Road Construction Cost Estimating Manual

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Transport Infrastructure (non ICT)

Project Cost Estimating Manual

Fifth EditionMarch 2012


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TRADEMARKS ACKNOWLEDGEMENT

Terms mentioned in this document that are known or understood to be trademarks, whether registered ornot, have been identified. Where trademarks have been confirmed as registered in Australia, this has beenindicated by the addition of the symbol, otherwise the symbol is used. While all care has been taken toidentify trademarks, users should rely on their own inquiries to determine trademark ownership. Use of aterm in this document as a trademark should not be regarded as affecting the validity of any trademark.

IMPORTANT INFORMATION

The requirements of this document represent Technical Policy of the department and contain TechnicalStandards. Compliance with the departments Technical Standards is mandatory for all applications for thedesign, construction, maintenance and operation of road transport infrastructure in Queensland by or onbehalf of the State of Queensland.

This document will be reviewed from time to time as the need arises and in response to improvementsuggestions by users. Please send your comments and suggestions to the feedback email given below.

FEEDBACK

Your feedback is welcomed. Please send to [email protected].

DISCLAIMER

This publication has been created for use in the design, construction, maintenance and operation of roadtransport infrastructure in Queensland by or on behalf of the State of Queensland.

Where the publication is used in other than the departments infrastructure projects, the State of Queenslandand the department gives no warranties as to the completeness, accuracy or adequacy of the publication orany parts of it and accepts no responsibility or liability upon any basis whatever for anything contained in oromitted from the publication or for the consequences of the use or misuse of the publication or any parts of it.

If the publication or any part of it forms part of a written contract between the State of Queensland and acontractor, this disclaimer applies subject to the express terms of that contract.

COPYRIGHT

Copyright protects this publication. Except for the purposes permitted by and subject to the conditionsprescribed under the Copyright Act, reproduction by any means (including electronic, mechanical,photocopying, microcopying or otherwise) is prohibited without the prior written permission of thedepartment. Enquiries regarding such permission should be directed to the Contracts and TechnicalCapability Branch, Queensland Department of Transport and Main Roads.

State of Queensland (Department of Transport and Main Roads) 2012

http://creativecommons.org/licences/by-nc-nd/2.5/au


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Revision Register

RevNo

Reference selection Description of Revision Amended by Date

1 Draft Release, July 2002 July 2002

2 First Edition, February2004

Feb 2004

3 First Edition Version 1.1,April 2004

April 2004

4 Second Edition, December2004

Dec 2004

5 Manual contents revised Third Edition, December2007

Eric Wellings and KeithBrownjohn

Dec 2007

6 Manual contents revised Fourth Edition, May 2009 PCEM Management Team July 2009

7 Manual contents revised Fifth Edition, Mar 2012 PCEM Management Team Feb 2012


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Manual Management PlanPurpose

This plan outlines the manual management process for the Project Cost Estimating Manual (PCEM). TheDepartment of Transport and Main Roads was subject to an independent federal audit of its estimating

practices in 2007. This Manual incorporates the findings of that report, and accommodates the May 2011edition of the Federal Government Best Practice Cost Estimation Standard for Publicly Funded RoadConstruction.

Roles

This manual is managed through the following roles:

Role Position/ Person

Manual Customer General Manager Program Development and Management

Manual Sponsor Executive Director Program and Project Delivery

Manual Manager Director (Program Delivery Improvement)

Regional/District Champions Nominated Person

Manual Review Team Members Manager (Estimating) PDI

Manager (Delivery strategy) PDI

Director (Program Delivery Improvement) PDI

Project Manager (Estimating) MIP

Regional/District Estimating Champion x 2

Amendment and Review Strategy

Transport and Main Roads welcomes feedback about this manual. Please send feedback via the feedbackform included in this manual and fax to Transport and Main Roads technical reference Centre (07 38342612), for the attention of The Manual Manager, who will acknowledge all feedback, suggested changes andimprovement requests.

The Manual owner and review team are responsible for ensuring the manual is updated to meet thedepartments needs. To this end the Manual Manager, in collaboration with the manual review team will:

Review feedback and comments;

Monitor the context/ environment the manual operates in / contemporary developments; and

Recommend appropriate action to the Manual Sponsor.

Manual Availability

The PCEM is available in PDF format on the Transport and Main Roads website (www.tmr.qld.gov.au).


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Department of Transport and Main Roads Project Cost Estimating Manual

Page i of ivPCEM

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Table of Contents

Page

1 INTRODUCTION.........................................................................................................................................11.1

Purpose and Application ......................................................................................................................1

1.2 Manual Structure..................................................................................................................................11.3 Relationship to other systems..............................................................................................................11.4 References...........................................................................................................................................21.5 Glossary of Terms................................................................................................................................21.6 Acronyms and General Definitions ......................................................................................................8

2 ESTIMATING POLICY AND ENVIRONMENT..........................................................................................112.1 Policy Statement ................................................................................................................................11

2.1.1 Background.................................................................................................................................112.1.2 Issues..........................................................................................................................................112.1.3 Related Policies and Standards..................................................................................................11

2.2 Estimating Principles..........................................................................................................................112.3 Applicability ........................................................................................................................................112.4 Estimating Rationale ..........................................................................................................................122.5 Estimating Practices ..........................................................................................................................122.6 Transport System Manager (TSM) Framework .................................................................................122.7 Transport Infrastructure Portfolio Management and Estimating ........................................................132.8 Program Management Framework ....................................................................................................142.9 OnQ Project Management Framework ..............................................................................................142.10 Integrating TSM, Portfolio, Program and OnQ Project Management Frameworks with TMRBusiness Rules (QTRIP)...............................................................................................................................142.11 Procurement Management and Estimating....................................................................................152.12 OnQ and Estimating .......................................................................................................................162.13 Estimate Categories .......................................................................................................................182.14 Estimate Development ...................................................................................................................192.15 Estimate Structure ..........................................................................................................................192.16 Project Types..................................................................................................................................212.17 P90 Estimating for Projects ............................................................................................................212.18 Performance Standards and Measurement ...................................................................................222.19 Taking Account of Optimism Bias ..................................................................................................25

3 ESTIMATING PROCESSES.....................................................................................................................273.1 Process Overview..............................................................................................................................273.2 Project Scope Definition.....................................................................................................................27

3.2.1 Project Definition.........................................................................................................................303.2.2 Physical Scope Criteria...............................................................................................................303.2.3 Factors Influencing Estimates: Common Scope Issues.............................................................30

3.3 Estimate Planning ..............................................................................................................................313.4 Resource Planning.............................................................................................................................32

3.4.1 General .......................................................................................................................................323.4.2 Work Method Studies (Constructability) .....................................................................................323.5 Cost Estimate Development ..............................................................................................................323.6 Risk and Contingencies .....................................................................................................................33

3.6.1 Categories of Cost Change ........................................................................................................343.7 Escalation...........................................................................................................................................343.8 Estimate Reviews...............................................................................................................................34

