AACEInternationalRecommendedPracticeNo.

18R97

COSTESTIMATECLASSIFICATIONSYSTEM
ASAPPLIEDINENGINEERING,PROCUREMENT,ANDCONSTRUCTION
FORTHEPROCESSINDUSTRIES
TCMFramework:7.3CostEstimatingandBudgeting
Rev.November29,2011
Note:AsAACEInternationalRecommendedPracticesevolveovertime,pleaserefertowww.aacei.orgforthelatestrevisions.

Contributors:
Disclaimer:Theopinionsexpressedbytheauthorsandcontributorstothisrecommendedpracticearetheirown
anddonotnecessarilyreflectthoseoftheiremployers,unlessotherwisestated.

KennethK.Humphreys,PECCE
PeterChristensen,CCE(Author)
DonaldF.McDonald,Jr.PECCEPSP
LarryR.Dysert,CCCCEP(Author)
C.ArthurMiller
JenniferBates,CCE
ToddW.Pickett,CCCCEP
JefferyJ.Borowicz,CCECEPPSP
BernardA.Pietlock,CCCCEP
PeterR.Bredehoeft,Jr.CEP
RobertB.Brown,PE
WesleyR.Querns,CCE
DorothyJ.Burton
DonL.Short,IICEP
H.LanceStephenson,CCC
RobertC.Creese,PECCE
JamesD.Whiteside,IIPE
JohnK.Hollmann,PECCECEP
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AACEInternationalRecommendedPracticeNo.18R97

COSTESTIMATECLASSIFICATIONSYSTEM AS
APPLIEDINENGINEERING,PROCUREMENT,AND
CONSTRUCTIONFORTHEPROCESSINDUSTRIES
TCMFramework: 7.3CostEstimatingandBudgeting
November29,2011
PURPOSE

AsarecommendedpracticeofAACEInternational,theCostEstimateClassificationSystemprovidesguidelinesfor
applyingthegeneralprinciplesofestimateclassificationtoprojectcostestimates(i.e.,costestimatesthatareused
toevaluate,approve,and/orfundprojects).TheCostEstimateClassificationSystemmapsthephasesandstagesof
projectcostestimatingtogetherwithagenericprojectscopedefinitionmaturityandqualitymatrix,whichcanbe
appliedacrossawidevarietyofprocessindustries.

Thisaddendumtothegenericrecommendedpractice(17R97)providesguidelinesforapplyingtheprinciplesof
estimateclassificationspecificallytoprojectestimatesforengineering,procurement,andconstruction(EPC)work
fortheprocessindustries.Thisaddendumsupplementsthegenericrecommendedpracticebyproviding:
asectionthatfurtherdefinesclassificationconceptsastheyapplytotheprocessindustries;and
achartthatmapstheextentandmaturityofestimateinputinformation(projectdefinitiondeliverables)
againsttheclassofestimate.

Aswiththegenericrecommendedpractice,anintentofthisaddendumistoimprovecommunicationsamongallof
thestakeholdersinvolvedwithpreparing,evaluating,andusingprojectcostestimatesspecificallyfortheprocess
industries.

The overall purpose of this recommended practice is to provide the process industry definition deliverable
maturitymatrixwhichisnotprovidedin17R97.Italsoprovidesanapproximaterepresentationoftherelationship
ofspecificdesigninputdataanddesigndeliverablematuritytotheestimateaccuracyandmethodologyusedto
produce the cost estimate. The estimate accuracy range is driven by many other variables and risks, so the
maturityandqualityofthescopedefinitionavailableatthetimeoftheestimateis notthesoledeterminateof
accuracy;riskanalysisisrequiredforthatpurpose.

Thisdocumentisintendedtoprovideaguideline,notastandard.Itisunderstoodthateachenterprisemayhave
its own project and estimating processes and terminology, and may classify estimates in particular ways. This
guidelineprovidesagenericandgenerallyacceptableclassificationsystemforprocessindustriesthatcanbeused
asabasistocompareagainst.Thisaddendumshouldalloweachusertobetterassess,define,andcommunicate
theirownprocessesandstandardsinthelightofgenerallyacceptedcostengineeringpractice.

