W15.1_PieroAnticona_Comparison of Processes for Estimating and Budgeting

1)    Step 1- Problem or Opportunity Statement

In previous posts (W13 and W14), we have mentioned processes map for estimating and budgeting that owners can use as a guide to calculate the optimum cost estimate for developing future assets.

It was missing an analysis to determine what processes are equivalent between each other and identify if all of the alternatives have most of the processes required to produce an optimum outcome.

In addition, we can assess if we can combine them and get a more complete process for estimating and budgeting.

2)    Step 2 – Feasible Alternatives

We have chosen the following entities:

-       AACE International: Cost Estimating and Budgeting Process Map from Total Cost Management Framework

-       Guild of Project Controls: Overall Cost Estimating and Budgeting Process Map

-       Government Accountability Office: Cost Estimating Process

-       American Society of Professional Estimators: Standard of Practice

-       Project Management Institute: Project Management Body of Knowledge – Project Cost Management

3)    Step 3- Develop the outcomes for each alternative

Total Cost Management from AACE International suggests the following Process for Cost Estimating and Budgeting:

            

            Guild of Project Controls suggest the following process map

 

GAO suggest the following Cost Estimating Process

 

ASPE suggest the following Process Map:

 

Project Management Institute: Project Management Body of Knowledge – Project Cost Management

4)    Step 4- Selection of the acceptable criteria.

We will compare processes if they have the following characteristics:

-       Similar description

-       Similar outputs

In case it is necessary, we will group processes that combined produce a very similar output.  

5)    Step 5- Compare the outcomes from each alternative analysis done in Step 3 against the minimum acceptable criteria from Step 4.

We have made a table to compare Processes between each other that meet acceptable criteria. We have added a column to show the outputs expected in each process. A red line represents the end of an expected process.  
Colours represent the following:
Green: The process or group of processes produce the output on the first column. 
Yellow: The process produces the output, not as an independent process but a subprocess. It happens that the outcome is produced by another process not included in this process map. 
Red: The outcome is not produced at all by any process. 

Notes

1.    TCM

1.1 “Validation” happens during “Review and Document Estimate” process.

1.2 “Baseline” happens during “Budget Costs” process.  

1.3 “Approval” happens during Project Implementation Process, during the “Authorize and Accept Project” process.

2.    GPC:

2.1 “Budget” happens in the process 08.4.3.10 Budget, Authorization or Control (GPC Level 3 Cost Estimate), 08.6.3.2 Contractor Cost Baseline, Bid or Tender - (GPC Level 5 Cost Estimate) and 08.10.3.1 Communicate the Cost Estimate / Cost Budget

2.2 “Cash Flows” happens in process “09.3.3.2.3 Reviewing Both Owner and Contractor Cash Flows” which is a process included in “Measuring Capturing Progress Updating the Schedule” Module. This process is not include it in the Process Map shown.  

2.3 "Approval" happens in process “Define Top Down Cost Estimate (Owner)” in the sub process 08.4.3.10 Budget, Authorization or Control (GPC Level 3 Cost Estimate) for the OWNER and in the process “Developing Bottom Up Cost Estimate (Contractor)” as an output for the CONTRACTOR.

2.4 “Tendering” happens during 08.6.3.3 What is Activity Based Costing with a note that it also appears in 05.4.3.6 Contractors Cost Estimating, Budgeting and Bidding Process

3.    GAO:

3.1 GAO’s process “Develop point estimate and compare it to an independent cost estimate” was split in two, “Develop Point Estimate” and “Compare it to an independent cost estimate”. So, it can be equivalent to validation processes of GPC.

3.2 “Budget” and “Analyze Cash Flow” happen during “Develop Point Estimate” process.

3.3 “Tendering” is not mentioned in GAO’s guide.

4.    ASPE:

4.1 It does not show any process after finishing Cost Estimate and Quantity take-off. The author does not have the standard of ASPE to research if any other documents are outcomes of other processes.

4.2 “Tendering” can be included in the process of “Set up Bid Book Summary Sheets”.

5.    PMI:

5.1 “Validation” happens during “Estimate Cost” process. The process includes a Decision Making technique to vote for the best outcome. 

5.2 “Risk Analysis” happens during “Estimate Cost” process. As shown in the flow, the Risk Register is updated as an output of the process.

5.3 “Analyze Cash Flow” happens during “Develop Schedule” process. The output “Schedule Data” contains information about cashflow projections.

