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/