For Transportation Projects
Niyi OlumideNiyi OlumideStuart AndersonStuart AndersonTexas A & M UniversityTexas A & M University
A Delphi Study
Introduction Background Contingency Estimating Research Questions Study Objectives Methodology Contingency Matrices Results Applications of Sliding Scales Conclusions
What is Contingency?An estimate of costs associated with
identified risks, the sum of which is added to the base estimate.
What is a Base Estimate?The most likely project cost estimate
in any phase at any time, which normally includes all estimated known
project costs, but does not include project contingency
Total Project Estimate = Base + Contingency
Reflects Estimated Dollars Associated with Uncertainty
NCHRP 8-60
Published Definition of Contingency 48 of 52 SHAs responding
Contingency:◦ Provides costs for uncertainties associated with
projects cost estimates
◦ Reduces over planning and project development time cycle, therefore, so does the amount of contingency
◦ Enhances accuracy of cost estimates
◦ Improves communication to stakeholders
The Project Development Process (PDP)◦ Project 8-49 (Report 574)
+ + ContingencyContingency
Com
pare
Com
pare
Uncertaint
Uncertaint
yy
Phases of Project
Development
Re-evaluateRe-evaluate
Pro
ject
Cos
t
Project Development Process
Planning Preliminary Design
FinalDesign
Cost Range
Programming
Contingency
Base Estimate
Contingency
Base Estimate
Contingency
Base Estimate
Base Estimate
Baseline Estimate & Total Project Cost Estimate
Cost Estimates and Contingency(w/Total Project Cost Estimate = Baseline Estimate)
Pro
ject
Cos
t
Preliminary Design
FinalDesign
Programming
Base Estimate
Contingency
Base Estimate
Contingency
Base Estimate
Baseline Estimate
Total Project Cost Estimate
Pro
ject
Cos
t
Preliminary Design
FinalDesign
Programming
Base Estimate
Contingency
Base Estimate
Contingency
Base Estimate
Baseline Estimate = Total Project Cost Estimate
Total Project Cost Estimate < Baseline Estimate
Total Project Cost Estimate = Baseline Estimate
Cost Estimates and Contingency
SHA methods of setting contingency1. Standard Predetermined Contingency across projects2. Unique Project Contingency (Estimators/Engineers)3. Formal Risk Analysis and associated contingency
NCHRP 8-60 16 of 48 SHAs stated use of standard
predetermined contingencies Majority indicated that they use unique project
contingencies Formal risk analysis not as widely used
Sliding Scale ContingencyOhio DOT Approach
Major Problems in Contingency Estimation◦ Inconsistencies in application of contingencies
Poor definitions of what constitutes contingency
Inappropriate application of contingency amounts to cover other issues instead of the intended purpose
Contingency estimation methods: One method may not necessarily serve all project types
Rationale for selecting method may not sufficiently address major issues like project complexity
1. How does the application of contingency change across the PDP?
2. How do the ranges of contingency change across the PDP in the Highway Industry?
3. How do factors such as the following impact contingency estimates? Project Size/Complexity Estimation method Level of scope definition
4. When using contingency scales, do the contingency bands narrow linearly or decrease exponentially or in some other form across the PDP?
5. What is the relationship between uncertainty, risk and contingency?
Main Objective
To develop sliding scale contingencies that can be used in the estimation and management of the cost of highway projects taking into account the effects
of project complexity, level of project definition, estimation methodology, and phase of project
development
What is the Delphi Technique?◦ An iterative method used to gather opinions from a group of
qualified individuals to solve a complex problem
◦ The method relies mainly on the judgment of experts to solve problems
◦ It lends its application to solve problems where there is little or no empirical evidence
◦ It is conducted through the application of a series of questionnaires called rounds’ typically a minimum of 2 rounds
◦ The main aim of the Delphi technique is to achieve consensus among the experts
Key Features◦ Anonymity minimizes the effects of bias, conflict,
individual status and intimidation
◦ Effectively structures group communication
◦ Eliminates the draw backs of face-to-face participation
◦ Controlled feedback to participants at the end of each round enables participants make fully informed decisions
Caution!!!◦ Repeated rounds may lead to fatigue or loss of
interest of the panel members
◦ May take a substantial amount of time and participant effort to complete if questionnaires are not carefully structured
◦ Panel members should represent several relevant disciplines to guarantee a wide knowledge base
Round 1 Group Response AnalysisControlled Feedback in round 2
Round 2 Group Response AnalysisControlled Feedback in subsequent rounds
Profile◦ Invitations sent to approximately 80 potential
participants
◦ 23 professionals agreed to participate and made up the panel
◦ Majority had experience: Estimating (5 to 20 years experience) Risk Assessment (2 to 5 years experience)
◦ Majority of participants were from SHAs
Expertise◦ Project Managers ◦ Project Engineers◦ Risk Coordinators ◦ Cost Estimators ◦ Construction Managers◦ Program Managers◦ Design Engineers◦ Contract Managers◦ Project Planners
Participants were provided 3 contingency matrices for 3 complexity scenarios across the phases of project development
