AACE CEP Certified Estimating Professional cheat sheet

A cost estimate is a prediction of the probable cost of a project at a given point in time, based on defined scope and available information.

Estimate accuracy range narrows as project definition matures: conceptual estimates may vary by -30%/+50% or wider, while definitive estimates typically fall within -5%/+10%.

AACE estimate classes (Class 5 through Class 1) map to increasing project definition maturity, from 0-2% defined (Class 5) to 65-100% defined (Class 1).

Estimate input is scope plus pricing basis; estimate output is cost plus basis of estimate (BOE) documentation.

Direct costs attach to specific work items; indirect costs are shared across the project (e.g., supervision, temporary facilities, home office support).

Cost vs. price: cost is the expenditure to deliver scope; price includes cost plus markup for profit, risk, and commercial factors.

WBS decomposition drives estimate structure - costs are captured at the lowest practical level and rolled up through the hierarchy.

Estimate terminology distinguishes accuracy (closeness to actual) from precision (level of detail/rounding); a precise estimate can still be inaccurate.

Order-of-magnitude/conceptual methods include capacity factoring (Lang factor), scale-of-operations (six-tenths rule: C2 = C1 × (Q2/Q1)^n, n ≈ 0.6), and parametric/unit-cost models.

Parametric estimating uses statistical relationships between cost and measurable drivers (e.g., cost per kW, per m², per ton) and is most reliable with calibrated historical data.

Deterministic methods (detailed takeoff, bottom-up, activity-based) build cost from quantities × unit rates and require mature scope definition.

Lang factor estimating derives total plant cost as a multiplier applied to delivered equipment cost; factors vary by plant type (solids, fluids, mixed).

Factored/ratio estimating applies multipliers to a known base cost (e.g., piping as a ratio of equipment cost) and is intermediate in accuracy.

Unit-rate estimating requires a defined quantity and a rate composed of labor, material, equipment, and indirect components.

Method selection is driven by project definition maturity, available data, required accuracy, and time/cost to prepare the estimate.

Range estimating and probabilistic methods (Monte Carlo, three-point) apply where deterministic point values are insufficient to represent uncertainty.

Cost analysis evaluates the reasonableness of individual cost elements (labor, material, equipment, indirects); price analysis evaluates total price reasonableness without examining elements.

Price analysis techniques include comparison to competitive bids, catalog/price lists, historical prices, and parametric benchmarks.

Cost analysis techniques include should-cost models, learning-curve analysis, cost breakdown review, and rate/quantity verification.

Learning curve: each doubling of cumulative production reduces unit labor hours by a constant percentage (e.g., 80% curve); Y = aX^b where b = log(learning rate)/log 2.

Cost index escalation: C2 = C1 × (I2/I1), using published indices (e.g., CEPCI, ENR) to adjust historical costs to a new time base.

Location factors adjust cost from a base location to a new location (labor, material, and productivity components vary).

Variance analysis compares estimate vs. actual or bid vs. estimate; unexplained variances indicate either scope change or estimating bias.

Currency and tax treatment (exchange rates, duties, VAT) must be normalized before comparing costs across sources or regions.

The estimating process: scope/definition → estimate plan → quantity takeoff → pricing → indirect/contingency → review → approval → BOE delivery.

Basis of Estimate (BOE) documents scope, methodology, assumptions, exclusions, pricing basis, accuracy range, and risks - it is the estimate's contract with the reader.

Estimate plan defines class, method, WBS, coding, schedule basis, review cycle, and roles before work begins.

Quantity takeoff converts design documents into measurable quantities; pricing applies unit rates to those quantities.

Estimate reviews (check estimates, peer reviews, gate reviews) validate completeness, methodology, and reasonableness before approval.

Deliverables typically include the detailed estimate, summary/roll-up reports, BOE narrative, quantity reports, and cash-flow or schedule-phased outputs.

Estimate coding (WBS, CBS, cost codes) enables roll-up, benchmarking, and integration with cost control and accounting.