5.4 “Documentation” happens as a result of “Estimate Costs”. The Basis of Estimate is a result as part of Project Documents.

5.5 “Baseline” happens as a result of “Determine Budget” process.

5.6 “Approval” happens during “Determine Budget” process.

                                5.7 “Tendering” is not mentioned at all as a result of the Cost Management  Process. It is only mentioned as an output for the Procurement Management Process to request proposals.
6)    Step 6- Selection of the “best”.
     As shown in the table above, GPC and GAO have continuity in their processes until    to deliver an “assessment of the estimate”. These two are better than TCM which do not have a validation or revision of the estimate before simulation. TCM does the review at the moment of documentation of the estimate, after few processes later and a preliminary revision or validation could be good to find out errors or missing data in the estimate.
     Then we can notice that GAO and GPC do not show any process for budgeting or cashflow but as explained in the previous step, those processes are included in other processes. Perhaps, a better process map can show all the processes are considered to prepare an optimum estimate  

7)    Step 7- How to plan on tracking/reporting on recommended choice. 
      The next step is to determine what the attributes are to determine what a good process for estimating and budgeting is.   

8)    REFERENCES.
     1.    Guild of Project Controls. (2015, October 03). 08.01 Introduction to Managing Cost Estimating Budgeting Rev 1.03. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/introduction-to-managing-cost-estimating-budgeting   
     2.    Guild of Project Controls. (2015, October 03). 08-4 Creating_the_owners_cost_estimate_top_down_-_rev_1.02. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/creating-the-owners-cost-estimate
     3.    Guild of Project Controls. (2015, October 03). 08-6_developing_the_contractors_cost_estimate_bottom_up_-_rev_1.01. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/developing-the-contractors-cost-estimate-bottom-up
     4.    Guild of Project Controls. (2015, October 03). 09-3_measuriing__capturing_progress__updating_the_schedule_-_rev_1.03. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/capturing-progress-updating-schedule
     5.    H. Lance Stephenson. (2015). Total cost management framework: An Integrated Approach to Portfolio, Program, and Project Management (2nd ed.). Morgantown, WV: AACE International. Page 176 - 183
     6.     GAO Cost Estimating and Assessment Guide- Best Practices for Developing and Managing Capital Program Costs. Page 8.
     7.    A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 6th ed. Newton Square, Pa: Project Management Institute, Inc. 2017. Page 231- 270 

W15_PieroAnticona_Comparison of Processes for Estimating and Budgeting

1)    Step 1- Problem or Opportunity Statement

In previous posts (W13 and W14), we have mentioned processes map for estimating and budgeting that owners can use as a guide to calculate the optimum cost estimate for developing future assets.

It was missing an analysis to determine what processes are equivalent between each other and identify if all of the alternatives have most of the processes required to produce an optimum outcome.

In addition, we can assess if we can combine them and get a more complete process for estimating and budgeting.

2)    Step 2 – Feasible Alternatives

We have chosen the following entities:

-       AACE International: Cost Estimating and Budgeting Process Map from Total Cost Management Framework

-       Guild of Project Controls: Overall Cost Estimating and Budgeting Process Map

-       Government Accountability Office: Cost Estimating Process

-       American Society of Professional Estimators: Standard of Practice

-       Project Management Institute: Project Management Body of Knowledge – Project Cost Management

3)    Step 3- Develop the outcomes for each alternative

Total Cost Management from AACE International suggests the following Process for Cost Estimating and Budgeting:

           

            Guild of Project Controls suggest the following process map

 

GAO suggest the following Cost Estimating Process

    

ASPE suggest the following Process Map:

 

Project Management Institute: Project Management Body of Knowledge – Project Cost Management

4)    Step 4- Selection of the acceptable criteria.

We will compare processes if they have the following characteristics:

-       Similar description

-       Similar outputs

In case it is necessary, we will group processes that combined produce very similar output.  

5)    Step 5- Compare the outcomes from each alternative analysis done in Step 3 against the minimum acceptable criteria from Step 4.

We have made a table to compare Processes between each other that meet acceptable criteria. We have added a column to show the outputs expected in each process. A red line represents the end of an expected process.  

 

Note: for GAO’s process “Develop point estimate and compare it to an independent cost estimate” was split in two, “Develop Point Estimate” and “Compare it to an independent cost estimate”.

Notice than ASPE and PMI do not show any validation of information or any risk assessment before the Budgeting.