3.8.1 Reality Checks............................................................................................................................343.8.2 Peer Review................................................................................................................................353.8.3 Concurrence Review ..................................................................................................................353.8.4 Program Review .........................................................................................................................36

3.9 Estimate Approvals ............................................................................................................................363.10 Estimating Responsibilities.............................................................................................................36

3.10.1 Estimate Preparation ..................................................................................................................363.10.2 Estimate Review.........................................................................................................................37


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3.10.3 Estimate Approvals .................................................................................................................... 374 TMR ESTIMATE STRUCTURE ............................................................................................................... 39

4.1 Construction Contractors Costs ....................................................................................................... 414.1.1 Direct Job Costs......................................................................................................................... 414.1.2 Indirect Job Costs ...................................................................................................................... 424.1.3 Off Site Overheads and Margin ................................................................................................. 43

4.2 Principals Costs................................................................................................................................ 434.2.1 Concept Phase Costs ................................................................................................................ 444.2.2 Development Phase Costs ........................................................................................................ 454.2.3 Implementation Phase Costs ..................................................................................................... 454.2.4 Finalisation Phase Costs ........................................................................................................... 454.2.5 Project Management Costs (All phases).................................................................................... 464.2.6 Principals Obligations (3 phases).............................................................................................. 46

4.3 Contingency Allowances................................................................................................................... 474.3.1 Design Development Changes .................................................................................................. 474.3.2 Standards and Policy Changes.................................................................................................. 484.3.3 Third Party Influences................................................................................................................ 484.3.4 Revised Functionality................................................................................................................. 484.3.5 Principals Costs......................................................................................................................... 484.3.6 Planned Risks ............................................................................................................................ 484.3.7 Project Delay (Escalation allowance)......................................................................................... 484.3.8 Changes during Implementation Phase..................................................................................... 484.3.9 Property/ Land Acquisition......................................................................................................... 494.3.10 Unmeasured (Unidentified) Items .............................................................................................. 494.3.11 Quantification of Contingencies ................................................................................................. 49

4.4 Escalation.......................................................................................................................................... 504.4.1 Cost Escalation Road Input (CERI) Index.................................................................................. 50

5 ESTIMATE DOCUMENT DEVELOPMENT BY PHASE.......................................................................... 515.1 Pre Project Phase ............................................................................................................................. 51

5.1.1 Strategic Estimates.................................................................................................................... 515.2 Estimating in the Concept Phase...................................................................................................... 56

5.2.1

Project Proposal Estimates........................................................................................................ 56

5.2.2 Options Analysis Estimates ....................................................................................................... 575.2.3 Business Case Estimates .......................................................................................................... 575.2.4 Benefit Cost Analysis ................................................................................................................. 58

5.3 Estimating in the Development Phase .............................................................................................. 605.3.1 Preliminary Design Estimates.................................................................................................... 615.3.2 Detailed Design Estimates......................................................................................................... 615.3.3 Estimate for Comparison with Tender (EFCT)........................................................................... 63

5.4 Estimating in the Implementation Phase........................................................................................... 645.4.1 Construction Estimate................................................................................................................ 645.4.2 Regular Updates of the Cost Estimate....................................................................................... 645.4.3 Periodic Forecasting .................................................................................................................. 645.4.4 Contract Variations..................................................................................................................... 65

5.5

Estimating in the Finalisation Phase ................................................................................................. 66

5.5.1 Requirements............................................................................................................................. 665.5.2 Learnings ................................................................................................................................... 665.5.3 Post Implementation Review ..................................................................................................... 66

5.6 Exceptions with Minor Works ............................................................................................................ 676 ESTIMATING ROLES AND RESPONSIBILITIES ................................................................................... 69

6.1 Overview ........................................................................................................................................... 696.2 Senior Management Roles and responsibilities................................................................................ 696.3 Regional/District Roles and Responsibilities..................................................................................... 696.4 Project Roles and Responsibilities.................................................................................................... 70

7 PRESENTATION OF ESTIMATES.......................................................................................................... 737.1 Work Breakdown Structure (WBS).................................................................................................... 73

7.1.1 The WBS Levels ........................................................................................................................ 737.1.2 Construction Activities................................................................................................................ 747.2 Project Cost Estimates...................................................................................................................... 77


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7.3 Works Management System Estimating Module (WMS: Estimating).............................................777.3.1 Works Management System.......................................................................................................777.3.2 WMS Estimating Module ............................................................................................................777.3.3 WMS eDocuments Module.........................................................................................................787.3.4 WMS System Maintenance and Further Information..................................................................78

7.4 Supporting Information.......................................................................................................................787.5 Communication of Project Cost Estimate ..........................................................................................78

7.5.1 Project Estimating Control Checklist (PECC) .............................................................................797.5.2 Estimate Categories ...................................................................................................................79

8 BENCHMARKING AND QUALITY ASSURANCE ...................................................................................818.1 Benchmarking ....................................................................................................................................81

8.1.1 Gathering suitable information to benchmark against ................................................................818.1.2 Benchmarking methods..............................................................................................................81

8.2 Quality Assurance (QA) .....................................................................................................................829 ESTIMATING TOOLS AND TECHNIQUES..............................................................................................83

9.1 Estimating Methods............................................................................................................................839.1.1 Global Estimate (Benchmark rates)............................................................................................839.1.2 Unit Rate Estimate (based on historic rates)..............................................................................839.1.3

First Principles (Basic Cost) Estimate ........................................................................................84

9.1.4 Hybrid (Unit Rate/First Principles) Estimate ...............................................................................84

9.2 Selecting the Appropriate Method......................................................................................................849.2.1 Recommended Method ..............................................................................................................84

9.3 Probabilistic Estimating......................................................................................................................859.3.1 Overview.....................................................................................................................................859.3.2 Requirements..............................................................................................................................859.3.3 Probability Distributions..............................................................................................................859.3.4 Monte Carlo analysis ..................................................................................................................85

9.4 Estimating Tools.................................................................................................................................869.4.1 Works Management System (WMS) ..........................................................................................869.4.2 Smart Cost ..................................................................................................................................869.4.3 Expert Estimation (EE) ...............................................................................................................869.4.4

@Risk .........................................................................................................................................87

9.4.5 ProjMan.......................................................................................................................................87

10 RISK MANAGEMENT AND CONTINGENCY OVERVIEW...................................................................8910.1 Risk.................................................................................................................................................8910.2 Contingency....................................................................................................................................8910.3 Risk Management within TMR .......................................................................................................89

10.3.1 Risk Context................................................................................................................................9010.3.2 Planned and Unplanned Risks ...................................................................................................9110.3.3 Risk Assessment ........................................................................................................................9110.3.4 Statistical Techniques.................................................................................................................95

10.4 Contingency Limitations .................................................................................................................9610.5 Applying Contingencies..................................................................................................................9610.6 Quantification of Contingencies......................................................................................................9710.7 Reviewing Contingencies...............................................................................................................9710.8 Categories of Cost Change ............................................................................................................97

