alternative method is to assess the expected labour hours required for the individual work items and apply current market rates for the type of work being carried out. The least preferred method of estimating these costs is as a percentage of construction costs, which is likely to produce a low confidence estimate of TMR costs. See Section 4.2 for more information; Base Estimate: The base estimate as described above is the combination of the Contractors and Principals costs. It is recorded in current dollars;

2.

3.

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Project Cost Estimating Manual

Risk and Contingencies: Risk must be managed in accordance with TMRs Risk Management Framework. Projects should estimate base (or known) amounts separately from risk and contingency (or unknown) costs. Understanding the risk associated with the project and having a clear definition of contingency coverage is very important. The definition of contingency helps in understanding what is or is not covered in the contingency amounts included in the concept phase. The qualitative risk assessment approach is to be used for all projects where the quantitative approach is not used. The aim is to provide for the appropriate management of opportunities and risks, through the systematic application of risk management processes and qualitative tools such as benchmark information, or the strategic estimating matrix (See Annexure E). Where the qualitative risk assessment approach is used to calculate contingency, the risks must still be identified, analysed and evaluated according to TMRs risk management processes. The project team needs to assess the impact on the estimate and include an appropriate contingency allowance in the estimate. This assessment can be based on percentages or lump sums, but must recognise the impact the identified risks may have on the outturn cost. See Sections 4.3 and 10 for more information; Total Project Cost (Current Dollars): Contingency added to the base estimate provides a Total Project Cost in current dollars. It is important to record the date for current dollars to maintain visibility of the age of the estimate; Escalation: Escalation is a unit rate escalation amount to be applied as advised in the QTRIP guidelines. The escalation amount is also periodically published as the Cost Escalation Roads Input (CERI) index for TMR infrastructure projects. It considers a variety of local factors and so is more relevant to Queensland than national indices. Escalated figures are derived from Total Project Cost (current $) project cash flow multiplied by the escalation amount for each respective year. Spreadsheet tools are available to help calculate and document escalation (Annexure H). See Section 4.4 for more information; and Total Project Cost (Out turn dollars for completion in 20XX): Total Project Cost in out turn dollars is used for planning and budgeting purposes.

5.

6.

7.

2.16 Project Types


TMR classifies projects into one of three types as a means to standardise the management of various projects depending on the project complexity and risk. It takes into account TMR familiarity with the project (how often TMR delivers this type of project), whether the scope is simple and apparent, how sensitive the project is to external influences, the funding levels required, and so on. Table 2.2 from the QTRIP Guidelines shows the simplified criteria for project types. The implication for estimating is that projects in the smaller type band may need a few of the estimate documents completed and in simple straightforward detail whilst complex high risk projects will require more rigour and control in the estimate. This is the responsibility of the project or program manager to determine. Table 2.2 Project Types Type 1 Project Type 2 Project Type 3 Project Complex/ high or extreme risk transport infrastructure projects, requiring high levels of investigation, rigor and control. Straightforward/ medium risk transport infrastructure projects, requiring moderate levels of investigation, rigor and control. Simple/ low risk transport infrastructure projects, requiring low levels of investigation, rigor and control.

2.17 P90 Estimating for Projects


TMR estimating policy requires project Business Case estimates to have a 90% likelihood of not being exceeded. That is referred to as a P90 Estimate. Estimates prepared before the Business Case, including project proposal and options analysis should not be expressed with any percentage likelihood of not being exceeded. In all instances the project manager is responsible for preparing a high confidence estimate for the project. The project manager is responsible for the overall completeness of the estimate in accordance with the project estimate structure outlined in Figure 4.1 (that is, construction costs, principal's costs, risk and contingencies, and escalation).

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Traditionally a P90 estimate is prepared using a quantitative approach, including the use of tools, techniques, templates, software, etc, and the use of specialist risk estimating software, such as @Risk. However it is not always practical to apply a quantitative approach to smaller projects. A qualitative approach can be used for these projects, drawing upon the softer skills such as past experience, asking stakeholders the right questions, decision making, problem solving and common sense review by appropriate personnel. This is more reliant on the project teams experience and aims to develop a project budget that is unlikely to be exceeded, but not excessively conservative to produce high confidence estimates for these smaller projects. TMRs approach is as follows: Type 1 (large) projects are expected to undergo a quantitative" and qualitative approach to risk assessment and contingency estimation and the use of probabilistic estimating. (See Section 9.3) This is based around modelling individual risks, to provide greater levels of certainty and confidence about the likelihood and impact they will have; and Type 2 or 3 projects will generally undergo a qualitative approach to risk assessment and contingency estimation in order to determine that the actual costs of the project at completion have a 90% likelihood of not being greater than the estimate. Some more involved Type 2 projects will still benefit from adopting a quantitative approach.

Estimating in such an environment requires a conservative but realistic view of project scope, together with an appropriate contingency based on the risks associated with the project, particularly in the early project stages where less detailed project information is available. For type 2 and 3 projects, the estimate would be considered to have a 90% level of confidence of not being exceeded based on the following factors: Where unit rates are used, rates are based on the rates of two or more recent projects of a similar nature, and have been factored to establish the appropriateness for this project, including age of the rates, market conditions, TMR requirements, on and off site overheads and profit, location, variations in constructability, methodology, project delivery method, site conditions and so on; When the PCEM requires an estimate to be based on the MRS11 WBS structure and sequence levels of 1, 2 and 3, (See Section 7.1) the estimate may be based on a combination of levels 1, 2 and 3, with high value items being level 3, and priced using supplier quotes, or SmartCost; The estimate has been prepared using Works Management System (WMS); The estimate has had a peer review by a suitably qualified person; The TMR Risk Management Framework has been used to identify, record, assess and apportion the risk value, estimate the cost risk and contingency. The overall value of risk apportioned to the project must reflect the extent of completed design development, survey and geotechnical data; The projects objectives and high level scope, including the projects physical configuration and extent, are clearly documented and acceptable to the Customer (for example, Regional/District Director); The project estimate Reality Checks (See Section 3.8.1) are sound, such as $/km of road or $/m2 for structures, and the TMR costs and risk as a % of Construction costs are comparable (benchmarked) with other similar projects; and Escalation has been applied in accordance with TMR QTRIP guidelines.

2.18 Performance Standards and Measurement


Historically the Base Estimate for most projects increases as the project moves through the various stages. This causes disruptions to the overall funding processes and results in budget shortfalls and delayed commencement of other priority projects. The overall performance of estimates can only be assessed at project completion when all accounts have been paid and variations taken into account. The variation of estimates at each phase, as a percentage of the actual Total Project Cost ,is expected to fall within the ranges shown in Table 2.3. This table is also represented diagrammatically as a Cone of Accuracy in Figure 2.6. The expectation is that individual project estimates, prepared progressively from Business Case forward, have a 90% confidence factor (P90) of not being exceeded by the cost at completion.

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Department of Transport and Main Roads Table 2.3

Project Cost Estimating Manual

Cost Estimate Performance Standard (measured in Finalisation Phase) Project Phase Concept Development Development Implementation Cost estimate Document Business Case Preliminary Design Detailed Design Construction Percentage variance of Completed Project Cost Lower -15% -10% -5% -2.5% Upper +20% +15% +10% +5%

TSM Phase 4 5 5 5

Pre-project or Strategic Estimates will necessarily be developed on poor or negligible information. Great care needs to be exercised in publishing these estimate figures. The percentage ranges on these types of estimates are indicative only and must be viewed against the background information upon which these estimates are developed. Figure 2.6 (extracted from the 2011 BPCES), represents this graphically Figure 2.6 The Ideal Project Cost History

An Ideal Project is where the final cost is the first cost excluding contingencies and an Acceptable Project is where the final cost does not However, not all projects proceed in this ideal way. Figure 2.7 shows an acceptable cost history, and Figure 2.8 shows an unacceptable cost history (both extracted from the 2011 BPCES).

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Project Cost Estimating Manual Figure 2.7 An acceptable Project Cost History

Department of Transport and Main Roads

Figure 2.8 An Unacceptable Project Cost History

In reality, cost estimates change over time for a variety of reasons, not all of which are desirable. Changes to estimates are usually caused by changes to scope and assumptions, pricing adjustments, contingencies, escalations and so on. Performance against these standards shall be reviewed in the finalisation phase of the project. As the above standards are lag indicators, Regions/Districts may wish to adopt other measures to indicate whether their estimating processes are under control at any particular time. Variance from previous stage estimate may be one such measure. The estimating performance of TMR Regions/Districts will be measured annually to assess estimate consistency and accuracy. These will be reported internally to the General Manager (Program Development and Management), General Manager (Program Delivery and Operations) and the appropriate Regional/District Director. Internal reports on Major Projects Office projects should also go to the General Manager (Major Infrastructure Projects).

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Project Cost Estimating Manual

2.19 Taking Account of Optimism Bias


Optimism bias is the demonstrated systematic tendency for people to be over optimistic about the outcome of planned actions. Optimism bias applies to professionals and lay people alike. Optimism bias arises in relation to estimates of costs, benefits and task duration. It must be accounted for explicitly in appraisals, if these are to be realistic. When plans are implemented, optimism bias typically results in cost overruns, benefit shortfalls and delays. Methods to mitigate optimism bias include: Emphasis on realistic budgeting as an ideal and reviews to detect over-optimistic budgeting as routine; Introduction of fiscal incentives against cost overruns, for example through requiring local co-financing of project cost escalation where possible; Formalised requirements for high-quality cost and risk assessment at the business case stage; and Introduction of independent appraisal supported by necessary procedures.

(Reference: British Department for Transport, Procedures for Dealing with Optimism Bias in Transport Planning Guidance Document, June 2004)

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Project Cost Estimating Manual

ESTIMATING PROCESSES

Cost estimating takes place in support of the program and project management environment. This requires estimators to be aware of information that should be provided to them and information that they should pursue. The purpose of this section is to guide estimators in the general sequence of activities involved in the production of a cost estimate and their responsibilities throughout this process. Note that rudimentary project management activities concerning Project Cost Management are described in Section 11.5.

3.1

Process Overview

Regardless of the estimate stage and estimate document to be created, there is a generic process to be followed. This is shown in Figure 3.1 Generic Estimate Flowchart. The estimating process includes the following key activities: Establish Project Scope; Estimate and Resource planning; Cost Estimate Development; Risk identification/quantification; Escalation; and Review and Approval.

The procedure for peer and concurrence reviews and approval of estimates at business case, preliminary design and detailed design is illustrated in Figures 5.1.to 5.3.

3.2

Project Scope Definition

The starting point for any estimate is a well defined project scope. Project Scope is defined in the PMBOK as the work that must be performed to deliver a product, service or result with the specified features and functions. (PMI 2008 p.436). Road infrastructure project scope is defined within the context of the required outcomes and in accordance with the specified Corporate Objectives and Plans for the link concerned, i.e. fitness for purpose. It is also important to identify the work which will not be delivered and is considered out of scope of the project. The scope statement provides a documented basis for a common understanding between the project and its stakeholders. It also provides the estimator with the ability to confirm the basis for developing the estimate especially when supplemented by the project plan, drawings and specifications. The project scope is defined from a number of perspectives, each of which has an influence on the final outcome. These may include features of the product or service to be delivered. Proper scope definition in terms of the physical scope of the product and work methods is critical to achieving accurate estimates. Project scope incorporates: Location; Physical dimensions; Geotechnical conditions; Level of Service requirements; Quality standards; Environmental conditions; Timing; and Programming and Budget; Design standards; Traffic loading on structures; Technical specifications;

Some of the generic influences on the project scope include:

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These requirements are fully defined in Section 5 Project Scoping of TMRs Preconstruction Processes Manual The project manager is responsible for clearly articulating the project scope elements. However the estimator is particularly interested in the project definition and physical scope components as these are the basis for beginning any estimate. Where these details are inadequate, the estimator is responsible for obtaining the outstanding details from the project manager. The project scope is progressively defined and refined during project life cycle: Pre-project level (establish corporate, objectives and requirements based on project purpose); Concept Phase (defining the solution); and Development phase (detailing the solution);

At each stage, the scope is to be agreed with and any variations confirmed by the project manager with the project customer. Approval of the various OnQ templates and variation approval form provide the formal means for this to occur. Note that management of scope is the responsibility of the project manager, and the role of the estimator is to obtain the scope from the project manager.

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3.2.1

Project Definition

Some examples of definition, context, constraints and program that the estimator needs to be provided are shown below: Likely project program (both pre-construction and construction phases); Requirements for temporary works and staging; Type of project to establish level of risk and complexity; What constraints exist (on access/possessions, staging, continuity of traffic flow, etc); Key interfaces so extent of project is known and conditions applying at those interfaces; Method of delivery (Construct only, Design and Construct, Alliance, ECI, etc); and Defined out of scope work.

3.2.2

Physical Scope Criteria


Nature of work (intersections, new road construction, widening existing highway, duplication, bridgeworks, change to traffic signals, etc); Extent and limits of work (so there is less uncertainty as to extent of work costed); Assumptions made in design of key features (pavement design, earthworks, extent of rock, etc); Interfaces, such as property, grade separations, existing infrastructure, etc; PUP relocations as these are regularly vastly underestimated; and Defined out of scope work.

Some example of physical scope criteria that the estimator should be provided are shown below:

Estimators must resist the temptation to base estimates on poorly defined scope, as such estimates can become merely a guess, and not necessarily an informed one. All project estimates require as much detail as is feasible for the stage of the project. Where information is not provided and assumptions have to be made for the preparation of the estimate, these assumptions must be recorded and attached to the estimate.

3.2.3

Factors Influencing Estimates: Common Scope Issues


Complete item omission; Incorrect item quantity determination; Inappropriate items included; Unapproved variations; and Legislative changes and Agency approval requirements.

The more common problems encountered in project scope definition are:

3.2.3.1 Complete omission (or erroneous inclusion) of items


Examples of items that might be omitted from or erroneously included in a projects scope are: Intersections or interchanges; Culverts or drainage facilities; Stock underpasses; Drainage in cuttings; Noise barriers; Batter stabilisation work; Sub-grade improvement or strengthening; and Temporary works.

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Such omissions and erroneous inclusions must be avoided by checking with a schedule of rates containing all possible items. When estimates are based on other than global methods and if insufficient documented detail is available, the estimator must use their experience of similar projects to determine the likelihood of the inclusion of such features. Such inclusions must be listed as assumptions and adjusted or removed when more details become known.

3.2.3.2 Incorrect determination of the quantity of an item


The accuracy of determination of quantities depends on the detail of the information available. However, even at the simplest level, in the often time-constrained environment of estimate preparation, gross errors can and have occurred. Examples are inclusion of only half the pavement quantity in dual carriageway roads or half the concrete quantity in twin deck bridges. The estimator must minimise the risk of quantity error by logically and methodically undertaking quantity calculations, and by the adoption of available quality systems.

3.2.3.3 Inclusion of inappropriate items


Examples of inclusion of inappropriate items are the adoption of low quality noise barriers in an urban environment and selection of an inappropriate pavement type or bridge type for a particular application.

3.2.3.4 Unapproved Variations


Unapproved addition of items to a project after the scope has been defined and approved often produces additional costs that stress a project budget and undermine estimate integrity. Often referred as scope creep, this propensity is to be vigorously resisted. Formal variations must be made to include items omitted from the approved project scope because of oversight or poor project definition.

3.2.3.5 Government and approval requirements


Requirements imposed by government legislation, policy and conditions of approval must be taken into consideration in the scope of work. This sometimes requires a change in the scope of the work.

3.3

Estimate Planning

As part of estimate planning, all documents and plans produced to date are reviewed, the estimating team formed, and a site visit conducted. A Site Visit Check List template is provided in Annexure A as an important input to the estimate. Information relevant to the estimate planning will include: Project history; Project objectives; Investigation reports (for example technical and environmental); Project scope statement; Construction staging plans/methodology and temporary works; Plans and specifications; Schedule of Rates; Project delivery strategy; Preliminary program of work; Costs expended to date; Record of site visit risk identification; and Historical cost information.

The estimator may find it useful to prepare a simple estimating plan of the relevant activities (from the generic estimating process shown in Figure 3.1) to guide the estimates production within the projects time constraints.

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3.4 3.4.1

Resource Planning General

Resource planning involves determining what kind and quantity of resources (plant, labour, materials and sub-contract) are required to perform project activities. In practice, resource planning is performed in conjunction with the next step in the estimating process, cost estimating. Note: Resource planning requires a clear definition of project scope, a Work Breakdown Structure that subdivides the project into component work packages, an understanding of the work methods to achieve the specified requirements, the likely availability of resources to perform the work, and the expected productivity of labour and plant. The estimate breakdown should be based on suitable WBS level structure so that prices can be related to the established market benchmarks. The estimator will be required to obtain market rates for items normally carried out by specialised subconsultants and subcontractors. This may be done by either a formal procurement process or alternatively by maintaining contact with industry suppliers. The process can be summarised in terms of its inputs, key activities and outputs as indicated in Table 3.1. Table 3.1 Resource Planning Overview Inputs Plans and specifications Work Breakdown Structure Resource groups Program of work activities Resource pool analysis Project cost records and reports Activities Work method studies Procurement/ testing market Outputs Resource requirements Resource prices Activity durations

3.4.2

Work Method Studies (Constructability)

Studies are often required for significant items to determine the feasibility and efficiency of alternative production methods. For example, when considering the construction component of a project, the estimator may need to examine the earthworks mass haul diagram to evaluate haul quantities and distances, borrow and spoil requirements and the most effective construction fleet for the particular site conditions. Similarly, for major projects in high traffic areas, it may be necessary to develop traffic management and construction staging plans in order to evaluate the cost of traffic management activities. Estimators need to match the level of estimating effort with the expectations of estimating accuracy for the estimate being considered.

