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(EST-3419) Estimating As It Pertains to Risk Management

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Level: Intermediate
TCM Section(s):
7.3. Cost Estimating and Budgeting
7.6. Risk Management
Venue: 2020 AACE International Conference & Expo

Abstract: The outputs of estimating are typically a primary input for business planning, cost and risk analysis, management decisions, and project cost and schedule control processes. All these aspects of corporate strategy and project planning are bounded, or guided by, an organization’s risk appetite.

Estimating is fundamental to the ‘Assess’ & ‘Treat’ steps of risk management, as defined in AACE’s Total Cost Management Framework (TCM) and Skills and Knowledge of Cost Engineering 6th Edition (S&K6).  Estimator skill is required to determine the cost impact of the risk (assess), and the cost to implement the plan to address the risk (treat), respectively. The cost impact of the risk contributes to the amount of contingency required. However, there are several facets of strategic planning wherein the cost estimating process can introduce, assess, or mitigate risk.

This document addresses the topic of estimating as it pertains to risk and the various facets of project risk, which can be affected by the cost estimate and the methods by which the estimates are developed. This paper is aimed at the junior to intermediate cost engineering professional and provides a single source for AACE references on this subject.