11 PROJECT MANAGEMENT...................................................................................................................9911.1 Project Classification......................................................................................................................9911.2 Project Templates...........................................................................................................................9911.3 Project Phases .............................................................................................................................10011.4 Project Knowledge Areas (Elements)...........................................................................................10011.5 Project Cost Management............................................................................................................101

11.5.1 General .....................................................................................................................................10111.5.2 Cost Planning............................................................................................................................10211.5.3 Cost Control ..............................................................................................................................103


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Page iv of ivPCEMMarch 2012

Annexure A:Site Visit Checklist

Annexure B:Estimate Peer Review Checklist

Annexure C:Work Breakdown Structure Construction Activities

Annexure D:Work Breakdown Structure Principals Activities

Annexure E:Contingency for Strategic Estimates

Annexure F:Extracts from Nation Building Program Notes on Administration, March 2006

Annexure G:Description of Estimate Categories

Annexure H:Escalation Calculator

Annexure I:Project Cost Estimating Control Checklist

Annexure J:Estimate Report Format

Annexure K:Land Resumption Flowchart

Annexure L:Yellow Form Project Cost Estimate Summary and Approval Form (M4755)


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Program Delivery Improvement March 2012 Page 1 of 103

1 INTRODUCTION

1.1 Purpose and Application

The purpose of this manual is to provide rules and standards for the preparation of cost estimates in supportof all transport infrastructure projects developed in accordance with the TSM framework by the Department

of Transport and Main Roads (TMR).This manual covers the preparation of estimates in support of the identification, selection, development,implementation and finalisation of projects that form the Queensland Transport and Roads InvestmentProgram (QTRIP). The use of reliable cost estimate information includes:

a) Justification for a candidate project to be accepted as a project (for example strategic or proposalestimates);

b) Justification of a project's business case (for example cost/benefit analysis);

c) Justification for design cost approval both preliminary and detailed;

d) Comparison of tenders;

e) Estimation of variations and alternative project completion options; and

f) Ongoing cost control during the project's concept, development, implementation and finalisationphases.

Costs are accumulated during all phases of a project from concept to finalisation. Consequently, total projectcost estimates must include all cost components, some of which some are becoming increasingly significant.For example: land acquisition, relocating public utility plant and environmental offsets, to name a few.

This manual provides information on a range of processes and techniques to suit the varying circumstancesunder which estimates are developed. It does not however specify the organisational structure required toproduce estimates. Direction is given as to those positions authorised to sign at various stages of theestimate development and approval.

Project cost management, of which project cost estimating is a part, is to be applied in the context of OnQ,TMR's project management methodology. As such, it is highly advised that readers understand the OnQ

methodology and processes as well as the processes in the Preconstruction Processes Manual beforereading the Project Cost Estimating Manual. This will provide the comprehensive foundation needed forestimating in the Transport and Main Roads environment.

1.2 Manual Structure

This manual is structured to provide increasing levels of detail as the reader progresses.

Up front the manual provides an overview of the transport infrastructure delivery estimating function at TMR.Topics introduced include estimating policy, operational position in regard to integration with program andproject management, life cycle stage identification, reporting guidance, estimate structure, estimatingprinciples and rationale, standards and performance requirements and the project types.

A clear relationship exists between the defined estimating process and the estimate structure. For thisreason the generic estimating process is described followed by a description of the estimate documentstructure. This is foundational knowledge for any estimate on any type of project.

The development processes for each estimate document are then detailed. These are arranged in order ofthe sequence of estimate stages.

The final section sweeps up the tools and techniques available to aid in estimate development.

1.3 Relationship to other systems

This manual has been structured as a reference on project cost estimating for project managers andestimators, within the context of TMRs Transport System Manager framework (TSM), Program ManagementFramework (PMF), Queensland Transport and Roads Investment Program (QTRIP) and OnQ projectmanagement methodology.

The departments various manuals and annexures are intended to be complementary. However, where a

conflict occurs, the manual with the latest publication date takes precedence.


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Note: Any such conflict should be reported to the manual owner through the feedback process so thatnecessary corrective action can be taken.

1.4 References

DITRDLG (June 2008) Best Practice Cost Estimation for Publicly Funded Road and Rail, Department ofInfrastructure, Transport, Regional Development and Local Government, Canberra.

DOIT (May 2011) Best Practice Cost Estimation for Publicly Funded Road and Rail Construction,Department of Infrastructure and Transport, Canberra.

DOIT (2009) Nation Building Program Notes on Administration, Department of Infrastructure and Transport,Canberra.

QLD Government Financial Accountability Act 2009, Part 4, Section 61(b)

QLD Government Financial and Performance Management Standard 2009, Part 2 Division 4 and 28

Flyvbjerg, B. in association with COWI (2004) Procedures for Dealing with Optimism Bias in TransportPlanning Guidance Document,for the British Department of Transport, included as Appendix 7 of Evans andPeck 2007,A Review of the Reliability of Cost Estimation of TMR Projects funded under Auslink, Brisbane.

Project Management Institute,A Guide to the Project Management Body of Knowledge (PMBOKGuide) 4th

ed, Project Management Institute, Newtown Square, 2008Project Management Institute,A Guide to the Project Management Body of Knowledge (PMBOK

Guide) 3th

ed, Project Management Institute, Newtown Square, 2004

Standards Australia 2009 Communicating and consulting about risk (HB 327:2010)

Standards Australia 2009 Governance, Risk Management and Control Assurance (HB 254-2005)

Standards Australia 2009 Risk Management Principles and Guidelines (AS/NZS ISO 31000:2009)

Standards Australia 2009 Risk Management Risk assessment techniques (IEC/ISO 31010)

Standards Australia 2009 Risk Management Vocabulary (ISO Guide 73:2009)

TMR (2005) Preconstruction Processes Manual, Department of Transport and Main Roads. Brisbane.

TMR (2002) Road Planning and Design Manual, Department of Main Roads, Brisbane.

TMR (2012) Standard Specification Roads Fourth Edition, Department of Transport and Main Roads.Brisbane.

TMR (2012) QTRIP Guidelines 2012-13 to 2015-16, Department of Transport and Main Roads, Brisbane.

TMR (2012) Project Management Reference Guide, Department of Transport and Main Roads, Brisbane.

Roads and Traffic Authority of New South Wales (2008)Project Estimating, RTA, Sydney.

TMR (Nov. 2011) WMS Estimating Module User Guide, Department of Transport and Main Roads,Brisbane.

TMR (Nov. 2011) WMS eDocuments Module User Guide, Department of Transport and Main Roads,Brisbane.

TMR (2011) Cost-benefit Analysis Manual Road projects, Department of Transport and Main Roads,Brisbane.

1.5 Glossary of Terms

Accountability

The final responsibility for completion of tasks and achievement of results within delegated authority and toestablished performance standards.

Activity

An element of work performed during the course of a project. An activity normally has an expected duration,cost and resource requirement. Activities can be subdivided into tasks.

Actual Cost

The final out-turn dollar expenditure on a project.


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Anticipated Final Cost

The sum of expenditure to date, plus the forecast expenditure, in out-turn dollars, to complete the project.