3.5

Cost Estimate Development

Cost Estimating is the process of developing the cost to complete a project throughout its life cycle (inception to finalisation). TMR estimates are developed in conformance with the estimate structure outlined in Figure 2.5 and detailed in Figure 4.1. To produce a total project cost estimate, all phases of the project life cycle need to be considered including: Corridor planning road link planning, gap analysis, strategic studies, project proposals; Concept planning traffic/transport modelling, options analysis, business case preparation; Design development project plan, preliminary design, detail design, tender and specifications; Implementation construction, land resumptions, PUP relocations, temporary works; and Finalisation as constructed plans, handover and finalisation reports,

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Risk/ contingencies and escalation need to be considered for all of the above The estimating method needs to be chosen commensurate with expected accuracy and information available. Different estimating methods are outlined in Section 9.1 together with comments on their application and accuracy. More than one estimating method can be applied within an estimate as different work items often have different levels of detail available. For strategic, business case and preliminary design estimates, estimators are encouraged to use updated historical information as a reality check when building up their first principles estimates. This requires Regions/Districts to keep accurate information on previous project costs in Elemental Cost Database for resources such as rock, gravel, sand, cement and concrete. Because of the wide range of activities to be estimated, components of the estimate may have to be developed within their respective functional areas and combined to form the total project cost estimate. For example, designers would have input into the estimate for the planning and design components, constructors for the civil construction component, traffic engineers for the traffic modelling component, and so on. The estimator will coordinate the assembly of the various cost components to form the total cost estimate. The process can be described in terms of its inputs, its key activities and its outputs, as indicated in Table 3.2. Table 3.2 Cost Estimating Process Overview Inputs Plans and specifications Work breakdown structure Schedule of Rates Program of Work Risk register Project cost records Bench marks Activities Estimate planning Site Visits Risk assessment Contingency assignment Escalation Estimating review Outputs Total project cost estimate in current dollars and outturn dollars. Supporting details Assumptions Cost management (cost make-up) Archived records plan

3.6

Risk and Contingencies

In project terms, risk is the chance of something happening that will have an impact upon project objectives. (AS/NZS ISO31000:2009) defines it as the effect of uncertainty on project objectives and it is measured in terms of consequences and likelihood The project manager must consider all the uncertainties during the course of the project, and make a judgment as to the likelihood and consequences of a risk emerging that will threaten the objectives of the project. This identification is initiated with a Risk Management workshop or equivalent where project stakeholders record their concerns and thoughts about opportunities and threats. It is helpful at the outset to distinguish between the concepts of risk, uncertainty and contingency: Risk is experienced on being exposed to the chance or probability of a loss or opportunity occurring. Risk is then a measure of the probability of a loss or opportunity occurring by a known means; Uncertainty represents unknown or ill-defined variables causing a loss or opportunity. The point is that the agency causing the loss or opportunity can not be named; and Contingency represents the resources gathered to mitigate or address risk and uncertainty. These resources can be in terms of time, material, processes or dollars.

Quantification of contingency allowances for cost estimating items is not an exact science, and Section 4.3.11 gives information on possible approaches. The full TMR risk management process is covered in Section 10.3. The principal estimating risk at the beginning of a project is that important items are overlooked, or their extent is underestimated. A site visit checklist is provided in Annexure A to minimise the likelihood of this occurring. The estimator must attend a site visit to complete this checklist. If the site is remote and visiting is not practicable, the estimator must review photos, videos or DVRs as may be available,

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3.6.1

Categories of Cost Change

Categories of cost change are listed in Section 4.3, together with suggested ranges for estimating their cost. Section 10.8 discusses some of these categories in the context of known unknowns.

3.7

Escalation

Escalation is the anticipated increase in project cost over time as a result of various factors such as inflation, market conditions, supply constraints and project complexity. The project estimate is to be expressed in outturn dollars ($OT) to reflect the actual project cost at completion. The escalation allowance is necessary to provide adequate capital funding to compensate for likely cost increases in the construction phase during the life of the project. A cash flow (expenditure profile) is to be determined to suit the programming delivery timeframe. Out-turn costs are calculated by adding an allowance for escalation to the base cost estimate plus contingencies which have been developed in current year dollars as shown in Table 3.4. The escalation allowance is based on the TMR established cost escalation forecast which is available in the QTRIP Guidelines (See Section 4.4). An escalation spreadsheet tool is available at both Annexure H and electronically from the TMR Website and Intranet site, at the same location as this manual. Table 3.4 Example of Escalation Calculation Description Expenditure profile current year dollars in Year 1 $0.50M Year 2 $1.50M Year 3 $25.00M Year 4 $40.00M Year 5 $15.00M Total Project Cost $82.00M

Escalation (QTRIP Guidelines) Project Cash Flow $OT

1.00 $0.50M

1.08 $1.62M

1.08 $29.16M

1.08 x1.09 $50.85M

1.08 x 1.09 $20.79M $102.92M

The Estimator is the responsible for project cash flow forecasting in consultation with the Project Manager. However the validation of the forecasts in Projman is the responsibility of the Project Manager. See Section 5.4.3 for further information. The Cost Escalation Road Input (CERI) index has been developed by TMR as a tool to assist Regional/District staff in improving the accuracy of their estimates. See Section 4.4 Cost Escalation for more details.

3.8

Estimate Reviews
Reality Check; Peer Review; Concurrence Review; and Program Review.

There are four different review processes that are applicable to an estimate in its life cycle:

3.8.1

Reality Checks

A reality check which is also known as a sanity check, is an action which compares an estimate and/or its items to benchmarked values of completed projects. Such checks are based on comparisons of estimated costs with historical data available on the Elemental Cost Database of the Region/District. For more details refer Section 8. The estimator shall undertake a reality check of each estimate prior to peer review. This process helps identify gross inconsistencies.

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Project Cost Estimating Manual

Reality Checks are applicable to estimates at all project stages (ie strategic, project proposal, option analysis, business case and preliminary/detail design)

3.8.2

Peer Review

A peer review must be undertaken for all projects, including Type 1, 2 and 3 projects. This peer review must be undertaken by an independent, experienced estimator, project manager or specialist officer authorised by the Regional/District Director. The reviewer must report back to the Regional/District Director and Project Manager on the review findings. The peer review officer is responsible for: Checking that the documentation submitted by the project manager is adequate for the review process and if not, ask for further documentation: Reviewing item quantities and rates using the Pareto Approach (80:20 rule); Reviewing optimism bias; Identifying potential errors in the estimate; Reporting cost trends for the project; Reviewing benchmarks for similar work; Reviewing project constructability; Reviewing risk registers and checking that contingency allowances are within the appropriate ranges; Assessing construction methodologies and reviewing constructability issues; Verifying that key assumptions have been listed and appropriate allowances have been made in the estimate, ensuring that the scope is fully understood and addressed; Verifying that previous quantities, rates, lump sums and contingencies have been reviewed as additional information has become available; and Preparing an Estimate Peer Review Checklist (See Annexure B).

Any concerns or irregularities regarding the peer review of the estimate must be reported back to the Project Manager for action. The Project Manager must take the necessary action to amend the estimate to reflect the corrective actions or findings of the peer review. If any action or amendments are disputed, then the justification for not actioning any item must be recorded by the project manager before signing off the completed Peer Review Checklist.

3.8.3

Concurrence Review

A concurrence review must be undertaken on all projects greater than $10 million or $20 million as noted below. This review must be prepared by a suitably qualified, independent, experienced internal estimator resource or experienced external prequalified estimating consultant to assess: Estimate conformance against the estimating standards; and Estimate reasonableness. State-funded projects with an estimated cost greater than $20 million; Federally funded projects with an estimated cost greater than $10 million; or all high-risk or complex projects.

Concurrence reviews are to be undertaken for projects that are:

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The responsibilities of the concurrence reviewing officer are the same as for the peer reviewer. Any concerns or irregularities regarding the estimate shall be the subject of corrective action by the Project Manager before being resubmitted to the Regional/District Director for signing off the concurrence review.

3.8.4

Program Review

Once the project cost has been estimated for the defined scope, the program manager will review this in light of the program funding available and will decide whether the project can be accepted into the program without scope adjustment. If sufficient funding is not available and delaying commencement to span financial years is not an option, the functionality/ scope of the project may need to be varied.

3.9

Estimate Approvals

This Section covers the general responsibilities and approvals encompassing the estimating function within TMR throughout the project life cycle. It covers responsibilities for estimate preparation, review and approval. The approval process applies at every estimate stage. Decisions in the approval process are to be recorded on the Project Cost Estimate (Summary and Approval) - Form 4755 (See Annexure L) and communicated to the Project Manager. A Project Cost Estimating Control Checklist - Form F4906 (Annexure I) must be completed and attached with the estimate. This is to ensure the processes outlined in this DTMR Project Cost Estimating Manual are being followed before project cost estimate sign-off and approval by Regional/District Director. The approval of the estimate does not confirm approval to expend funds on the project. See Section 6.2 The approval levels for all estimates are given in Table 3.5 Table 3.5 Approval Levels for all Estimates Estimate Certification Prepare Estimate Review Estimate Recommend Estimate Accept Estimate Approve Estimate Estimator Peer or Independent Reviewer Project Manager Project Sponsor/ Program Manager Project Customer/ Regional/District Directors Approval Authority

Note: The Project Sponsor is required to sign-off the project estimate for each stage of the project.

3.10 Estimating Responsibilities


Responsibilities for estimate preparation, review and approval are covered below.

3.10.1 Estimate Preparation


The Project Manager is responsible for: Establishing the project scope in consultation with the customer and stakeholders, in accordance with the approved documentation relevant to the project stage (road link plans, project proposal, federal PPR, Business Case etc); Providing all necessary documentation to enable the estimator to undertake the estimate. See Section 3.3 for the further information; Providing necessary information on work methods and relevant local factors; Carrying out appropriate risk management processes to enable estimation of suitable contingency allowances. See Section 10; Ensuring the estimating process is carried out in accordance with the PCEM requirements and the estimate is presented in the approved format and stored in an approved corporate IT database (e.g. WMS); and Facilitating the estimating process between customer, program manager, stakeholders and estimator. Developing the estimate as per the processes defined in this manual; and

The estimator is responsible for:

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Seeking advice and assistance from the project manager if any part of the process is unclear.

3.10.2 Estimate Review


The estimator is responsible for: Carrying out the reality check of the estimate prior to submitting for peer review/approval; Checking that all necessary documentation has been completed and submitted with the estimate; Assisting the project manager with the peer and concurrence review; and Updating the estimate to reflect peer/concurrence review findings. Ensuring the appropriate review is undertaken prior to submitting the estimate for approval; Peer review for all estimates (See Section 3.8.2), and concurrence review of estimates for larger projects (See Section 3.8.3); Ensuring the appropriate review process is followed; and Ensuring appropriate documentation is completed prior to submitting the estimate for approval. Comparing the project estimate to some benchmark data or other projects/ estimates; and Advising any significant changes to the program which impact the project estimate. Ensuring the estimating processes in this manual have been followed; and Approving the estimate.

The Project Manager is responsible for:

The Program Manager is responsible for:

The Project Customer/ Regional/District Director is responsible for:

3.10.3 Estimate Approvals


The Project Manager is responsible for: Ensuring all appropriate levels of reviews (reality check/peer/concurrence) are completed and review comments are attended to; Ensuring Project Cost Estimate (Summary) form (See Annexure L) has been completed; Ensuring Project Cost Estimate (Approval) form (See / Annexure L) has been completed; Ensuring Project Cost Estimate (Control Checklist (Annexure I) has been completed; and Ensuring Project Cost Estimate entered into the WMS Estimator module. Approving infrastructure projects with cost estimates up to the limit of their authority; and Ensuring the budget allocation in the QTRIP matches the estimated cost.

The Program Manager/Regional/District Director is responsible for:

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TMR ESTIMATE STRUCTURE

This section examines in detail the major sections of the estimate structure. All estimates comprise: Construction Contractors Costs; Principals Costs; Risk and Contingency allowance; and Escalation allowance.

The cost structure of a typical project is illustrated in Figure 4.1 on the next page.

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4.1 4.1.1

Construction Contractors Costs Direct Job Costs

Each activity within the standard estimating work breakdown structure (WBS) as shown in Annexure C is subdivided into items according to the processes needed to complete the work. For example, concrete in a bridge deck is typically subdivided into formwork, reinforcement steel, concrete supply and placement, finishing and curing, irrespective of which span it is in. Note that it is most likely that a different WBS will be used for the program of works. To determine the direct cost of the activity, resources such as plant, labour and materials are then allocated to the scheduled quantity of work according to resource availability, production rates and unit costs. The sum of the activity direct costs gives the Direct Job Costs (DJC) of the project. Costs included in direct job costs are expressed in current dollar terms and are summarised in Table 4.1. Table 4.1 Examples of Direct Job Costs (in current dollar terms) Cost Category Direct job costs Components Labour Gross wages and salaries Award allowances (for example construction worker allowance, construction camp allowance, overtime loading, annual leave loading, site-specific allowances and severance allowance) Superannuation Training Work cover Payroll tax Personal protective equipment Labour administration support costs Plant Plant hire rate for contractors plant and plant supplied externally on a dry hire basis (that is exclusive of fuels, oils, expendables, ground engaging tools and operator) Fuels, oils, consumables and ground engaging tools of plant items Transport of plant items Materials Permanent material incorporated in the final works (for example supply and delivery of pavement materials, supply only of RC pipe and box culverts, supply of bridge expansion joint, etc) Temporary materials not incorporated in the final works (for example, traffic barriers, sheet piling, formwork, silt fences, setting-out pegs, etc) Subcontract Components of the work (permanent or temporary) subcontracted by the head contractor (for example erection of deck units, installation of sheet piling etc), and including subcontractors indirect job costs and offsite costs Subcontract plant hired on a wet hire basis (for example plant including fuels and oils, expendables, ground engaging tools and operator) Subcomponents

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4.1.2

Indirect Job Costs

Indirect Job Costs include the allowances that contractors require to manage the project, and cover their risk, corporate overheads and margins. Estimates prepared by TMR and its service providers must show specific line items for each of the indirect cost categories. Options include: Separate scheduled item for indirect costs; and Indirect costs distributed through the scheduled activities, either as a uniform percentage mark-up on direct job costs or allocated to specific activities.

Contractors preparing detailed estimates for tenders normally estimate these costs using the basic cost method at the subcomponent level as summarised below in Table 4.2. Table 4.2 Examples of Contractors On-site Indirect Job Costs Cost Category On-site indirect job cost Overheads (recurring) Component Project management Works management Project Manager Project Engineer Supervisors Administration officer Systems officer Surveyor Laboratory technician Site facilities Office rentals (for example accommodation, facsimile, photocopier, computer hardware and software) Service utility charges (for example telephone, power, water and sewerage) Cleaning charges (for example office cleaning, septic pumping, refuse disposal, etc.) Plant and equipment Site staff vehicles Job truck (general purpose) Pumps and generators Floating plant and loose tools Stationery Miscellaneous materials Insurance and permits State Government and Local Government permit fees, insurances required by the contractor, bank guarantees and financial charges Travel costs not included in wages and salaries Transport and erection of site facilities Mobilisation, site offices and amenities for contractor, Principals team and in some cases, subcontractors Subcomponent

Consumables

Travel Site establishment On-site Overheads indirect job costs (fixed) Mobilisation

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4.1.3

Off Site Overheads and Margin

Off-site indirect costs, often referred to as off-site overheads are summarised in Table 4.3. Table 4.3 Examples of Contractors Off-site Indirect Job Costs Cost Category Off-site indirect job costs, corporate overheads (recurring) Component Business unit costs Subcomponent Local area costs associated with the management of operations, finance, human resources and business systems Costs associated with strategy and policy development, business development, finance, human resources, business systems, technical advice, and contract advice An amount to cover the costs of unforeseen factors related to the delivery of the project objectives which are not provided for elsewhere in the total job costs Provision for profit often applied as a percentage of the total job costs (direct job cost plus on-site overheads)

Corporate costs

Off-site allowances (fixed)

Contractors contingencies and Risk allowances Profit margin

Margin

4.2

Principals Costs

Principals Costs are those costs which the Principal incurs to conceptualise, develop, deliver and finalise a project. These costs mainly apply to the Non-Construction activities. In TMR, Principals Costs are spread across and grouped into the four project methodology phases of Concept, Development, Implementation and Finalisation. Some cost items occur in every phase while others occur in more than one. These costs are arranged in accordance with the TMR WBS standard which identifies work in project phases then in either project management or work management domains and ultimately continues down to work item number. See Annexure D. These costs include items such as TMR staff costs, engaged consultancy costs, community consultation, public utility plant costs and resumption costs). When specific costs are grouped into the phases and totalled they make up the full Principals Cost. The following sections examine specific phase costs followed by costs that appear in many phases. Principals Costs do not include contract costs for construction works. See Section 4.1 for further information. For a comprehensive listing of Principals Costs by project phase, see Annexure D Principals Activities. Risks and contingency associated with Principals Costs are to be included as part of the projects risk matrix/ register with appropriate cost allowances included in the estimate. See Section 10. Table 4.4 Examples of Principals Costs Cost Category Establishment Costs Component Planning, design, land acquisition, administration Subcomponent Planning, community consultation, land acquisition, TMR staff costs, geotechnical surveys, cadastral and engineering surveys, Principal Arranged Insurance, Principals risk not included in the Contract risk, contract administration and so on An amount to cover the costs of unforeseen factors related to the delivery of the project objectives which are not provided for elsewhere in the total job costs Increase in costs due to the change in design standards and construction specifications as well as community expectations over the life of the project

Project allowances

Contingencies and risk allowances

Design growth and standards growth

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Project Cost Estimating Manual Cost Category Contract management Component Hidden costs

Department of Transport and Main Roads Subcomponent Accounting, legal fees, probity auditor costs, document and records control (including drawings, transmittals, archiving, contracts and so on). Developing key documents including the options analysis, business case, project plan, handover and completion reports. Also site visits, meetings, scope management, cost control, scheduling, quality assurance, communication, human resource management and meeting workplace health and safety requirements. Refer to the Preconstruction Processes Manual Chapter 3 for more details.

Project Management

Business Requirements

See Annexure D for more information on Principals cost considerations. The estimator must allow for costs as separate line items in the estimate. Care needs to be taken in the proper allocation of escalation to these costs. Note also that although the Contract Costs will attract a margin percentage, the Principals Costs will not. Also note that cost centre standard hourly rates for TMR staff are determined each financial year and are available from the relevant TMR Branch or Region/District.

4.2.1

Concept Phase Costs

Concept Phase costs are those costs associated with investigating project options and the preferred option to a sufficient level of confidence, to provide a 90% confidence level that the project cost estimate will not be exceeded. The costs incurred in the concept phase contribute towards business case preparation. Depending on the complexity and potential risks of the project, these costs may include appropriate cadastral and engineering surveys, as well as geotechnical and design investigations, to achieve the level of required confidence. In some instances this may include early land acquisition and/or public utility plant costs. Concept Phase Costs include Project Management Costs (See Section 4.2.5) and may include Principals Obligations Costs (See Section 4.2.6).

