Cost Estimating Manual

Project Cost Estimating Manual
Third Edition
December 2007

COPYRIGHT
State of Queensland (Department of Main Roads) 2004, 2007
Copyright protects this publication. Except for the purposes permitted by and subject to the conditions
prescribed under the Copyright Act, reproduction by any means (including electronic, mechanical,
photocopying, microcopying or otherwise) is prohibited without the prior written permission of the
Queensland Department of Main Roads. Enquiries regarding such permission should be directed to the
Project Delivery Improvement Branch Queensland Department of Main Roads.

DISCLAIMER
This publication has been created for use in the design, construction, maintenance and operation of road
transport infrastructure in Queensland by or on behalf of the State of Queensland.
The State of Queensland and the Department of Main Roads give no warranties as to the completeness,
accuracy or adequacy of the publication or any parts of it and accepts no responsibility or liability upon any
basis whatever for anything contained in or omitted from the publication or for the consequence of the use or
misuse of the publication or any parts of it.
If the publication or any part of it forms part of a written contract between the State of Queensland and a
contractor, this disclaimer applies subject to the express terms of that contract.

December 2007

Revision Register

Rev No. Reference
Section
Description of Revision Amended by Date
1 Draft Release, July 2002 Jul 2002
2 First Edition, February 2004 Feb 2004
3 First Edition Version 1.1, April 2004 Apr 2004
4 Second Edition, December 2004 Dec 2004
5 Manual
contents
revised
Third Edition, December 2007 Eric Wellings and
Keith Brownjohn
Dec 2007

FOREWORD
The December 2007 edition of the Project Cost Estimating Manual is an integral part of Main Roads ongoing
commitment to the production of accurate project cost estimates. This commitment promotes best
estimating practice in the department. The manual will assist and guide Main Roads project personnel and
industry providers in the correct methods of project cost estimating.
Project cost estimating is a key part of Main Roads business. As such, Main Roads must promote and
maintain a cultural approach to project cost estimating that enables estimating practices throughout Main
Roads to be of the highest standard. This manual will be updated periodically following the reviews of project
learnings.
Use of this manual will provide estimates at all stages of the delivery process that are prepared on the basis
of their being unlikely to be exceeded but not excessively conservative.
Compliance with this manual is mandatory for all cost estimates prepared for Main Roads infrastructure
projects. Project managers, engineers, technical officers and external service providers must follow these
procedures when preparing cost estimates at any point in the project cycle.
In terms of contingency allocation, the project manager owns the contingency for known project risks. The
program manager owns the contingency for unknown project risks.
District Directors are accountable for the accuracy of project estimates.

Les Ford
Deputy Director General
Department of Main Roads
Project Cost Estimating Manual Table of Contents