INTRODUCTION

For the purposes of this addendum, the term process industries is assumed to include firms involved with the
manufacturing and production of chemicals, petrochemicals, and hydrocarbon processing. The common thread
amongtheseindustries(forthepurposeofestimateclassification)istheirrelianceonprocessflowdiagrams(PFDs)
and piping and instrument diagrams (P&IDs) as primary scope defining documents. These documents are key
deliverablesindeterminingthedegreeofprojectdefinition,andthustheextentandmaturityofestimateinput
information.

Estimatesforprocessfacilitiescenteronmechanicalandchemicalprocessequipment,andtheyhavesignificant
amountsofpiping,instrumentation,andprocesscontrolsinvolved.Assuch,thisaddendummayapplytoportions
of other industries, such as pharmaceutical, utility, metallurgical, converting, and similar industries. Specific
addendumsaddressingtheseindustriesmaybedevelopedovertime.

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This addendum specifically does not address cost estimate classification in nonprocess industries such as
commercial building construction, environmental remediation, transportation infrastructure, hydropower, dry
processessuchasassemblyandmanufacturing,softassetproductionsuchassoftwaredevelopment,andsimilar
industries. It also does not specifically address estimates for the exploration, production, or transportation of
mining or hydrocarbon materials, although it may apply to some of the intermediate processing steps in these
systems.

Thecostestimatescoveredbythisaddendumareforengineering,procurement,andconstruction(EPC)workonly.
It does not cover estimates for the products manufactured by the process facilities, or for research and
development work in support of the process industries. This guideline does not cover the significant building
constructionthatmaybeapartofprocessplants.

Thisguidelinereflectsgenerallyacceptedcostengineeringpractices.Thisaddendumwasbaseduponthepractices
ofawiderangeofcompaniesintheprocessindustriesfromaroundtheworld,aswellaspublishedreferencesand
standards. Company and public standards were solicited and reviewed, and the practices were found to have
significant commonalities. These classifications are also supported by empirical process industry research of
systemicrisksandtheircorrelationwithcostgrowthandscheduleslip[8].

COSTESTIMATECLASSIFICATIONMATRIXFORTHEPROCESSINDUSTRIES

SecondaryCharacteristic

PrimaryCharacteristic
ESTIMATE
CLASS

MATURITYLEVELOF
PROJECTDEFINITION
DELIVERABLES
Expressedas%ofcomplete
definition

ENDUSAGE

EXPECTEDACCURACY
RANGE

METHODOLOGY

Typicalpurposeof
estimate

Typicalestimatingmethod

Typicalvariationinlowandhigh
[a]
ranges

Class5

0%to2%

Concept
screening

Capacityfactored,
parametricmodels,
judgment,oranalogy

Class4

1%to15%

Studyor
feasibility

Equipmentfactoredor L: 15%to30%
parametricmodels
H: +20%to+50%

Class3

10%to40%

Budget
authorizationor
control

Semidetailedunitcosts
L: 10%to20%
withassemblylevelline
H: +10%to+30%
items

Class2

30%to75%

Controlor
bid/tender

Detailedunitcostwith L: 5%to15%
forceddetailedtakeoff H: +5%to+20%

Class1

65%to100%

Checkestimate
orbid/tender

Detailedunitcostwith L: 3%to10%
detailedtakeoff
H: +3%to+15%

L: 20%to50%
H: +30%to+100%

Notes:[a]Thestateofprocesstechnology,availabilityofapplicablereferencecostdata,andmanyotherrisksaffecttherangemarkedly.The
+/valuerepresentstypicalpercentagevariationofactualcostsfromthecostestimateafterapplicationofcontingency(typicallyat
a50%levelofconfidence)forgivenscope.