4.2.1.1 Project Proposal Costs


These costs are those incurred in the preparation of project proposal documentation. Depending on the complexity of project, the costs may range from relatively small (and may not be charged to the project in some Regions) up to substantial costs for large complex projects (and charged to a 900 series project number). These costs are nearly all considered as project management costs and can be determined by first principles costing or from benchmarked values. See Project Management Costs, Section 4.2.5.

4.2.1.2 Option Analysis/ Preferred Option Costs


Option Analysis Costs are the cost to develop comparative options and establish the preferred option. Activities will be required in both work management and project management domains. These costs can be determined by first principles costing or from benchmarked values. See Project Management Costs in Section 4.2.5.

4.2.1.3 Business Case Costs


These costs are those incurred in developing the preferred option and preparing the business case documentation. Activities will be required in both work and project management domains. These costs can be determined by first principles costing or from benchmarked values. See Project Management Costs in Section 4.2.5.

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4.2.2

Development Phase Costs

Development Phase Costs are those costs to further develop and finalise the projects design. This phase will include any cadastral and engineering surveys, community engagement, geotechnical and design work to further develop the concept design from the concept phase. Development Phase Costs include Project Management Costs (See Section 4.2.5) and include Principals Obligations Costs (See Section 4.2.6).

4.2.2.1 Preliminary Design Costs


The preliminary design stage is used to confirm that the design matches the approved scope and its project estimate is used for comparison with the approved budget prior to finalising detailed drawings and contract documents for procurement. Costs to advance the preferred option to the advanced preliminary design stage will involve work management activities. Not all projects will have a Preliminary Design stage. Some quite basic Type 2 projects and most Type 3 projects will not have a Preliminary Design stage. These projects will progress directly to the Detailed Design stage.

4.2.2.2 Detailed Design Costs


Detailed Design activities include finalising the design and producing detailed drawings suitable for a construction contract. Detailed Design Costs will involve work management activities. These costs can be determined by first principles costing or from benchmarked values. Refer Project Management Costs, Section 4.2.5, for further information.

4.2.2.3 Prepare Contract Documents Costs


The relevant contract delivery method is determined using the TMR Project Delivery System Manual (refer www.tmr.qld.gov.au). Costs associated with preparing the contract documentation will involve work management activities. These costs can be determined by first principles costing or from benchmarked values. See Project Management Costs, Section 4.2.5 for further information.

4.2.2.4 Procurement Costs


The Procurement stage costs include the tendering activities such as preparation of tender documents, advertising, responding to Requests for Information (RFIs), preparing Notices To Tenderers (NTTs), tender analysis, obtaining financial approval and engaging the successful contractor/s. These costs can be determined by first principles costing or from benchmarked values. See Project Management Costs, Section 4.2.5 for further information.

4.2.3

Implementation Phase Costs

Implementation Phase Costs are those costs to actually deliver and manage the project, and administer the construction contract/s. The closing out of contracts is part of this phases costs. This phase may also include any last minute works on the project for example, noise barriers and works required to support community engagement. So this phase may overlap with the Finalisation phase. Costs to construct the works are treated separately under Construction Costs See Section 4.1. Implementation Phase Costs include Project Management Costs (See Section 4.2.5) and may include Principals Obligations Costs (See Section 4.2.6).

4.2.4

Finalisation Phase Costs

Finalisation Phase Costs are limited to project management activities to close out the project,that is, handing over the project to the Customer and undertaking completion report activities. There are unlikely to be any Principals Obligations costs attributable to this phase (See Principals Obligations, Section 4.2.6)

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4.2.5

Project Management Costs (All phases)

Project Management Costs are those costs to prepare project plans and manage (monitor and control) the whole project. This does not include the administration of construction contracts. Project management costs are expended in each of the four project management phases and are to be estimated separately for each phase/stage. These costs can be determined by first principles costing by determining the tasks to be done, the number of people required for each task, each persons work effort (hours, days), and the resource charge-out rate ($/hr, $/day). These costs of these tasks are totalled to arrive at the estimated project management cost for each phase/stage. Cost centre standard hourly rates for TMR staff are determined each financial year and are available from the relevant TMR Branch or Region/ District. An alternative method is to refer to bench-marked values determined from previous projects. For example the percentage value of project management activities compared to the projects total cost could be used. As Regions/Districts develop their data capture, data relevant to the specific project phases may become more readily available. (See Section 8.1 for details on Benchmarking.)

4.2.6

Principals Obligations (3 phases)

Principals Obligations can include supply of roadworks and bridge materials supplied by the Principal, acquiring the right-of-way (resumptions), public utility plant investigation and alteration, and other payments and costs. Depending on the urgency of some Principals Obligations these costs may occur in the Concept, Development and Implementation phases. For example, resumption hardship cases may necessitate land acquisition early in the Concept phase. PUP alterations may still be required late in the Implementation phase.

4.2.6.1 Property and Land Acquisition (Resumptions)


It is very important to know a projects land requirements as early as possible and to allow for costs and time to acquire the land or volumetric title. When there is sufficient confidence about the project scope, resumption drawings are prepared that provide detail of the extent of land or volume required for the project. Costs to acquire right of way include the actual land costs (including surveys and legal costs), associated accommodation works (for example, alteration to fences, property access), any disturbance items and TMR Property Services costs to manage and execute the resumption processes. Advice on these costs can be obtained from Property Services Branch, Manager (Land Transactions).

4.2.6.2 Public Utility Plant (PUP)


The costs and time needed to investigate and relocate utilities can sometimes be a significant portion of the project. It is imperative that as much information as possible is obtained as early as possible in the project life cycle for inclusion in the relevant estimate stage. PUP includes, but is not limited to, infrastructure related to the distribution of communications, electricity, water, sewerage, gas, and any other facilities. Alterations are not limited to power poles, cables and pipes. They also include tunnels and structures where the PUP is housed. It is desirable that at the strategic stage, the existence of utilities be investigated by visiting the site, noting evidence of services and contacting the utility authorities (using potholing and Dial Before You Dig, as well as personal contact with relevant PUP officers) to confirm site observations or obtain information that could not have been established during a site visit. From the business case through to detailed design stages, the details of the utilities (location, size, etc) must be fully investigated and an estimate for relocation, where required, must be obtained from the relevant utility authority. Costs involved with altering PUP can be challenging to estimate. To maximise the confidence of such estimates, early engagement with the PUP owner is critical. TMR has Memorandums of Understanding (MOU) with some PUP owners (Energex, Ergon and Telstra) for the management of PUP within state controlled road reserves. These provide the basis for the design, costing and implementation of their PUP alterations. As at the time of publication, these MOUs can be found on TMR intranet site (Our Organisation > Policy and Planning Group> Road Safety and System

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Management [and page down to the bottom] > Corridor Management and Operations > Corridor Access > Documents and Resources > Memorandums of Understanding/Agreements). Risks and contingency relevant to PUP costs are to be included as part of the projects risk matrix/ register with appropriate cost allowances included in the estimate. See Section 10.

4.2.6.3 Materials
TMR has Standing Offer Arrangements (SOAs) with a number of suppliers (for cement, traffic lanterns, electrical cables, traffic signs and bitumen products, for example). These enable materials required for a project to be costed as part of Principals Obligations. The Principal may elect to arrange supply of other materials (for example, culverts, pavement materials, or bridge components). These costs can be included as part of Principals Obligations. However, they may also be included as Construction Costs. For further information on these, SOAs refer to Program Procurement Branch.

4.2.6.4 Other Payments and Costs


Other Payments and Costs can include Principal Arranged Insurance (PAI), miscellaneous charges (for example lighting and cultural heritage payments), fees and levies required of the Principal (for example Portable Long Service Leave levy and WHS and environmental fees), any compensation due to road infrastructure development, and any Performance Incentive Bonus. In some cases, a projects estimates may need to include a cost when a new section of road replaces an existing section, with the existing section becoming a part of the local road network under the management of the local government. In such circumstances TMR might refurbish or resurface the existing road before it is acceptance by the local government, or contribute to the net present value of the future maintenance of the existing road. The Project Manager should engage the local government as early as possible to gauge this potential and for such costs to be included in the project estimate.

4.2.6.5 Environmental Offsets


Were a project cannot avoid impacting on environment values, other government agencies including local, state and federal governments will usually require TMR to provide offsets to mitigate these impacts. These requirements are generally prescribed in conditions of environmental approval or in codes of compliance, and TMR is required by legislation to comply. Environmental offsets are defined as an action taken to counterbalance unavoidable negative environmental impacts that result from an activity or development. They are negotiated on a case by case basis, but may for example include:

Offsetting vegetation loss by undertaking ongoing management actions near the impact site to increase the quality and extent of vegetation; or Securing an area of fish habitat similar to that which was destroyed as a result of bridge construction; or Monetary payments which cover the full costs of locating, securing and managing long term land with vegetation able to sustain a koala population where one was destroyed as a result of a new corridor.

As impacts on environmental values are difficult to predict and offsets are negotiated on a case by case basis, the local environmental officer should be contacted to assist in determining these impacts.

4.3

Contingency Allowances

Risks and their treatments are identified in Risk Assessment workshops. The estimator in conjunction with the project manager need to make financial contingency allowance for each of these risks based on their likelihood and impact. See Section 10.3 for details of TMRs risk management process. The items below indicate some of the common recurring risk items and in some cases a means of determining a contingency allowance for them.

4.3.1

Design Development Changes

Design development changes are caused by the advancement of the design, resulting in a greater amount of detail on plans required to meet the previously stated performance requirements (scope). TMR data suggests, this will be in the order of 3-8% of estimated construction costs per design stage (that is 3-8% from Business case to completion of preliminary design, then another 3-8% from preliminary design to detailed design).

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Refer to the Preconstruction Processes Manual for further information.

4.3.2

Standards and Policy Changes

This category includes changes to the design standards and management requirements mandated by TMR. It assumes that these changes are of a continuous improvement nature based on ongoing research and evaluation by the department. While the specific standards that will change may be unknown in the Concept phase, the project designer will have to ensure the project meets the current standards when preparing the design, and can be requested to enquire regarding which standards have changes pending or revisions in progress. TMR publishes hundreds of new pages of technical specifications each year, some of which will affect cost. TMR data suggests this is in the order of 5-7.5% of construction and Principal costs per annum. There can also be changes of a policy nature that can have cost implications, such as environmental offsets and emissions trading. Impacts for these are still being evaluated.

4.3.3

Third Party Influences

This covers risk costs generated by external agencies. These can be as simple as local community wish list items which TMR may subsequently decide to contribute to as a job charge. It may include requirements of external authorities such as Power, Communication, Water, Gas and Rail in respect of service relocations;, and other agencies initiatives and policies, such as the Federal emissions trading scheme and the State recycling policy.

4.3.4

Revised Functionality

This category accounts for scope change that result in revised project benefits (either increased or reduced), such as varied requirements for traffic capacity, axle loadings, access points, or design speed compared to that originally described at project definition.

4.3.5

Principals Costs

TMR has often estimated principals costs as a percentage of construction costs. If this approach is to be used rather than basic cost estimating, a sufficiently large contingency should be applied to reflect the risk and uncertainty. An allowance up to 30% of the unspent portion may be appropriate in the early stages of the project, depending upon its complexity.

4.3.6

Planned Risks

Risks associated with the calculation accuracy of both quantities and unit rates are referred to as Planned Risks. A project cost estimate cannot be developed with any known confidence level using a single value for each quantity or unit rate. In reality there is a range of possible quantities and rates for each item. This is usually modelled as a +/- range risk on quantities rates of all scheduled items. This is totalled across all items and is then added to the estimate, usually by spreading evenly across the scheduled items. Statistical modelling of these planned risks results in a higher confidence estimate being prepared.

4.3.7

Project Delay (Escalation allowance)

Work by Flyvbjerg in the UK found that projects, on average are delayed 20% from the practical completion date announced in the business case to the actual practical completion date. For example if a $100 million project is estimated to take 5 years from business case to completion, it will actually take 6 years to complete and the one year delay will add over $10 million to the project cost. Accounting for this in out-turn dollars increases the overrun to $17 million, based on TMR current escalation rates. Delays can occur in the delivery phase or in the development phase, due to difficulty in securing funding, election caretaker periods, impact of adjacent projects, reprioritisation, resignation of key TMR staff, Environmental issues, and so on. Regions/Districts should use their benchmark data to determine the appropriate values.

4.3.8

Changes during Implementation Phase

TMR examined 44 projects that used various delivery methods and found the average cost increase during construction was 11% of the Estimate for Comparison with Tenders amount. This review did not look at what caused the increases, so there is no information on whether it was due to scope increases, contractor's claims, quantity increases or the like. However the results are consistent with cost increases reported in recent QTRIP publications. When including these costs care must be exercised not to double count increases due to escalation which is covered elsewhere.

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4.3.9

Property/ Land Acquisition

The practice on Type 1 projects has been to schedule each of the properties needed, estimate its worth and add an appropriate risk amount which has ranged between 30-200%. Once each property is purchased or accommodation works finalised, the risk is removed. Allowance also needs to be made for planning costs and legal fees involved in the land transfer, as well as the actual cost of property purchases.

4.3.10 Unmeasured (Unidentified) Items


In addition to the items listed in the pricing schedule for strategic planning, concept phase and development phase, the estimator should allow the following lump sum amounts in the contract works contingency register to account for items which have not been identified during the quantity take off process: Detailed Design Estimate => 1% to 3%, of total construction cost; Business Case Estimate =>3% to 5% of total construction cost; and Strategic Estimate => 5% to 7% of total construction cost.

4.3.11 Quantification of Contingencies


Quantification of contingency allowances for cost estimating items is achieved by applying the risk management processes detailed in AS/NZS ISO 31000:2009. Because of the uncertain nature of risk, it is difficult to be prescriptive as to how contingency costs should be estimated. Suffice to say that the estimator and project manager must use their experience and professional judgment to weigh competing factors to arrive at the most likely value. Historical events may be used as a guide. Where risk is significant and complex, for example on Type 1 projects, it is recommended that a statistical evaluation method be used. See Section 9.3 for information on the Monte Carlo risk evaluation method. There is no specific formula or accurate correlation between a contingency allowance for risk exposure determined by a percentage basis or by a probabilistic basis. Table 4.5 below gives some guidance as to contingency percentage above the base estimate. The guidance given by Table 4.5 assumes that the project manager and designers have exercised reasonable care in defining the scope so as to not unduly rely on contingencies. Contingency allowances outside of these ranges or larger contingencies must be justified by a detailed risk analysis approach using tools such as a Project Risk Management Workshop or a Monte Carlo analysis. Table 4.5 Expected Contingency Range Estimate Stage Strategic Estimate Project Proposal Estimate Options Analysis Estimate Business Case Estimate (P90) Preliminary Design Estimate (P90) Detailed Design Estimate (P90) Note: 1. Percentages are of the Base Estimate. 2. These percentages have been used in TMR since Edition 2 of this Manual was released in 2004. The Association for the Advancement of Cost Engineering International cost estimate classification matrix gives ranges of expected accuracy wider than those above, However TMR usage over the years has not indicated a need to widen the above contingency ranges. Quantification of risk is very subjective. A table of risk percentages for the high level strategic and proposal stages can be found at Annexure E. A spreadsheet file is also available to facilitate risk quantification. This can be sourced from the TMR Intranet and TMR Website. The project risk register should be developed using the TMR Risk Log (Inside TMR > Policies and Procedures > Risk Management Tools and Techniques > Risk management log. This is an electronic spreadsheet with built in macros. Level of Project Definition 1% to 15% 1% to 15% N/A 10% to 40% 30% to 65% 40% to 80% Typical Contingency Ranges 40% to 70% 40% to 70% N/A 30% to 40% 20% to 30% 10% to 20%

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4.4

Escalation

Escalation is the increase in project costs over time due to rise and fall and applies to the whole of the estimated costs. Table 4.6 provides advice on the nature of those items likely to be present in most Type 1 projects. It may well be that their impact is negligible or non existent for Type 2 projects but this assumption should be tested. Table 4.6 Escalation Items Item Inflation (Input Cost) Market Conditions Supply Constraints Project Complexity Description Often referred to as rise and fall this figure pertains to inflation for labour, plant, and material. Competing demand from road and other sectors in the Queensland marketplace cause an effect on tender prices and contractors margins. Cost relating to time constraints on supply of scarce materials or services. Large scale and complex projects can have significantly greater impact on the department and industry, as well as on the transport network. For example TMR may have to go to extreme lengths and incur significant costs just to manage general traffic interaction with construction traffic and prevent network breakdown.

Escalation guidance figures are released each year in the QTRIP Guidelines. For the 2012 / 2013 QTRIP, guidelines suggests figure of 8%, 8%, 9%, and 9% per annum for capital works should be used over the 4 years of that QTRIP. A shorter interval escalation allowance that is updated quarterly is the CERI Index. See Annexure H and the current QTRIP Guidelines for the most current information on annual escalation.

4.4.1

Cost Escalation Road Input (CERI) Index

The Cost Escalation Road Input (CERI) index has been developed by TMR as a tool that replaces the discontinued Road Input Cost Index (RICI). The CERI index measures change in the average unit rate per quarter or year, as applicable. The base CERI index and its forecasts provide a key input to determining the figures published in the annual QTRIP. In some circumstances, such as maintenance or small projects on a shorter time frame, CERI can be used as part of the process to turn current estimates into out-turn estimates at time of delivery. The index utilises an innovative statistical model to map a broad suite of economic factors into a single weighted index. The system also constantly monitors market movements to ensure that the most influential and important factors are included in the rolled up index. Procurement Development and Research Branch within Program Development and Management (PD&M) Group publishes regular CERI forecasts for up to two years ahead. The latest CERI index can be obtained from that Branch.

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ESTIMATE DOCUMENT DEVELOPMENT BY PHASE

This section details the estimates that are required to be compiled within the Project Management Framework (OnQ) beginning with Road Network Planning and finishing with project Finalisation. The structure of this section follows that of the Program Management Framework which begins with a pre-project phase and follows with the Project Phases: Concept, Development, Implementation and Finalisation (CDIF). As the project progresses through these phases, various stage estimates will be prepared. As each new stage estimate is commenced, a new Project Cost Control Checklist (See Annexure I) should also be commenced and completed progressively. This prompts estimators on the process and provides assurance to the person approving the estimate that due process has been followed. Each stage estimate also requires a report on the estimate development process, and detailed workings can be attached to this. The format of this report appears in Annexure J, and chronologically parallels the process in the Project Cost Control Checklist. The following factors influence estimate development: Project Scope; Project Constraints; Constructability; Construction Program; Asset Management; Whole of Life Costs; Workplace Health and Safety; Environmental and Heritage Issues; Traffic Issues; Location Issues; Value Engineering; Risk; and Method of Delivery.