Base Date

The calendar date at which the current project estimate has been calculated, (i.e. before escalation).

Base Estimate

The base estimate is the total contract works costs and principals costs, not including project riskcontingencies and escalation.

Benchmarking

Gathering, collating, and analysing historical data and storing it for future use.

Bill of Quantities

A building industry term, not used in this manual. It refers to a list of work items, their measurement andquantities but excluding a unit rate / lump sum.

Budget

The budget is the approved amount of funding for a project. This may be different to the estimates

throughout the project life cycle.

Business Case Estimate

An estimate prepared during the concept phase to support the projects Business Case.

Candidate Project

A body of work identified in TSM Phase 3 that with approval may become a project.

Cash Flow

Cash flow is the project base estimate plus contingency amount expenditure profile across the financialyears the funds are expected to be spent.

Component

A definable part of a project, including stages of planning, design and construction that contribute to the totalproject cost.

Concurrence Review

An independent third party review of a project estimate where the estimator, sponsor and reviewer agreeregarding the estimate metrics.

Construction / Contract Price

The agreed contractor's tendered price for a particular project component.

Construction Estimate

An estimate produced after acceptance of the successful tenderer just prior to the implementation phase.

Contingency

A financial reserve included in the projects estimate to offset uncertain or unpredictable factors relating tothe delivery of project objectives.

Contingency Reserve

The amount of funds, budget or time needed above the estimate to reduce the risk of overruns of projectobjectives to a level acceptable to the organisation. (PMBOK 2008)An estimate of costs associated with identified uncertainties and risks, the sum of which is added to the baseestimate to complete the project cost estimate. Contingency is expected to be expended during the projectdevelopment and construction process if the risk eventuates.

Cost Escalation Roads Input Index (CERI)

The escalation index for TMR infrastructure projects in Queensland.


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Cost Estimating

The process of estimating the cost of the resources needed to complete project activities.

Current Risk (previously known as Inherent Risk)

The exposure arising from a specific risk before any specific treatment action has been taken to manage it.

Detailed Design Estimate

The estimate of all components of a project prepared prior to calling of tenders for construction, and basedon final designs, construction specifications and project documentation. It is expressed in out-turn dollars.

Escalation

The anticipated increase in project costs over time as a result of various factors such as inflation, marketconditions, supply constraints and project complexity.

Estimate

A document recording the calculated cost prediction to undertake a specific amount of work. It is prepared ina systematic manner appropriate to the size and complexity of the work, and to a level of accuracycommensurate with the available information and the intended use of the information developed. It mayinclude some prior expenditure.

Estimated Final Cost

See Anticipated Final Cost. This term is used in Projman.

Estimate for Comparison with Tenders (EFCT)

The estimate costed with reasonable rates used to assess tenders bids. This only considers contract scope,not the whole project.

Estimated Total Project Cost (ETPC)

The Total Project Cost is the sum of the Base Estimate plus Contingency plus Escalation, expressed in P90values. This is also referred to as the Total Out-turn Cost. See also Total Project Cost definition.

Expert Estimation

TMRs preferred application to compile first principle estimates.

Estimate Report

A report containing the estimate and details of the estimating processes, assumptions, inputs etc.

First Principles (Basic Cost) Estimating

A detailed estimating method based on a detailed: work breakdown structure, work methods, productionrates and resource requirements. The estimate is structured to provide details of direct costs, on-siteoverheads, off-site overheads, contractor contingencies and margin.

Global Estimating

A very approximate estimating method based on an all inclusive unit rate, such as $/km of road. Also

known as Order of Magnitude estimating.Indirect Costs

These are costs not directly attributable to work items. For construction activities these costs include on-siteoverheads (such as site supervision) and off-site overheads (contractors corporate/business costs). Theyare exclusive of contractors contingency and profit.

Inflation

An allowance for the rising cost of the project due to rise and fall factors external to the project definition.

Management Reserve

Management reserves are budgets reserved for unplanned changes to project scope and cost. The projectmanager will be required to obtain approval before obligating or spending management reserve.

Management Reserve is administered at the program level.


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Margin (contractor)

An allowance that includes the contractor's corporate overheads and profit.

Memorandums of Understanding

A memorandum of understanding is a document describing a bilateral or multilateral agreement betweenparties. It expresses a convergence of will between the parties, indicating an intended common line of action.

It most often is used in cases where parties either do not imply a legal commitment or in situations where theparties cannot create a legally enforceable agreement.

OnQ

TMRs Project Management Framework that provides direction and guidance for effective management anddelivery of projects.

Optimism Bias

The tendency for people to be overly optimistic regarding project costs and planned durations.

Out-turn Dollars

The dollars of the period in which the work will be performed. Estimates prepared at a particular date can beconverted to out-turn dollars by applying the appropriate escalation rates to the projects planned cash flow.

P50 Estimate

An estimate with a 50% confidence of not being exceeded at project completion, while not being overlyconservative.

P90 Estimate

An estimate with a 90% confidence of not being exceeded at project completion, while not being overlyconservative.

Pareto Approach

Pareto analysis suggests that 80% of a problem may be attributable to only 20% of causes.

Peer Review

A review of the project estimate by an independent, experienced estimator from within TMR.

Portable Long Service Leave

As the building and construction industry is project driven, it would be impossible for most workers to accrueenough service with one employer to be eligible for long service leave. Portable Long Service Leaveprovides long service leave entitlements to workers in the building and construction industry as they movebetween projects.

Portable Long Service Leave Levy

The Portable Long Service Leave Levy is collected solely to fund the Building and Construction IndustryPortable Long Service Leave Scheme. If the work is being done for a local government, government entityor non-Queensland government entity, the local government or entity is responsible for payment of the levies

and fee.Project Proposal Report (PPR)

The Project Proposal Report (PPR) is a funding proposal template to document the information required forfederally funded projects under the Nation Building Program. It equates to a Business Case for state fundedproject in the QTRIP.

Principal Arranged Insurance

Principal Arranged Insurance is insurance arranged by an agency representing a Principal to cover theagency, Principal, contractors and subcontractors and other service providers in respect of risks undercontracts let by the Principal. The premiums may be paid by the agency or by each contractor to thePrincipal.


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Principals Costs

Principals Costs are those costs which TMR incurs to conceptualise, develop, deliver and finalise a projectand can also be referred to as the Non-Construction activities. May include, community consultation,environmental assessment, design planning, services relocation, resumptions and so on.

Preliminary Design Estimate

The estimate of all components of a project prepared based on advanced design. It provides a check of thealignment between the project estimate and the approved scope/budget. It occurs immediately prior to theDetailed Design stage. It is expressed in out-turn dollars.

Probabilistic Estimating

A method of generating estimates which takes into consideration that quantities measured (or allowed for)can change, rates assumed can vary and risk with a probable outcome can materialise.

Program

A group of related projects managed in a coordinated way in order to obtain benefits and control notavailable from managing them individually.

Program Management Framework

TMRs operational model for qualifying, selecting and managing projects through their life cycle.

