121 lines
4.4 KiB
Markdown
121 lines
4.4 KiB
Markdown
---
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id: risk-oriented-estimating
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aliases: []
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tags:
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- destiny/fleeting
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- status/incomplete
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- topic/estimating
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- topic/risk
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- type/supertopic
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- authorship/original
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title: Risk Oriented Estimating
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---
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# Risk Oriented Estimating
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## Abstract
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Risk-Oriented Estimating (ROE),
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is a [[estimating-methodologies|methodology]]
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for [[construction-estimating]] which:
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* prioritizes estimating tasks,
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* determines necessary [[estimating-detail]]
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ROE leans heavily on [[uncertainty#Value of Information]],
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which challenges the natural tendency to fear even the smallest risk
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with the reality of the **cost of certainty**.
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ROE does not endorse common shortcuts that round up to "cover" uncertainty,
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as these ultimately _increase_ risk by inflating the apparent project cost,
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increasing the probability of loss to a competitor.
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%%
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## TALK
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This note currently gets too far into the weeds
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of critiquing common practice.
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%%
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## Potential Objections
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Objections to the use of historical data in new estimates are not unfounded.
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A framework to do so competently and consistently
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does not currently exist.
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Nor does the software necessary to utilize such a framework efficiently.
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The goal in and of itself ought not be controversial, however.
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Businesses regularly make far riskier decisions based on projections
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informed by the same data.
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By definition, if one could adjust historical pricing accurately for all dependent factors,
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the adjusted price would be accurate to the new job.
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The issue is that there are hundreds to thousands of potential dependent factors.
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A nonstarter for uncreative minds,
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but a worthwhile challenge for estimators truly passionate about their field.
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It is unique of construction estimating among similar fields
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that analysis and discussion of risk is largely absent from pre-approval review.
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The tools common of our trade almost always lack the means
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to quantify the dollar amount implications of our assumptions.
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There is an enormous gap in complexity between pure square foot pricing and
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[[traditional-estimating-methods]] that tools do not exist to bridge.
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At all points in the estimating process,
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It should be possible to give a confident budget.
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## In Comparison
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For most contractors, there is not usually a minimum amount of project detail
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required to provide a budget for a project
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Estimators know what the most likely and most expensive options are for a given scope
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and can fill in the detail required for item-oriented takeoff.
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This is called an **assumption** and is the basis of cost estimation.
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Assumptions are fundamentally incompatible with item-oriented estimating
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as it is commonly implemented.
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It is not possible to compare price possibilities
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except by creating separate takeoffs and breakdowns for each one.
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Rather than building the job one `WOOD NAIL - GALV STEEL - #10 - 5-INCH` at a time,
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risk-oriented estimating focuses on reducing risk of a decent budget.
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Risk-oriented estimating understands a `NAIL` like an estimator:
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an abstract item in a certain price range requiring labor in a certain hour range.
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A practitioner of this style would find
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that the impact of such details on the final price of a job
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are so low as to be trivial.
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Not to say that they shouldn't be addressed,
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only that they ought not be addressed before more significant factors.
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Risk is a measure of the effect of uncertainty on outcome.
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Uncertainty being a necessity of estimating,
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the language and tools that we use
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must facilitate discussions of risk management.
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In estimation in fields other than construction
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it is common to give an estimate as a _confidence interval_,
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a range in which a result has a certain percentage chance to fall.
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This interval can be determined from a population of possible prices.
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The _accuracy_ of a risk-oriented estimate remains roughly the same
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(approaching 100% with continuous input)
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through the takeoff process, and---assuming no incorrect input---
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is entirely out of the hands of the estimator doing the "takeoff".
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Other notes describe how a centralized system
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separates the concerns of adjustment factors
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and data input for individual projects.
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The "takeoff" workflow then is not about progressively approaching the target
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price as with item-oriented methods,
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but reducing the range of possible target prices,
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reducing the risk of the estimate.
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Abandoning an item-oriented estimate
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at any point before 100% completion
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results in effectively 100% wasted effort.
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In contrast, an abandoned risk-oriented estimate
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becomes a budget with no additional effort.
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