Note: Inadequately defining the project scope is identified as a major contributor to project cost escalation. The Project Scope must be fully defined at the Business Case stage. Refer Chapter 5 of the Preconstruction Processes Manual for more details.

5.1

Pre Project Phase

Estimates completed during the pre-project phase are referred to as strategic estimates. These will often be developed on poor or negligible information. Great care needs to be exercised in publishing these estimate figures. The percentage ranges on these types of estimates are indicative only, and must be viewed against the background information upon which these estimates are based.

5.1.1

Strategic Estimates

Strategic estimates are estimates used solely for planning purposes so that candidate projects can be prioritised. They are used, in addition to other information, to provide a meaningful comparison of candidate projects. Strategic estimates are not for financial planning, cost control or budget setting. They are required to inform Route and Link Planning which falls under TSM Phase 3. The challenge for producing estimates at this stage is the lack of both available information and definitive options to price. The process outlined in this section gives guidance to the considerations that should be made if the strategic estimate is to be reliable. Such estimates should not be expressed as a probability not to be exceeded (e.g. P90), but should be described as an estimate range with a most likely cost, for example, project X is expected to cost between $15-25 million, with a most likely cost of $22 million. Further information of the role of strategic estimates can be found in the Guidelines for Strategic Road Network Planning which can be found on the TMR Intranet.
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At the time the strategic estimate is prepared, there is usually little information available and the estimate is required at very short notice, leaving minimal time for research. Providing an estimate under these conditions contains an element of risk and careful consideration must be given to any information that is available at the time and an appropriate contingency applied. Typical strategic global rates and the costs of completed projects can be used as a cost guide. Limited information might be available at this stage on some or all of the following: The extent of the project; Lane configuration; Major structures; Property impacts; Major constraints; Major risks identified; and Major utility adjustments. i. ii. iii. iv. Information gathering; Preparing the base estimate; Completing the estimate; and Reviewing.

There are four key groups of activities in the preparation of a strategic estimate. These are:

These steps are explained in greater detail in the following sections.

5.1.1.1 Information gathering


Various activities must be performed to ensure adequate data is obtained before the estimate can be built. This includes: Defining the strategic scope of the project; Collecting available project information/data; Site visit; and Collating data for the estimate.

5.1.1.1.1 Establishing the scope of the project


Determining the scope of the project is a very important requirement for a reliable estimate. Information such as the extent of the project, lane configuration, major structures, property issues, constraints, utilities and risks are ideally required in order to prepare a reasonable strategic estimate. The nature of strategic estimates is such that some, if not all of this information, will not be available and/or reliable at the strategic stage of the project proposal. In such instances, in order to complete the estimating process, the estimator must make appropriate assumptions that must be recorded.

5.1.1.1.2 Collect available project information/data


The estimator must be provided with and take into consideration all available and relevant information. This includes: An understanding of the proposed contracting strategy for the project (for example, design and construct, early contractor involvement, open tender, sole invitee and so on); A description of the scope of the project with clear limits. This is an essential activity in ensuring the reliability of the estimate; Exclusions; A sketch plan of the proposal; Details of the costs expended on the project to date; Risk assessment; Constructability issues;
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Any existing studies or reports that might influence the costs e.g. geotechnical report, environmental report, etc; Key dates e.g. commencement of design, construction, etc; Any conditions of approvals, including environmental approvals, likely to be required; and Any other available information, such as aerial photographs, sketch plans, general property valuations, utilities, etc.

Due to the nature of strategic estimates, the information available is often very limited. To assist in future estimate adjustments and in programming any work, the estimator must make use of all information available and any assumptions made must be clearly stated.

5.1.1.1.3 Site visit


The estimator should make every endeavour to visit the site to improve their understanding of the site conditions, uncertainties, unknowns and risks, preferably in the company of the project manager. Refer to Annexure A Project Site Visit Checklist. Examination of aerial photos and/or Digital Video Road (DVR) images is essential if a site visit is impractical.

5.1.1.1.4 Collate data for the estimate


The following data needs to be collected: Quantities - Quantities are likely to be of a very strategic and approximate nature and will be very broad in character, based on an understanding of the project proposal scope; Rates - Strategic global rates can be (and usually are) adopted for strategic estimates and comparisons can be made to costs of completed projects in the absence of other relevant information. Historical unit rates or rates determined from first principles might be used if there is sufficient information to calculate quantities; and Quantities and rates adopted must be compatible with the project scope. The rates used must be applicable to the quantities adopted. If not already included, allowance for waste must be added to some items (especially for asset maintenance).

5.1.1.2 Prepare the Base Estimate


It is at this point that the base estimate for the project is actually produced using global rates. Remember that global rates are not intended to replace engineering design and estimating calculations but rather to provide a resource for generating a realistic cost for a project proposal when minimal information is available.

5.1.1.2.1 Understand historical data


Historical data will be collected and analysed to determine: Market conditions prevailing at the time of the tender from which the data was collected; Any peculiarities of the project from which the data was collected; The legal environment prevailing at the time the data was collected; The TMR requirements at the time the reference data was collected; An approximate allowance for contractors on and off site overheads and profit (if available); and The method that was used for delivery of the project.

5.1.1.2.2 Adjust historical data


Historical data must be adjusted for the project being estimated to account for factors such as: Inflation; Site conditions; Location of the project; The variation in the magnitude of the quantities between the historical source of the data and the present proposal; The effects of Government legislation;

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Contractors on-site and off-site overheads as well as profit; and Method of delivery (for example, design and construct, early contractor involvement, and so on).

5.1.1.2.3 Construction cost


The construction cost estimate is calculated by multiplying the global quantities by the rates deduced from historical data, or from multiplying the coarse quantities by the unit rates deduced from historical data.

5.1.1.2.4 Concept development costs


These costs include activities in the option investigation, concept design and business case development and approval stages of the project. Concept development costs would either be estimated based on data from previous relevant projects or as a percentage of construction costs, and should be expressed as an estimate range with a most likely cost, for example project Xs concept phase costs are expected to fall between $2-5 million, with a most likely cost of $4 million.

5.1.1.2.5 Detailed design and documentation costs


These costs include all activities in the detailed design and implementation stage from the end of the design development and approval phase and tendering (with the exception of property acquisitions and public utilities). Detailed design costs would usually be estimated as a percentage of construction costs, and should be expressed as an estimate range with a most likely cost, for example project Xs development phase costs are expected to cost between $3-6 million, with a most likely cost of $4 million.

5.1.1.2.6 Property acquisition costs


Generally acquisition complexity, and hence the appropriate level of contingency, is higher in urban and particularly metropolitan areas (where land values are more volatile and property adjustments are numerous) than in rural areas. The value of all land required for the project, either as the acquisition cost for newly acquired land, or the potential sale value for previously acquired land, must be included as a project cost. In the case of land that is required only for the period of construction, and that is acquired for temporary use, a residual land value must be credited against the project cost. In some cases this might be the same as the acquisition cost of the land, but could be less than the acquisition value due to the proximity of the project works, or more if the land can be rezoning. Property acquisitions may include: The actual area acquired or utilised permanently for the project, including sub-surface easements and acquisitions (e.g. for tunnels), if applicable; Any land that might be permanently or temporarily required for compensatory habitats; Contractors work and site areas (if provided by TMR) including provision for site offices, temporary environmental works, traffic diversions, etc; TMR site office and facilities areas, if separate from the contractors area; and

Land required for any TMR works to be undertaken as part of the project; As well as costs of acquiring the above land, there may be other in/outgoings as well including: Compensation paid to land owners in respect of effects of the project on the owners land; The residual value of land temporarily acquired, or made available by demolition of existing infrastructure replaced by the project works; and Adjustments to property/fences etc.

5.1.1.2.7 Finalisation Phase costs


Finalisation Phase costs include those costs involved with Project Management finalisation processes as per the OnQ methodology. Finalisation Phase costs would either be estimated based on data from previous relevant projects or as a percentage of construction costs, and should be expressed as an estimate range with a most likely cost, for

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example project Xs finalisation phase costs are expected to cost between $1 and 2 million, with a most likely cost of $1 million.

5.1.1.2.8 PUP costs


Utilities costs include all adjustments, replacements, relocations, etc that are required as a consequence of the project whether undertaken by the responsible authority, a contractor engaged by that authority, or undertaken by TMR either as part of the main contractors works or by separate contract. In some cases utility adjustments might be undertaken partly by the project main contractor and partly by others, outside the main contract scope of works but still within the overall project scope. In such circumstances, care must be taken to ensure that the correct scope of utility adjustments is contained in the main contract scope and in the scope of other works, and that the scope description makes this division clear. It is often difficult to ascertain the potential costs of making adjustments to existing utilities on a project. For example, where costs are shared, a utility authority might not agree to meet the cost of the relocation of a utility that was not supposed to be in the vicinity. Appropriate contingency allowances should be made, and, these are likely to be among the highest adopted for the project, particularly in the early stages of a project in metropolitan areas. Utility adjustments are not limited to power poles, cables and pipes. They also include tunnels and buildings where utilities are housed. See 4.2.6.2 for the location of Memoranda of Understanding with various Utility Companies. Utilities costs might include but are not limited to: Design costs associated with diversions; Telstra, Optus and other communications carriers adjustments; Electrical services adjustments; Water and sewerage adjustments, including possible protection of heritage services; Gas mains adjustments; Fuel pipelines; QR railway track adjustments; and TMR project management of the necessary relocations.

The costs of all these items must be included in the strategic estimate.

5.1.1.3 Complete the estimate


The paragraphs that follow describe the activities that must be undertaken in this final step in preparing a strategic estimate.

5.1.1.3.1 Assess risks


The most important risks at this stage of the project are: The possibility that the project scope (even if one has been assumed) will change; The information upon which the estimate is based is found to be incorrect; and The risks associated with providing an estimate at this early stage of the planning life cycle.

5.1.1.3.2 Determine level of contingency


Appropriate contingency must be added to each component of the project estimate. Contingencies outside the ranges outlined in Section 4.3.11 should include documented reasoning to explain the reason(s) for the differences. Contingency must be determined to reflect the confidence and reliability of the information used in preparing the estimate and to take into consideration the risks associated with the project. Table 4.5 outlines the expected range for a typical project, but it is the project managers responsibility to ensure an appropriate contingency is applied to their projects. For more in depth guidance for calculating contingency for strategic estimates, see Annexure E.

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5.1.1.3.3 Factor in Escalation


As required in Road Link Plans, strategic estimates will be prepared in current day dollars. It isnt until the candidate project has an approved proposal nominating the project timeframes that an estimate can be prepared in out-turn dollars.

5.1.1.3.4 Complete Estimate and document in a report


The estimate should be included in the Road Link Plan or moving forward, in the project proposal. It should cover the scope, estimate, assumptions and all the information utilised to determine the estimate. Strategic estimates should be quoted as a cost range, in addition to stating a most likely figure within that range, and determining the estimate category to reflect the level of uncertainty. Documentation should be in the form of the Estimate Report format given in Annexure J. This report may range from a single page to a multi-page document with workings provided as detailed attachments, as appropriate to the nature and scale of the project.

5.1.1.4 Estimate Review


Review of strategic estimates will not be as intensive as subsequent estimates. However, some form of rigour must exist to ensure the estimate is realistic. Strategic estimates will be reviewed at the two points below. The strategic estimate will also be reviewed as part of the processes for developing Route and Link Planning and Project Proposals for QTRIP projects.

5.1.1.4.1 Conduct reality check


Key costs of the project must be subjected to a reality check by comparing them with similar projects. As a minimum, the following key costs must be subjected to the reality check: Total project costs: The reality check calculation for cost/km must include the total project costs and length of the project on the main carriageway(s). The reality check calculation for cost/lane km must include the total project cost and length of acceleration and deceleration lanes, left and right turn bays on the main carriageway(s) and include ramps at intersections. The total cost used in the reality check calculation must include the cost of structures; and Project management costs: The reality check calculation for project management and Principals costs, as a percentage of total project costs, must include all the project management costs associated with the project (all phases and activities) and all the Principals costs.

5.1.1.4.2 Peer review


The project manager must arrange for a peer review of the estimate and the appropriate documentation which must include the completed Estimate Review Checklist in Annexure B. Any comments made by the reviewer must be discussed, agreed and incorporated in the estimate.

5.1.1.4.3 Document Review


This completes the process, and the documentation should then be assembled for approval. The documentation will include the Estimate Report with attached workings and the completed Review checklist. These should be attached to the Project Estimating Control Checklist, which can now be completed for sign off.

5.2

Estimating in the Concept Phase

The concept phase represents the time during which a candidate project receives sufficient priority to win funding and so begin greater definition of the work required to deliver it. There are three estimates in this phase: the proposal estimate, options analysis estimates and the business case estimate. The business case estimate, prepared at the end of the concept phase, will be the benchmark against which all future estimates are referred to. The objectives of concept phase estimates are to: Determine the cost to deliver a fully costed business case; Provide for cost analysis of competing solutions; and Fully cost the project to deliver its products.

5.2.1

Project Proposal Estimates

The proposal estimate is generally constructed on only enough information to determine that a project may be warranted to address a particular circumstance. It supports a project managers proposal to carry out work to determine the project scope and develop the business case. It is important for the estimator to be involved in any risk analysis to ensure appropriate and sufficient contingency is identified.
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While this estimate is generally only includes the costs to complete the concept phase, it is important to review the total project cost. The total project cost figure is often carried forward from the strategic estimate and can misrepresent the body of work now considered in scope. The process for compiling a Project Proposal Estimate is similar to the process for compiling a Strategic Estimate found in Section 5.1.1. Recommendations on the estimating methodology for proposal estimates can be found in Table 9.1. It would be expected that the proposal estimate report (refer Section 5.1.1.3.4 and Annexure J) would contain more detail than the strategic estimate. The OnQ Project Management methodology provides templates for the documentation of the Project Proposal Estimate. The Preconstruction Processes Manual provides guidance to the preconstruction processes surrounding project proposals. The templates and Preconstruction Manual can be found on the TMR Intranet and TMR Website. A project will not be included in the QTRIP 3-5 years without Project Proposal with a Strategic Estimate.

5.2.2

Options Analysis Estimates

Options Analysis estimates are by nature comparison estimates. Depending on the project managers needs, these estimates may require a total project cost for each option or the project manager may restrict the estimates to a component of the options for which costs will be significantly different because the rest of the project costs will be the same. The process for compiling an estimate (See Section 3) is used to derive estimates for each option in the options analysis. Where the total project costs of the various options are to be compared, then the process for compiling a Strategic Estimate found in Section 5.1.1, can be used. Recommendations on the estimating methodology for Options Analysis Estimates can be found in Table 9.1. It would be expected that the Options Analysis estimate report (refer Section 5.1.1.3.4 and Annexure J) would contain more detail than the Proposal estimate. The OnQ Project Management methodology provides templates for the documentation of the Option Analysis Estimate. The Preconstruction Processes Manual provides guidance to the preconstruction processes surrounding Option Analysis. The templates and the Preconstruction Manual can be found on the TMR Intranet and TMR Website. As with all estimates, they should be peer reviewed to ensure accuracy.

5.2.3

Business Case Estimates

The business case estimate is important because it is used as the baseline for future estimate performance. An approved business case provides justification for a project and allocation of funding and other resources to deliver products to meet a specified business need. These allocations and the time and quality requirements represent the criteria by which the project will be judged to have succeeded or not. It is therefore important that the estimate is as fully developed as current information and available time allows and that appropriate contingency is provided for any outstanding risks. The estimate provides an important baseline for controlling subsequent design development resulting from approved functional or standards changes. A project will not be included in QTRIP Years 1 or 2 unless there is an approved estimate and business case. Business case estimates are to be completed such that there is a 90% level of confidence that the total project cost will not be exceeded without being overly conservative with contingency. The process for compiling a Project Business Case Estimate is similar to the process for compiling a Strategic Estimate found in Section 5.1.1, but using the additional information that will be available at this stage to more accurately determine the scope of the project and therefore its quantities and unit rates, as well as the remaining project development work. Recommendations on the estimating methodology for Business Case Estimates can be found in Table 9.1. It would be expected that the Business Case estimate report (refer Section 5.1.1.3.4 and Annexure J) would contain more detail than the Options Analysis estimate. The OnQ Project Management methodology provides templates for the documentation of the Business Case Estimate. The Preconstruction Processes Manual provides guidance to the preconstruction processes surrounding Business Case. The templates and Preconstruction Manual can be found on the TMR Intranet and TMR Website. Figures 5.1 and 5.2 explain the procedure for preparation of the Business Case Estimate along with Concurrence and Approval processes.

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5.2.4

Benefit Cost Analysis

A Benefit Cost Analysis (BCA) shows the economic viability of the project and adds credibility to the project investment. A BCA report should contain an estimate of travel time costs, vehicle operating costs, accident costs and other externalities expected as a result of the project and should also describe the steps of calculating the Benefit Cost Ratio (BCR), Net Present Value (NPV) and First Year Rate of Return (FYRR). The Project Proposal and Option Analysis estimates should be accompanied by a Benefit Cost Analysis (BCA) report. A BCA undertaken during the Options Analysis/R1002 may be revised and expanded for the recommended option/s. The BCA report must contain appropriate qualitative analysis of financial, economic and social impacts and risks together with any other impacts associated with the project. The level of analysis will differ depending on the projects complexity, risk profile and degree of uncertainty. The BCA consists of a three stages evaluation process, namely the: 1) 2) 3) Strategic Merit Test, Rapid Appraisal and Detailed Appraisal.