Program Manager

The person responsible for leading and managing a group of projects. The program manager interacts witheach project manager to provide support and guidance on individual projects.

Program of Work

The planned durations for performing activities and the planned dates for reaching milestones.

Project

A temporary endeavour undertaken to create a unique product, service or result. It has a clearly defined startand end time, a structured set of activities and tasks, a budget and a specified business case.

Project Estimate

A term generally referring to an estimate prepared for a project, often referring to the whole project cost.

Project Manager

The person responsible for managing a project and achieving its objectives. Manages all activities necessaryto deliver the project or services to the required quality standard and within the time and cost constraints.

Project Life Cycle

All of the activities necessary for a project throughout its life, from beginning to end, normally dissected into anumber of sequential phases. The generic project life cycle has four stages: concept, development,implementation and finalisation.

Project Schedule

Term not used in this manual. See either Schedule of Rates or Program of Work.

Program of Work

The planned durations for performing activities and dates of reaching milestones.

Projman

A standardised Regional/District based financial information system.

Proposal Estimate

A project estimate in out-turn dollars, prepared to support a projects proposal document.

Provisional Items

Items included in an estimate which cannot be accurately quantified.


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Public Utility Plant

Public Utility Plant (PUP) includes, but is not limited to, infrastructure related to the distribution ofcommunications, electricity, water, sewerage, gas, etc.

Qualitative Risk Analysis

The process of prioritising risk for subsequent analysis or action by assessing and combining probability of

likelihood and impact. (PMBOK 2008)

In regards to estimating and risk assessment, this approach draws upon the softer skills such as pastexperience, asking stakeholders the right questions, decision making, problem solving and common sensereview by appropriate personnel and is more reliant on the project teams experience.

Quantitative Risk Analysis

The process of numerically analysing the effect on project objectives of identified risk (PMBOK 2008). Inregards to estimating and risk assessment, this approach draws upon the use of tools, techniques,templates, software, etc, and the use of specialist risk estimating software, such as @Risk.

Queensland Transport and Roads Investment Program (QTRIP)

The QTRIP is the program of works Transport and Main Roads plans to deliver over the upcoming four

years.Range Estimate

An estimate which reports the pessimistic, optimistic and most likely values.

Reality Check

The action of comparing an estimate and/or its items to previous benchmarked values.

Risk - Project

A project risk is the effect of uncertainty on project objectives (Adapted from AS/NZS ISO 31000); thechance of something happening that will have an impact upon project objectives. Risk is measured in termsof consequences and likelihood.

Schedule

See Schedule of Rates

Schedule of Rates

The list of all project items, quantities and rates, whether the rates have been entered or not.

Scope

The scope is the work that must be undertaken to deliver a product, service or result with the specifiedfeatures and functions.

Scope Creep

Increase in project scope not anticipated at the start of the project (often unapproved).

Smart CostA library of resources associated with TMR standard work items, which is updated every 6 months withcurrent rates. It is used by the Expert Estimation tool in the preparation of project estimates.

Stage

A logical construct to describe the division of work within a project phase.

Standard Work Item Groups

A specific group of construction work using in TMR Standard Specifications.

Strategic Estimate

An estimate in current dollars prepared to support TMR Strategic Road Network Planning processes.

Total Completion CostThe actual cost of a project.


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Total Project Cost

The estimated Total Completion Cost.

Transport System Manager (TSM)

The overarching operational framework for infrastructure planning and delivery in TMR

Uncertainty

Uncertainty represents unknown or ill-defined variables causing a loss or profit. The point is that the agencycausing the loss or profit can not be named.

Value Management

A structured, analytical process that seeks to achieve value for money by providing all the necessaryfunctions at the lowest total cost consistent with required levels of quality and performance.

Variation

Approved change to the scope of work.

Variation Estimate

An estimate prepared to support a change request for variation in the approved scope of work.

Works Management System (WMS)

A departmental application used to develop and present estimates in accordance with TMR estimate format.WMS also develops contract documents and incorporates these estimates into the tender documents.

1.6 Acronyms and General Definitions

Terms Definition

BPCES Best Practice Cost Estimation Standard for Publicly Funded Road and RailConstruction, May 2011

CERI Cost Escalation Road Input

D&C Design and Construct

DoIT Department of Infrastructure and Transport (Formerly DITRDLG)

DITRDLG Department of Infrastructure, Transport Regional Development and LocalGovernment (Formerly DoTaRS)

DJC Direct Job Costs

DoTaRS Department of Transport and Regional Services (became DITLRG, thenDoIT)

E&T Engineering and Technology

ECI Early Contractor Involvement

EFCT Estimate For Comparison with Tenders

GM General Manager

ICT Information Communication Technology

MOU Memorandum of Understanding

MIP Major Infrastructure Projects

TMR Department of Transport and Main Roads

MRS Main Roads Specification

MRTS Main Roads Technical Specification

MWC Minor Works Contract


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Terms Definition

MWPC Minor Works Performance Contract

NBP Nation Building Program

NDRRA Natural Disaster Relief and Recovery Arrangements

NH National Highway

OnQ The project management methodology framework used by QueenslandTransport and Main Roads

OSCR Other State Controlled Roads

PAI Principal Arranged Insurance

PCEM Project Cost Estimating Manual

PD&O Program Delivery and Operations

PDI Program Delivery Improvement

PM Project Management

PMF Program Management Framework

PUP Public Utility Plant

RCC Road Construction Contract

RICI Roads Input Cost Index

QTRIP Queensland Transport and Roads Investment Program

SPIDA State-wide Program Investment Delivery Application

RMPC Road Maintenance Performance Contract

TSM Transport System manager

TNRP Transport Network Reconstruction Program

WBS Work Breakdown Structure

WMS Works Management System

$OT Out-Turn dollars


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2 ESTIMATING POLICY AND ENVIRONMENT

2.1 Policy Statement

Transport and Main Roads (TMR) Infrastructure Project Cost Estimating Policy requires all TMRinfrastructure projects to be completed in the format prescribed by the Project Cost Estimating Manual

(PCEM).TMR is committed to producing accurate and realistic project cost estimates.

2.1.1 Background

TMR supports Queensland government priorities and objectives and develops these into investmentstrategies based on the states strategic transport needs.

Identifying and funding the highest priority works to meet these needs, and managing them through anefficient transport portfolio of work, is critical to realising the benefits each project outcome will deliver to thecommunity.

Portfolio, program and project management processes rely on sound strategic estimates, project costestimates and cost control to ensure decision integrity in relation to conformance with government priorities,

project justification and authorisations, and operation of transport infrastructure programming.2.1.2 Issues

Recent economic fluctuations have highlighted the need for robust estimating practices and providedimpetus for increasing scrutiny of TMR estimates from both Federal and State bodies as well as TMRscrutiny of industry provided estimates.

The estimating function is significantly impacted by program and project practices. When these estimatingpractices constrain the estimating function, the result can be inaccurate estimates, project budget shortfalls,delays in project funding and approval and negative perceptions of TMR estimating professionalism.

