Download - Cost estimating and risk in complex projects
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 1© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence
Cost Estimating and Risk in Complex ProjectsAPM Project Controls event – 2nd October
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 2
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 3
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 4
The problem is…….
We commit to delivering complex projects when – The project definition is still fluid– The client is still formulating their ideas– We are still worrying the engineers for fast answers– Our knowledge of the detail is still developing
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 5
This leads to
Wild expectations of the initiator Lack of clarity of our solution A “commercially lead” proposal Cutting of budgets with little consideration for effort need to
deliver
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 6
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 7
Stake holder positioning/negotiation
AFFORDABLEPROGRAMS
ALTERNATIVEESTIMATES SHOULD COST
CROSSCHECK AT THE MAIN WORKPACKAGE
LEVEL
TECHNICAL INPUT SHEET
SHOULD COST/ PROPOSAL CONGRUITY
SHOULD COST RE-CALCULATION
ROM on solutions
Detailed estimates
WP oriented
PROPOSAL
RFQ
LAUNCHED PROGRAMS
Suppliers
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 8
From a business capture POV
Top Down Estimate
1
2
3
4
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 9
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 10
Before we start we need to
Ensure we understand the requirements– Don’t waste time combing documents by hand, extraction tools support the timely
extraction of details from comments, typically reducing days to hours
Visualise the solution– Using the requirement captured from the client documents we can build a visual
story board, requirements canvas tools allow us to model several solutions using visual representations
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 11
Then we need to
Generate a top down estimate Map to the WBS / CBS / OBS
Make a go – no decision before we invest in detail models
Generate bottom up models Compare and contrast results
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 12
Top down to bottom up
HW /SW Component
& Cots
Assembly
System.System
Activities
Assemblyactivities
HW/SW Comp. & cots
Actvities
Customer Project WBS
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 13
Top Down to Bottom up comparison
Top Down Estimate
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 14
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 15
And the risk is….
We capture risks that are symptoms The ones we capture don’t effect
– Cost– Schedule
Putting risks over 49% in the risk register Confusing uncertainty with risk Putting a “contingency” on instead of working the problem
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 16
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 17
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 18
We want to be (estimated) together
Initial cost and schedule need to be generated from a technical definition
You need to generate the joint confidence level Make sure the estimate is used as the project plan baseline
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 19
Top down results
Project Description
CustomerProject
Base lineTop downestimated
Generic Mapping applied to the Project
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 20
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 21
Set the base line, Design-to-Cost,
Good project control , Managing the base line
MANAGEMENT
Financial Strategy
Detailed Technical StrategySchedule and Cost at Completion
Strategy
Objectives
Decision Support
Budgeting, Financial Control,
Procurement
Delivery
Solutions
Bid/No Bid Decision, Evaluating Alternatives, Market Strategy Check
Capacity Analysis, Make or Buy,
Supplier Assessment,Risk Analysis
Across the total stakeholder community
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 22
Where will we spend our time
What's the problem Key decision points Estimating cost Where's the risk What about schedule How can we do better Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 23© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence
Any Questions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 24© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence
Thank you Andrew Langridge
07977431234
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 25© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence
Back up Slides
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 26
What is the Cost Engineering Framework (CEF)
The CEF is a total support environment comprised of processes and interoperable companion solutions built around PRICE Systems TruePlanning solution that empowers the organisation with the freedom to select the elements deployed to generate the best return on investment
PRICE Systems utilise, where ever possible, the incumbent solutions within a organisation when deploying the CEF reducing the initial investment in both licenses and education
Solutions and processes include– Shipley Process for proposal management
– Visual requirements analysis
– Parametric estimation • TruePlanning • Question Based forecasting• Knowledge based estimation• Data Driven estimation
– Sensitivity and stochastic analysis
– Detailed estimation
– QDV
– ERM
– Tender preparation
– Proposal to Tender comparison
– Contract management
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 27© 2013 Financial Executives International
One Toolset - Two Visions
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 28© 2013 Financial Executives International
The change makers
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 29
Background
The capability to measure the effectiveness of a contract in vital to delivering the ROI
Measurement has to be more than just delivered goods and services
Key performance indicators and Service level agreements should be distilled from the initial benefits analysis
Government departments are mandated to use competitive dialogue to ensure solution is both
– Value for money – Fit for purpose
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 30
Contract management begins with the business requirement
Business improvement /
change
Benefits Analysis
requirementsTender
generationprocess
Tender Marking schema
Check
Cost and schedule
generation
tender
Tender Process
Project delivery Steady State
KPI
Project Controls
SLA
Check
User ExperienceVoice of the customer
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 31© 2013 Financial Executives International
The change deliverers
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 32
Why use the Cost Engineering Framework (CEF)
Improve the hit rate for winning profitable projects
Reduce effort needed to generate winning proposals
Create an estimation framework that enables you to do more with less
Capitalise user experience
Capture Knowledge
Leverage learning
Respond to changes in prospect requirements faster and with less effort
Simplify “red team” reviews
Deliver your proposals with confidence and assurance
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 33
PRICE Cost Engineering Framework – work flow example
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 34
PRICE Systems – Cost Engineering Framework
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 35
Shipley Process
Supports the develop of business needs, benefit arguments and delivery requirements. Including obtaining the information, validating it and maturing it over any defined timescale to ensure timely production of documents.
