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(RISK-3908) Risk Analysis and Contingency Estimating for Class 10 Estimates

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Level: Intermediate
TCM Section(s):
7.6. Risk Management
3.2. Asset Planning
Venue: 2022 AACE International Conference & Expo

Abstract: The AACE® International (AACE) cost estimate classification system recommended practice (RP) series is likely its most recognized RPs. In 2021, a new Unclassified/Class 10 estimate type was introduced in AACE RP 111R-20, Estimating for Long-Range Planning – As Applied for the Public Sector. However, there is no AACE RP for quantitative risk analysis (QRA) methods for estimating contingency or management reserve allowances for Unclassified/Class 10 estimates.

A goal of the paper is to lay the groundwork for a potential QRA RP for Unclassified/Class 10 QRA recommended practice. It starts by reviewing the concepts of estimate classification in general and Unclassified/Class 10 estimates in particular. Next, it outlines various uses of these estimates such as for asset life cycle cost (LCC) estimating and analysis as part of strategic portfolio management or for surety (bonding) valuation. The paper also reviews scenario analysis and other decision analysis methods to identify potentially useful QRA concepts. It also reviews current contingency determination practices for long-range estimates and the limited research on long-range estimate cost growth. Finally, several proposed Unclassified/Class 10 QRA and contingency/reserve allowance determination methods, aligned with AACE QRA principles, are presented.