2.1.3 Related Policies and Standards

TMR Infrastructure Project Cost Estimating Policy and this manual support other TMR policies, standardsand frameworks, such as the TMR Transport System Manager (TSM) framework, the Queensland TransportInvestment Program (QTRIP) of projects, Program Management Framework (PMF), the Best Practice CostEstimation Standard for Publicly Funded Road and Rail Construction, May 2011, and the Nation BuildingProgram Notes on Administration, 2009.

2.2 Estimating Principles

TMR's estimating policy is founded on five key principles:

Estimates are created in accordance with the requirements of the Program Management Framework (PMF),TMR OnQ Project Management Methodology, Work Breakdown Structure (WBS), and Transport and MainRoads Specifications and Technical Standards;

1. All estimates are prepared on an "unlikely to be exceeded but not excessively conservative" basis forvarious stages of the project life cycle to provide confidence in project priority, affordability and

strategic fit;2. Estimates are to be presented using the estimate document format which highlights the elements of

the estimate structure and relevant project cost attributes;

3. Estimates are subject to a review and approval process to ensure accountability, responsibility,costing standards and control applied to any budget that is to be released; and

4. Estimate performance will be ascertained at all funding approval points.

2.3 Applicability

The Project Estimating Policy requires that all transport infrastructure project and project componentsundertaken by the Department Transport and Main Roads must comply with this manual. This includes allstate and federally funded projects including all Queensland Transport and Roads Investment Program

(QTRIP) projects, Nation Building Program (NBP) projects and any restoration programs such as theTransport Network Reconstruction Program (TNRP).


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The content of the PCEM is scalable and allows for Project Managers, Sponsors and Customers to jointlypredetermine the level of estimating rigor and documentation required.

Individual Divisions, Regional/District and Branch Directors are responsible for the effective implementationof the estimating manual within their areas to develop realistic estimates and ensure their staff, possess thenecessary skills and training to undertake estimating activities.

Consultants and Contractors performing estimating activities under the control of the Department of Transportand Main Roads are also required to comply with the requirements of this manual.

2.4 Estimating Rationale

TMR estimating rationale is that cost estimating must be exercised in the broader context of project andprogram management to provide assurance that estimate values are continually dependable. Estimating isan integral part of a system of interdependent core inputs of scope, time, cost and quality.

This manual recognises that projects are inherently uncertain and that, irrespective of the stage of a project,there will be incomplete scope information on which to base the project estimate. The aim is to establish ascomplete a set of project parameters as possible, undertake the TMR risk management process to allocatecontingencies to cover probable eventualities, and convey meaningful information concerning the reliability offigures provided.

Estimate reliability will be progressively improved during the project life cycle by systematic reviews andapproval processes as outlined in the following estimating practices.

2.5 Estimating Practices

The following estimating practices/ conventions are to be adopted:

Estimators are to ensure that costs are included for all activities in the life of the project using at leastlevel 3 (yellow) of the standard project work breakdown structure (See Figure 7.2). These details areto be captured in corporate systems and preferred software to enable state-wide visibility, reporting,planning, and consistency.

Estimates are to be updated and included as part of the preparation of each OnQ template. Theestimating lessons learned should be captured in the learnings register for subsequent use in theproject managers completion report and to facilitate subsequent benchmarking.

Each estimate shall be presented using the standard estimate structure format and have an estimatereport that incorporates the scope definition and assumptions on which the estimate has beenbased. This facilitates rapid review and update of estimates.

Estimates are to be reported in out-turn dollars based with an assumed start date and escalationrates to aid in program management.

2.6 Transport System Manager (TSM) Framework

The Transport System Manager Framework provides a methodical process for TMR to objectively plan,program and deliver works with feedback loops for improvement. The TSM Framework consists of sevenphases, see Figure 2.1 below. Estimating activities are employed in phases 3 to 7 starting with pre projectstrategic estimates which form the basis of portfolio financial planning and prioritisation.


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Figure 2.1 Transport System Manager Framework in TMR Functional Business Model

Planning Phases 13 incorporate policy and strategy development as well as integrated transport systemplanning to achieve the objectives of the department and government.

Programming Phases 3 and 4 interpret and translate the planning of initiatives into projects and programsto be delivered by TMR and determine and prioritise investment across the portfolio to develop programswithin available funding.

Delivery Phase 5 implements the planning, policy, investment and programming outcomes. Work under thisphase covers the project pre-construction, design and supervision of the whole range of delivery (internaland external) for services and infrastructure.

Finalising Phases 6 and 7 Finalises the works and reviews the outcomes

Estimating activities are employed in Phases 3 - 6 of the TSM, starting with pre project strategic estimateswhich form the basis of program and portfolio financial planning and prioritisation.

For more information on the TSM Framework, refer to the TSM Portal on the intranet site.

http://tmrintranet/Planning-and-management/Managing-TMR.aspx

Note that project phases are different to the above TSM phases.

2.7 Transport Infrastructure Portfolio Management and Estimating

The Investment Management Implementation Program is being rolled out by Portfolio Investment Divisionand is affecting investment decisions across the department. Its focus is to get a clear line of sight of everyprojects benefits through to the portfolio level. This has resulted in the establishment of four major programstreams within the department, along with a Major Program Management Office. Details are available at thefollowing address:

http://tmrintranet/Planning-and-management/Transport-infrastructure-portfolio-management-portal.aspx

This initiative relies on the production of robust estimates, and reinforces the need to follow the processes

covered in this manual.


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2.8 Program Management Framework

TMR manages the majority of its projects within programs of work. Each project is required to identify itsestimated total project cost and the estimated next stage costs to the program manager for approval, fundingand inclusion in their program. Program managers then report their program commitments andachievements to the portfolio managers.

2.9 OnQ Project Management FrameworkSuccessful project management is characterised by good planning, effective scoping and resourcing,realistic expectations of outcomes and strong management support. The more complex a project, the moreimportant it is to have rigour applied through the adoption and use of a project management methodology.

OnQ is the project management framework used and maintained by TMR to direct and guide effectiveproject management.

The framework has a methodology that consists of four sequential phases: Concept, Development,Implementation and Finalisation. These phases are distinct from the TSM phases. OnQ provides structuredguidance concerning processes and documents used to progress a project from concept to finalisation,taking into account the projects complexity and inherent project risk profile. This includes a Project Proposal,Options Analysis and Business Case in its Concept Phase.

For further information on the OnQ Project Management Framework, refer to the TMR intranet website.2.10 Integrating TSM, Portfolio, Program and OnQ Project Management Frameworks withTMR Business Rules (QTRIP)

TSM Phases 2 and 3 Transport Systems Planning and Corridor Planning respectively - identify candidateprojects and from those considered worthy of further investigation, strategic level estimates are created toenable initial prioritisation based in part on affordability.

TSM Phase 4 Develop Program - fleshes out the Investment Strategy, with approved Project Proposalsbeing added to the program of works. As the programmed construction commencement date for eachproject draws closer, Options Analysis and Business Case are completed prior to entering year 2 of theQTRIP. Estimating activities provide key inputs into development of the project Proposal, Options Analysisand Business Case.