Shipley describes how to structure the proposal document using the mature information.
Shipley provides the rigour to go from an initial concept to a full clearly articulated proposal making best use of time.
Covers full proposal life cycle model
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 36
Visualisation of your clients needs
Allows you to master costs, performance and time as part of the PRICE CEF.
Enables performance, cost and time information to be captured, visualised and analysed logically, at Subject Matter Expert, Programme Management Office and Board levels.
Solution includes dependency and relationship mapping for stakeholders, business needs, risks, objectives, benefits, outcomes, initiatives and requirements into a rich network.
Enables models to be continuously matured and updated with ease.
Generate proposal document structures and tender evaluation models in accordance with Shipley process.
Provides the environment needed to maintain and update the models that underpin concept to proposal approach.
The requirements describe the results that initiatives that the solution must output to deliver the outcomes and performance changes described in the benefits analysis. The requirements describe constraints, nature and performance of results.
By proposal generation we have a full map of why each requirement exists, the initiatives it relates to, the dependencies between requirements and how we anticipate the fulfilment of each requirement will contribute to performance and ultimately success. This develops a clear understanding of the value of each requirement.
It should be noted that requirements and initiatives describe the effort needed by all parties involved in delivery to achieve success, including the organisation issuing the tender.
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 37
Realisor
Visual requirements analysis
Compare alternative approaches
Map the customers needs to your capability
Visual presentation of your solution benefits to your client
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 38
Question Based Estimation
Early day evaluation of the ability of the organisation to deliver to the requirements
Alternatives easily review and compared
Simple question based interface that the user can maintain
Interactive with TruePlanning
Questions define the solution
System returns matches and automatically calculates inputs
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 39
Knowledge Bases … Epick
Fast, consistent development of WBS for new projects
Reuse information effortlessly
Web enabled interface for TruePlanning
Document and manage all inputs and outcomes
Version control
Manage Multiple project portfolios
Capitalise your organisational knowledge
Create local knowledge nuggets
Consistent approach to estimation
Reduces effort needed to create estimates
Clear visualisation of project phases
Local cost object and structure library
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 40
Leverage Actual Insights Representing Your Own History…. TrueFindings
Integrated knowledge management, provided through PRICE TrueFindings, takes the refinement of private historical data one step further by enabling the inclusion of your findings into the PRICE TruePlanning cost estimation framework. The insights of that in-house data can also benefit life cycle cost management plans.
Just as the PRICE® Cost Models provide the benefit of past experience refined from tens of thousands of projects, PRICE TrueFindings provides the value of historical experience and trends from your own organization within your cost estimation process. Doing so improves confidence in capacity analysis, supplier assessment, and risk analysis for better budgeting, financial control, and procurement.
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 41
Top down forecasts of Cost, effort and Schedule …TruePlanning
Estimation of design, manufacture and in service cost, effort and schedule
Estimate Mechanical, Electronic, Software development and Systems Integration effort
Technology based inputs removing optimism bias
Reduced effort with no loss of fidelity Generate base line schedule for project plan with no additional effort
Full Life cycle costing • Design• Systems Integration• In-service
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 42
Arrisca Fast evaluation of all excel workbooks, MS Project files and TruePlanning projects
Sensitivity analysis
Uncertainty analysis
Risk adjusted s-curves
Validation and verification
Cost and effort model assuranceSensitivity analysis identifies the biggest
drivers fast
Risk and Uncertainty adjusted cumulative frequency graphs (S-Curves)
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 43
CAPPe
Knowledge driven detailed estimation tool
No need to maintain excel workbooks
Generates costs from process plans
Define and manage– Parts
– Plans
– Estimates
– Materials
Maintain costs for multiple countries and periods
Calculates machine, material and labour costsKnowledge Driven Estimation
Detailed estimation to challenge suppliers
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 44
QDV
Top down to bottom up comparison
Proposal Knowledge management
WBS Management
Project fiscal modelling
Capture basis of estimate
Compare top down to bottom up estimates
© 2013 PRICE Systems, LLC All Rights Reserved | Decades of Cost Management Excellence 45
Manage proposal risks ….. riskHive ERM
Simple risk construction using structured inputs
Low implementation overhead, start fast spend less
Focused on supporting business winning
Supports top down and bottom up models
Supports easy risk registration, no complex screens
Unique visualisation drives better risk definition