As stated in the literature review, the issues with developing accurate project cost estimates starts early in the process. All agencies are struggling with ways to increase the accuracy of their initial project cost estimation. The most common difficulty observed is simply the lack of adequate project information (i.e., quantities, right of way, knowledge of utilities, detailed scope, etc.) at the Planning and Nomination stages. However, project cost estimates at the time of Nomination have significant and direct impact on the development of the STIP and also on defining priorities in the Tentative Construction Program.
3.6.1 TOTAL COST ESTIMATE
One lesson learned from the literature review is that the project cost estimate at the time of Nomination should be a “total” project cost estimate. The FHWA’s principle on “Contents of a Cost Estimate” described previously in Section 2 defines the total project cost estimate as the “total project purchase price.” The Nomination cost should reflect the cost from inception to the end of construction. As such the Nomination cost should be a complete cost and include all project related costs such as preliminary engineering, construction engineering, incidental (i.e., utilities, traffic control, lighting, mobilization, environmental mitigation, public outreach, etc.), right of way, construction, contingencies, risks, and inflation costs.
STE recommends that the MDT cost estimation procedure be revised to include a definition for total and complete project estimated cost. MDT should consider a policy statement to track and control the total project cost estimate throughout the life cycle of a project.
3.6.2 DOCUMENTATION AND REPORTING FOR NOMINATION STAGE
NCHRP 8-49 and other literature discussed in Section 2 emphasized the importance of document quality, estimate quality, and estimate transparency. The MDT Road Design Manual describes the reporting requirements from the Preliminary Field Review through the Final Plan Review (MDT 2006). Similarly, the MDT Cost Estimation Procedure provides estimating guidelines for those stages. However, the MDT Cost Estimation Procedure describes the Nomination and Preliminary Field Review together. There is no description or reference to a formal documentation process for the Nomination stage.
MDT should consider developing standalone cost estimation and reporting guidelines for the Nomination stage. The reporting guidelines should contain a quality control checklist to ensure that all the major project elements have been considered during the initial scoping process. Elements that can be considered include:
• Grading • Aggregates • Paving
• Bridge Approach Panels • Mobilization • Removal/Salvage • Drainage • Traffic Control • Turf/Erosion • Signing • Lighting • Temporary Construction • Utilities • Aesthetics • Retaining Walls • Noise Walls • Bridges • Signals/Traffic • Management Systems • Right of Way • Project Development/ Delivery
3.6.3 TIMING OF PRELIMINARY FIELD REVIEW
By the Preliminary Field Review stage, the project has already been nominated and programmed. Given the fact that a significant majority of “nominated” projects are “programmed” in Montana, it would be a better practice to conduct a formal Preliminary Field Review during the Nomination stage and prior to establishing the project nomination costs. This is in line with the principle of making estimation a priority by allocating time and staff resources. By formally getting the MDT functional units (i.e., right-of-way, utility, geotechnical, traffic, hydraulics, etc) involved very early in the process, the nomination cost estimate can be more thoroughly developed.
Given the limitation of resources available thresholds can be set for this requirement based on project size or cost. For example, a policy can be developed to make the Preliminary Field Review a requirement
during the Nomination stage for all projects that are expected to cost over $500,000. Nomination cost estimates for right of way, all incidental costs including utility relocation should be developed in consultation with appropriate functional units within MDT. This is particularly important for urban projects where insufficient knowledge of right of way and utility relocation have been major contributors to cost overruns. At the time of Nomination, other existing project studies (e.g., Environmental Impact Reports) should also be reviewed for possible useful data such as right of way cost.
3.6.4 ACCURACY OF INFLATION FORECASTING
At the time of this research study, the MDT Cost Estimation Procedure utilized a 3% inflation rate. In recent years construction industry has been impacted by significantly higher inflation rates. It is unrealistic to use a 3% fixed inflation escalation rate throughout the cost estimation process. MDT should revaluate the use of a fixed inflation rate for its highway construction projects. It should be noted that MDT is in the process of making changes to the way inflation is calculated. STE has provided further recommendations for inflation forecasting in Section 4 of this report.
3.6.5 BETTER TRACKING OF COST AND SCHEDULE CHANGES
The MDT Cost Estimation Procedure emphasizes the need to document all steps, assumptions, and significant changes in cost estimates throughout the life cycle of a project. The significant changes in cost estimates are mainly due to changes in scope, incorrect initial cost estimates, and lack of thorough understanding of unknown (risk) factors.
During the course of this project, STE requested specific cost data from MDT using the project developed data request template. MDT spent significant effort trying to gather the information requested by STE. However, STE was informed that “there is no specific detail of project cost changes as they relate to a specific decision during the development phase.” Attempts to contact the project managers were also unsuccessful as “many of the project managers of the time were no longer with MDT.” This clearly shows that the current processes for tracking changes do not readily produce key data and information on cost, schedule, and scope changes.
Detailed historical data on cost, schedule, and scope changes are essential to thoroughly understand the underlying problems with MDT’s existing project development process. The historical data is also critical for capturing risk (unknown) factors by project type and for each region. It should be noted that some MDT personnel have stated that the current PPMS has the ability to track project cost, schedule, and scope changes. They have stated that the issue at hand is a training problem and not a system deficiency. Whether through the use of PPMS or by using the tracking system developed during this project, MDT needs to systematically track all cost, scope, and schedule changes.