Within TSM Phase 5 Program Delivery projects progress from their OnQ Concept phase Business Caseto OnQ Development Phase, through tendering to preparation and then implementation of their Project Plan,and subsequently to the OnQ Finalisation phase. Estimating activities provide significant input to thebusiness case, as well as preliminary and detailed designs and estimate for comparison with tenders. Theseestimates are used to update the program on current and expected future commitments.

TMRs Queensland Transport and Roads Investment Program (QTRIP) has the following two significantbusiness rules for program development and management:

An approved Project Proposal is required prior to developing the QTRIP (i.e. before a new projectenters the Indicative Years 3 to 5 of the QTRIP); and

An approved Business Case is required prior to entering the Approved Years 1 or 2 of the QTRIP.

Figure 2.2 shows the relationship between the estimating function, the TSM phases, TMR ProgramManagement Framework and TMRs OnQ Project Management Framework.


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Figure 2.2 Relationship between TSM, Program and Project Management

Defining

Governme

nt

Outcomes

1

Proposal > OptionsAnalysis > Business

Case

Program Development

Prepare &

Plan

Infrastructur

e Program

Corridor

Planning,

Stewardship

& Operations

3

Roads Connecting Queensland

Strategic

Estimate

ConstructionActivities &

Admin

CompletionReport

Concept

Program &

Customer

Services

Finalisation

7

Manage

Programs

and

Funding

Monitor and Report Performance Manage Variations

Program Management

Close Project

Programming

Investment

Strategy

(Choice)

4

Program development (scheduling of choice)

5

Planning

Transport

System

Planning &

stewardship

2

Program Delivery & Customer

Services

6

Delivery Review

Years 20, 15, 10 Years 8,5 Years 4, 3, 2, 1

Queensland Infrastructure Plan (QIP)

State Planning Program(SPP) Queensland Transport Roads Investment Program (QTRIP)

Timeline

Transport

SystemManager

ProgramManagement

Framework

Estimate

Types

OnQ

Development Implementation Finalisation

Approve &

Publish

Infrastructur

e Program

Proposal

Estimate

Estimate

Performa

nce

Report

Business Case > Preliminary Design >

Detailed Design >

EFCT > Construction > Variations > Forecast

ESTIMATES

PrelimDesign

DetailedDesign

Project Plan

Project Plan

Mgmt

Transport Network Reconstruction Program (TNRP)

The Federal Government provides funding to support states through its The Natural Disaster Relief and

Recovery Arrangements (NDRRA). TMR has established the Transport Network Reconstruction Program(TNRP) office to manage the recovery and reconstruction of Queenslands integrated transport systemfollowing the natural disasters in 201011.

A Statewide Program Office (SPO) team has been established to support the Regions/Districts as theymanage the delivery of TMRs recovery and restoration efforts, and ensure timely access to funding. Anumber of Guidelines have been established to assist Regions/Districts in the scoping, preparation andlodgement of submissions which includes:

TNRP Funding and Development Guidelines; and

Submission template.

A TMR Portal is available which provide information about the TNRP program including guidelines, tools andtemplates for staff involved in managing the recovery and reconstruction of the transport system. Any TNRP

estimating activities must comply with the principles and content of this Project Cost Estimating Manual.

2.11 Procurement Management and Estimating

An often overlooked facet of estimating is its support to procurement management.

On completion of the Detailed Design estimate, estimates are prepared to provide a comparative estimatefor the assessment of tenders.

When the preferred tenderer is selected, a construction estimate is prepared to then support implementationphase cost management activities.


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2.12 OnQ and Estimating

Estimates will be developed throughout the OnQ life cycle in support of management needs.

Pre-project strategic estimates are to be in current dollar values and dated. Projects vying to enter theQTRIP are required to have estimates in out-turn dollars showing the base cost, pessimistic, optimistic andmost likely values. Where advisable these values are to be statistically derived.

The confidence that estimators have in the estimate values are to be advised by a confidence index ratingwhich captures in broad terms the project scope maturity, data available and time provided to produce theestimate.

Estimate documents and stages align with the OnQ stages as shown in Figure 2.3. It should be noted thatmany other estimates are generated in the course of TSM operation. Only those estimates on whichapprovals are generally based have been shown. It can also be noted that project and estimate stages alignexcept there is an additional estimate stage called procurement within the project development phase and atthe end of the detailed design stage.

The Estimated Total Project Cost (ETPC) must be updated whenever a project advances to the nextapproval stage.


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Figure 2.3 Estimate Stages and documents in relation to PCEM and OnQ

TMR prepares project cost estimates that accommodate the level of information and time available to createthe estimate.

To satisfy reporting requirements where a single estimate figure is required, the pessimistic out-turnestimated cost is to be reported as the estimated Total Project Cost. Many TMR corporate systems require asingle estimate cost value.

The preferred content to be communicated as an estimated cost is:

A cost range with the higher pessimistic out turn cost and lower optimistic out turn cost;

An indication of most likely out turn cost followed by;

The category of estimate; and

The completion date.

The relationship of the cost variables is shown diagrammatically in Figure 2.4. A description of estimateconfidence categories follows.

Pre

Project

Concept

Development

Implementation

Final

Proposal

Option

Anal sis

Business

Case

Preliminary

Design

Detailed

Design

Implementation

Finalisation

Detailed

Desi n

Preliminary

Design

Proposal

Option

Anal sis

Business

Case

Implementation

Finalisation

Procurement

Strate ic

Estimate StagesOnQ Project

Activities

Detailed

Desi n

Proposal

Preliminary

Design

Option

Anal sis

Business

Case

Construction

Reports

Estimate for Comparison

With Tenders

Strate ic

Estimate Docs

Variations


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Figure 2.4 Estimate confidence profiles in the program life cycle

2.13 Estimate Categories

Estimate categories indicate the level of confidence in the figures provided.

There are six defined categories as shown in Table 2.1. Category 1 indicates the least amount ofinformation and/or time available to analyse data. Category 6 indicates detailed analysis and review ofdetailed information from a well defined scope.

Estimates will usually move from Category 1 to 6 as a project matures in the project life cycle.

However, abnormal circumstances that circumvent normal development progression are allowed for, as thefollowing examples show:

A poorly defined priority project with approved unlimited funding is mandated at short notice. Thebusiness case estimate resulting from a truncated project development life could be categorised asCategory 1 rather than Category 3 as you would expect at business case stage; and

A lapsed but previously designed project is initiated decades later. The strategic estimate could becategorised as Category 3, 4 or 5 given the amount of information available and plenty of time toprocess it.

The benefit of TMR adopting confidence categories is that it enables a level of confidence to be given tocost figures regardless of project stage.

The confidence level required of Strategic Estimates is that the actual cost will not exceed the pessimisticestimated cost. For Business Case estimates, the confidence level required is 90 percent (P90) for Statefunded projects. Note that for projects seeking Federal funding, and for projects where a Benefit Cost Ratiois to be calculated, a P50 estimate is required as well. See Section 5.2.4.


