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104R-19: Communicating Expected Estimate Accuracy

104R-19: Communicating Expected Estimate Accuracy
AACE International, February 22, 2021

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This recommended practice (RP) of AACE International defines expected estimate accuracy; and describes how the concept of estimate accuracy should be communicated to a stakeholder or decision maker that is interested in understanding the potential variability or predictability that is associated with a particular estimate.

The results of the estimating process are often conveyed as a single value of cost or time. However, since estimates are predictions of an uncertain future, it is recommended that all estimate results should be presented as a probabilistic distribution of possible outcomes in consideration of risk. However, because probabilistic methods are difficult to communicate, its concepts are reduced to an expression called expected estimate accuracy that is a simplified means of communicating uncertainty as a single expression. Discussions of expected estimate accuracy often describe estimate accuracy in terms of +/- percentages that bound the published single estimate value, but too often fail to convey other significant information that is required by an estimate stakeholder to truly assess what the +/- percentages indicate. Worse, rule-of-thumb percentages often fail to reflect the true risk and uncertainty at all.

This RP applies to estimates of both cost and time (duration). Its subject matter deals with the integration of the disciplines of decision and risk management, cost estimating and planning and scheduling within the AACE International community. Where a discussion in the RP focuses on either cost or time specifically, it is noted as appropriate.

This RP is intended to provide guidelines (i.e., not a standard) to be used in conveying the expected accuracy level of an estimate to a stakeholder that are considered to be good practices that can be relied on and that would be recommended for use where applicable. This RP will present an estimate as a probabilistic range of potential values in consideration of risk, discuss the typical shapes of the probability distribution associated with the range of potential values, discuss the concept of estimate contingency, and identify the elements required to convey information about expected estimate accuracy to stakeholders. When referring to cost or duration estimating, this RP focuses on cost or duration estimating for a project or dedicated effort to accomplish a scope of work or activities.

This RP does not discuss the calculation or determination of the variability of the indicated accuracy of an estimate after completion of the associated project or effort (a comparison of an estimate with actual results). When the term estimate accuracy is used in this RP, it is intended to convey expected estimate accuracy.

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