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In this section the following general information on the estimating process is outlined as follows as follows:



1. The definition of the various classes of estimates.

2. The development of an estimate plan and the basis of estimate.

3. The requirements to prepare an estimate during the proposal phase or project execution phase.

4. The cost risk contingency development process.

5. The estimate review and approval process.

6. The management of the estimate during the pre-award phase.

7. The utilization of estimates during project execution phase.

8. The roles and responsibilities of project participants.





The preparation of an estimate establishes the cost basis for a proposal or for the execution of a project. Key elements in the preparation of an estimate are carefully defining and communicating the scope of work and the execution plan and evaluating potential risks. When the estimate is developed on a firm basis with proper supporting documentation, the Company can effectively respond to proposal Intent to Bids (ITB's), prepare Base Estimate Change Notices (BECN's), and meet proposal budgets. For project execution, the Company can effectively design using the same basis as the estimate, manage change, trend quantities, cost and schedule impacts, and ultimately control job costs. Achieving client satisfaction is always dependent upon successfully reporting and controlling job costs against an approved budget.



1. Classes of Estimates


Broadly estimates can be classed in the following four types: Order of Magnitude, Factored, Conceptually Defined and Definitive. The conceptually defined estimate is commonly used for proposal estimates and FCEs (First Check Estimates). The definitive estimate is used for PCEs (Production Check Estimates).


Estimates differ in detail and accuracy, in the extent of involvement by different groups in estimating activities, and in the time required for preparing estimates. The accuracy of an estimate is dependent on the level of detail provided.



2. Estimate Plan and Basis of Estimate


The Estimate Plan and the Basis of Estimate are two critical documents in the estimate development process. The Estimate Plan is used to organize and direct the process and the Basis of Estimate is used to define how the cost estimate was prepared and lists the baseline documentation, qualifications and exclusions.


An Estimate Plan is a kick-off document prepared for all estimates. It reflects the philosophy developed in the Proposal Strategy Meeting and subsequent project execution strategies developed during the project/ proposal life cycle. It is the responsibility of The Principal Estimator on the Project to prepare the Estimate Plan for Project Manager's issue to the Project Team. The Estimate Plan is based upon and is a key element of the overall Project Plan and outlines how the estimate is to be developed. It provides detailed direction, assigns responsibilities, references the pertinent estimating procedures and schedules the activities. The plan will detail the required project code of accounts and work breakdown structure as required by the client for a proposal or as defined by Company for effective project controls.


Likewise the Basis of Estimate will be prepared by the Estimator for all estimates defining how the estimate was prepared and listing the baseline documentation. All exclusions, qualifications and/ or clarifications to the inquiry documents which impact the estimate shall be included. It must be in sufficient detail for the execution team to be able to understand the basis so deviations (which have cost, quantity, and schedule impacts) are recognizable. It should also include a milestone schedule. For more information on the basis of estimate see Basis of Estimate document link.


Upon completion of the proposal estimate, the complete baseline documentation, should be compiled into a single file and included as part of the Estimating files. Following contract award, all subsequent project control and check estimates will have the completed estimate and basis of estimate compiled into a single file and included as part of the project master file and carefully checked for completeness and clarity.



3. Estimate Requirements for the Proposal Phase


3.1. Proposal Estimate Strategy Meeting


The proposal strategy meeting called by the Proposal Manager with the relevant personnel e.g. Area Sales Vice President (VP), Sales Representative, Manager of Proposals, Manager of Estimating, Principal Estimator, VP of Project Management, and others as appropriate, addresses project strategy, the involvement of joint ventures and/ or major subcontractors, the estimating philosophy, including the type of estimate and anticipated accuracy, (see "Classes of Estimates"), alternatives to be estimated, contractual conditions in the ITB and the basis for revenue recovery affecting the estimate methodology, scope assumptions to be made, budget and time limitations. The targeted estimate accuracy must be consistent with the time and information available.



3.2. Proposal Kick-off Meeting and Status Meetings


The PM is responsible to schedule and lead a proposal kick-off meeting that will communicate to the proposal team the result of all the decisions reached in the proposal strategy meeting (items listed above) as well as the schedule for the preparation of the proposal.


It is also a best practice to hold periodic status meetings for the duration of the proposal. The meetings could be short daily stand up meetings or weekly as best suits the proposal requirements. It is of paramount importance that changes to any of the key proposal basis parameters be communicated to the proposal team as soon as possible.



3.3. Estimate Kick-off Meeting


The PM and the Principal Estimator are responsible to schedule and lead an estimate kick-off meeting that will communicate to the proposal team the specific requirements for the preparation of the estimate and to review the key deliverable dates to support the estimate completion, the review cycle and the preparation of the bid form. This is a detailed working meeting where the estimate responsibility matrix is agreed to and filled out.