A Strategic Merit Test BCA is to be undertaken in the Project Proposal, which includes a preliminary estimate of the main benefits and costs. Refer to relevant section of the CBA Manual. A Rapid Appraisal is to be undertaken in the Options Analysis, whilst a Detailed Appraisal is to be undertaken at the Business Case. This is a comprehensive analysis of the project and a more detailed extension of the rapid appraisal. CBA6 is a computer based Cost Benefit Analysis tool specifically designed for economic evaluations of road infrastructure investments in the TMR state-wide program plan, mainly for non urban road projects (i.e. no major network or stop/start effects, except for intersections). It uses the current Austroads project evaluation methodology to evaluate a given road project and will report the Benefit Cost Ratio (BCR), Net Present Value (NPV) and First Year Rate of Return (FYRR) The latest release of CBA6 software tool (vs. 6.1) was released in July 2009 and conforms to the COA agreed ATC Guidelines. Note that calculation of a BCR requires use of a P50 estimate of cost. Contact the Cost Benefits Analysis team for any questions relating to calculating the BCR and for any assistance in preparing the BCA. See CBA Intranet Site http://rams/cba/ or email at CBAteam@tmr.qld.gov.au

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Figure 5.1 Procedure for Preparation, Concurrence and Approval: Business Case Estimates

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Figure 5.2 Procedures for Concurrence Review for Business Case, Preliminary and Detailed Design Stages

5.3

Estimating in the Development Phase


Preliminary Design Estimate; Detailed Design Estimate; Estimate for Comparison with Tender (EFCT); and

Three key estimates can be created in the development phase, which are:

The key outputs of the development phase are the detailed design, tender documents and an executed contract ready for the implementation phase. The detailed design estimate informs the estimate for comparison with tenders which, upon acceptance of a tender, informs the construction estimate. Note that the Financial Approval Process is also determined by the construction estimate.

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5.3.1

Preliminary Design Estimates

The TMR Preconstruction Processes Manual provides guidance to the preconstruction processes surrounding preliminary design The purpose of the preliminary design estimate is to confirm that the advanced design and its associated estimate align with the business case and budget. This is done so that, in the event that project feasibility cannot be established, the project does not incur the costs associated with a full detailed design. The process for compiling a Preliminary Design Estimate is similar to the process for compiling a Strategic Estimate found in Section 5.1.1,but using the additional information that will be available at this stage to more accurately determine the scope of the project and therefore its quantities and unit rates, as well as the remaining project development work. Further recommendations on the estimating methodology for Preliminary Design Estimates can be found in Table 9.1. Figures 5.3 and 5.2 explain the procedure for preparation of the Preliminary Design Estimate along with Concurrence and Approval processes.

5.3.2

Detailed Design Estimates

The Preconstruction Processes Manual provides guidance to the preconstruction processes surrounding detailed design. The detailed design provides the full set of information on the construction aspects of a project and thus is what a projects construction estimate needs to be based on before construction begins. The process for compiling a Detailed Design Estimate is similar to the process for compiling a Strategic Estimate found in Section 5.1.1, but using the additional information that will be available at this stage to more accurately determine the scope of the project and therefore its quantities and unit rates Further recommendations on the estimating methodology for Detailed Design Estimates can be found in Table 9.1. Detailed Design Estimates are to be documented in the Project Plan. Figures 5.3 and 5.2 explain the procedure for preparation of the Detailed Design Estimate along with Concurrence and Approval processes.

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Figure 5.3 Procedure for Preparation, Concurrence and Approval: Development Phase Estimates

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5.3.2.1 Data Verification


The estimator must be provided with relevant information, including: The detailed design estimate report; The proposed contracting strategy for the project; A complete set of current tender documentation as issued to the tenderers, including any notices to tenderers issued; and Any other available information, such as aerial photographs, computer-generated quantities, handover cost estimates, risk register and so on.

The estimator must verify that no unaccounted for event has occurred since the preparation of the detailed design estimate and that no new information has been made available that changes the values or the assumptions used in its preparation. If an event or new information causes a change to the values and the assumptions made, appropriate adjustments must be made to the estimate.

5.3.2.2 Site Visit


If an estimating team is unfamiliar with the project site they should visit it. . Refer to Annexure A Project Site Visit Checklist.

5.3.2.3 Risk Assessment


The estimator must verify that the project risk analysis is updated now that contractors are known. The relevant cost risks for each tender based on that contractors performance should be allowed for in the ECFT. The risk allowance in the EFCT shall only include those cost risks that are to be transferred to the contractor and will vary depending on the delivery method chosen. For example, on a traditional RCC contract, risk on quantities is retained by the Principal and risk on rates is transferred to the contractor. Under a D&C both quantities and rates are the contractors risk.

5.3.2.4 Construction Program


The estimator must verify that the construction program prepared at the detailed design estimate stage is current and appropriate.

5.3.2.5 Construction Method


The estimator must verify that the construction method(s) assumed for the detailed design estimate is (are) still relevant and the appropriate constructability aspects of the project have been allowed for in the contract.

5.3.2.6 Quantities and Rates


The estimator must extract the relevant quantities from the detailed design estimate to generate a contract schedule. The rates adopted must match the quantities measured. Quantities and rates adopted must be compatible with the project scope. All quantities must be updated to reflect the latest designs. Sources of information used to calculate quantities for each item must be documented and summarised. If some time has elapsed since the detailed design estimate was prepared, or if an event has occurred that could influence costs, the estimator must adjust the rates and/or seek quotations from local suppliers or subcontractors for these items to update the EFCT.

5.3.3

Estimate for Comparison with Tender (EFCT)

The estimate for comparison with tenders (EFCT) is an estimate that allows submitted tenders to be compared with Transport and Main Roads estimation of construction costs. Reasonable market rates should be assumed for the Contractors Construction Costs in developing the EFCT. This then provides the means for validating and comparing tender costs. Note that the costs factored into the EFCT are dependent on the type of contract used, which should have been determined as early as the business case.

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The EFCT is provided to support the Tender Analysis Phase of the Transport and Main Roads Project Delivery System.

5.3.3.1 Preparing the EFCT


At this point an EFCT that reflects the contract tendered must be produced. The EFCT supports the Tender Analysis Phase of the Main Roads Project Delivery System. In most cases, this is an extract from the Detailed Design Estimate that will exclude the Principals Costs, Principal retained risks/contingencies and escalation. Refer Section 5.3.3.3 below.

5.3.3.2 Review of EFCT


The estimator must prepare a price schedule that, with the exception of rates, must be identical to the schedule included with the contract document. The project manager may arrange a peer review of the estimate. This will most likely be considered for Type 1 projects).

5.3.3.3 Exclusions from the EFCT


The EFCT is a base cost contract estimate/construction estimate and therefore the following items are not required: Project management and Principals costs; Principal arranged insurance (PAI); Project development costs; Detailed design and documentation costs unless specifically included in the contract; Property acquisition costs unless specifically included in the contract; Utility costs unless specifically included in the contract; Finalisation costs; Principal supplied materials; and Escalation.

5.4

Estimating in the Implementation Phase

The focus in terms of estimating in the Implementation Phase is on regular updates of the cost estimate, cost forecasting and Contract Variations.

5.4.1

Construction Estimate

The construction estimate is the collated and updated estimate using the preferred, negotiated and approved contractors tender. This estimate should be used to update the total project cost, taking into account that risk and contingency will need to be reviewed and escalation updated prior to comparing it to the project budget.

5.4.2

Regular Updates of the Cost Estimate

The purpose of updating the cost estimate is to defend the estimate over time, reduce updated estimate turnaround time and give a clearer picture of what if scenarios to assist in making major decisions. There are two activities associated with updating the cost estimate on a regular basis: Incorporating lessons learned from feedback; and Project changes as evidenced by approved variations.

Project cost estimates must be updated whenever the project scope changes.

5.4.3

Periodic Forecasting

During the life of the project, the project manager must exercise cost control by forecasting the expected expenditure based on current events. Construction activity costs will vary and risks may or may not eventuate.

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The forecast must be broken down into items to match the work breakdown structure. TMRs ProjMan system is used to perform monthly updated forecasts of expenditure for ledger items (WBS) of projects. These updates provide current Estimated Final Cost in ProjMan terminology at monthly intervals. The business rules of the ProjMan system/application require these forecasts to be validated by the project manager. Allowances for contingency and escalation are a part of this forecast process and will normally change as the projects risks either occur or do not eventuate. Risk allowances are attributed to specific risks. In the event that a particular contingency allowance is not consumed, it can be released back to a program manager for other projects. Conversely where the Estimated Final Cost is likely to exceed the project budget, the project manager will need to determine the value of the cost overrun and alternative actions.

5.4.4

Contract Variations

The principles used in the preparation of pre-contract estimates can also be adopted when preparing for proposed major variations proposed by TMR, and when assessing variation requests from a contractor.

5.4.4.1 Pricing the Variation


A variation must be prepared in a way that is explicit and consistent and that takes into account the method of construction as well as the circumstances and timing during which the variation occurs. The cost of estimating a major variation should be considered, and may have to be included in the final value of the variation. It is good variation-pricing practice to take this into account at the time of valuing the variation. Considerations must include both financial and time costs. A variation might result in: An increase, decrease or omission of any part of the work under the contract; A change of the character or quality of any material or work; A change of the levels, lines, positions or dimensions of parts of the work under the contract; Execution of additional work; and Demolition or removal of material or work no longer required.

The calculation of indirect costs, overheads and profits should only be addressed when the direct cost pricing has been completed and the additional time involved (if any) can be calculated for incorporation in the cost.

5.4.4.2 Scope variations


The principles used in the preparation of estimates can also be adopted when preparing scope variations before they are proposed by the project manager and when assessing scope variation requests from the customer or contractor. All variations are to be accurately recorded at all phases of the project. The requirements for assessing or determining the value of the construction portion of the variation must comply with the requirements of Section 5.4.4.1 above. In addition to the construction portion of the variation, allowance must be made for additional costs of: Development Investigation and design Project management Contract administration Principals Costs Acquisition Utility adjustment costs (that have not been included in the construction portion) Insurance Finalisation

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In preparing a scope variation, the time variation to the projects program must be taken into account where appropriate. Seeking and getting approval for the scope variation must include both financial and time costs. Other implications (e.g. risk) should also be considered.

5.4.4.3 Submission of variations


A program submission in SPIDA is used for the submission of variations which must be approved by either the sponsor or the customer. Program variations are approved according to the applicable variation business rules for a particular business program.

5.5

Estimating in the Finalisation Phase

Information on all project costs (minor, major and maintenance) is an important source of data for future reference and for gauging estimating performance. Activities an estimator should undertake include benchmarking utilising actual data, analysing and reporting estimates performance against the standards in Section 2.19 and completing documentation such as the project learnings register and OnQ Project Completion Report.

5.5.1

Requirements
Handover Report (R4001); and Completion Report (R4002).

Type 1 projects are required to complete and submit the following reports:

5.5.2

Learnings

The learnings in regards to estimating can be summed up with the following question: How much did the project finally cost when compared with the original sanctioned budget and the business case estimate? If there is a large difference between the business case estimate, the approved budget and the final project cost, the source of the discrepancy should be isolated, as the error may or may not be with estimating or the estimate itself. Reasons for the differences could lie with: Project Cost Estimating; Project Cost Management; Contract Management; and/or Adoption of Project Management Processes, in particular scoping and risk analysis/management. Departmental Project Management documentation: a) b) c) d) Project Learnings Register Project Completion Report; Project Financial Close-out Report; and Project Reviews,

The information which provides grounds for learning is captured in the following documentation:

Contract documentation; Archived data; and Performance Reviews.

Records of project learnings can improve the decision making and the planning processes for new projects as well as support development of revised organisational strategies.

5.5.3

Post Implementation Review

Post implementation review is a review of the achievements of the project benefits which were established in the project plan. For more information refer to the Project Management Reference Guide, namely the chapter on Finalisation Phase.

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5.6

Exceptions with Minor Works

Minor works and asset maintenance projects are typically lower in risk and value than major infrastructure projects. However special consideration must be given to identify any items of the estimate where a relatively minor change could have a major impact on the final cost. It is recommended that the estimator/project manager prepares an estimate to ensure that proper skills and resources are available and are applied to the preparation of the estimate. In some projects, because they are small, the standard project management and estimating stages are combined for efficiency reasons.

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6
6.1

ESTIMATING ROLES AND RESPONSIBILITIES


Overview

The TMR QTRIP Budget relies on sound project cost estimates and cost control to ensure decision integrity in relation to: Conformance with government priorities; Project justification and authorisations; and Operation of road infrastructure programming.

The purpose of this manual is to provide TMR with a system for project cost estimating in support of transport infrastructure projects and program management that ensures a high level of confidence in transport infrastructure project cost estimates and reduce the incidence of cost variations. Compliance with this manual is mandatory for all cost estimates prepared for TMR infrastructure projects. Estimators, project managers, engineers, technical officers and external service providers must follow these procedures when preparing cost estimates at any point in the projects life. See the Estimating Policy Statement and the Estimating Principles documented in Section 2 for more details.

6.2

Senior Management Roles and responsibilities


General Manager (Program Development and Management); General Manager (Road Systems Management); General Manager (Major Infrastructure Projects), General Manager (Portfolio Investment), General Manager (Integrated Transport Planning), General Manager (Project Delivery and Operations), and Chief Engineer (Engineering and Technology),

TMR's senior executives with responsibilities impacted by cost estimating are:

These senior executives are the main drivers for implementation of these estimating practices and process as well as for creating a culture that will deliver accurate estimates. The GM (Program Delivery and Management) is responsible for the transport infrastructure estimating function. This entails periodically updating the TMR Estimating Policy and this Project Cost Estimating Manual, supporting development and implementation of its estimating practices and process, ensuring it satisfies State and Federal requirements and aligning it with other related departmental standards The GM (PD&M) is also responsible for including projects in the QTRIP by program group, and for preparing the QTRIP for tabling in Parliament. This process obtains approval of the total project budget allocation for all listed projects. [Note that approval of both the awarding of tenders and the actual incurring of expenditure on the project are two separate and necessary additional processes outside the estimating function, and are Regional/District responsibilities.] The GM (PID) reviews project benefits and provides the secretariat for the Infrastructure Investment Committee (IIC). The GM (Project Delivery and Operations) is responsible for ensuring the estimating practices in support of project forecasting in this manual are complied with across all Regions/ Districts. The GM (Major Infrastructure Projects) is responsible for ensuring the estimating practices in this manual are complied with on any major projects under MIP control.

6.3

Regional/District Roles and Responsibilities

Decentralised service delivery allows responsiveness and delivery of transport infrastructure to serve local needs within a broader strategic framework. Regions/Districts are responsible for project development, construction and maintenance of all state controlled roads within their geographical area, and may have a role in other non heavy rail transport infrastructure as well.

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Regional/District Directors are responsible for the effective implementation of these estimating practices to provide accurate estimates for these projects. They are responsible for development and approval of estimates that form the basis for project cost planning, leading to inclusion in the QTRIP. This includes estimates developed to support variations. Regional/District Directors will use this information for making any adjustments to scope that may be required to fit within budget allocation, or for obtaining any necessary additional allocation. The Regional/District Directors, Program Manager and Project Manager are all responsible for ensuring the accuracy of the estimate at any stage in the project life cycle. Program and Project Managers within Regions/ Districts are therefore responsible for compliance with the content of this Project Cost Estimating Manual and for developing accurate estimates. TMR Regions/Districts are organised along strong functional lines closely aligned to the TSM process. They are made up of teams that specialise in the sequential functions of strategic and concept planning, project development and design, construction, asset maintenance and traffic operations. Functional integration is provided by the Regional/District Management Team, which ensures that the objectives of the transport investment program are met across the wide spectrum of programs and projects. In the case of individual projects, the project manager is responsible for project performance. It is noted, that the one individual may not be available to manage a project from start to finish, but rather that there is a project manager who is always responsible and whose role is always filled. The organisational model depicted in Figure 6.1 illustrates how the Regional/District functional and project management roles interrelate. Figure 6.1 Regional/District Organisational Model

6.4

Project Roles and Responsibilities

Estimators are responsible for preparing cost estimates in accordance with this manual, and for preparing the necessary documentation to assure approving officers that the processes in this manual have been complied with. See Section 3.9 for details.

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Project Managers are responsible for the veracity of the estimate by ensuring it is based on: A scope agreed with the project customer; Appropriate work methods; All relevant local factors; Appropriate Monte Carlo risk profiles (for later stage estimates); and Appropriate contingency distribution to scheduled items.

Project Managers are also responsible for ensuring that the processes in this manual have been complied with, the necessary reviews have been conducted and the required documentation has been prepared. See Section 3.9 and 3.10 for details.

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PRESENTATION OF ESTIMATES

TMR has established methods for the presentation of estimates that have provided a high level of consistency over the years. These are supported by templates which, to ensure consistency, are to be used for presentation at all estimate stages. Cost estimate templates are built into the TMR Works Management System (WMS), and these are based on the concept of Work Breakdown Structure (WBS).

7.1

Work Breakdown Structure (WBS)

Successful project management depends in large degree on the project managers ability to specify the work content of projects in terms of its products (deliverables) and activities. One of the principal tools for planning and controlling the work content is the WBS. The WBS breaks the work down into packages and tasks for the purposes of organising the work. A WBS is commonly developed at the beginning of a project, and is used for defining project scope, planning work activities and estimating costs. It lives on, throughout the project, in the project program of work, which will usually be contained in an electronic time scheduling package. The WBS is useful for: Turning projects into manageable size pieces; Facilitating development of the works program; Facilitating the costing and budgeting process; Facilitating the risk identification process (bottom-up approach); Providing the basis of project control; and Defining responsibility within the project, thereby allowing determination of resourcing and costing requirements

The general project WBS in TMRs OnQ project management framework is shown in Figure 7.1. It shows project management and work management activities separately within four project phases. These activities are a sequential series of processes that describe the development of options and design processes from concept through to finalisation. It is intended that the work breakdown structure be used with flexibility to accommodate the varying size and complexity of projects encountered in the QTRIP. Activities may be deleted or inserted within the series to reflect the scope of the particular project. The work breakdown level adopted for particular activities will also reflect the likely delivery method. For example, if the detailed design is being contracted out, it may be represented by a single activity based on the consultancy cost. However, if the detailed design is to be undertaken in house, the cost must be built up using design components such as geometric design, drainage design and so on.

