vault backup: 2025-09-25 16:45:58

risk-oriented-estimating.md

@@ -7,7 +7,8 @@ tags:
 ---
 # Risk Oriented Estimating
 
-Risk-Oriented Estimating (ROE), is a methodology for [[construction-estimating]] which
+Risk-Oriented Estimating (ROE), is a methodology for [[construction-estimating]]
+which:
 * prioritizes estimating tasks,
 * determines necessary [[estimating-detail]]
 
@@ -27,15 +28,21 @@ Bid risk may fit a [Taleb distribution](https://en.wikipedia.org/wiki/Taleb_dist
 
 Actuarial Science
 
-Estimating as risk mitigation,
-resources allocated by Return on Mitigation (RoM)
-
 %%
 
 ## Prioritizing Tasks
 
 ROE prioritizes estimating tasks by their contribution to _cost certainty_.
 
+### Estimating as Risk Mitigation
+
+* reduce risk of wasted estimation effort due to bid loss
+  (prefer lower bid)
+* reduce risk of project overrun
+  (prefer higher bid)
+
+Estimating resources are allocated by Return on Mitigation (RoM)
+
 ## Determining Necessary Detail
 
 ROE determines the appropriate level of [[estimating-detail]]
@@ -62,6 +69,7 @@ Optimizing the takeoff process means:
 > Recent events have complicated my philosophy above.
 > It appears that similar efforts have already been made here,
 > their success being a matter of perspective.
+> Is it acceptable that optimal 
 
 #### Naming Conventions (Use Case vs. Description)
 
@@ -74,6 +82,88 @@ will inevitably _treat them as descriptive_.
 | Hi-Hat              | Daisy-Chain   |
 | Furnished By Others | Rough-In Only |
 
-## Going Further
+## Potential Objections
 
-[[functional-labor-factoring]]
+Objections to the use of historical data in new estimates are not unfounded. A
+framework to do so competently and consistently does not currently exist.
+
+> [!info]
+> Nor does the software necessary to utilize such a framework efficiently.
+
+The goal in and of itself ought not be controversial, however.
+Businesses regularly make far riskier decisions based on projections
+informed by the same data.
+
+By definition, if one could adjust historical pricing accurately for all dependent factors,
+the adjusted price would be accurate to the new job.
+
+The issue is that there are hundreds to thousands of potential dependent factors.
+A nonstarter for uncreative minds,
+but a worthwhile challenge for estimators truly passionate about their field.
+
+It is unique of construction estimating among similar fields
+that analysis and discussion of risk is largely absent from pre-approval review.
+The tools common of our trade almost always lack the means
+to quantify the dollar amount implications of our assumptions.
+
+There is an enormous gap in complexity between pure square foot pricing and
+[[traditional-estimating-methods]] that tools do not exist to bridge.
+
+> [!aside]
+> The refusal to acknowledge the potential for more "complex" estimate models
+> hints at issues of organizational ignorance described ~~elsewhere in this vault~~.
+
+At all points in the estimating process,
+It should be possible to give a confident budget.
+
+## In Comparison
+
+For most contractors, there is not usually a minimum amount of project detail
+required to provide a budget for a project
+Estimators know what the most likely and most expensive options are for a given scope
+and can fill in the detail required for item-oriented takeoff.
+This is called an **assumption** and is the basis of cost estimation.
+
+Assumptions are fundamentally incompatible with item-oriented estimating as it is commonly implemented.
+It is not possible to compare price possibilities
+except by creating separate takeoffs and breakdowns for each one.
+
+Rather than building the job one `WOOD NAIL - GALV STEEL - #10 - 5-INCH` at a time,
+risk-oriented estimating focuses on reducing risk of a decent budget.
+
+Risk-oriented estimating understands a `NAIL` like an estimator:
+an abstract item in a certain price range requiring labor in a certain hour range.
+
+A practitioner of this style would find
+that the impact of such details on the final price of a job
+are so low as to be trivial.
+Not to say that they shouldn't be addressed,
+only that they ought not be addressed before more significant factors.
+
+Risk is a measure of the effect of uncertainty on outcome.
+Uncertainty being a necessity of estimating,
+the language and tools that we use
+must facilitate discussions of risk management.
+In estimation in fields other than construction
+it is common to give an estimate as a *confidence interval*,
+a range in which a result has a certain percentage chance to fall.
+This interval can be determined from a population of possible prices.
+
+The *accuracy* of a risk-oriented estimate remains roughly the same
+(approaching 100% with continuous input)
+through the takeoff process and, assuming no incorrect input,
+is entirely out of the hands of the estimator doing the "takeoff".
+The previous chapters describe how a centralized system
+separates the concerns of adjustment factors
+and data input for individual projects.
+
+The "takeoff" workflow then is not about progressively approaching the target
+price as with item-oriented methods,
+but reducing the range of possible target prices,
+reducing the risk of the estimate.
+
+Abandoning an item-oriented estimate
+at any point before 100% completion
+results in effectively 100% wasted effort.
+In contrast, an abandoned risk-oriented estimate
+becomes a budget with no additional effort.