Cost estimate classification system
From PEaM
| AACEI | There are numerous characteristics that can be used to categorize project cost estimate types. Some of these characteristics are: degree of project definition, end usage of the estimate, estimating methodology, and the effort and time needed to prepare the estimate. The primary characteristic used to define the classification category is the degree of project definition -- the level of project definition determines the estimate class. The other characteristics are considered secondary.[1] |
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The level of project definition defines maturity, or the extent and types of input information available to the estimating process. Such inputs include project scope definition, requirements documents, specifications, project plans, drawings, calculations, lessons learned from past projects, reconnaissance data, and other information that must be developed to define the project. Each industry will have a typical set of defining deliverables that are used to support the type of estimates used in that industry. The set of deliverables becomes more definitive and complete as the level of project definition (e.g., project engineering) progresses.
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Estimate class
For projects, the estimate class designations that follow below are labeled Class 1, 2, 3, 4, and 5. A Class 5 estimate is based upon the lowest level of project definition, and a Class 1 estimate is closest to full project definition and maturity. This “countdown” approach considers that estimating is a process whereby successive estimates are prepared until a final estimate closes the process.[2][3]
Class 5 Estimate
(Typical level of project definition required: >0% to 2% of full project definition.)
Class 5 estimates are generally prepared based on very limited information, and subsequently have wide accuracy ranges. 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 systemic manner. Class 5 estimates, due to the requirements of end use, may be prepared within a very limited amount of time and with little effort expended. Class 5 estimates are prepared for any number of strategic business planning purposes, such as but not limited to market studies, assessment of initial viability, evaluation of alternate schemes, project screening, project location studies, evaluation of resource needs and budgeting, long-range capital planning, etc.
Class 4 Estimate
(Typical level of project definition required: 1% to 15% of full project definition.)
Class 4 estimates are generally prepared based on limited information and subsequently have fairly wide accuracy ranges. They are typically used for project screening, determination of feasibility, concept evaluation, and preliminary budget approval. Class 4 estimates are prepared for a number of purposes, such as but not limited to, detailed strategic planning, business development, project screening at more developed stages, alternative scheme analysis, confirmation of economic and/or technical feasibility, and preliminary budget approval or approval to proceed to next stage.
Class 3 Estimate
(Typical level of project definition required: 10% to 40% of full project definition.)
Class 3 estimates are generally prepared to form the basis for budget authorization, appropriation, and/or funding. Class 3 estimates are typically prepared to support full project funding requests, and become the first of the project phase “control estimate” against which all actual costs and resources will be monitored for variations to the budget. They are used as the project budget until replaced by more detailed estimates. In many owner organizations, a Class 3 estimate may be the last estimate required and could well form the only basis for cost/schedule control.
Class 2 Estimate
(Typical level of project definition required: 30% to 70% of full project definition.)
Class 2 estimates are generally prepared to form a detailed control baseline against which all project work is monitored in terms of cost and progress control. For contractors, this class of estimate is often used as the “bid” estimate to establish contract value. Class 2 estimates are typically prepared as the detailed control baseline against which all actual costs and resources will now be monitored for variations to the budget, and form a part of the change/variation control program.
Class 1 Estimate
(Typical level of project definition required: 50% to 100% of full project definition.)
Class 1 estimates are generally prepared for discrete parts or sections of the total project rather than generating this level of detail for the entire project. The parts of the project estimated at this level of detail will typically be used by subcontractors for bids, or by owners for check estimates. The updated estimate is often referred to as the current control estimate and becomes the new baseline for cost/schedule control of the project. Class 1 estimates may be prepared for parts of the project to comprise a fair price estimate or bid check estimate to compare against a contractor’s bid estimate, or to evaluate/dispute claims. Class 1 estimates are typically prepared to form a current control estimate to be used as the final control baseline against which all actual costs and resources will now be monitored for variations to the budget, and form a part of the change/variation control program. They may be used to evaluate bid checking, to support vendor/contractor negotiations, or for claim evaluations and dispute resolution.
See also
References
- ↑ Association for the Advancement of Cost Engineering International [AACEI] (2007). Cost Engineering Terminology, 10S-90, Association for the Advancement of Cost Engineering International.
- ↑ AACE Recommended Practice No. 17R-97 “Cost Estimate Classification System”
- ↑ AACE Recommended Practice No. 18R-97 “Cost Estimate Classification System – As Applied in Engineering, Procurement, and Construction for the Process Industries”
 | This article contains text from the Association for the Advancement of Cost Engineering website which is copyright all rights reserved by Association for the Advancement of Cost Engineering International (AACEI). |
