A presentation by Andrew Langridge, made at the APM South Wales and West of England branch seminar 'Project Controls: A 1 day Seminar' on Wednesday, 2nd October 2013

1. Cost Estimating and Risk in Complex Projects
APM Project Controls event – 2nd October
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Decades of Cost Management Excellence
1

2. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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Decades of Cost Management Excellence
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3. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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3

4. The problem is…….
 We commit to delivering complex projects when
– The project definition is still fluid
– The client is still formulating their ideas
– We are still worrying the engineers for fast answers
– Our knowledge of the detail is still developing
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5. This leads to
 Wild expectations of the initiator
 Lack of clarity of our solution
 A “commercially lead” proposal
 Cutting of budgets with little consideration for effort need to
deliver
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Decades of Cost Management Excellence
5

6. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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Decades of Cost Management Excellence
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7. Stake holder positioning/negotiation
AFFORDABLE
Suppliers
PROGRAMS
ALTERNATIVE
ESTIMATES SHOULD COST
RFQ
SHOULD COST RECALCULATION
TECHNICAL INPUT SHEET
PROPOSAL
SHOULD COST/ PROPOSAL
CONGRUITY
CROSSCHECK AT THE
MAIN WORKPACKAGE
LEVEL
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LAUNCHED
PROGRAMS
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8. From a business capture POV
1
2
Top Down Estimate
3
4
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9. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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Decades of Cost Management Excellence
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10. Before we start we need to
 Ensure we understand the requirements
– Don’t waste time combing documents by hand, extraction tools support the timely
extraction of details from comments, typically reducing days to hours
 Visualise the solution
– Using the requirement captured from the client documents we can build a visual
story board, requirements canvas tools allow us to model several solutions using
visual representations
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11. Then we need to
 Generate a top down estimate
 Map to the WBS / CBS / OBS
Make a go – no decision before we invest in
detail models
 Generate bottom up models
 Compare and contrast results
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12. Top down to bottom up
Customer Project WBS
System.
System
Activities
Assembly
Assembly
activities
HW /SW
Component
& Cots
HW/SW
Comp.
& cots
Actvities
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13. Top Down to Bottom up comparison
Top Down Estimate
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14. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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Decades of Cost Management Excellence
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15. And the risk is….
 We capture risks that are symptoms
 The ones we capture don’t effect
– Cost
– Schedule
 Putting risks over 49% in the risk register
 Confusing uncertainty with risk
 Putting a “contingency” on instead of working the problem
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16. © 2013 PRICE Systems, LLC All Rights Reserved |
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17. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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Decades of Cost Management Excellence
17

18. We want to be (estimated) together
 Initial cost and schedule need to be generated from a technical
definition
 You need to generate the joint confidence level
 Make sure the estimate is used as the project plan baseline
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19. Generic Mapping applied to the Project
Project
Description
Customer
Project
Base line
Top down
estimated
Top down
results
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20. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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Decades of Cost Management Excellence
20

21. Across the total stakeholder community
Solutions
Objectives
MANAGEMENT
Decision Support
Budgeting,
Financial Control,
Procurement
Delivery
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Financial Strategy
Detailed Technical Strategy
Schedule and Cost at Completion
Strategy
Decades of Cost Management Excellence
Bid/No Bid Decision,
Evaluating Alternatives,
Market Strategy Check
Capacity Analysis,
Make or Buy,
Supplier Assessment,
Risk Analysis
Set the base line,
Design-to-Cost,
Good project control ,
Managing the base line
21

22. Where will we spend our time
 What's the problem
 Key decision points
 Estimating cost
 Where's the risk
 What about schedule
 How can we do better
 Questions
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23. Any Questions
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24. Thank you
Andrew Langridge
Andrew.langridge@pricesystems.com
07977431234
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25. Back up Slides
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26. What is the Cost Engineering Framework (CEF)
 The CEF is a total support environment comprised of processes and interoperable companion
solutions built around PRICE Systems TruePlanning solution that empowers the organisation with
the freedom to select the elements deployed to generate the best return on investment
 PRICE Systems utilise, where ever possible, the incumbent solutions within a organisation when
deploying the CEF reducing the initial investment in both licenses and education
 Solutions and processes include
– Shipley Process for proposal management
– Visual requirements analysis
– Parametric estimation
• TruePlanning
• Question Based forecasting
• Knowledge based estimation
• Data Driven estimation
– Sensitivity and stochastic analysis
– Detailed estimation
– QDV
– ERM
– Tender preparation
– Proposal to Tender comparison
– Contract management
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27. One Toolset - Two Visions
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2013 Financial Executives International
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28. The change makers
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29. Background
 The capability to measure the effectiveness of a contract in vital
to delivering the ROI
 Measurement has to be more than just delivered goods and
services
 Key performance indicators and Service level agreements should
be distilled from the initial benefits analysis
 Government departments are mandated to use competitive
dialogue to ensure solution is both
– Value for money
– Fit for purpose
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30. Contract management begins with the business
requirement
Business
improvement /
change
Tender Marking
schema
requirements
Tender
generation
process
tender
Tender Process
Check
Benefits
Analysis
KPI
SLA
Project delivery
Steady State
Project Controls
Check
Cost and
schedule
generation
Voice of the customer
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User Experience
30

