Risk Analysis of A Construction Cost Est
Risk Analysis of A Construction Cost Est
Risk Analysis of A Construction Cost Est
cost estimate
D F Cooper*, D H MacDonald-f and C B Chapman* zyxwvutsrqponmlkji
Vol 3 No 3 August 1985 0263-7863/85/030141~)9 $03.00 @ 1985 Butterworth & Co (Publishers) Ltd 141
Cost variability and uncertainty was acknowledged
1 Preliminary works
by incorporating a contingency allowance in the esti-
mate. This was calculated as a proportion of the total 1 .l Site development and associated works zyxwvutsrqponmlk
1.2 Construction camp
construction cost less engineering, management and 1.3 Construction camp operation
owner’s costs. The contingency proportion reflects past
2 Concrete structures
experience with this kind of project, industry practice
and the ‘feel’ of the cost estimating team. 2.1 Common considerations
2.2 Spillway
The original estimate had been through one review 2.3 Intake
process. This was a broad scan to detect obvious 2.4 Powerhouse
anomalies and discrepancies and to escalate the estimate 2.5 Concrete gravity structures
to current costs. The original estimate was revised only 3 Fill structures
where serious differences or errors were detected. 3.1 Common considerations
Many minor differences were ignored, even if the 3.2 Diversion stage I
original appeared to be lacking, on the basis that the 3.3 Diversion stage II
original estimators’ assumptions and working calcu- 3.4 Main dam
3.5 Other fill structures
lations were not always available to the review team,
and at such an early stage in the feasibility study, one 4 Electrical and mechanical equipment
10 Escalation risks
I
2.9
I
G lo b a l Dire c t
risks c o sts zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDC
e stim a te or the schedule. Risks comprising a fourth might affect the abutments and the length of the main
group act uniformly on all activities; these global dam.
risks include labour rates, contractors’ profit margins . Compaction Compaction variations might affect fill
and taxes. quantities for the dam.
l Estimation Drawings might not be accurate or com-
prehensive enough for detailed quantity takeoffs,
Quantity risks
and other considerations like those noted above
Design The engineering design may not have been might not have been identified specifically.
finalized. This refers to design changes that do not
alter the overall concept of the project. For example,
Unit cost risks
changes in concrete slab thickness or pier design were
included here, but changes in the relative placement Engineering approach The engineering approach
of the powerhouse and spillway were excluded. might affect unit costs by varying the mix of labour
Engineering approach The detailed engineering was and equipment. For example, the method for concrete
not complete, and there may be alternative ap- delivery from the batch plant would affect the
proaches. For example, a different approach might processing requirements for aggregates.
vary the number of construction joints in the concrete W eather Weather conditions might affect labour
structures and thus affect the quantity of formwork productivity.
required. Processing The cost of processing quarried or bor-
Definition Sometimes it was not clear in the estimate rowed materials might vary according to the availa-
what was included or excluded from a line-item cost. bility of suitable materials.
Rock quality Poor rock and other geological con- Formwork reuse The ability to reuse or repair
ditions might force excavations to be deeper than formwork would alter the formwork unit cost. (This
planned. is related to the engineering approach.)
Ground contours The profile of the river bed might Roy alties Royalties might have to be paid for quarried
not be known in detail. or borrowed materials.
Overbreak Significant overbreak during excavation Placement Some of the fill structures required mat-
would increase the quantity of excavated material to erial to be placed in flowing water. The risk of loss of
be removed, and additional fill or concrete would be fill material was incorporated in the unit costs.
required to compensate. Dewatering Rock and cofferdam porosity might af-
River bank characteristics River bank instability fect the cost of dewatering the cofferdams.
3 Sub-item costs
4 Base costs
A
specific to the
base cost)
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2.3 Intake
2.3.1.1 Estimation
2.3.1.2 Design
2.3.1.3 Rock quality
2.3.1.4 Ground contours
2.3.1.5 Overbreak
2.3.5.1 Estimation
2.3.5.2 Design
2.3.5.3 Rock quality
2.3.5.4 Ground contours
2.3.5.5 Overbreak
2.3.8.1 Estimation
2.3.8.2 Design
Overbreak , , b ,
COST ESTIMATION PROCESS
0.8 09 I.o I.1 The form of analysis described could have been
undertaken at the same time as the original cost
estimate was obtained. This would have given a direct
measure of the risk contingency, as well as the cost
estimate, with little change to the estimators’ pro-
Figure 10. Variation distributions for intake concrete cedures. A great deal of additional information could
quantity, 2.3.5 have been obtained, without much additional estimating
effort. This section discusses some of the main issues in
this area.
Variation distributions were defined as proportional
variations on the base estimate. Each distribution was
specified initially in terms of a most likely value,
optimistic and pessimistic values, and probabilities of
exceeding these bounds. This form of specification was
used because the engineer providing the assessments
felt comfortable with it; other specification forms have
been used in other circumstance?‘. Each distribution
was then drawn in the form of a histogram which was
used by the engineer to check his initial specification
(Figure 10).
The histogram representations of the variation distri-
butions were input directly to proprietary computer
software. This was an interactive package providing a
range of editing and data storage facilities, as well as
procedures for combining probability distributions in
various ways. The computational procedures were an
implementation of a set of simple controlled interval
and memory (CIM) models, belonging to a more
general family of risk analysis models. Details of the
models are beyond the scope of this paper3s, but it is Figure I I. Risk analysis results - the total cost distri-
worth noting that they are flexible, computationally bution for the hydroelectric development, (a) direct cost;
efficient and precise, avoiding the restrictions of mo- (b) = (a) plus indirect cost; (c) = (6) plus engineering
ment-based approaches and the computation or error management and owner’s cost; (d) total cost; A =
costs of sampling approaches. revised estimate; B = estimate plus contingency