Level: Intermediate
TCM Section(s):
7.3. Cost Estimating and Budgeting
7.6. Risk Management
Venue: 2023 AACE International Conference & Expo
Abstract: The U.S. Department of Energy (DOE) Office of Project Management (PM) helps develop and implement department-wide policies, procedures, programs, and management systems for project management and independently monitors, assesses, and reports on project execution performance. As part of the process to generate budget requests to Congress, the office validates project performance baselines—including scope, cost, and schedule for capital asset construction and environmental cleanup projects, an active portfolio of over $117 billion. As part of this effort, DOE PM worked with subject matter experts (SMEs) to develop a model to establish realistic escalation rates for capital asset projects in specific locations across the DOE complex.
The composite calculated escalation rates largely consider two factors: local conditions for labor and materials specific to the project and site and economic trends. Escalation factors apply for estimates across all major cost category inputs (such as craft, non-manual labor, subcontracts, and materials) associated with the total project cost. In addition, the DOE PM escalation rate is a weighted composite calculation of site-specific indices and economic trends.
Working with various agency partners, DOE PM reviewed the model process and outputs, seeking to improve the model, identify differences between agencies, and validate the analysis. These partners included the National Nuclear Security Administration (NNSA) Acquisition and Project Management (NA-APM), NNSA Management and Budget (NA-MB), NNSA Cost Estimating and Program Evaluation (NA-CEPE), Lawrence Livermore National Laboratory (LLNL), Los Alamos National Laboratory (LANL), National Aeronautics and Space Administration (NASA), Architect of the Capitol (AOC), Office of Cost Assessment and Program Evaluation (CAPE) in the Office of Secretary of Defense, and U.S. Army Corps of Engineers (USACE). The collaboration engendered a general acceptance of the analysis and better understanding of the differences between agencies.
DOE PM developed both short- and long-term rates for use in capital asset estimates. DOE capital asset projects on average are nine years long. Given current volatility in inflation, DOE PM recommends using a short-term rate calculated from a 2-year compound annual growth rate (CAGR) for the next three years, for example in Fiscal Year (FY) 2022, for FY2022–FY2024use the short-term rate, then use the long-term rate from the 30-year CAGR for the outyears, FY2025 and beyond. For a DOE site in Tennessee, the model identified a short-term rate of 8.3%, and a long-term rate of 3.7%.The model is updated annually.
TCM Section(s):
7.3. Cost Estimating and Budgeting
7.6. Risk Management
Venue: 2023 AACE International Conference & Expo
Abstract: The U.S. Department of Energy (DOE) Office of Project Management (PM) helps develop and implement department-wide policies, procedures, programs, and management systems for project management and independently monitors, assesses, and reports on project execution performance. As part of the process to generate budget requests to Congress, the office validates project performance baselines—including scope, cost, and schedule for capital asset construction and environmental cleanup projects, an active portfolio of over $117 billion. As part of this effort, DOE PM worked with subject matter experts (SMEs) to develop a model to establish realistic escalation rates for capital asset projects in specific locations across the DOE complex.
The composite calculated escalation rates largely consider two factors: local conditions for labor and materials specific to the project and site and economic trends. Escalation factors apply for estimates across all major cost category inputs (such as craft, non-manual labor, subcontracts, and materials) associated with the total project cost. In addition, the DOE PM escalation rate is a weighted composite calculation of site-specific indices and economic trends.
Working with various agency partners, DOE PM reviewed the model process and outputs, seeking to improve the model, identify differences between agencies, and validate the analysis. These partners included the National Nuclear Security Administration (NNSA) Acquisition and Project Management (NA-APM), NNSA Management and Budget (NA-MB), NNSA Cost Estimating and Program Evaluation (NA-CEPE), Lawrence Livermore National Laboratory (LLNL), Los Alamos National Laboratory (LANL), National Aeronautics and Space Administration (NASA), Architect of the Capitol (AOC), Office of Cost Assessment and Program Evaluation (CAPE) in the Office of Secretary of Defense, and U.S. Army Corps of Engineers (USACE). The collaboration engendered a general acceptance of the analysis and better understanding of the differences between agencies.
DOE PM developed both short- and long-term rates for use in capital asset estimates. DOE capital asset projects on average are nine years long. Given current volatility in inflation, DOE PM recommends using a short-term rate calculated from a 2-year compound annual growth rate (CAGR) for the next three years, for example in Fiscal Year (FY) 2022, for FY2022–FY2024use the short-term rate, then use the long-term rate from the 30-year CAGR for the outyears, FY2025 and beyond. For a DOE site in Tennessee, the model identified a short-term rate of 8.3%, and a long-term rate of 3.7%.The model is updated annually.