Cost Prediction Flashcards
What are the requirements of a cost prediction report?
- Be appropriate to the needs of the client, size and complexity of the project, and the project stage
- Recommend the use of ICMS where in the best interests of client
- Provide source of data the cost prediction is based on
- Identify key assumptions and exclusions
- State change in predicted cost since last report and reasons why
- Provide an estimate of the accuracy or level of uncertainty of the cost prediction and how this may be managed
How do you manage clients expectations on costs produced at early project stages?
- Ensure definition of the project
- Setting of realistic / agreed goals
- Detailed plan with specified timelines
- Budget agreement and adherence
- Identification of common set backs
- Regular communication
- Risk, uncertainty, bias and behavioural factors need to be properly considered
What is the aim of cost prediction?
To predict a capital or life cycle cost that is accurate, consistent and reliable given the information available
What are the challenges with cost prediction?
- Cost is dynamic, based on early information that is not always available
- Expectations on accuracy should be realistic
- Projects planned and executed in complex markets leading to cost variations
- Should consider wider project attributes such as quality, schedule, location, procurement methods
- Design, quality, sustainability & complexity are all subjective
- Traditionally focused on being a single point estimate, now a move to ranges and likely outcomes
What is the context of a project as defined by ICMS?
- Internal context - governance, capabilities, standards, regulatory / taxation requirements
- External context - markets, PESTEL factors
What are the benefits of ICMS?
- Costs reported in a global, standardized way allowing comparisons
- Terminology consistent across markets & sectors
- Data collection & analysis linked to common attributes
What is the hierarchy of ICMS?
- Project
- Level 1 - sub-projects
- Level 2 - Cost categories
- Level 3 - Cost groups - cost estimate / plan
- Level 4 - Cost sub-groups - cost plan
- Level 5 - construction estimate - cost plan before final negotiation
- Level 6 - lifecycle - during construction / post completion
what are indirect costs?
Those not part of the work but are incurred as a result of carrying out the works (prelims)
What should a cost prediction account for?
- Market conditions
- Inflation
- Site conditions
- Procurement route
- Location
- Project specific requirements e.g. programme, delivery date
- Risk contingency
What is the cost prediction triangle?
Refers to the cycle of developing cost predcitions through reviewing project definition, cost & pricing analysis and the impact on the cost prediction output
According to the cost prediction professional statement, what are the two approaches to assessing risk?
- qualitative - assessing likelihood of their impacts and consequences
- quantitative - estimating probability of occurrences and modelling risks arising from them
How could you more accurately demonstrate the accuracy of a cost estimate?
Could state the probability of it occurring within a percentile
E.g. a confidence interval stating there is a 90% probability the project value lies between the 5th and 95th percentile
What biases should you be aware of when preparing cost predictions?
- Optimism - tendency to be over optimistic
- Anchoring - to rely too heavily to one piece of information when making decision
- Confirmatory - tendency to focus on information that confirms preconceptions
- Unconscious - unaware of, for example complacency from being very familiar with a type of project
What should you consider when using data for cost predictions?
- Origin
- completeness
- Validity
- Consistency
- Timeliness
- Accuracy
How can you mitigate confidential information to support with data analysis on cost predictions?
- Anonymising data
- Can be difficult as the location and base date can be identifying features
- Public sector information is available subject to freedom of information requests