Table1CostEstimateClassificationMatrixforProcessIndustries

Table1providesasummaryofthecharacteristicsofthefiveestimateclasses.Thematuritylevelofdefinitionisthe
sole determining (i.e., primary) characteristic of Class. In Table 1, the maturity is roughly indicated by a % of
complete definition; however, it is the maturity of the defining deliverables that is the determinant, not the
percent.Thespecificdeliverables,andtheirmaturity,orstatus,areprovidedinTable3.Theothercharacteristics

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aresecondaryandaregenerallycorrelatedwiththematuritylevelofprojectdefinitiondeliverables,asdiscussed
in the generic RP[1]. The characteristics are typical for the process industries but may vary from application to
application.

Thismatrixandguidelineoutlineanestimateclassificationsystemthatisspecifictotheprocessindustries.Refer
tothegenericestimateclassificationRP[1]forageneralmatrixthatisnonindustryspecific,ortootheraddendums
for guidelines that will provide more detailed information for application in other specific industries. These will
provide additional information, particularly the project definition deliverable maturity matrix which determines
theclassinthoseparticularindustries.

Table1illustratestypicalrangesofaccuracyrangesthatareassociatedwiththeprocessindustries.Dependingon
thetechnicalandprojectdeliverables(andothervariables)andrisksassociatedwitheachestimate,theaccuracy
rangeforanyparticularestimateisexpectedtofallintotherangesidentified(althoughextremeriskscanleadto
widerranges).

Inadditiontothedegreeofprojectdefinition,estimateaccuracyisalsodrivenbyothersystemicriskssuchas:
Levelofnonfamiliartechnologyintheproject.
Complexityoftheproject.
Qualityofreferencecostestimatingdata.
Qualityofassumptionsusedinpreparingtheestimate.
Experienceandskillleveloftheestimator.
Estimatingtechniquesemployed.
Timeandlevelofeffortbudgetedtopreparetheestimate.

Systemic risks such as these are often the primary driver of accuracy; however, projectspecific risks (e.g. risk
events)alsodrivetheaccuracyrange[3].

AnotherwaytolookatthevariabilityassociatedwithestimateaccuracyrangesisshowninFigure1.Depending
uponthetechnicalcomplexityoftheproject,theavailabilityofappropriatecostreferenceinformation,thedegree
ofprojectdefinition,andtheinclusionofappropriatecontingencydetermination,atypicalClass5estimatefora
processindustryprojectmayhaveanaccuracyrangeasbroadas50%to+100%,orasnarrowas20%to+30%.

Figure1alsoillustratesthattheestimatingaccuracyrangesoverlaptheestimateclasses.Therearecaseswherea
Class 5 estimate for a particular project may be as accurate as a Class 3 estimate for a different project. For
example, similar accuracy ranges may occur for the Class 5 estimate of one project that is based on a repeat
projectwithgoodcosthistoryanddataandtheClass3estimateforanotherprojectinvolvingnewtechnology.Itis
forthisreasonthatTable1providesrangesofaccuracyrangevalues.Theaccuracyrangeisdeterminedthrough
riskanalysisofthespecificproject.

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100

GrowthfromEstimatedCostsIncludingContingency(%)

90
80
70
60
50
40
30
20
10
0
10
20
30
40
MaturityLevelofProjectDefinitionDeliverables(%)

50
Class5

10
Class4

20
Class3

30

40

50
Class2

60

70

80

90

100

Class1

Figure1ExampleoftheVariabilityinAccuracyRangesforaProcessIndustryEstimate

DETERMINATIONOFTHECOSTESTIMATECLASS

The cost estimator makes the determination of the estimate class based upon the maturity level of project
definitionbasedonthestatusofspecifickeyplanninganddesigndeliverables.Thepercentdesigncompletionmay
be correlated with the status, but the percentage should not be used as the Class determinate. While the
determinationofthestatus(andhenceclass)issomewhatsubjective,havingstandardsforthedesigninputdata,
completenessandqualityofthedesigndeliverableswillservetomakethedeterminationmoreobjective.

