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(RISK-1027) Estimate Accuracy: Dealing with Reality

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Primary Author: Mr John K Hollmann PE CCE CEP Validation Estimating, LLC

Audience Focus: Advanced
Application Type: Experience-Based
Venue: 2012 AACE International Annual Meeting, San Antonio, TX, USA

Abstract: This paper reviews over 50 years of empirical cost estimate accuracy research and compares this reality to common but unrealistic management expectations. The empirically-based accuracy research of John Hackney, Edward Merrow, Bent Flyvbjerg and others on large projects in the process industries is summarized. The paper then highlights risk analysis methods documented in recent AACE Recommended Practices that yield outputs based upon and comparable to empirical reality. Tragically, many cost engineers are facilitating management's collective and sometimes willful biases regarding accuracy by using flawed, unreliable risk analysis methods; those who use empirically valid practices face the fate of Cassandra. The paper is intended as a fundamental reference on the topic of accuracy as well as a call for our profession to use reliable practices and speak the truth to management. Attendees will gain an understanding of estimate accuracy reality, the risks that drive it, management's biases about it, and methods that analyze risks and address the biases in a way that results in more realistic accuracy forecasts, better contingency estimates and more profitable investments.