These factors that affect any capital cost estimate are often better captured in the Basis of Estimate
(BoE) – which forms part of the deliverable provided to clients by the estimator(s).
The BoE of any capital cost estimate documents all the assumptions, the thinking, the methodology,
the specifications/scope, the planning; etc which the estimators (s) have used in the course of the
estimate preparation. It enables the estimate to be repeated by another set of estimators in future.
It is a good tool for change management and is a valuable baseline data for variance. It minimizes
conflicts and builds confidence for the estimating department and the client units. We have used it
severally to secure owner’s cosnt to our estimate by reviewing each component with them before
final submission of the estimate
The typical contents of any BoE according to the AACE® International Recommended Practice No.
34R-05 are stated below
Descriptions
Purpose of the project
The estimator should provide a brief and concise description for the total project; type –
new facilities, addition to existing, revamp of existing; capacity of the process units, the
location of the facility, and the overall timing of the project.
Project Scope Description
Provide the project’s work breakdown structure (i.e., plant, building, floor); identify any
major pieces of process equipment indicate the primary trades that will be involved with
the project.
Methodology of the estimate preparation
Indicate the primary estimating methodology used to prepare the cost estimate to include –
documentation of the use of cost resources, historical data and project benchmarking, the
level of effort or man-hours used in the preparation of the estimate.
Estimate Classification
State the AACE International estimate classification for the estimate along with reasons or
justification
Planning basis:
This section documents the project management, engineering, design, procurement,
fabrication, and construction approaches to the project, including the contracting/resource
strategies as well as any assumptions concerning the workweek schedule (hours worked
per day, days worked per week, shifts worked per day) and planned use of overtime.
Assumptions made regarding constructability, modularization, use of specialized
construction equipment should also be noted here. The overall project schedule and critical
milestones should be included as well.
Cost basis
This section documents – the methods and pricing sources used for: all material, labour,
and subcontract pricing; Major equipment (vendor quotes, historical data); Bulk material
and commodity (including any discount strategies); All labor hours and all labor productivity
adjustments, Construction indirects, Start-up costs, Home-office costs; Freight, taxes,
duties, Owners’ costs, Currency exchange, Escalation indices, Contingency calculation,
Location factors, Productivity variance by trade or location within the project (plant). All
wage rates and all-in rates (if used); the influence of local market conditions; and any other
pricing factors or external influences that may significantly impact the project cost.
Allowances
Document the basis for the standard estimating allowances such as material take-off
allowances, overbuy allowances, design allowances for engineered equipment, congestion
allowances, and working height allowances, as well as any other costs that have not been
detailed in the body of the estimate, such as lump-sum allowances for specific areas of
scope or any other factored costs not described elsewhere in the estimate basis.
Assumptions
Any other assumptions made by the estimator but not documented elsewhere in the
estimate basis should be included in this section, such as an adequate labour supply being
available, adequate funding available, and site conditions. Small assumptions can change
into major assumptions throughout the life of the project. Therefore, it is better to
document assumptions than not to document at all.
Exclusions
Document all potential items of cost that a reviewer might associate with the project, but
no costs have been included in the estimate. For example, asbestos abatement, removal of
hazardous wastes, acquisition of land, taxes, financing costs, and licensing costs are
examples of potential items that may need to be identified.
Exceptions
The estimator should identify any anomalies or variances to your organization’s standard
estimating practices. A good practice is to provide a checklist as an attachment to the BOE
to document any identified exceptions. This checklist should correspond to the company’s
standard estimating practices.
Risks and Opportunities
Any areas of the estimate containing significant risk or opportunity should be identified. If a
formal risk analysis study has been prepared, it should be described (e.g., methodology,
technique). In particular, this section should identify those cost elements that have been
identified with high or very high risk or opportunity values. The risk analysis report (or
summary) should be provided as an attachment to the BOE.
Containment
Containments are cost elements in the estimate related to measures to prevent or mitigate
the identified risks. The activities are identified in the risk analysis report. These may impact
not only cost but also duration.
Contingency
The amount of contingency included in the estimate should be identified, as well as the
methods used to determine the contingency amount. If risk analysis techniques were
utilized to develop the contingency amount, the associated confidence level should also be
identified.
Management Reserve:
If the project needs to provide an allowance for anticipated changes in scope, or to cover
the costs for items that may be required but have not yet been specifically identified as
being included in the current project scope, then that amount of cost, typically referred to
as management reserve, should be identified here. The intended purpose and use of
management reserve should be identified. The approval process, management, and
tracking of the management reserve should also be identified.
Reconciliation
In this section, the estimator provides an overview of the major differences between the
current estimate and the last published estimate prepared for this project. Identify the cost
impacts due to scope changes, pricing updates, labor productivity adjustments, and
estimate refinement. A more detailed reconciliation or cost trending report can be provided
as an additional attachment if necessary.
Estimate validation/benchmarking
This section should document any comparisons of overall estimate metrics, ratios, and
factors with similar projects, historical data, and industry data. Projects used in the
benchmark comparisons should be similar in process type and overall value. If significant
variations of the estimated project costs versus the benchmarks exist, those inconsistencies
should be identified and commented upon. A more detailed benchmark analysis report may
be included as an attachment to the BOE.
Estimate Quality Assurance
Since estimate reviews are the means for testing the quality of the estimate, this section of
the BOE should identify all estimate reviews that have taken place to date and any
additional reviews that are proposed to take place. All review comments or analyses should
be included as an attachment to the BOE.
Estimating Team
In this section, all estimating team members should be identified, including roles and
responsibilities.