CHARACTERISTICSOFTHEESTIMATECLASSES

Thefollowingtables(2athrough2e)providedetaileddescriptionsofthefiveestimateclassificationsasappliedin
theprocessindustries.Theyarepresentedintheorderofleastdefinedestimatestothemostdefinedestimates.
Thesedescriptionsincludebriefdiscussionsofeachoftheestimatecharacteristicsthatdefineanestimateclass.
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Foreachtable,thefollowinginformationisprovided:
Description:ashortdescriptionoftheclassofestimate,includingabrieflistingoftheexpectedestimate
inputs based on the maturity level of project definition deliverables. The minimum inputs reflect the
rangeofindustryexperience,butwouldnotgenerallyberecommended.
Maturity Level of Project Definition Deliverables (Primary Characteristic): Describes a particularly key
deliverableandatypicaltargetstatusinstagegatedecisionprocesses,plusanindicationofapproximate
percentoffulldefinitionofprojectandtechnicaldeliverables.Fortheprocessindustries,thiscorrelates
withthepercentofengineeringanddesigncomplete.
End Usage (Secondary Characteristic): a short discussion of the possible end usage of this class of
estimate.
Estimating Methodology (Secondary Characteristic): a listing of the possible estimating methods that
maybeemployedtodevelopanestimateofthisclass.
Expected Accuracy Range (Secondary Characteristic): typical variation in low and high ranges after the
applicationofcontingency(determinedata50%levelofconfidence).Typically,thisrepresentsabout80%
confidence that the actual cost will fall within the bounds of the low and high ranges. The estimate
confidenceintervaloraccuracyrangeisdrivenbythereliabilityofthescopeinformationavailableatthe
timeoftheestimateinadditiontotheothervariablesandriskidentifiedabove.
Alternate Estimate Names, Terms, Expressions, Synonyms: this section provides other commonly used
namesthatanestimateofthisclassmightbeknownby.Thesealternatenamesarenotendorsedbythis
Recommended Practice. The user is cautioned that an alternative name may not always be correlated
withtheclassofestimateasidentifiedinTables2a2e.

CLASS5ESTIMATE
Description:
Class5estimatesaregenerallypreparedbasedonverylimited
information,andsubsequentlyhavewideaccuracyranges.As
such, some companies and organizations have elected to
determine that due to the inherent inaccuracies, such
estimates cannot be classified in a conventional and
systematicmanner.Class5estimates,duetotherequirements
ofenduse,maybepreparedwithinaverylimitedamountof
timeandwithlittleeffortexpendedsometimesrequiringless
than an hour to prepare. Often, little more than proposed
plant type, location, and capacity are known at the time of
estimatepreparation.

MaturityLevelofProjectDefinitionDeliverables:
Key deliverable and target status: Block flow diagram agreed
bykeystakeholders.0%to2%offullprojectdefinition.

EndUsage:
Class 5 estimates are prepared for any number of strategic
businessplanningpurposes,suchasbutnotlimitedtomarket
studies, assessment of initial viability, evaluation of alternate
schemes, project screening, project location studies,
evaluation of resource needs and budgeting, longrange
capitalplanning,etc.

EstimatingMethodology:
Class5estimatesgenerallyusestochasticestimatingmethods
such as cost/capacity curves and factors, scale of operations
factors, Lang factors, Hand factors, Chilton factors, Peters
Timmerhaus factors, Guthrie factors, and other parametric
andmodelingtechniques.

ExpectedAccuracyRange:
TypicalaccuracyrangesforClass5estimatesare
20%to50%onthelowside,and+30%to+100%onthehigh
side, depending on the technological complexity of the
project, appropriate reference information and other risks (
after inclusion of an appropriate contingency determination).
Rangescouldexceedthoseshownifthereareunusualrisks.

AlternateEstimateNames,Terms,Expressions,Synonyms:
Ratio, ballpark, blue sky, seatofpants, ROM, idea study,
prospect estimate, concession license estimate, guesstimate,
ruleofthumb.

Table2aClass5Estimate

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