7.1.1

The WBS Levels

TMR Project Management Work Breakdown Structure (PM-WBS) organises project work by Project Phase, Management Type (Project Management or Work Management), Activity Group, and then into Activity. It breaks what can be many hundreds of tasks into chunks that we can understand and assimilate. It is the foundation of a project program of work and project resource estimates, and is used in developing the project plan. An example of this appears in Figure 7.2 which shows the printout from a commercial software package. The project work breakdown structure provides for a cascading level of activities, commencing with the broadest work packages at level 1. Levels 2 and 3 provide for more detail, and unit rates are estimated at Level 4 (or more) detail within the projects program of work WBS, as shown in Figure 7.2. Note that the WBS that estimators use at and below this level for detailed construction estimates will be different to that used by the project manager to develop the program of work for construction of the works. TMR estimates are produced using the items from the MRS. Annexure C contains a listing of all MRS items at the date of publication, and converts this into a WBS by including broader level categorisation in the two columns added to the left of the specification item numbers. This WBS has been developed for estimators in TMR to use. The specification items are shown in this Annexure as level 3 and the additional columns that group these items are shown as levels 1 and 2. These three WBS levels apply for estimating and subsequently costing purposes from program of work level 4 down. In other words the estimate of work items needed to produce the project output are at a level of detail below that of the WBS used for overall

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management of the total project from beginning of concept through to finalisation. That WBS will evolve through the concept and development phases. Where the end product is to be delivered by a contractor, it is unlikely the lower levels will be included in the projects program of work. Hence they have been labelled 1 to 3, rather than 4 to 6. Furthermore, there will be instances where the physical works cannot be managed using these levels. For example, on a bridge scheme, all concrete in piers may be costed under the one item number (7304), however construction of each pier will have separate WBS activities. Other examples may include end walls to culverts or catch drains. The WBS shown in Annexure C for Construction Activities and in Annexure D for Principals Activities is replicated in the Works Management System (WMS) to enable the generation and maintenance of estimates. The work breakdown structure described in the Annexures should be used to match the level of work breakdown with the level of information available. For example, a strategic estimate might adopt mainly Level 1(4) or 2(5) activities, based on broad work packages whereas a detailed design estimate will require most activities to be dissected to Level 3(6). Project managers and estimators will need to use their experience to breakdown the WBS to the appropriate Levels 4, 5 and so on. Level 1 contains the unique project number identifier (RIP number) and the project name. It is the highest WBS level within the PM WBS. Level 2 relates to the OnQ project management methodology phases: Concept, Development, Implementation and Finalisation. Level 3 refers to the work packages that need to be delivered under each project management phase. Level 4, subdivides the work to be performed even further, and represents the minimum level of detail required to plan, develop the program of work, manage projects, and prepare a detailed cost estimate. Any number of activities can be added under this level to describe the work required in more detail.

7.1.2

Construction Activities

Construction activities shown in Annexure C are also assigned a unique number according to the standard work items detailed in volumes one and two of TMR's Standard Specification Roads, in particular MRS01. Introduction (to Specifications and Technical Standards) The standard item numbering system detailed in TMRs standard specifications has been retained as the basic building block for construction activities. The specifications describe the work activities and quality standards required to complete each item of work. The work items, by their nature, are very detailed and ideally suited for detailed estimates where design and quantities are well developed. However, they have limitations when the estimate to be produced relies on only a broad scope definition. It is expected that estimators will develop an estimate based on a work breakdown structure that reflects the level of information available for the estimate stage under consideration. The cost of construction work items is assumed to include distributed indirect costs. Figure 7.1 Road Infrastructure project overview (Project Management vs Works Management) (on next page)

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Figure 7.2 is an example showing project work program breakdown into its various levels. Figure 7.2 Example of project WBS levels

Project: 060608/WBS-1 Pacific Motorway


Project: 060608/WBS-1 Pacific Motorway CONCEPT PHASE Concept Phase Project Management Concept Phase Project Management (General) Appoint Project Manager Community Engagement Concept Phase Project Proposal Determine Functional Requirements & Scope Produce Project Proposal Development of Options Analysis and Recommendations Develop Concept Planning Brief Procure Concept Planning Consultant Produce Options Analysis and Recommendations Compile Draft Options Analysis & Recommendations Review Draft Options Analysis & Recommendations Finalise Options Analysis & Recommendations Liaison with Principal Contractor's Internal Project Management Environmental Management PM WBS Level 1 PM WBS Level 2 PM WBS Level 3 PM WBS Level 4 PM WBS Level 4 PM WBS Level 4 PM WBS Level 3 PM WBS Level 4 PM WBS Level 4 PM WBS Level 3 PM WBS Level 4 PM WBS Level 4 PM WBS Level 4 ACTIVITY (trigger) ACTIVITY (trigger) ACTIVITY (trigger) PM WBS Level 5 PM WBS Level 5 PM WBS Level 5

The MRS11 series of Transport and Main Roads Standard Specifications gives the Level 4 WBS required for First Principles estimates as the Standard Item Number for each work activity. All estimates must follow the MRS11 WBS structure and sequence. Table 7.1 shows an overview of the WBS shown in Annexure C. Table 7.1 Extract of the Work Breakdown Structure (WBS) in Annexure C WORK BREAKDOWN STRUCTURE (WBS) Standard Item Number Group From 1000 2000 3000 4000 5000 6000 7000 To 1999 2999 3999 4999 5999 6999 8999 Site Establishment, Provision for Traffic and Environmental Management Drainage, Protective Treatments and Retaining Structures Earthworks and Landscape Works Unbound Pavements, Stabilised Pavements Sprayed Bituminous Surfacing, Asphalt Pavements Road Furniture, Pavement Marking, Electrical Conduit and Pits, Traffic Signal and Road Lighting Footings, Traffic Signals, Road Lighting Bridge substructures Description of Work

Principals Costs Principals costs may include both construction and non construction activities. Principals costs that are incurred on materials or works that form part of the finished product must be identified for funding by the Principal and should be costed to the construction work items, regardless of who delivers it. The Principals non-construction activities must also be identified for funding. They are also assigned a unique number according to the project phase, management type, activity group and activity. The Principals costs work

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breakdown structure is included in Annexure D, and Principals activities are now identified by Principals Activities Item Specifications.

7.2

Project Cost Estimates

The standard format for cost estimates comprises an Item Number, Description of Work, Unit of Measurement, Estimated Quantity, Unit Rate ($), and the extension (quantity by cost unit rate) Amount. The presentation templates and the WMS also allow estimators to monitor the cost of individual work items in percentage terms relative to total cost and to identify the major construction activity rolled-up group costs (for example Pavements 4000 - 4999) for any project. Using these tools an estimator can focus on the 20% of items that, when combined, often make up 70 80% of the costs. Costs are broken up into project management or work management activities (where applicable) for each of the generic road project phases. Construction costs, Principal's works, materials and costs as well as contingencies are added to give the total project cost. The amount included for contingencies is transferred from the risk report and shown as a lump sum. The breakdown of contingencies, if required, may be determined by referral to the risk report. The estimated cost is expressed in out-turn dollars ($OT) to reflect the actual completion cost of the project for its stated timing.

7.3 7.3.1

Works Management System Estimating Module (WMS: Estimating) Works Management System

Works Management is a core business activity carried out by Transport and Main Roads It covers new works, asset management and road operations. Works management is defined as "the management of the coordinated activities required for successfully delivering the QTRIP using OnQ Project Management methodology." Works management covers all projects carried out on the physical assets such as construction, rehabilitation, maintenance, operations and planning. The Works Management System supports the "effective management and delivery" of all project works within the QTRIP by providing support for consistent rules and processes via an integrated suite of systems. The WMS Estimating Module allows estimators of Road Infrastructure Projects to record details of project cost estimates throughout the entire project life cycle in accordance with the TMR project management methodology. The WMS eDocuments Module provides functionality to allow the generation of Scheme Prototype documents for RCC, RPC, Minor Works and Minor Works Performance Contracts. The schedule of rates from the detailed design estimate may be automatically integrated into the corresponding Scheme Documents.

7.3.2

WMS Estimating Module

WMS Estimating Module is a system for developing various types of road infrastructure estimates as specified under this Project Cost Estimating Manual. The development of these estimates for a project is generally performed collaboratively by a number of people such as road and bridge designers, estimators, project managers and consultants. This task is ongoing as the estimate is refined over the phases of the project from information gathered progressively about the scope, risks etc. WMS Estimating enables users to develop and maintain all of a project's estimates from a single point. The outcome is a managed set of figures and assumptions depicting the journey of developing a project's estimate. The Project Manager and Authors of estimates can have confidence that the latest versions of estimates in the WMS eDocuments Module is the one that will actually be printed in the contract documents. WMS Estimating also provides the facility for many users within the same team to simultaneously share information, record project estimates or print documents. For security purposes, each user is provided with access to documents and estimates by designated Project and Document Owners. Project estimates are managed via a Web page interface that is designed to facilitate easier and faster construction of estimates. Any updates or changes can be deployed to all users instantly without having to get an IT Officer to work on their PC. This means users always have access to the latest information and get access to new system features earlier. Web systems can allow external users to share and contribute to the construction of estimates in a secure environment. This removes problems of sharing and managing files by providing a centralised consistent repository for all documents.

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7.3.3

WMS eDocuments Module

WMS eDocuments Module is a system for developing the Contract prototype documents for a variety of TMR road infrastructure contracts. The development of these documents for a project is usually very time consuming and performed by a number of authors (Consultants, Road and Bridge Designers, Regional/District administration staff, Project Managers). This task is performed on a once off basis for a project. This means the authors may face lengthy periods between the development of one set of project documents and the next project. The eDocuments module assists the authors by providing access to the most current version of all documents for a contract and by undertaking the creation of the Annexures to these documents for the author. The eDocuments module enables users to record project common data once, and it automatically propagates these values between forms. The outcome is a 'trusted' high quality document for use during the tendering/contract process. The Project Manager and Authors can also have confidence that the latest forms and specifications will be included in the contract documents, and misprints or transposition errors are minimised. The final documents produced are in Microsoft Word and/or PDF formats that are saved into the content repository (WMS). eDocuments also provides the facility for many users within the same team to collaboratively record project details and create documents. Each user is granted access to a project by the local Document Owner. WMS is accessed by a Web page interface that is designed to facilitate easier and faster construction of tenders. Any updates or changes can be deployed to all users instantly. Web systems can allow external users to share and contribute to the construction of tenders in a secure environment. This removes problems of sharing and managing files by providing a centralised consistent repository for all documents.

7.3.4

WMS System Maintenance and Further Information

The Works Management System is maintained by TMR. For further information and queries in relation to WMS system, contact the System Administrator on 3834 2000.

7.4

Supporting Information

It is important that cost estimates are supported by information that is transferable throughout the project life cycle. The introduction of stage estimates means that periodic reviews of the project cost will become routine. These review points will need access to past decisions and in the case of estimates, documentation that describes the project scope and risk status at any particular time. Supporting information should include but not be limited to: A detailed scope statement accompanied by current plans; A current TMR risk log; A current program showing staging and significant activities; Assumptions; Options analysis; Constraints; Significant issues; and Current approval status.

7.5

Communication of Project Cost Estimate

There is an obligation to ensure that stakeholders, both within TMR and external to the organisation, are provided with appropriate information on projects, including cost. Communication plays an important part in any project and needs to be planned to ensure that the correct information reaches the target audience in a form that is easily understood. The fact that not all information will be communicated to everyone raises the issue of classification of information. Cost estimates that have not been approved are considered to form part of the deliberative process of project development and consequently have no status as a project cost estimate. Such estimates are restricted to internal communications only as part of the project estimation and management processes.

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Public information on project costs is published each year in the QTRIP. These budget figures are based on estimates that have been approved as part of a business case or subsequent updates and are expressed in out-turn dollars ($OT). Note: Supporting information should be provided whenever project cost information is communicated to ensure the basis of the estimate is clearly understood.

7.5.1

Project Estimating Control Checklist (PECC)

The Project Estimating Control Checklist (Form F4906) needs to be completed and submitted to the customer (Regional/District Director/Program Manager) for approval together with the estimate and its approval form (yellow form). This is to enable the customer to be satisfied that the practices used in preparing the estimate have complied with the TMR Project Estimating Manual. A copy of the PECC is attached as Annexure I.

7.5.2

Estimate Categories

There are six (6) defined categories as shown in Annexure G. The benefit of TMR adopting confidence categories is that it enables the approving authority to indicate how certain they are of the estimate cost figures regardless of the project phase. Category 1 indicates the least amount of information available and/or time to analyse data, whilst Category 6 indicates a detailed analysis and review of information from a well defined scope.

Confidence levels are required of Strategic Estimates are that actual costs will not exceed pessimistic estimate cost, The confidence level required of Business Case estimates is 90 percent. Refer Section 2.14, Table 2.1 and Annexure G, for full details.

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8
8.1

BENCHMARKING AND QUALITY ASSURANCE


Benchmarking

The underlying principle of benchmarking estimates is to improve the confidence in the estimating process and the quality of estimates. The method used to do this is to take actual project information and store it in categories, enabling repeating trends to be detected. This information can be used for reality checking of estimates and/or their components. Benchmarking will be undertaken by each Region/District and Major Projects Office. It can be done in every phase of projects life cycle, however actual costs at the finalisation phase will provide the most accurate data to determine total project performance. Each Region/District retains the ownership of their benchmarks.

8.1.1

Gathering suitable information to benchmark against


ProjMan for Historical data; Elemental Cost Database (Major Projects Office); SmartCost; and Tender estimates.

Sources of benchmarking information used by Transport and Main Roads include:

8.1.2

Benchmarking methods
Global Rates; Construction Production Rates; Key Items Rates; and Comparative Cost Analyses.

The benchmarking methods may involve four comparisons:

The first three methods are applicable to all types of projects. These rates can vary significantly between Regions/Districts and also within each Region/District itself depending on the circumstances and environment for individual projects. However significant variations from the typical ranges within the Region/District should be explained. The Comparative Cost Analyses is mainly applicable to Major Projects however this also can be applied to smaller projects.

8.1.2.1 Global Rates


The following global comparisons have been found useful: Project cost per km of road (a comparison of total project cost and length of the main carriageway); Project cost per lane km of road (a comparison of total project cost against total lane lengths i.e. acceleration/deceleration lanes, left/right turn lanes and ramps); and Cost per square metre of the structures (to be calculated using total deck area and the total costs of the structures).

8.1.2.2 Construction Production Rates


The following construction production rate comparisons have been found useful: Clearing and grubbing (m/hr or ha/day); General earthworks (m/day); Paving (m/day); Drainage (m/day or no of pipes /hr); Piling (metres/day);

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Pavement surfacing materials (tonnes/shift or tonnes/day); and Provision of traffic ($/km) etc.

These rates can be benchmarked against SmartCost which provides the production rates for most of the general construction items.

8.1.2.3 Key Items Rates


The following key item rate comparisons have been found useful: Asphalt ($/m); Reinforcement ($/tonne); Pavement materials ($/m); and Steel piles ($/m).

Standard Work Item Groups as listed in MRTS01 can also provide useful key item rate comparisons (See Table 7.1 for more information). These rates are available from SmartCost as well as tendered rates. Note SmartCost items do not include indirect job costs or contractors overheads and profit margin.

8.1.2.4 Comparative Cost Analyses


These ratios compare rolled up costs such as: Indirect Job Cost Vs Direct Job Cost; Design Cost Vs Construction Cost; Design consultants fees Vs project/phase cost; Traffic management cost as a percentage of Direct Job Cost; Pavement Area Vs Structures area. (This provides indication of the complexity of the project; and Project management/Principal Costs as a % of Total cost.

Standardisation of estimating computer software throughout the organisation will mean that the management of the direct estimating tasks and the archiving of estimating information will also become more consistent and reliable. Regions/Districts may need to modify their procedures to reflect the processes outlined in the manual.

8.2

Quality Assurance (QA)

Quality Assurance is about minimising or eliminating mistakes and errors in an estimate. Due to the detailed nature of estimating and the multitude of assumptions made, estimating is an activity where errors can be easily made but are difficult to detect Following the processes and guidelines contained in this manual will assist in achieving a reliable and consistent project cost estimate.

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9
9.1

ESTIMATING TOOLS AND TECHNIQUES


Estimating Methods

The basic differences between various methods of estimating are the level of detail and the approach applied to rates and additional costs. The more rigorous the process used, the greater will be the certainty of estimate outcomes/the accuracy of the estimate. The following methods are listed in generally increasing confidence levels.

9.1.1

Global Estimate (Benchmark rates)

Global estimating (or Order of Magnitude estimating) describes an approximate method of estimating involving the use of all in or global composite rates. The project could be considered as consisting of one estimating item only and the estimate prepared on this basis (approximately a Level 3 PM-WBS). Examples are road cost per km and bridge costs per square metre of deck area. Note: Global estimating has been found to be unreliable in achieving the level of estimating accuracy required by TMR, even for strategic estimates. Consequently, global estimating must not be used for budgeting purposes or for media releases.

9.1.2

Unit Rate Estimate (based on historic rates)

Unit rate estimating calculates the cost of each item of the project by multiplying the quantity of work by historical unit rates. The project cost is then determined by the sum of the elemental costs. The unit rate is normally determined from a careful analysis of unit costs from a number of recently completed projects of the same type, with allowances being made for project differences. It is important that the project analysis recognises that the rates may include indirect costs such as contractor's management, risk, overheads and margins, which must be adjusted when converting a unit rate to the direct cost rate. Adjustments to be considered include: Inflation; Site conditions (mountainous or flat terrain); Market conditions; On-site and off-site overheads and profit; Scale of works (large or small quantities); Site location (urban or remote); Design complexity (unique or routine); Risk profile; Ground condition; Construction methods (specialised or conventional); and Specification of materials and finishes (for example architectural or plain finish).

Unit rate estimating is a relatively quick method of estimating but lacks precision, especially in the interpretation of what exactly is provided for in the unit rate. Accuracy of an estimate requires emphasis on scope, reflected in a comprehensive schedule of work items that is unique to the project. Unit rates can vary from project to project, but the use of the historical unit rate, adjusted by an experienced estimator and applied to a detailed schedule of rates, produces a more accurate estimate than a global estimate. With a sufficient level of information in terms of the scope of the project, the work breakdown, quantities and careful selection of appropriate historical rates, the unit rate method of estimating is capable of producing estimates suitable for all project stages through to detailed design. Note: Historical costs can be misleading as they are not current rates and caution will need to be exercised in the absence of a controlled set of historical cost information.

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9.1.3

First Principles (Basic Cost) Estimate

The foundation of first principles estimating, sometimes referred to as basic cost estimating, is the calculation of project-specific costs based on a detailed study of the resources required to accomplish each activity of work contained in the projects work breakdown structure. Caution should be exercised so that an adequate allowance for items not properly documented (see Section 4.3.10) is made and included in the schedule of rates. Before attempting to use first principles estimating to estimate construction costs, estimators without current experience or knowledge of the likely constructors production rates, should seek assistance from those who do. Consideration needs to be taken of factors such as the site conditions likely to be encountered, the program of work, work methods to be employed and possible alternatives, resource availability, productivity of labour and plant, procurement of materials and subcontractors, as well as risks likely to be encountered during the course of the project.