3.4. Assignment Conditions Meeting


An Assignment Conditions Meeting should be held for estimates where personnel are to be assigned outside the Home Office. The purpose of the meeting is to establish site working conditions and policy, and to plan the work needed to complete the estimate. The PM chairs the meeting and the Principal Estimator or Lead Home Office Estimator leads the discussion. Also present should be representatives from Assignment Administration, Tax, and each Work Group with potential assignees.



3.5. Project Schedule Review Meeting


A Project Schedule should be prepared and signed-off for all estimates by the execution team members at a Schedule Review meeting. It is an integral part of the Basis of Estimate.



3.6. Estimate Costs Risk Synopsis


An Estimate Cost Risk Synopsis is a document(s) required for all estimates from the relevant personnel e.g. Sales Manager, Proposal/ PM, Principal Estimator, Principal Planner, Project Controls Manager, Commissioning, Product Technology Manager, Construction, Procurement, Subcontracts, Project Engineering and all Engineering Disciplines, etc. Properly formatted accuracy assessments should be made by all who provide input to the estimate using this document. The Estimate Cost Risk Synopsis contributes to developing the cost risk contingency analysis.



4. Cost Risk Contingency Development


Estimates can be produced with as much or as little information as time and resources allow. The bare estimate is the objective. That is, a single point cost which is calculated from the best available data without regard for the range of uncertainty associated with the estimate data. Uncertainties may be evaluated on a subjective as well as quantitative basis to permit a rigorous cost contingency analysis.


The Cost Estimate Risk Synopsis documents define and quantify the known uncertainty of an estimate. Each identified operations risk is quantified. This quantified risk contributes to the basis of the cost risk contingency analysis.


The main objective, that is to arrive at an accurate overall operations contingency, depends on each individual input as described in the Cost Estimate Risk Synopsis as well as other inputs found in the overall Project Risk Register.


Some form of Cost Risk Contingency Analysis will be performed for all estimates. The analysis shall identify the accuracy of the estimate by indicating the expected range of the estimate as "plus" percent and "minus" percent from the bare cost. The recommended cost risk operations contingency is to be addressed during the Proposal/ Project Team Meeting and shown on the signed Estimate Summary Sheet.


Unless guidance to the contrary is provided, the 70 percent under run probability contingency should be added to the bare cost estimate. This contingency, when added to the bare cost, will indicate the most probable cost.



5. Estimate Reviews and Approvals


Estimates can receive up to seven levels of review and approval prior to being accepted as operations cost. These reviews are carried out in order to assure management that the estimate and supporting documentation are complete, accurate and in accordance with the Estimate Plan. The estimate reviews could include:


1. Engineering review

2. Chief Estimator's review

3. Estimating Department review

4. Construction review

5. Proposal/ Project Team review

6. Operations review

7. Senior Management review.



5.1 Operations Review


The Operations Review reflects Company Operations cost (not price). The estimate and all supporting documentation shall be approved before the Operations Review meeting by the Principal Estimator and the Proposal/ PM.


Operations Review addresses the following issues: scope, contract type and risk elements, a summary of the proposal/ project strategy (including execution strategy for the project); estimate philosophy and methodology; basis of estimate including schedule; cost, risk assessment and contingency comparative data with similar projects, and contract risk and recommended allowance (funded liability).


Operations cost, including contingency, addresses scope definition, quantities and related cost. Non-reimbursable risk elements introduced by client contractual requirements are called contractual risk, and for lump sum bids, an appropriate allowance is established by the Pricing Committee after consideration of the recommendation initiated by the Proposal/ PM and separately agreed at the Proposal/ Project Operations Review Meeting.


Funded Liability including contractual risk, process and utilities guarantee liabilities, schedule penalties (liquidated damages), warranty risks (cost), non-recoverable rework, etc. are costs to the proposal but are kept separate from Operations cost. Commercial costs, such as cost of money, currency issues, etc., are extremely important and need to be evaluated diligently but again are kept separate from Operations cost.


The objectives of Operations Review are:


• Update management as to the scope of the project.

• Demonstrate the aggressiveness and completeness of the estimate.

• Obtain management's approval of the estimate.

• Establish the operations contingency necessary to cover the assessed risk.

• Review liability exposure.



5.2. Senior Management Reviews


Following the Operations Reviews and completion of the sign-off of the summary sheet by the participants, the Proposal/ PM must schedule a review with the Business Unit Management, if required. This review must occur before transmittal of the information to either Sales (Proposals) or the client (Jobs).



6. Estimate Submittal & Pre-Award


6.1. Quotation Analysis


The Proposal Manager and the Principal Estimator participate with the Sales Representative to prepare the Quotation Analysis to ensure the cost basis is consistent with the proposal cost estimate and that all contractual risk elements are understood and considered.