6)    Step 6- Selection of the “best”.

As shown in the table above, GPC and GAO have continuity in their processes until to deliver an “assessment of the estimate”. These two are better than TCM which do not have validation or revision of the estimate before simulation. TCM does the review at the moment of documentation of the estimate, after few processes later and a preliminary revision or validation could be good to find out errors or missing data in the estimate.

Then we can notice that GAO and GPC do not show any process for budgeting or cashflow that could be added to complement their processes.  

7)    Step 7- How to plan on tracking/reporting on recommended choice. 

The next step is to determine what the attributes are to determine what a good process for estimating and budgeting is.   

8)    REFERENCES.

1.    Guild of Project Controls. (2015, October 03). 08.01 Introduction to Managing Cost Estimating Budgeting Rev 1.03. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/introduction-to-managing-cost-estimating-budgeting   

2.    H. Lance Stephenson. (2015). Total cost management framework: An Integrated Approach to Portfolio, Program, and Project Management (2nd ed.). Morgantown, WV: AACE International. Page 176 

3.     GAO Cost Estimating and Assessment Guide- Best Practices for Developing and Managing Capital Program Costs. Page 8.
4.   A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 6th ed. Newton Square, Pa: Project Management Institute, Inc. 2017. Page 231 

W14_PieroAnticona_ Process Estimating and Budgeting Continuous Improvements

1)    Step 1- Problem or Opportunity Statement
      From an Owner’s perspective, decision gates are implemented to evaluate asset’s feasibility. Feasibility studies are presented to the committee board and then they might reject investment alternatives because they do not comply with investors’ requirements or companies’ strategies or investment’s policies.

This decision requires a revision (or several revisions) of final feasibility study reports in order to comply with investor’s expectations.

For this main reason, usually, when elaborating a Cost Estimate, the first outcome is not the final one. It requires several versions to get closer to the most realistic projected final cost estimate for the execution of the future asset. Then this final result is evaluated to determine if it meets investor’s criteria.

But all this data will produce changes in several deliverables that are important to feed the Cost Estimate. For example, we can list the following documents as a minimum:

-       Process Block Diagram

-       Drawings (General Arrangements, Sketches, P&ID, etc.)

-       List of Equipment

-       Material Take-offs

-       Construction Activities

-       Schedule

-       List of Crews

-       Indirect Costs

What happens with other processes that do not follow the Deming cycle’s principle? Are other methodologies like Double Loop Learning or application of Lean, Theory of Constraints, Total Quality Management, Six Sigma, etc. capable to help to improve continuously each process?

     Based on the previous blog (W13_Best Practice for Estimating) we have determined what Process for Estimating and Budgeting might be the best. But, how can we be sure that any of the selected cost estimates processes have a good continuous process improvement to get an optimum final result that complies with most of the approval requirements in decision gates?  

2)    Step 2 – Feasible Alternatives
      We have chosen the following entities:
      -       AACE International: Cost Estimating and Budgeting Process Map from Total Cost Management Framework
      -       Guild of Project Controls: Overall Cost Estimating and Budgeting Process Map
      -       Government Accountability Office: Cost Estimating Process
      -       American Society of Professional Estimators: Standard of Practice

3)    Step 3- Develop the outcomes for each alternative 
                Total Cost Management from AACE International suggests the following Process for Cost Estimating and Budgeting:

           

          Guild of Project Controls suggest the following process map

GAO suggests the following Cost Estimating Process

                       

ASPE suggest the following Process Map:

                              

4)    Step 4- Selection of the acceptable criteria.

For a continuous improvement process, our approach is to determine which Process Map allows to collect information during the process and in case of outcomes do not meet expectations, the process flow itself sends feedback to an initial process or a specific process that requires to update or re-enter new inputs in order to get results that are close to real values. 

These iterations are part of a continuous improvement process. For example, when a model is based on the Deming cycle other characteristics that a continuous improvement model contain are:

-    Cyclical because as said before, it is rare that the first outcome is the optimum value expected.

-    Practical because project team focuses on real problems or gaps.

-    Evidence-based because the final result suffers changes that can be observed and quantified.

-    Structured because proven methods are applied and also efficiencies are obtained.

-    Action-oriented because it is important to do and also to act.

-    Tweakable because during the elaboration of estimates, corrections can be made.

-    Inclusive because it does not mention any tool or avoid any tool.