9.1.4

Hybrid (Unit Rate/First Principles) Estimate

The hybrid method uses some features of the unit rate method and some of first principles method, thereby increasing estimating accuracy above that of the unit rate method. The estimate is completed in a similar manner to the first principles estimate, by the application of typical percentages for on-site and off-site overheads and profit to direct job costs. A weakness of the method is that it relies on the availability of direct cost unit rates (that is rates which are equivalent to the direct job costs portion of the first principles method before the distribution of indirect costs). These are not normally available from industry unless the organisation itself carries out basic cost estimating. Given the correct information, experienced estimators can make an adequate analysis of a contractor's tender schedule of rates and bring the costs back to a direct cost level. For example, a business case with limited project development detail may use first principles for high value, high risk items and unit rates for low risk items.

9.2

Selecting the Appropriate Method

The method chosen for the preparation of an estimate depends on both the purpose for which the estimate is to be used (and therefore the required level of confidence of the estimate) and the level of detail of the available data. In practice, it is common for combinations of estimating methods to be used in the business case estimate. Most of the effort should be directed to ensuring the accuracy of the 20% of items that often make up 80% of the costs the Pareto approach.

9.2.1

Recommended Method

The methods recommended for various types of estimates are shown in Table 9.1. The project manager must decide on the project type as defined in the QTRIP and agree with the estimator as to what estimating methodology is to be employed. Table 9.1 is a guide to the type of estimating methodology that may be used.

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Department of Transport and Main Roads Table 9.1 Recommended Estimating Methods Estimate Stage Strategic or Pre Project Proposal Options Analysis Project Type 1 Unit Rate method Unit Rate method 60% value at Unit Rates Estimate, 40% value at First Principles Estimate First Principles Estimate at WBS 4 or 5 First Principles Estimate at WBS 4 or 5 First Principles Estimate at WBS 4 or 5

Project Cost Estimating Manual

Project Type 2 Global Unit Rate method Unit Rate method

Project Type 3 Global Estimate Global Estimate Global Estimate

Business Case

Approx 60% value of estimate by Unit Rates, 40% by First Principles Approx 20% value of estimate by Unit Rates, 80% by First Principles First Principles Estimate at WBS3

Unit Rate method

Preliminary Design

Not applicable

Detailed Design

First Principles Estimate at WBS3

9.3 9.3.1

Probabilistic Estimating Overview

This section sets down the parameters for the preparation of an estimate using probabilistic simulation. Probabilistic Estimating generates estimates by taking into consideration that quantities measured (or allowed for) can change, rates assumed can vary and risks can materialise. Probabilistic estimating complements rather than replaces the estimating procedures outlined in the previous sections. The calculation of the base estimate for strategic, concept and development phase estimates will be undertaken as per the relevant sections of this estimating manual. Probabilistic simulation should be used to determine the appropriate contingency for the project. The contingency is equivalent to the difference between the cost determined using the probabilistic simulation and the cost adopted in the base estimate.

9.3.2

Requirements

TMR' estimating policy requires that the Actual Cost of a project has a 90% probability of not being greater than the estimate prepared. In other words, the estimates are to have a 90% confidence factor of not being exceeded. The 90% confidence level is the mandatory requirement for TMR estimates from business case onward. When using statistical tools, the P90 designation denotes the value of the estimate that exceeds 90% of the other values generated by the simulation.

9.3.3

Probability Distributions

All variables such as quantities, rates and risk costs can vary from the figures adopted in the base estimate. The variation of these variables can be represented by a probabilistic distribution. All variables such as quantities, rates, costs, and so on, should have a probability distribution assigned to them to allow for uncertainty and possible variation in their quantitative value. The probability distribution pattern adopted shall be based on historical records, industry performance, technical capabilities and other relevant performance information. The probabilistic distribution, (e.g. triangular, uniform, discrete) shall be used to represent the variance of the estimated value in a model of the estimate.

9.3.4

Monte Carlo analysis

Monte Carlo analysis must be carried out by expert qualified practitioners to define the P90 bound of the estimate.

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9.4

Estimating Tools

Transport and Main Roads uses a range of estimating tools to consistently manage project cost estimates of its infrastructure projects and programs. The following are the estimating tools and databases used by the department: Works Management System (WMS); Smart Cost; Expert Estimation; @Risk; and ProjMan.

It is important to note that WMS is TMRs preferred estimating tool.

9.4.1

Works Management System (WMS)

The Works Management System (WMS) is the Departments preferred estimating tool and since 1 July 2011 it has been mandatory to complete project cost infrastructure estimates using WMS. WMS is comprised of two modules: Estimator Module, which enables the development and management of various types of road infrastructure estimates; and eDocuments Module, which enables the creation of tender schedules and contract prototypes in accordance with TMR technical standards.

The Works Management System is aligned with the processes and guidelines of this manual and electronically incorporates the relevant forms and concepts mentioned in Section 7.3.

9.4.2

Smart Cost

SmartCost is an information database library which can be based to develop first principles estimates for TMR road infrastructure projects. SmartCost is used in conjunction with the Expert Estimation software to produce estimates using most current resource-based data for scheduled items. This database contains over 5,000 resources that is tailored to TMR specifications and WBS. The resources in the SmartCost database are linked by rolling formulae which deliver the ability to construct detailed cost estimates with speed and the accuracy. This database maintains most up-to-date resources that are tailored into five (5) specific geographic SmartCost Regions as follows: SmartCost Region South East Queensland Central Coast Queensland Southern Inland Queensland Central Inland Queensland Tropical North Queensland TMR Regions Metro, South Coast, North Coast Mackay/Whitsunday, Fitzroy, Wide Bay/Burnett Darling Downs, South West Central West, North West Far North, Northern Database Identifier SEQ bg-SmartCost CCQ bg-SmartCost SIQ bg-SmartCost CIQ bg-SmartCost TNQ bg-SmartCost

Any inquiry related to SmartCost database to be referred to Program Delivery Improvement Brach of TMR.

9.4.3

Expert Estimation (EE)

Expert Estimation (EE) is comprehensive estimating software which relies on elemental estimation techniques. Some of the main EE features include: Compatibility data is easily imported into EE from other programs, i.e. Microsoft Excel Collaboration multiple users can work on a single project from multiple locations Formulas a range of inbuilt formulas to utilise during estimate creation Reporting EE contains over 50 customisable report formats which can be exported into Microsoft Excel

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9.4.4

@Risk

@RISK is a software program which performs risk analysis using Monte Carlo simulation to show how many possible outcomes there are and how likely they are to occur. This enables decisions on which risks to take and which ones to avoid. @Risk is 100% integrated with Microsoft Excel, enabling calculations, sampling and statistical analysis supported by the @Risk software.

9.4.5

ProjMan

Projman is an information system originally primarily used to manage the financial activities associated with the delivery of road maintenance and construction projects. The key features of Projman that give support to the financial management processes associated with road maintenance and construction activities include: Allocation, planning expenditure flows and logging diary events for road programs. Handling project variations when the original QTRIP allocations are overridden by new allocations Maintaining project forecasts, estimates and ledgers Holding project demographic data Handling contract tendering through a number of predefined dependent processes Creation and management of payment claims for contracted tasks. Managing contract variations to handle the changing resource needs for contracts. Management and Financial report processing.

In relation to project cost estimating, Projman allocates estimated costs to the project ledger items, which are generally assigned at the time of the project creation. The ledger items must be assigned a WBS Element Code. Every Ledger Item/WBS Element Code that is created for the project must be forecast and when costs are incurred on the project the costs are dissected to the appropriate Ledge Item/WBS Element Code. ProjMan generates the following customised estimate reports: Project Estimates (Summary) Project Estimates (Detailed) Unit Rate History

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10 RISK MANAGEMENT AND CONTINGENCY OVERVIEW


This section provides an overview of the factors and principles to be considered in identifying risks or uncertainty to a project and the contingency allowances to be included for a specific level of risk.

10.1 Risk
AS/NZS ISO 31000:2009 defines risk as the effect of uncertainty on objectives. Notes on the definition include: An effect is a deviation from the expected positive and/or negative. Objectives can have different aspects (such as financial, health and safety, and environmental goals) and can apply at different levels (such as strategic, organisation-wide, portfolio, program, project, product, design and process). Risk is often characterised by reference to potential events and consequences, or a combination of these. Risk is often expressed in terms of a combination of the consequences of an event (including changes in circumstances) and the associated likelihood of occurrence.

The primary objective of project risk management is to increase the likelihood, of achieving the project objectives by minimising any adverse impacts, and therefore improving the project performance. Therefore, the object of risk management is to keep the projects exposure at an acceptable level. It is impossible to remove all risk. Some risk may actually present positive opportunities to improve some aspect of the project. Project risk management is defined as the processes concerned with conducting risk management planning, identification, analysis, treatment, and monitoring and control on a project.

10.2 Contingency
Contingency, in terms of managing risk on a project, can take many forms. It may be a time allowance in the program of work for delay such as wet weather, a cost allowance in the project cost estimate to account for the residual risk or a contingency process in case an event happens. The amount of the contingency is reassessed at project review points to reflect current knowledge and level of uncertainty of the project, with a view to forecasting the most likely outcome. See Section 10.4 below for more details. Contingencies for risk are an aggregate value made up of threats (which may add cost) and opportunities (which may reduce cost). In preparing estimates for capital works, it is also important to recognise that there are many situations where the inputs to the cost estimate are variable i.e. they may be less than or greater than that estimated. This in itself does not necessarily derive from identifiable risk events but rather from the level of accuracy in the estimating.

10.3 Risk Management within TMR


TMR has a responsibility to establish and maintain appropriate systems of risk management as required in the Financial Accountability Act 2009 and the Financial and Performance Management Standard 2009. TMR has therefore adopted: A Risk Management Organisational Policy that applies to all departmental employees including temporary, casual and contracted staff; and A Risk Management Framework that provides the structure for designing, implementing, monitoring, reviewing and continually improving risk management practices across TMR.

These are aligned with the international standard and provide the minimum requirement for risk management and a common language for use across TMR. All employees are required to have a diligent, resilient and conscientious involvement with risk management practices relating to their core business objectives that impact on both internal and external stakeholders. The policy and framework are consistent with the departments OnQ Project Management Methodology, which identifies a number of instances in a project's life cycle where specific risk management activities must occur. Consequently, risk management is a feature in Concept, Development and Implementation phases of a projects life cycle.

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The Project Manager is ultimately responsible for identifying and managing risks at the project level and providing direction and guidance on the risk actions. However, a Risk Coordinator may be assigned to lead the overall risk management effort, on behalf of the Project Manager The TMR risk management process adapted from AS/NZS ISO 31000:2009 is outlined below. Figure 10.1 Risk Management Processes

Good risk management is sensitive to an organisations needs, environment and internal capacity. It provides visibility and transparency as well as the best information available on which to base decisions. Risk management is not a one-size-fits-all process or about compliance. The key focus should be on implementing the most appropriate mechanisms to meet TMRs objectives. Whichever tool or technique is used, risk management should be embedded into all business activities and should be applied with rigour and robustness to ensure TMRs risks are managed satisfactorily while providing a solid platform for innovation and opportunity. Sometimes a combination of techniques may provide more rigour to the risk management process. TMR has an overarching Guide to Risk Management , and a Project Risk Management Practice Guide, which sits underneath it. These can be found on the insideTMR website at the following location: http://tmrintranet/Policies-and-procedures/Risk-Advisory-Unit/Risk-Management-Practice-Guides.aspx A Risk Prompt List and a Risk management Log can be found on the insideTMR website at the following location: http://tmrintranet/Policies-and-procedures/Risk-Advisory-Unit/Risk-Management-Tools-and-Techniques.aspx

10.3.1 Risk Context


Within the context of a project, the project manager must consider all the uncertainties during the course of the project, and make a judgment as to the likelihood and consequences of a risk emerging that will threaten the objectives of the project. It should be remembered that these objectives are not necessarily internal to the project, but can include organisational and community considerations. Setting the context determines the environment in which the project will operate, the basic parameters within which risks must be managed and the external and internal environment of the risk management activity. Risks may occur which would significantly impact (help or hinder) achieve the project objectives and economic performance described in a Project Proposal or Business Case. Risk identification will vary according to the type of project and location, however the following risk factors should be considered:

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Governmental risks, including the potential for delays, modifications, withdrawal, scope changes, or additions that result from multi levels of government and local participation and sponsorship; Regulatory compliance risks, including environmental and third-party issues, such as permitting, rail, and utility company risks; Land acquisition risks including purchase costs, appraisals, resumptions, relocation delays, Judicial Review, including court costs ; Design issues, safety considerations and constructability issues; Delays in the program of work; Contractors/Suppliers capability and availability; and Stakeholder acceptance of the completed product.

See Section 3.6 and 4.3 for further information on risks and contingencies.

10.3.2 Planned and Unplanned Risks


In identifying and quantifying project risks, these may be broken down into two major classifications based on the distinctly different nature of the risk, namely planned and unplanned risks. Planned Risks consider the potential for variances in: Quantifying the nominated scope of work itself (quantity variance); and The estimated productivity and rates associated with the estimate itself (price variance).

These risks relate to potential for the known aspects of the project, which are measured in terms of scope, quantity and productivity, to vary over time. The base cost estimate will typically be developed while the design is incomplete, incorporating a number of uncertainties relating to the project. The project cost will vary over time as the unknowns are resolved through design development and project delivery. The final understanding of scope will only be known on completion of design and construction. Unplanned Risks relate to potential changes in circumstances that may, upon occurrence, impact on the scope or nature of works to be undertaken, and hence the cost to deliver the project. Examples of unplanned risks include: changing ground conditions, variance in weather conditions from those anticipated, variance in particular stakeholder requirements or constraints and so on. The impact of such changes may be positive or negative.

10.3.3 Risk Assessment


Risk management is a multi-faceted process, some aspects of which are often best carried out by a multidisciplinary team. It is an iterative process designed to progressively diminish risk as uncertainty about the project outcomes is reduced. Risk Assessments should address the following: Lower and upper ranges used for risk on measured items; Type of distribution used (as probabilistic estimating favours the most likely figure, unless range is wide); Correlation between estimate items, otherwise risk can be under assessed; and Application of extensive and substantial contingent risk at the concept stage of a project.

The concept of an uncertainty cone in Figure 10.2 may help explain how uncertainty changes with time.

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Project Cost Estimating Manual Figure 10.2 Uncertainty Cone

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As the project moves through the phases, the range of solution options diminishes as uncertainty is reduced. The uncertainty cone is truncated by the project progressing through time, i.e. moved to the right. Useful techniques include risk workshops, reviews of past project documentation, and talking to the wise old man. For projects assessed as Extreme or High Risk, the Project Manager must ensure that a facilitated Risk Management Workshop is held and a Risk Management Plan and Risk Register are prepared and implemented. A cost estimate that directly addresses uncertainty and risk is at the core of a comprehensive risk management process. Of course, risk management must be viewed as a comprehensive management process, not as simply a tool or set of tools for cost estimating. The output of a risk-based cost estimate supports identification of critical cost containment issues and helps to effectively inform the design team about risks as projects move through the various project phases. Uncertainty and risk can play a major role in causing cost escalation if not properly treated. When estimating costs, particularly on Type 1 projects, this becomes even more profound.

10.3.3.1 Risk Identification


The risk identification process identifies and categorises risks that could affect the project. It documents these risks and produces a list of risks that can be tracked throughout the project development and delivery process. Risk identification is continuous and there should be a continual search for new risks requiring inclusion in the process.

10.3.3.2 Risk Analysis (Qualitative and Quantitative)


This stage involves developing an understanding of the risk. It provides input into risk evaluation and to decision-making on whether risks need to be treated. Subsequently, the information gathered will determine the most appropriate risk treatment strategies and methods, along with prioritising the risks to be treated. Qualitative Risk Analysis Risk analysis involves consideration of the causes and sources of risk, their positive and negative consequences and the likelihood that those consequences can occur. Risk is analysed by determining consequences and their likelihood, and any other attributes of the risk. This analysis is undertaken using the TMR Risk Assessment and Ratings Matrix which can be found on the insideTMR website at the following location: http://tmrintranet/Policies-and-procedures/Risk-Advisory-Unit/Risk-Management-Tools-and-Techniques.aspx The work undertaken during the identification phase provides critical input into discussions during this stage. In utilising the matrix, the following steps could be considered: Step 1 Consider the impact area for the risk (there may be multiple areas) Step 2 Consider the consequences or impact levels if the risk eventuated with current controls in place (there may be multiple consequences) Step 3 Consider the likelihood or probability of the risk eventuating to the level indicated in Step 2 Step 4 - Establish the risk rating or level based on the pre-determined criteria

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A comparison of each risks Likelihood and Consequence and impact area yields a relative ranking of the risks that can be used for risk management. Qualitative Risk Analysis is usually a rapid and cost-effective means of establishing priorities for Risk Treatment and lays the foundation for Quantitative Risk Analysis, if this is required. Qualitative Risk Analysis should be revisited during the projects life cycle to stay current with changes in the project risks. Quantitative Risk Analysis Quantitative Risk Analysis is performed on risks that have been prioritised by the Qualitative Risk Analysis process as potentially and substantially impacting the projects competing demands. The Quantitative Risk Analysis process analyses the effect of those risk events and assigns a numerical rating to those risks. It also presents a quantitative approach to making decisions in the presence of uncertainty. This process uses techniques such as Monte Carlo simulation to: Quantify the possible outcomes for the project and their probabilities Assess the probability of achieving specific project objectives Identify risks requiring the most attention by quantifying their relative contribution to overall project risk Determine the best project management decision when some conditions or outcomes are uncertain. Determine risk effects for cost and schedule models that are too complex for common analytical methods. Incorporate the risk knowledge of the project team and organisation for both cost and schedule risk events. Reveal, through sensitivity analysis, the impact of specific risk events on the project cost and schedule.

Risk analyses for Type 1 and some Type 2 projects are most often modelled through simulation methods, such as Monte Carlo. Monte Carlo methods are computerised probabilistic calculations that use random number generators to draw samples from probability distributions. The objective of the simulation is to find the effect of multiple uncertainties on a value quantity of interest (such as the total project cost or project duration). @Risk is the current best practice tool used for this purpose. Other methods for risk analysis are empirically developed procedures that primarily concentrate on developing cost contingencies for projects. The method assigns a risk factor to various project elements based on historical knowledge of the relative risk of project elements. For example, bitumen surfacing cost may exhibit a low degree of cost risk, whereas acquisition of land may display a high degree of cost risk. Project contingency is determined by multiplying the estimated cost of each element by their respective risk factors. This method of risk analysis allows for the calculation of contingency through the expected value of each identified risk. This method produces an estimate of cost contingency.