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Table 2.1 Category Descriptors

Category 1 Category 2 Category 3 Category 4 Category 5 Category 6

Level ofproject

definition


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Figure 2.5 Condensed Project Estimate Structure

It is important that the estimator understands how estimating interfaces with the broader spectrum of project

management, as TMR projects are managed in accordance with TMR Standard Work Breakdown Structure(WBS). The WBS provides consistency of process, ease of monitoring, minimises training requirements andprovides for the efficient production of estimates and associated contract documents from TMR WorksManagement System (WMS).

Each of the following cost groups have work activities with a unique number assigned according to thestandard work items detailed in volumes one and two of Main Roads Standard Specification Roads, ThirdEdition, in particular MRS11. Further detail on these activities is given in Section 4 and Annexures C and D:

1. Construction Contractors Costs: The contractor construction costs are represented in threeCategories: Direct Job Cost, Indirect Job Costs and Offsite Overheads and Margin. The constructioncontractor work items are detailed in Section 4.1 of this manual. The method chosen for theconstruction cost estimate preparation depends on both the purpose for which the estimate is required(and therefore the estimates required forecast accuracy) and on the level of available data detail;

2. Principal's Costs: Principals Costs are TMR managed costs for all phases of the project (ReferAnnexure D of this manual, including resumptions, PUP, staff, consultants, fees and levies, principalsupplied materials). These may be considered difficult to estimate, however these costs can form asignificant proportion of a project estimate, and should not be considered impossible to estimatereliably. The simplest way to estimate these costs is to refer to similar completed projects for the costsof these work items. This will provide a basis from which to work. The estimator should then take intoaccount escalation, recognise the differences between the projects and adjust the estimateaccordingly. An alternative method is to assess the expected labour hours required for the individualwork items and apply current market rates for the type of work being carried out. The least preferredmethod of estimating these costs is as a percentage of construction costs, which is likely to produce alow confidence estimate of TMR costs. See Section 4.2 for more information;

3. Base Estimate: The base estimate as described above is the combination of the Contractors and

Principals costs. It is recorded in current dollars;


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4. Risk and Contingencies:Risk must be managed in accordance with TMRs Risk ManagementFramework. Projects should estimate base (or known) amounts separately from risk and contingency(or unknown) costs. Understanding the risk associated with the project and having a clear definition ofcontingency coverage is very important. The definition of contingency helps in understanding what isor is not covered in the contingency amounts included in the concept phase. The qualitative riskassessment approach is to be used for all projects where the quantitative approach is not used. Theaim is to provide for the appropriate management of opportunities and risks, through the systematicapplication of risk management processes and qualitative tools such as benchmark information, or thestrategic estimating matrix (See Annexure E). Where the qualitative risk assessment approach is usedto calculate contingency, the risks must still be identified, analysed and evaluated according to TMRsrisk management processes. The project team needs to assess the impact on the estimate andinclude an appropriate contingency allowance in the estimate. This assessment can be based onpercentages or lump sums, but must recognise the impact the identified risks may have on the out-turn cost. See Sections 4.3 and 10 for more information;

5. Total Project Cost (Current Dollars): Contingency added to the base estimate provides a TotalProject Cost in current dollars. It is important to record the date for current dollars to maintain visibilityof the age of the estimate;

6. Escalation: Escalation is a unit rate escalation amount to be applied as advised in the QTRIP

guidelines. The escalation amount is also periodically published as the Cost Escalation Roads Input(CERI) index for TMR infrastructure projects. It considers a variety of local factors and so is morerelevant to Queensland than national indices. Escalated figures are derived from Total Project Cost(current $) project cash flow multiplied by the escalation amount for each respective year.Spreadsheet tools are available to help calculate and document escalation (Annexure H). SeeSection 4.4 for more information; and

7. Total Project Cost (Out turn dollars for completion in 20XX): Total Project Cost in out turn dollarsis used for planning and budgeting purposes.

2.16 Project Types

TMR classifies projects into one of three types as a means to standardise the management of variousprojects depending on the project complexity and risk. It takes into account TMR familiarity with the project(how often TMR delivers this type of project), whether the scope is simple and apparent, how sensitive the

project is to external influences, the funding levels required, and so on. Table 2.2 from the QTRIPGuidelines shows the simplified criteria for project types.

The implication for estimating is that projects in the smaller type band may need a few of the estimatedocuments completed and in simple straightforward detail whilst complex high risk projects will require morerigour and control in the estimate. This is the responsibility of the project or program manager to determine.

Table 2.2 Project Types

Type 1 Project Complex/ high or extreme risk transport infrastructure projects, requiring high levelsof investigation, rigor and control.

Type 2 Project Straightforward/ medium risk transport infrastructure projects, requiring moderatelevels of investigation, rigor and control.

Type 3 Project Simple/ low risk transport infrastructure projects, requiring low levels of investigation,rigor and control.

2.17 P90 Estimating for Projects

TMR estimating policy requires project Business Case estimates to have a 90% likelihood of not beingexceeded. That is referred to as a P90 Estimate. Estimates prepared before the Business Case, includingproject proposal and options analysis should not be expressed with any percentage likelihood of not beingexceeded.

In all instances the project manager is responsible for preparing a high confidence estimate for the project.The project manager is responsible for the overall completeness of the estimate in accordance with theproject estimate structure outlined in Figure 4.1 (that is, construction costs, principal's costs, risk andcontingencies, and escalation).


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Traditionally a P90 estimate is prepared using a quantitative approach, including the use of tools,techniques, templates, software, etc, and the use of specialist risk estimating software, such as @Risk.

However it is not always practical to apply a quantitative approach to smaller projects. A qualitative approachcan be used for these projects, drawing upon the softer skills such as past experience, asking stakeholdersthe right questions, decision making, problem solving and common sense review by appropriate personnel.This is more reliant on the project teams experience and aims to develop a project budget that is unlikely to

be exceeded, but not excessively conservative to produce high confidence estimates for these smallerprojects.

TMRs approach is as follows:

Type 1 (large) projectsare expected to undergo a quantitative" and qualitative approach to riskassessment and contingency estimation and the use of probabilistic estimating. (See Section 9.3) Thisis based around modelling individual risks, to provide greater levels of certainty and confidence aboutthe likelihood and impact they will have; and

Type 2 or 3 projects will generally undergo a qualitative approach to risk assessment andcontingency estimation in order to determine that the actual costs of the project at completion have a90% likelihood of not being greater than the estimate. Some more involved Type 2 projects will stillbenefit from adopting a quantitative approach.

Estimating in such an environment requires a conservative but realistic view of project scope, together withan appropriate contingency based on the risks associated with the project, particularly in the early projectstages where less detailed project information is available.

For type 2 and 3 projects,the estimate would be considered to have a 90% level of confidence of not beingexceeded based on the following factors:

Where unit rates are used, rates are based on the rates of two or more recent projects of a similarnature, and have been factored to establish the appropriateness for this project, including age of therates, market conditions, TMR requirements, on and off site overheads and