Simulation, which is a good process to understand what the impacts are of real facts that might occur during project execution. Simulation can also help to identify if data provided as inputs produce more realistic outcomes when simulating events or execution of project activities in real life.

In addition, it can show potential improvements during construction, or identify materials that can be replaced and save or cost more money to the project, but meet project’s or product’s requirements.

It might also help to redefine designs because fabrication of certain elements impact in time and installation also makes it difficult to plan. This will produce to do drawings and probably impacts material take-offs so, cost estimate might change.

And the most important, simulation complies with most of the continuous improvement model characteristics described above: it can be cyclical, practical, evidence-based, structured, action-oriented, and tweakable but it is not inclusive because it requires special tools to generate simulations. 

The author considers that through Simulation involved in any process, it helps to optimize design, purchase and construction phases. By consequence, it also helps to improve cost estimating process.

Under this perspective, what of the process map mentioned above include simulation or a similar process in their flow to improve final outcomes?

5)    Step 5- Compare the outcomes from each alternative analysis done in Step 3 against the minimum acceptable criteria from Step 4.

We have summarized all the processes in the following table 

The author will not go into detail of each process. Only an assessment of the flow and the process description as shown in the Processes Map.

As we can observe from first hand, only one process map does not offer any simulation process, sensitivity analysis or risk analysis in order to identify potential improvements in the cost estimate. ASPE suggests only a revision in the cost estimate but it is not clear what kind of revision the project team must conduct. It may be necessary to develop more in detail what type of revision the project team must conduct. 

On the other hand, TCM, GPC and GAO include in their flow a simulation process (TCM) or sensitivity analysis and risk analysis (GPC and GAO).

After the first filter we can determine what process complies with most of the characteristics of a continuous improvement model:

	TCM	GPC	GAO
Cyclical	5	4	5
Practical	5	5	5
Evidence-based	5	3	5
Structured	3	5	5
Action-oriented	5	3	5
Tweakable	5	5	5
	28	25	30

          

6)    Step 6- Selection of the “best”.

     As a result of the second filter we can suggest that GAO Cost Estimating and Budgeting model is the best option to get a closer result to a real estimate.
     One of the main reasons is that comparing to GPC, according to GPC’s flow, once it is rejected during the baseline process, then it requires revision. Which in some cases is too late for a revision of an estimate. And also changes are seen late. Besides that it is not cyclical during any previous process before baseline. It might be ideal after risk analysis or during validation of vertical and horizontal traceability would be good to get a feedback of preliminary results.  

Both, TCM and GAO after simulations of risk assessment, they can go back to analyze figures and information in order to optimize the cost estimate and documents linked to it.   

7)    Step 7- How to plan on tracking/reporting on recommended choice. 

      As mentioned before, simulation is a good process that require specific tools to execute but can help to improve the current process chosen by project team. Therefore, we can use 3D tool software in order to simulate or accompany during all the phases of the creation of the asset what is the optimum design that can be built with to optimum resources.
     It would be good to compare if a methodology as BIM is better than the best process selected in the current analysis 

8)    REFERENCES.

1.    Guild of Project Controls. (2015, October 03). 08.01 Introduction to Managing Cost Estimating Budgeting Rev 1.03. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/introduction-to-managing-cost-estimating-budgeting   

2.    H. Lance Stephenson. (2015). Total cost management framework: An Integrated Approach to Portfolio, Program, and Project Management (2nd ed.). Morgantown, WV: AACE International. Page 176  

3.     GAO Cost Estimating and Assessment Guide- Best Practices for Developing and Managing Capital Program Costs. Page 8.

4.    American Society for Quality. (2001, December). The process approach to QMS in ISO 9001 and ISO 9004. Retrieved from http://asq.org/quality-progress/2001/12/standards-outlook/the-process-approach-to-qms-in-iso-9001-and.html
5.  Bach, N. (2018, April 26). What to Look for In a Continuous Improvement Model. Retrieved from https://www.eonsolutions.io/blog/what-to-look-for-in-a-continuous-improvement-model
6. Cartwright, S. (2002). Double-Loop Learning: A Concept and Process for Leadership Educators. Retrieved from http://www.journalofleadershiped.org/attachments/article/18/JOLE_1_1_Cartright.pdf
7. Instructional Design. (2019). Double Loop Learning (C. Argyris) - InstructionalDesign.org. Retrieved January 15, 2019, from https://www.instructionaldesign.org/theories/double-loop/