Estimate reconciliation compares successive estimate versions and documents the causes of change between them.

Contingency covers known-unknowns (identified risks and estimating uncertainty) within the defined scope; it excludes scope changes and unforeseeable events.

Management reserve covers unknown-unknowns and scope changes and is typically held outside the project estimate and controlled above the project manager.

Expected value = probability × impact; risk-adjusted estimate = base estimate + sum of expected values of identified risks (plus contingency for uncertainty).

Monte Carlo simulation produces a probability distribution of total cost; the P50 value is the median, and P80 is commonly used as the contingency-inclusive target.

Contingency is not a flat percentage applied blindly; it should be derived from risk analysis and decrease as project definition matures.

Escalation reflects anticipated price change over time due to inflation/market; it is distinct from contingency and from currency effects.

Escalation calculation: escalated cost = base cost × (1 + escalation rate)^n, or via published indices applied to the appropriate time periods.

Risk register feeds the estimate: each risk is assessed for probability and impact, and risk owners and response strategies are assigned.

AACE estimate classes carry typical expected accuracy ranges; contingency sizing should be consistent with the class and definition level.

Estimating integrates with project controls: the approved estimate becomes the basis for budgets, schedules, commitments, and change control.

Estimate version control and document management ensure the current approved estimate is traceable and auditable.

Benchmarking compares estimate metrics (e.g., cost per unit capacity, factor ratios) against historical projects to validate reasonableness.

Historical data management - collecting actual costs, normalizing, and storing in a database - is the foundation for future estimate accuracy.

Estimating productivity and quality are managed through standard procedures, templates, checklists, and defined roles/responsibilities.

Change management: scope changes after estimate approval require formal change control and estimate revision, not silent adjustment.

Cost/schedule integration (e.g., earned value) links estimate line items to schedule activities for progress and forecast measurement.

Stakeholder alignment and estimate communication (BOE, reviews, approvals) reduce the risk of misinterpretation and scope disputes.

A cost estimate is a prediction of the probable cost of a project at a given point in time, based on defined scope and available information.

Estimate accuracy range narrows as project definition matures: conceptual estimates may vary by -30%/+50% or wider, while definitive estimates typically fall within -5%/+10%.

AACE estimate classes (Class 5 through Class 1) map to increasing project definition maturity, from 0-2% defined (Class 5) to 65-100% defined (Class 1).

Estimate input is scope plus pricing basis; estimate output is cost plus basis of estimate (BOE) documentation.

Direct costs attach to specific work items; indirect costs are shared across the project (e.g., supervision, temporary facilities, home office support).

Cost vs. price: cost is the expenditure to deliver scope; price includes cost plus markup for profit, risk, and commercial factors.

WBS decomposition drives estimate structure - costs are captured at the lowest practical level and rolled up through the hierarchy.

Estimate terminology distinguishes accuracy (closeness to actual) from precision (level of detail/rounding); a precise estimate can still be inaccurate.

Order-of-magnitude/conceptual methods include capacity factoring (Lang factor), scale-of-operations (six-tenths rule: C2 = C1 × (Q2/Q1)^n, n ≈ 0.6), and parametric/unit-cost models.

Parametric estimating uses statistical relationships between cost and measurable drivers (e.g., cost per kW, per m², per ton) and is most reliable with calibrated historical data.

Deterministic methods (detailed takeoff, bottom-up, activity-based) build cost from quantities × unit rates and require mature scope definition.

Lang factor estimating derives total plant cost as a multiplier applied to delivered equipment cost; factors vary by plant type (solids, fluids, mixed).

Factored/ratio estimating applies multipliers to a known base cost (e.g., piping as a ratio of equipment cost) and is intermediate in accuracy.

Unit-rate estimating requires a defined quantity and a rate composed of labor, material, equipment, and indirect components.

Method selection is driven by project definition maturity, available data, required accuracy, and time/cost to prepare the estimate.

