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id, aliases, tags, title
| id | aliases | tags | title | ||
|---|---|---|---|---|---|
| risk-oriented-estimating |
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Risk Oriented Estimating |
Risk Oriented Estimating
Risk-Oriented Estimating (ROE), is a methodology for construction-estimating which:
- prioritizes estimating tasks,
- determines necessary estimating-detail
ROE leans heavily on uncertainty#Value of Information, which challenges the natural tendency to shy from uncertainty with the reality of the cost of certainty.
ROE does not endorse common shortcuts that round up to "cover" uncertainty, as these ultimately increase risk by inflating the apparent project cost, increasing the probability of loss to a competitor.
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Scratch
Bid risk may fit a Taleb distribution.
Actuarial Science
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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 given an organization's risk#Risk Tolerance.
EVI Takeoff
Expected value of information (EVI)
Takeoff Optimization
For systems where EVI analysis determines manual takeoff is still necessary, optimizations can be made to decrease the required effort of takeoff, and thus the opportunity cost of takeoff.
Count-based takeoff speed increases with count.
Optimizing the takeoff process means:
- Minimizing the need for information outside of drawings
- Maximizing organizational consistency
Note
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)
Naming by use case is intuitive for those without estimating or field experience, but has the side effect that those accustomed to the names will inevitably treat them as descriptive.
| Use Case | Description |
|---|---|
| Hi-Hat | Daisy-Chain |
| Furnished By Others | Rough-In Only |
Potential Objections
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.