Cost Estimating: Classes, Methods, and Contingency
Classify by definition, not by size
AACE's five estimate classes (Class 5 through Class 1) are driven by the degree of project definition - how much scope, engineering and design are complete - not by the dollar value of the project. Typical accuracy ranges are roughly Class 5 (−20% to −50% / +30% to +100%), Class 4 (−15% to −30% / +20% to +50%), Class 3 (−10% to −20% / +10% to +30%), Class 2 (−5% to −15% / +5% to +20%), Class 1 (−3% to −10% / +3% to +15%). Contingency shrinks as the class tightens and definition matures.
Methods and structure
Know where each method fits: analogous (similar historical project), parametric (cost-capacity factors, unit costs, regression), bottom-up (detailed quantity take-off), and factored or ratio methods. Estimates must tie to the WBS and code of accounts, separate direct from indirect cost, and be documented in a Basis of Estimate covering scope, assumptions, exclusions, pricing basis, escalation and risk.
Traps
- Picking the estimate class from its accuracy range rather than from project-definition maturity.
- Treating contingency (scope/risk allowance) as escalation (time-based price change) or as markup and profit.
- Applying a factor to the wrong base, e.g. loading installation factors onto equipment that already includes engineering.
- Confusing the learning-curve cumulative-average value with individual unit values.
Worked example - cost-capacity factor
A plant costing $10M at 100 t/day is scaled to 200 t/day with an exponent of 0.65: multiplier = (200/100)^0.65 = 1.57, giving about $15.7M before location, escalation and contingency adjustments.