The completion of the bid form is the responsibility of Sales and the PM but depending on the complexity of the bid form, the Principal Estimator is typically asked to assist in completing this form.



6.2. Estimate Change Documentation


The Proposal Estimate with documentation will be the basis for controlling costs, at least until the FCE.


The PM will use Base Estimate Change Notices (BECN) to document all changes in cost, schedule liabilities or guarantees, which result from client negotiations between the Proposal submittal and contract award. Other changes documented in BECNs are changes in the execution plan or joint venture agreements and escalation or currency changes. The Quotation Analysis will be adjusted accordingly. The Proposal Estimate plus applicable BECN's equal the "As Sold" Estimate.



7. Estimate Development Project Execution Phase


7.1. Project Execution Estimate Strategy


Following Project Award, the "As Sold" estimate may need to be re-cast to be usable as the initial control document. The Estimate Plan will address the requirements necessary to meet the project controls objectives of the project which include the management of change and the reporting cost, schedule and progress. After completion of the estimate re-cast, a Turnover Meeting which takes the entire execution team through the "As Sold" estimate is required.


There are typically two additional project control and/or check estimates prepared in the execution phase of a project. These are called the First Check Estimate (FCE-typically prepared at 30% complete engineering but based on required deliverables) and the Production Check estimate (PCE-typically prepared at 70% complete engineering but based on required deliverables). The Re-cast "As-Sold" Estimate with its baseline documentation will be the basis for the controlling costs and quantities, at least until the First Check Estimate (FCE) is developed during project execution.


The estimating procedures listed above for the proposal stage are the same for the execution stage of a project as far as the Estimate Plan, Basis of Estimate, Estimate Kick-off meeting, basic estimating methodology, cost risk analysis and the review cycle. The expected improvement in accuracy is derived from an improvement in the engineering development. For estimate Re-casts, FCE's and PCE's, funded liabilities and commercial costs are costs to the project and should be included in the ops cost summary but kept below the sub-total Ops cost line.



8. Roles and Responsibilities


• Each Project Team work group member provides the estimator with specific project data and information depending on the specific kind of estimate required.

• Key to meeting estimate quality requirements are:

        • Complete listing of key documents to be used in developing the estimate.

        • Complete Basis for Estimating Home Office workhours with any deviation from previous issues noted.



8.1 Project Manager


Responsibilities for estimates are as follows:.


• Identification of all inquiry and proposal documents and subsequent revisions.

• Identification of all key documents, subsequent revisions, and authorized change notices.

• Identification of Joint Venture partners and/or major subcontractors and their scope of work.

• The current Basis for Estimating Home Office workhours and costs.

• Change Notices/ Base Estimate Change Notices (BECN'S) since the Proposal Estimate.

• Estimated Home Office Project Management workhours and costs.

• Fixed price work - Client Change Notice/ Change Management.

• Equipment list.

• Issues the Check Estimate Plan.

• Change notices to be included in check estimate basis.

• Check estimate basis used for computer costs.

• Cost Estimate Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.

• Lead analysis of contract risk and make recommendation for funded liability amount.

• Supports "Estimator in the Work Cell" implementation.



8.2. Project Engineer


Responsibilities for estimates are as follows:


• A process reference with overall capacity factor, equipment sizes, or references with capacity factor.

• A complete sized equipment list including sizes, weights, and dimensions.

• Offsite block flow diagrams (when applicable).

• Conceptual plot plan.

• Identification of key interfaces with Joint Venture partners and/or major subcontractors.

• Materials of construction philosophy.

• Estimated Home Office Engineering workhours and any unique requirements or cost.

• Process flow diagrams.

• Process load sheets.

• Equipment sizes and materials of construction or datasheets if available.

• Vessel sketches if available.

• Approved plot plans.

• Utility and offsite block flow diagrams and/or utility sketches.

• Job specifications.

• Supports "Estimator in the Work Cell" implementation.

• Materials of construction.

• Electrical one-line diagrams if available.

• Check Estimate data for Classes M based on the project work to date, including the latest available costs (FCE, PCE).

• Check Estimate data based on material take-off quantities on project work to date and the latest available costs, plus a best estimate of remaining work.

• Check Estimate data for all Home Office-let subcontracts, based on the latest design information.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.



8.3 Project Procurement Manager


Responsibilities for estimates are as follows:


• Current unit pricing information as requested (including preliminary) quotations for equipment items, etc.), if required.

• Forward escalation basis.

• Estimated Home Office Procurement workhours and costs and any unique requirements or cost.

• Traffic survey information as requested.

• Current pricing level for all bulk materials.

• Material forward escalation.

• Pricing trends where significant variations are noted between quotes received and the budget.

• Bid tabulation summaries.

• Copies of all commitment documents.

• Traffic cost data.

• Additional pertinent information as requested and when required.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.



