Project Cost Estimation: Scope-of-Work Is Vital

Headnote

A cost estimate, however meticulously prepared, is not sound unless it corresponds to the exact intentions of the parties involved in the project

It is ironic that with all the advances in cost-engineering methodology and new tools that are at our disposal, inadequate or poorly prepared scope-of-work documents still stymie the preparation of accurate cost estimates, for new-construction, retrofitting or other projects in the chemical process industries.

A scope-of-work document is the document that spells out the extent, type, and quality of activity (and the associated performance criteria) that are required to achieve a certain outcome, as defined by an agreement among the various entities involved in that activity. The basic importance of scope-of-work to cost estimating, as well as to cost control and costing methodology, is emphasized below.

Unfortunately, one not-uncommon reason for inadequate scope-of-work documentation is the lack of sufficient attention and cooperation from the various entities of a department or company that are involved with, or have a stake in, the project. In such cases, management does not understand what is involved in preparing a cost estimate; it rarely worries about project scope of work; it often has preconceived numbers in mind even before a project scope of work is established; project-completion dates are established without real project scope-of-work documentation; management sometimes misuses old estimates to fit new conditions.

A less subjective reason for inadequate scope-of-work documentation is a failure to take all relevant elements of the project into account. The discussion in the second half of this article, as well as the tables shown on pp. 7476, provide reminders of many elements that otherwise might well be ignored or overlooked.

Setting the stage

To put scope-of-work documentation into context, consider first the purpose and the components of cost engineering as a discipline. The American Assn, of Cost Engineers International (AACE International) defines cost engineering as "that area of engineering practice where engineering judgment and experience are utilized in the application of scientific principles and techniques to the problems of cost estimating, cost control and profitability" [7], The scope-of-work concept is important because it ties together three key cost-engineering elements: cost estimating, cost control, and costengineering methodology.

Cost estimating: Cost engineering evolved out of the need for sound business decisions regarding...