31. The change deliverers
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2013 Financial Executives International
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32. Why use the Cost Engineering Framework (CEF)
 Improve the hit rate for winning profitable projects
 Reduce effort needed to generate winning proposals
 Create an estimation framework that enables you to do more with less
 Capitalise user experience
 Capture Knowledge
 Leverage learning
 Respond to changes in prospect requirements faster and with less effort
 Simplify “red team” reviews
Deliver your proposals with confidence and assurance
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33. PRICE Cost Engineering Framework – work flow
example
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34. PRICE Systems – Cost Engineering Framework
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35. Shipley Process
 Supports the develop of business needs, benefit arguments and delivery requirements. Including
obtaining the information, validating it and maturing it over any defined timescale to ensure
timely production of documents.
 Shipley describes how to structure the proposal document using the mature information.
 Shipley provides the rigour to go from an initial concept to a full clearly articulated proposal
making best use of time.
Covers full proposal life cycle
model
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Decades of Cost Management Excellence
35

36. Visualisation of your clients needs

Allows you to master costs, performance and time as part of the PRICE CEF.

Enables performance, cost and time information to be captured, visualised and analysed logically, at Subject Matter
Expert, Programme Management Office and Board levels.

Solution includes dependency and relationship mapping for stakeholders, business
needs, risks, objectives, benefits, outcomes, initiatives and requirements into a rich network.

Enables models to be continuously matured and updated with ease.

Generate proposal document structures and tender evaluation models in accordance with Shipley process.

Provides the environment needed to maintain and update the models that underpin concept to proposal approach.

The requirements describe the results that initiatives that the solution must output to deliver the outcomes and
performance changes described in the benefits analysis. The requirements describe constraints, nature and
performance of results.

By proposal generation we have a full map of why each requirement exists, the initiatives it relates to, the
dependencies between requirements and how we anticipate the fulfilment of each requirement will contribute to
performance and ultimately success. This develops a clear understanding of the value of each requirement.

It should be noted that requirements and initiatives describe the effort needed by all parties involved in delivery to
achieve success, including the organisation issuing the tender.
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37. Realisor
Visual requirements analysis
Map the customers needs to
your capability
Compare alternative
approaches
Visual presentation of
your solution benefits to
your client
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38. Question Based Estimation
 Early day evaluation of the ability of the organisation to deliver to the requirements
 Alternatives easily review and compared
 Simple question based interface that the user can maintain
 Interactive with TruePlanning
Questions define the
solution
System returns matches and
automatically calculates inputs
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Decades of Cost Management Excellence
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39. Knowledge Bases … Epick
 Fast, consistent development of WBS for new projects
 Reuse information effortlessly
 Web enabled interface for TruePlanning
 Document and manage all inputs and outcomes
 Version control
 Manage Multiple project portfolios
 Capitalise your organisational knowledge
 Create local knowledge nuggets
 Consistent approach to estimation
Clear visualisation of project phases
 Reduces effort needed to create estimates
Local cost object and structure library
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40. Leverage Actual Insights Representing Your Own History…. TrueFindings
 Integrated knowledge management, provided through PRICE TrueFindings, takes the refinement
of private historical data one step further by enabling the inclusion of your findings into the PRICE
TruePlanning cost estimation framework. The insights of that in-house data can also benefit life
cycle cost management plans.
 Just as the PRICE® Cost Models provide the benefit of past experience refined from tens of
thousands of projects, PRICE TrueFindings provides the value of historical experience and trends
from your own organization within your cost estimation process. Doing so improves confidence in
capacity analysis, supplier assessment, and risk analysis for better budgeting, financial
control, and procurement.
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Decades of Cost Management Excellence
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41. Top down forecasts of Cost, effort and Schedule …TruePlanning
 Estimation of design, manufacture and in service cost, effort and schedule
 Estimate Mechanical, Electronic, Software development and Systems Integration effort
 Technology based inputs removing optimism bias
 Reduced effort with no loss of fidelity
Generate base line schedule for
project plan with no additional
effort
Full Life cycle costing
• Design
• Systems Integration
• In-service
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42. Arrisca
 Fast evaluation of all excel workbooks, MS Project files and TruePlanning projects
 Sensitivity analysis
 Uncertainty analysis
 Risk adjusted s-curves
 Validation and verification
 Cost and effort model assurance
Sensitivity analysis identifies the biggest
drivers fast
Risk and Uncertainty adjusted cumulative
frequency graphs (S-Curves)
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43. CAPPe
 Knowledge driven detailed estimation tool
 No need to maintain excel workbooks
 Generates costs from process plans
 Define and manage
–
Parts
–
Plans
–
Estimates
–
Materials
 Maintain costs for multiple countries and periods
 Calculates machine, material and labour costs
Knowledge Driven
Estimation
Detailed estimation to challenge
suppliers
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44. QDV
 Top down to bottom up comparison
 Proposal Knowledge management
 WBS Management
 Project fiscal modelling
Capture basis of estimate
Compare top down to bottom up
estimates
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45. Manage proposal risks ….. riskHive ERM
 Simple risk construction using structured inputs
 Low implementation overhead, start fast spend less
 Focused on supporting business winning
 Supports top down and bottom up models
Supports easy risk
registration, no complex
screens
Unique visualisation drives
better risk definition
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