8.4. Construction Manager


Responsibilities for estimates are as follows:.

• Construction Execution Plan.

• Develop construction schedule with durations.

• Approves basic workhour adjustment factors by class.

• Indirect labor workhour detail requirements.

• Labor wage rate schedule.

• Construction equipment and tool detail requirements.

• Construction equipment and tool rental/purchase rate.

• Indirect material and field office detail requirements.

• FADS (CMT) organization and durations.

• Vendor servicemen requirements with durations.

• Estimated Home Office construction workhours and costs.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.

• Supports estimating as estimating costs out all of the above items.



8.5. Project Financial Specialist


Responsibilities for estimates are as follows:


• Estimated Home Office Financial workhours and any unique requirements or costs.

• Estimated Financial costs, such as insurance, letters of credit, bonds, commercial costs such as cost of money, currency issues, G&A, etc.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.



8.6. Commissioning & Start-Up Services


Responsibilities for estimates are as follows:


• Estimated Commissioning & Start-Up Services workhours and materials for commissioning and start-up depending on job requirements.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.



8.7. Construction Subcontracts Manager


Responsibilities for estimates are as follows:


• Coordinates the solicitation of subcontract costs.

• Works with estimating and engineering in developing subcontract costs, based on quotes that have been received.

• Supports estimating in developing "in-house" subcontract costs when required.

• Vendor quantities where appropriate.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.



8.8. Project Estimator


Responsibilities for ICE, IAC, FCE, PCE estimates are as follows:


• Prepares the Estimate Plan for approval and issue by the PM.

• Summarizes Home Office costs, as provided by each department's input data, showing the workhours, salary, and overlay fringe and overhead) by department and a total for each of the other Home Office direct expenses (computer, repro, etc.).

• Assures the estimate identifies subcontracts as to type and cost based on information developed by the Project Team.

• Estimates the field administration, direct supervision, services, tools, equipment and other indirect costs.

• Prepares the bare cost summary and supporting details, based on the provided input.

• Prepares the operational risk analysis and contingency recommendation unless the size of the project dictates that the Risk Management Analyst will perform the analysis.

• Assures the estimate provides all costs to the Standard Code of Accounts consistent with the method of estimating utilized.

• Provides overall field construction cost based on basic workhours determined from equipment and material take-off quantities.

• Provides the estimated overall field construction cost maximizing use of the defined field budgets. Estimated field construction costs include the latest information on field productivity factors, wage/ fringe rates, etc..

• Upon receipt of information provided by the Project Procurement Manager, the Project Estimator includes freight, escalation and other related costs into the estimate.

• Prepares the Check Estimate Summaries, which include a comparison with the authorized Client Cost, and a Home Office Services Summary.

• Prepares the Estimate Basis.

• Supports "Estimator in the Work Cell" implementation.



8.9. Project Planner


Responsibilities for estimates are as follows:


• Schedule of the estimate key milestones as well as the project key milestones.

• Schedule Risk Synopsis which includes a statement of accuracy of the input data for the schedule basis.



8.10. Process Engineer


Responsibilities for estimates are as follows:


• Supplies quantities and cost of catalyst and chemicals.

• Technology Risk Synopsis which includes a statement of accuracy of the input data for the schedule basis.



8.11. Project Controls Manager


Responsibilities for estimates are as follows:


• Estimate Home Office Project Control workhours and costs.

• Provide the PE with known cost to date, identifying the sources and including the revision level of purchase orders and requisitions.

• Provides the PE and other reporting groups, upon request with detail cost data related to Home Office direct expenses.

• Estimate Cost Risk Synopsis which includes a statement of accuracy of the input data using "optimistic" and "pessimistic" percentages.

• Supports "Estimator in the Work Cell" implementation.



8.12. PM Alert Items


• PM's active participation and leadership in the estimate preparation is the key to success.

• PM shall ensure that Engineering designs conform to the same basis as the estimate (or document and track any required changes).

• PM shall communicate to the project team any changes that could affect the cost of the project.

• PM shall ensure that Project Team members devote adequate time, effort, and resources to developing the estimates. Most members tend to consider it "a necessary evil".

• PM needs to monitor continually the cost progress on a timely basis so that significant changes and variances can be anticipated in sufficient time to react and, if necessary, implement alternative schemes without seriously upsetting overall schedules.

• PM will provide the COMPANY (and client on open cost projects) a continual, current status report with regard to the estimated cost of the project.

• PM needs to examine Fixed Rate proposals to identify the selling basis by reviewing both the non-billable workhours and direct expenses, and differentiate costs which are "in the rate" versus directly reimbursable costs. Problems can occur when billable versus non-billable workhours are not fully understood leading to under recovery of costs.

• PM to ensure the project Risk Register is kept up to date.

• Supports "Estimator in the Work Cell" implementation.

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Basis of Estimate
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