Range estimating and probabilistic methods (Monte Carlo, three-point) apply where deterministic point values are insufficient to represent uncertainty.

Cost analysis evaluates the reasonableness of individual cost elements (labor, material, equipment, indirects); price analysis evaluates total price reasonableness without examining elements.

Price analysis techniques include comparison to competitive bids, catalog/price lists, historical prices, and parametric benchmarks.

Cost analysis techniques include should-cost models, learning-curve analysis, cost breakdown review, and rate/quantity verification.

Learning curve: each doubling of cumulative production reduces unit labor hours by a constant percentage (e.g., 80% curve); Y = aX^b where b = log(learning rate)/log 2.

Cost index escalation: C2 = C1 × (I2/I1), using published indices (e.g., CEPCI, ENR) to adjust historical costs to a new time base.

Location factors adjust cost from a base location to a new location (labor, material, and productivity components vary).

Variance analysis compares estimate vs. actual or bid vs. estimate; unexplained variances indicate either scope change or estimating bias.

Currency and tax treatment (exchange rates, duties, VAT) must be normalized before comparing costs across sources or regions.

The estimating process: scope/definition → estimate plan → quantity takeoff → pricing → indirect/contingency → review → approval → BOE delivery.

Basis of Estimate (BOE) documents scope, methodology, assumptions, exclusions, pricing basis, accuracy range, and risks - it is the estimate's contract with the reader.

Estimate plan defines class, method, WBS, coding, schedule basis, review cycle, and roles before work begins.

Quantity takeoff converts design documents into measurable quantities; pricing applies unit rates to those quantities.

Estimate reviews (check estimates, peer reviews, gate reviews) validate completeness, methodology, and reasonableness before approval.

Deliverables typically include the detailed estimate, summary/roll-up reports, BOE narrative, quantity reports, and cash-flow or schedule-phased outputs.

Estimate coding (WBS, CBS, cost codes) enables roll-up, benchmarking, and integration with cost control and accounting.

Estimate reconciliation compares successive estimate versions and documents the causes of change between them.

Contingency covers known-unknowns (identified risks and estimating uncertainty) within the defined scope; it excludes scope changes and unforeseeable events.

Management reserve covers unknown-unknowns and scope changes and is typically held outside the project estimate and controlled above the project manager.

Expected value = probability × impact; risk-adjusted estimate = base estimate + sum of expected values of identified risks (plus contingency for uncertainty).

Monte Carlo simulation produces a probability distribution of total cost; the P50 value is the median, and P80 is commonly used as the contingency-inclusive target.

Contingency is not a flat percentage applied blindly; it should be derived from risk analysis and decrease as project definition matures.

Escalation reflects anticipated price change over time due to inflation/market; it is distinct from contingency and from currency effects.

Escalation calculation: escalated cost = base cost × (1 + escalation rate)^n, or via published indices applied to the appropriate time periods.

Risk register feeds the estimate: each risk is assessed for probability and impact, and risk owners and response strategies are assigned.

AACE estimate classes carry typical expected accuracy ranges; contingency sizing should be consistent with the class and definition level.

Estimating integrates with project controls: the approved estimate becomes the basis for budgets, schedules, commitments, and change control.

Estimate version control and document management ensure the current approved estimate is traceable and auditable.

Benchmarking compares estimate metrics (e.g., cost per unit capacity, factor ratios) against historical projects to validate reasonableness.

Historical data management - collecting actual costs, normalizing, and storing in a database - is the foundation for future estimate accuracy.

Estimating productivity and quality are managed through standard procedures, templates, checklists, and defined roles/responsibilities.

Change management: scope changes after estimate approval require formal change control and estimate revision, not silent adjustment.

Cost/schedule integration (e.g., earned value) links estimate line items to schedule activities for progress and forecast measurement.

Stakeholder alignment and estimate communication (BOE, reviews, approvals) reduce the risk of misinterpretation and scope disputes.