10.3.3.3 Evaluate the Risks


The purpose of this step is to assist in making decisions about how to manage the risk. These decisions are based on a comparison of the consequence and likelihood of the risk eventuating using the criteria developed in earlier steps of the risk management process. Risk evaluation uses the understanding and agreement of risk obtained during risk analysis to make decisions about future actions. Ethical, legal, financial and other considerations, including perceptions of risk, are also inputs to the decision-making process. In some instances evaluation can lead to a decision to undertake further analysis. In considering the cost of treating the risk or other considerations, compared to the level of the risk and a low probability of the risk eventuating, it may be determined not to treat the risk other than by maintaining existing controls. Information gathered during the risk assessment phase should be recorded. Risks should be documented in clear and understandable terms together with the assessment results (consequence, likelihood, risk level, actions to be taken, risk owner, completion dates, reporting schedule) as well as a target level which includes the level of risk acceptance or the retained level. The information would be recorded in a risk register with the TMR Risk Log.

10.3.3.4 Treat the Risks


Decisions made during the evaluation phase will have determined which levels should be treated formally and which are within the tolerance level of the department and will be managed. This should be recorded in

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a risk register, along with the assessment of contingency amounts to be provided for in the project cost estimate. The Risk Register can be developed using the TMR Risk Prompt List. The project risk register will become an important source for organisational learning and should be reviewed in the project finalisation activities. Options for risk treatment are detailed in Table 10.1, which gives treatment options as outlined in the ISO 31000, and in the TMR Risk log. Table 10.1 Options for Risk Treatment Treatment Options Avoiding risk Description This is the process of deciding not to start or continue with the activity that gives rise to the risk. Example: The project manager may decide to avoid exposure to acid sulphate soils by eliminating excavation in the affected area. The cost implications arising from avoiding the risk would be provided for in the cost of the revised design items. Inappropriate risk avoidance may increase the significance of other risks. Realisation of an opportunity refers to the chance to deliver the same or better outcome for reduced cost. For example, there may be an opportunity through innovation/ packaging/ acquisition of different resources to complete a project earlier or cheaper with reduced or different resources, or to achieve additional features/scope at no additional cost. Enhancement of an opportunity refers to both the identification and realisation of an opportunity. For example a pavement rehabilitation may be combined with a pavement widening over the same section to reduce the costs of both tasks. Exploitation of an opportunity refers to changing the projects scope, supplier or specification to achieve a beneficial outcome without changing the objectives. An example is where a lower price can be obtained from an alternative supplier on multiple contracts, such as bulk purchase of aggregate and/or bitumen for a reseal program. The risk source is removed. The chance of a risk event happening is changed, whether defined, measured or determined objectively or subjectively, qualitatively or quantitatively and described generally or using mathematic terms such as probability. Example: It may be decided to carry out detailed geotechnical investigations into soft ground conditions in order to make provision in the design for the risk of embankment failure during construction and in service. The cost of this risk reduction treatment will be reflected in the investigation costs of the project. The outcome of a risk event that affects the projects objectives is changed. Note that: An event can lead to a range of consequences A consequence can be certain or uncertain and have positive or negative effects on objectives Consequences can be expressed qualitatively or quantitatively

Taking Opportunity

Removing Changing the likelihood

Changing the consequences

Initial consequences can escalate through cumulative events Example: It may be appropriate to design a bound pavement as an alternative to a granular pavement to minimize the damaging effect of wet weather. The cost implications would be reflected in the cost of the substitute items.

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Involves sharing the risk with other parties. For example, some procurement methods commonly entail a form of risk sharing through the application of a pain/gain formula: both parties share the gain (within pre-agreed limits) if the cost is less than the cost plan; or share the pain (again within pre-agreed limits) if the cost plan is exceeded. Mechanisms include the use of contracts, insurance arrangements and organisational structures such as partnerships and joint ventures. TMR construction and minor works projects allow for either contractor controlled ("all risks") insurance or principal arranged insurance. TMR has adopted, as policy, Principal Arranged Insurance (PAI) on open bid contracts for construction work forming part of the Queensland Transport and Roads Investment Program (QTRIP). The PAI policy is designed to comprehensively cover construction risks of all project works at all levels including the principal, contractor and subcontractors. In estimating for projects covered under the PAI program, provision needs to be made for insurance premiums. Further information on PAI can be found through the TMR Intranet. Example I: It may be decided in the face of expected delays, to subcontract earthworks on a unit rate basis rather than do the work using an organisations own resources. In this way, all or part of the delay costs may be included in the subcontract unit rate, thereby limiting the risk of delay/additional costs. In such circumstances, the selection of the subcontractor would include consideration of the subcontractors capacity to handle the transferred risk without creating another risk such as non performance of the work. Example II: The transfer of identified unique project risks may require customised construction insurance. In such circumstances, early consultation with insurers will be required for the settling of insurance specifications, the adaptation of the existing Principal Arranged Insurance Program or the negotiation of a project specific policy. Insurers may include risk mitigation requirements with a direct impact on project costs.

Retaining

A conscious and deliberate informed decision is taken to retain the threat, having discerned that it is more economical to do so than to attempt a risk treatment action. The threat should continue to be monitored to ensure that it remains tolerable. To ensure the initial project cost is not exceeded, it must include sufficient contingency (time and dollars) to cover the possibility of the risk. It may be possible for a risk to have a number of potential treatments equally suitable but varying in cost. The selection of a final treatment must be made on a "value" basis. The cost of managing the risk should be commensurate with the benefits obtained. Once implemented, treatments become controls to manage the risk. Monitoring and reporting should be an integral component of any treatment plan. It is important a risk owner is identified and involved in the development of treatment plans. A template for guidance and completing a TMR risk treatment plan has been developed.

10.3.4 Statistical Techniques


With any estimate, there will be activities that exhibit uncertainty and variability. Traditionally, estimating techniques have captured this uncertainty in one of three ways: point estimates, range estimates and what-if scenarios. Point estimates are produced when the estimator uses what is thought to be the most likely values (technically referred to as the mode) for the uncertain variables. These estimates are the easiest to produce, but can return very misleading results; Range estimates typically calculate three scenarios: the best case, the worst case and the most likely case. These types of estimates can demonstrate a range of outcomes, but not the probability of any of these outcomes; and What-if scenarios are usually based on the range estimates, and calculate as many scenarios as the estimator thinks fit for the project. This form of analysis is extremely time consuming, and generates large amounts of data, but still does not provide the probability of achieving different outcomes.

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One method of taking into account uncertain variables involves the use of a model designed to simulate or imitate a real life system. For each uncertain variable (one that has a range of possible values), the estimator defines the possible values with a probability distribution. The type of distribution selected is based on the conditions surrounding that variable. A simulation calculates multiple scenarios of a model by repeatedly sampling values from the probability distributions for the uncertain variables. Software commonly used in the analysis and quantification of risk (in the Monte Carlo analysis) includes Crystal Ball and @Risk. @Risk performs risk analysis using Monte Carlo simulation to show many possible outcomes in an Excel spreadsheet, and identifies how likely they are to occur. This means judging which risks to accept and which ones to avoid, facilitating best decision making under uncertainty.

10.4 Contingency Limitations


Contingency, in terms of managing risk on a project, can take many forms as noted above. The amount of the contingency is reassessed at project review points to reflect current knowledge and level of uncertainty of the project with a view to forecasting the most likely outcome. Contingency amounts are not meant to cover all eventualities. It is important, therefore, to understand the limitations imposed. These limitations include: Contingency does not cover changes in scope. That is, contingencies reflect only circumstances within the approved scope of the project. In the event that a decision is made to change the scope of a project, then the project will need to be justified again. This is required each time there is a revised scope definition and a new estimate reflecting a level of contingency applicable to the revised scope; Contingency is limited to probable events. These are events that are foreseeable and pose a risk to the project in terms of their perceived likelihood and consequence. These are sometimes referred to as known risks; and Project contingency includes unknown events. Probable events that are unknown in terms of their existence and likelihood of occurrence. These known unknowns are those events which experience shows are likely to occur, but cannot be attributed beforehand to particular items in the base estimate. Such items are best accounted for from benchmark data. Section 10.8 lists some of these categories that regularly produce unexpected variations. Benchmarking against these categories is recommended to inform project contingency allowance provision, and guidance on suitable allowances for some of these has been included in Section 4.3. Contingency allowances may also be made for unknown unknowns, at the discretion of the project manager based on the terms and conditions of any insurance policy that may apply to the project, As noted above, contingency sums are not intended to make allowances for improbable events, for which TMRs approach is to self insure.

10.5 Applying Contingencies


The risk treatments that result from the risk management process can be grouped as follows: Group 1 Specific provision in the design or delivery method of the product that overcomes all or part of the risk (that is risk avoidance, risk reduction or risk transfer); Group 2 The retained risk is allocated a contingency allowance that is included in the cost estimate as one of the following: a) b) c) Principal's contingency amount; Regional/District Directors contingency amount; and/or a separate provisional item addressing the risk.

In Group 1, the cost of avoiding, reducing or transferring the risk is provided for in the cost of the work activities for the adopted design and does not appear as a contingency. It will need to be provided in the contract estimate.

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In Group 2, the accepted or residual risk is allocated a contingency allowance that is included in the cost estimate, either: As a Principal's contingency amount; or A separate provisional item addressing the risk. For example, inclusion of a provisional item for removing and replacing unsuitable material, or inclusion of an item for setting up for redriving of piles.

Total project contingency is the sum of the Group 2 contingencies unless it is decided that a statistical approach should be applied.

10.6 Quantification of Contingencies


Quantification of contingency allowances for cost estimating items is achieved by applying the risk management processes detailed above. Section 4.3.11 gives further information on this, together with typical contingency ranges for the various estimate stages.

10.7 Reviewing Contingencies


Under the risk management strategy adopted by TMR, risks are reviewed at intervals throughout the project life cycle and assessments updated to reflect the current level of uncertainty surrounding the project. Risks for which contingencies were provided early in the project may, at some later time, be overcome by further investigation or modification of design within the original scope. For example, a contingency allowance for rock in cuttings early in the project may be replaced by specific quantities and costs following a geotechnical investigation. This example serves to highlight the importance of identification of contingencies separately from the base cost of work activities, and for the recording of reasons for their inclusion. The risk register provides a convenient place to record such decisions, in particular whether the risk is owned by the customer, by the deliverer, or by the Project Manager as the Manager of provisional scheduled items. In terms of contingency allocation, the project manager owns the contingency for known project risks. The program manager owns the contingency for unknown project risks.

10.8 Categories of Cost Change


The categories causing cost change are detailed in Section 4.3, and suitable allowances for estimators to use are included in that section. These categories can also serve as a management tool to identify regular issues and to help find ways of managing them on future projects. These costs can be termed known unknowns as they can be expected to occur, but cannot be justifiably allocated to any particular above the line item in the base estimate. Some of these categories are listed below: Policy and Standards - This category includes changes to the design and management requirements mandated by TMR through ongoing improvements in safety, and whole-of-life consideration; Function and Capacity - This category may include increased requirements such as traffic capacity, axle loadings, ramp speed, additional access points, design speed, and so on, compared to what was originally described at project definition. This also includes project scope creep; Third Party Influences - This category includes requirements of authorities other than TMR (for example, power, water and gas utilities, rail, etc) in respect of service relocations and other design adjustment that need to be considered; Design Development - Increased cost from greater work scope identified during the design process required to meet the previously stated performance requirement. These increases are often incurred through lack of investigation and survey work. This category isn't "scope creep", i.e. it is not an increase in work requirement to provide increased functionality or capacity; Principal costs risk - This category includes variation from an initial assumed percentage in TMR staff costs, consultants fees, peer reviewers costs, and so on. These costs will also vary with the type of delivery method chosen for the project, which may not be known in the early project stages; Property acquisition risk - This includes the variation on the actual cost of property purchases as well as the planning and legal fees involved in the land transfers. Variations can arise from owner objections, Judicial Review processes, or market fluctuations;

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Inflation Allowance - This may be impacted by revised value of works, revised duration, additional delay in the works (including both preconstruction and delivery phases), and change in index values (%pa); and Contingency - The change in the allowance for contingency since the previous estimate. It is anticipated that this figure should reduce as design development progresses.

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11 PROJECT MANAGEMENT
This section provides a link between project cost estimating and the OnQ infrastructure project management methodology adopted by TMR. It is important to remember that estimating is not an activity carried out in isolation, but rather is an integral part of the project cost management process within project management. Successful project management is characterised by good planning, effective scoping and resourcing, realistic expectations of outcomes and strong management support. The more complex a project, the more important it is to have rigour applied to its project management through the adoption and use of a project management methodology.

11.1 Project Classification


Projects range from very simple projects of a very short time duration, to projects that require significant investigations, and may take years to develop a business case. Within TMR, projects are classified as Type 1, 2 or 3 according to the size, level of risk and complexity of the project. See Table 11.1 below. The higher the complexity and risk, the greater the rigour and control that is required through the concept phase. Table 11.1 TMR Project Classification Project Type Type 1 Projects Type 2 Projects Type 3 Projects Description Complex/ high or extreme risk transport infrastructure projects, requiring high levels of investigation, rigor and control. Straightforward/ medium risk transport infrastructure projects, requiring moderate levels of investigation, rigor and control. Simple/ low risk transport infrastructure projects, requiring low levels of investigation, rigor and control.

Risk considerations may include: public utilities, environmental issues, traffic conditions, stakeholder expectation, various government bodies input, delay impacts, technical complexity, political promises,impact on adjoining properties, etc. A detailed Project Management Work Breakdown Structure (PM-WMS) is available for all infrastructure projects types 1, 2 and 3 and a comprehensive set of templates are available on the OnQ Project Management site for each project type. Refer to the Project Type Guidelines in the Templates section of OnQ for more details.

11.2 Project Templates


Templates are an essential part of the governance arrangements for projects. These templates are provided to facilitate the process of ensuring that a project's planning, progress and history is thoroughly and consistently documented. All templates contain guidance text to assist in the completion of the template. OnQ uses the following proforma templates for transport infrastructure projects which cover the whole of the project life cycle: Type 1 project templates Project proposal and appendices R1001; Options analysis and appendices R1002; Business case R1003; Project plan and appendices R2001; Hand over report R4001; and Completion report R4002. Project proposal and appendices R1001 (SF); Business case and appendices R1004 (SF); and Project plan and appendices R2005 (SF).

Type 2 project templates

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Project Cost Estimating Manual Type 3 project templates Scope identification; and Project Plan.

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These templates can be found on the OnQ Intranet site. Figure 11.1 shows how project cost estimating fits within project cost management and how it is integrated into wider project management processes. Refer to the Transport and Main Roads OnQ Intranet site for information on policy, principles, methodology, roles and responsibilities, approval processes, tools, techniques and templates.

11.3 Project Phases


The OnQ methodology consists of four phases:

Concept Development

Implementation

Finalisation

Concept phase involves an assessment of a business need leading to the development of the preferred option and the production of a business case for a decision to proceed to the Development phase; Development phase consists of developing of the business case option through to the design of the solution and the detailed planning of the Implementation Phase; Implementation phase comprises the construction activities and management of the plan to produce project deliverables to the required standard and specification; and Finalisation phase involves transitioning control of the deliverable to the customer, closing down the project and undertaking the performance review, identify learning and evaluating performance.

Each phase is distinct and is delineated by the completion of a deliverable, which may be either the document that requires approval before proceeding to the next activity or phase, or by completion of the physical works. The deliverables, and hence the phases, are part of a generally sequential logic designed to progressively refine the project definition from the broad concept to the final design before commencing construction.

11.4 Project Knowledge Areas (Elements)


Within each phase, there are nine knowledge areas or elements that need to be considered. These are shown, together with a summary of the processes involved, in Figure 11.1 below.

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Figure 11.1 Overview of Project Management Knowledge Areas (Elements) and Processes (Adapted from PMBOK Third Edition 2004)

11.5 Project Cost Management 11.5.1 General


Project cost management is concerned with the planning and control of project costs from concept to finalisation. The processes include: Resource Planning determining what resources (people, equipment and materials) and what quantities of each should be used to perform project activities; Cost Estimating developing an estimate of the cost of resources needed to complete project activities; Cost Budgeting allocating the overall cost estimate to individual work activities and timeframes; and Cost Control monitoring costs and controlling changes to the project budget.

These cost management processes are illustrated in Figure 11.2.

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Project Cost Estimating Manual Figure 11.2 Project Cost Management Inputs

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11.5.2 Cost Planning


Cost planning is concerned with the development of the project budget through the processes of resource planning, cost estimating and cost budgeting. The cost estimate is a very important input to the business case and the project plan In practice, project cost management is an iterative process. Normally the process will occur at least once in each of the concept and development phases of the project and should include high level peer review to ensure that the scope definition is as complete as possible and includes all stakeholder requirements.

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Some of these processes have clear dependencies that will require them to be performed in essentially the same order on the majority of projects. The interdependencies among the core elements of project planning, namely scope, cost and time, are illustrated in Figure 11.3. It is common to perform several iterations of these processes before completion of the project plan. For example, the project cost may exceed funds available, requiring consideration to be given to varying the scope of the project without loss of functionality or, alternatively, adopting a staged implementation over a longer timeframe. While cost planning primarily focuses on the cost of the project, project decisions should also take into consideration whole-of-life costs and user costs. Figure 11.3 Core Planning Processes Showing Interdependencies

11.5.3 Cost Control


Generally, project performance must be measured regularly to identify variances from the agreed project budget. These variances are fed into a change control process for management purposes, with work elements and impacts assessed for the project as a whole. Variances that threaten the objectives of the project will trigger an adjustment to the plan by repeating the appropriate planning process (See Figure 11.3). This may result in an adjustment to the plan in areas other than the area where the major variance occurred. Cost control is concerned with influencing the factors which create changes to the cost baseline, identifying when changes have occurred, taking corrective action to correct cost overruns or prevent their recurrence, and informing appropriate stakeholders of authorised changes. For example, cost overruns may be occurring through scope creep. This may prompt action to review the process of scope control, as well as reviewing the design strategy for achieving the project objectives. If the variances are large enough, they might prompt a review of the business case and re-justification of the project.

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