Complexity definitions from NCHRP 8-49 (Report 574)◦ Non-Complex (Minor) Projects◦ Moderately Complex Projects◦ Most Complex (Major) Projects
Typical risks were associated with the complexity levels
Levels of Complexity are distinguished using:◦ Roadway attributes
◦ Traffic control approaches
◦ Structures
◦ Right of way
◦ Utilities
◦ Environmental requirements
◦ Stakeholder involvement
Project Types based on Complexity
Most Complex (Major) Moderately Complex Non-Complex (Minor)
New highway; major relocations
New interchangesCapacity
adding/major wideningMajor reconstruction
(4R; 3R with multi-phase traffic control)
Congestion Management Studies are required
3R and 4R projects which do not add capacity
Minor roadway relocations
Certain complex (non-trail enhancements) projects
Slides, subsidence
Maintenance betterment projects
Overlay projects, simple widening without right-of-way (or very minimum right-of-way take) little or no utility coordination
Non-complex enhancement projects without new bridges (e.g. bike trails)
Examples of complexity classifications (full definitions in Report 574)
Examples of the Representative Risks for the 3 project complexity scenarios
For each complexity scenario, participants were asked to input appropriate ranges of contingency (Low, Most Likely Estimate, High) in the matrices based on:
◦ Phase of Project Development◦ Level of Project definition◦ Type of Estimate◦ Historic Data◦ Representative Risks for the different project types
Round 1 formed the basis for subsequent rounds; contingency ranges were very wide
Contingency ranges provided were between 0% and 500% contingency across the categories
In Round 2 ranges tightened; between 0% and 400% contingency across the categories
In round 3, majority of participants did not make any significant changes made to earlier assessments
Mean was used as the main feedback to participants at the end of each round
Participants were provided all summary statistics from previous rounds as part of the feedback at the end of each round
Response rate was 100% for all three rounds: all 23 participants responded
Stability was achieved in the results after 3 rounds
Some participants indicated a few of the major items included in the contingency ◦ Cost Overruns◦ Change orders during construction◦ 5-10% for minor items◦ 5% for supplemental work not identifiable at time
of estimate preparation
Some participants indicated a few of the major items NOT included in the contingency ◦ An allowance for cost escalation
◦ Allowances for items known to be required as part of the base project but not yet quantified in cost estimate
◦ Funds available for cost adjustments driven by predetermined market factors and incentives
Median ranges were slightly lower than the mean ranges for most of the categories
The median was used as the final results to eliminate bias in the results
Phase Planning
Programming
Design 1 Design 2 Design 3
Non-Complex ProjectsNon-Complex Projects
Ranges (%)
24-68 21-56 16-38 11-25 5-14
MLE (%) 41 34 25 17 9
Moderately Complex ProjectsModerately Complex Projects
Ranges (%)
33-92 27-68 21-50 15-32 8-20
MLE (%) 59 43 31 22 13
Most Complex ProjectsMost Complex Projects
Ranges (%)
47-125 36-89 20-48 12-32
MLE (%) 75 59 31 21
MLE: Most Likely Estimate of Contingency
Phase Planning Programming
Design 1
Design 2
Design 3
Ranges (%)
22-50 20-40 14-30 9-20 5-15
MLE (%)
35 30 20 15 8
Median Contingencies Ranges: Range Estimating MLE: Deterministic Estimating Estimator can pick values within ranges
based on project risks
Phase Planning
Programming
Design 1
Design 2
Design 3
Ranges (%)
30-75 25-60 20-40 13-30 7-19
MLE (%)
50 40 30 20 10
Median Contingencies Ranges: Range Estimating MLE: Deterministic Estimating Estimator may pick values within ranges
based on project risks
Planning Programming Design 1 Design 2 Design 3
Phase Planning Programming
Design 2 Design 3
Ranges (%)
40-100 34-75 20-40 11-30
MLE (%) 60 50 28 20 Median Contingencies Ranges: Range Estimating MLE: Deterministic Estimating Estimator may pick values within ranges
based on project risks Higher level of definition in the
programming phase due to complexity of project
Planning Programming Design 2 Design 3
To successfully apply these scales estimators must perform 5 major steps1. Remove all contingencies and conservative
biases from the base estimate
2. Classify the project by complexity as most complex, moderately complex or non-complex
3. Determine current phase of project development at time of estimate preparation
4. Identify risks as drivers of contingency
5. Add appropriate contingency to the base estimate consistent with risks
6. Repeat the process at each major phase of project development
Creates consistency in defining and applying contingency to projects
Relatively easy to use Implied retirement of contingency across
the phases of project development
Contingencies are not directly tied to risks and uncertainties◦ Risks should be identified and monitored◦ A risk list could provide justification to
stakeholders for contingency included in estimate For larger moderately complex and all
complex projects◦ Analysis of unique project risks is recommended
in developing contingencies Focus on contingency related to
construction costs only
The Sliding Scales provide a defensible top-down method for estimating contingency
Takes into account the effect of major factors that affect contingency
Note!!! For successful application, estimators must
remove all contingencies and conservative biases from base estimate before applying sliding scale contingencies
Thank You!