NEW RP – 119R-21: Cost Estimate Accuracy Range and Contingency Determination Using Tables Derived from Parametric Risk Models
This recommended practice (RP) of AACE® International defines a tabular, risk-driven method for establishing predetermined cost estimate accuracy range and contingency values based on industry parametric risk quantification models. It uses the RAND Corporation (RAND) parametric cost risk model from AACE RP 43R-08, Risk Analysis and Contingency Determination Using Parametric Estimating – Example Models as Applied for the Process industries, to illustrate the method and develop example tables. However, the RP’s tabular, risk-driven approach could be supported by other validated parametric models. In addition, the RP can be used as a base that users can adjust to align with their own empirical cost and risk experience (e.g., different estimating bias, unique risk profiles, etc.) The RP applies to the systemic risks for individual projects in any industry (not programs or portfolios) involving engineering and construction. The RP does not address schedule contingency. For more information about estimate accuracy ranges, refer to AACE RP 104R-19, Communicating Expected Estimate Accuracy.
The term predetermined means that an empirically-based, validated parametric model or equivalent empirical study has been pre-applied to generate accuracy ranges that reflect a range of known, key risk drivers. A principle stated in all AACE estimate classification RPs is that the range must be determined through a quantitative risk analysis for each particular estimate. In that respect, this RP represents a minimum of analysis when more rigorous methods are not possible or reasonable such as early in the project development cycle or for lower capex projects. This RP is not to be used in place of more rigorous quantitative risk analysis methods if they are practical.
Contributors:
John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life (Primary Contributor)
Laurence S. Bowman, CCP DRMP EVP PSP
Colin H. Cropley
Francisco Cruz Moreno, PE CCP
Simmi Dhunpath, CEP
Michael Lesnie
Dr. Luis Henrique Martinez
Dr. Alexia A. Nalewaik, CCP FAACE
Kelly Newman, PE CCP CEP
Akinlolu I. Oni, CCP
Sagar A. Raut, CCP PSP
Martin Snyman, DRMP
Fred J. Wellman
About John:
John joined AACE in 1986 and is a passionate leader in the cost engineering field, holding multiple certifications from AACE (CCP, CEP, and DRMP). He has authored and contributed to numerous AACE recommended practices plus many papers and led development of AACE’s Decision and Risk Management Professional (DRMP) certification. He was the principal author of the first edition of AACE’s 2006 landmark publication The Total Cost Management Framework: An Integrated Approach to Portfolio, Program, and Project Management and also authored the publication Project Risk Quantification: A Practitioners Guide to Realistic Cost and Schedule Risk Management in 2016.
John has served AACE in various roles including chairs of multiple technical subcommittees. He was elected to and served on AACE’s Board of Directors for one year (1996-1997) where he was instrumental in the reorganization of the Board to create three Associate Boards (Technical/Education/Certification). John was a member of the Technical Board for several years where he served as Director of Recommended Practices and Director of Total Cost Management.
He has previously been recognized by AACE with the Outstanding Technical Committee Chair Award (1994, 1996), O.T. Zimmerman Founder’s Award (2005), Fellow (2006), Award of Merit (2008), Technical Excellence (2010), Honorary Life Membership (2011), the Lifetime Achievement Award (2018), and the TCM Excellence Award (2022).
John helps companies improve their cost engineering competencies and capabilities by evaluating processes, organization, tools and practices for cost engineering related functionality; assisting in implementing practice improvements; validating and reviewing major project estimates; performing risk analyses, contingency and escalation estimates; and by developing and conducting training.
He is currently the owner of Validation Estimating, LLC and alliance partner in ValidRisk.
AACE Members may download the RP free of charge here:
https://web.aacei.org/docs/default-source/rps/119R-21.pdf
Non-members may purchase the RP for USD 100 here:
https://www.pathlms.com/aace/courses/2928/documents/71684