Page i of iii
Table of Contents
December 2007

Table of Contents
Page
1 INTRODUCTION........................................................................................................................................ 1
1.1 Purpose and Application ..................................................................................................................... 1
1.2 Glossary of Terms ............................................................................................................................... 1
1.3 Relationship to other Manuals............................................................................................................. 5
1.4 References .......................................................................................................................................... 6
1.5 Acronyms and General Definitions...................................................................................................... 7
2 ESTIMATING POLICY............................................................................................................................... 9
2.1 Policy Statement.................................................................................................................................. 9
2.2 Estimating Principles ........................................................................................................................... 9
2.3 Project Types..................................................................................................................................... 10
2.4 Estimating Rationale ......................................................................................................................... 10
2.5 Performance Standards .................................................................................................................... 10
2.6 Performance Measures..................................................................................................................... 11
3 ESTIMATING PROCESSES.................................................................................................................... 13
3.1 General .............................................................................................................................................. 13
3.1.1 Concept Phase........................................................................................................................... 13
3.2 Project Scope Definition.................................................................................................................... 18
3.2.1 Categories of Cost Change........................................................................................................ 18
3.3 Optimism bias.................................................................................................................................... 19
3.4 Estimate Planning ............................................................................................................................. 19
3.5 Resource Planning............................................................................................................................ 20
3.5.1 General....................................................................................................................................... 20
3.5.2 Work Method Studies (Constructability)..................................................................................... 20
3.6 Cost Estimating ................................................................................................................................. 20
3.7 Cost Budgeting.................................................................................................................................. 21
4 ESTIMATING APPROACH...................................................................................................................... 23
4.1 Estimating Structure.......................................................................................................................... 23
4.1.1 General....................................................................................................................................... 23
4.1.2 Direct Job Costs......................................................................................................................... 24
4.1.3 Indirect Job Costs ...................................................................................................................... 24
4.1.4 Principals Costs......................................................................................................................... 26
4.1.5 Unmeasured (Unidentified) Items .............................................................................................. 26
4.1.6 Inflation....................................................................................................................................... 26
4.2 Estimating Methods........................................................................................................................... 27
4.2.1 Global Estimate (Benchmark rates) ........................................................................................... 27
4.2.2 Unit Rate Estimate ..................................................................................................................... 27
4.2.3 First Principles (Basic Cost / Detailed) Estimate........................................................................ 28
4.2.4 Hybrid (Unit Rate/First Principles) Estimate............................................................................... 28
4.2.5 Monte Carlo analysis.................................................................................................................. 28
4.3 Selecting the Appropriate Method..................................................................................................... 28
4.3.1 Recommended Method.............................................................................................................. 28
5 CONTINGENCY....................................................................................................................................... 31
5.1 General .............................................................................................................................................. 31
5.2 Exclusions ......................................................................................................................................... 31
5.3 Applying Contingencies..................................................................................................................... 31
5.4 Quantification of Contingencies......................................................................................................... 32
5.5 Reviewing Contingencies.................................................................................................................. 32
5.6 New Cost Escalation Road Input Index for Main Roads ................................................................... 32
6 PROBABILISTIC ESTIMATING .............................................................................................................. 33
6.1 Overview............................................................................................................................................ 33
6.2 Requirements .................................................................................................................................... 33
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Table of Contents
December 2007

6.2.1 Risks........................................................................................................................................... 33
6.3 Probability Distributions ..................................................................................................................... 33
7 RISK.......................................................................................................................................................... 35
7.1 Risk Management Overview.............................................................................................................. 35
7.1.1 Concepts of Risk ........................................................................................................................ 35
7.1.2 Management of Risk .................................................................................................................. 35
7.1.3 Statistical Techniques ................................................................................................................ 36
7.1.4 Risk Management Terminology.................................................................................................. 37
7.1.5 Risk Management References................................................................................................... 37
7.2 Risk Management Processes and Their Application......................................................................... 39
7.2.1 Establish the Risk Management Context ................................................................................... 39
7.2.2 Identify the Risks ........................................................................................................................ 39
7.2.3 Analyse the Risks....................................................................................................................... 40
7.2.4 Evaluate the Risks...................................................................................................................... 40
7.2.5 Treat the Risks ........................................................................................................................... 41
8 REVIEW AND APPROVAL OF ESTIMATES.......................................................................................... 43
8.1 Estimate Review Process.................................................................................................................. 46
8.2 Estimate Approval Process ............................................................................................................... 47
9 PRESENTATION OF ESTIMATES.......................................................................................................... 49
9.1 General .............................................................................................................................................. 49
9.2 Work Breakdown Structure (WBS) .................................................................................................... 49
9.2.1 General ....................................................................................................................................... 49
9.2.2 Construction Activities................................................................................................................ 49
9.2.3 Non-Construction Activities ........................................................................................................ 51
9.2.4 Options Development and Design Activities .............................................................................. 51
9.3 Project Cost Estimates ...................................................................................................................... 52
9.4 Works Management System Estimating Module (WMS: Estimating) ............................................ 52
9.5 Reality Check..................................................................................................................................... 56
9.6 Supporting Information ...................................................................................................................... 56
9.7 Communication of Project Cost Estimate.......................................................................................... 56
10 ROLES AND ACCOUNTABILITIES..................................................................................................... 57
10.1 Overview........................................................................................................................................ 57
10.2 Accountability................................................................................................................................. 57
11 PROJECT MANAGEMENT.................................................................................................................. 59
11.1 General .......................................................................................................................................... 59
11.2 Project Phases............................................................................................................................... 60
11.3 Work Breakdown Structure............................................................................................................ 61
11.3.1 Overview..................................................................................................................................... 61
11.3.2 The purpose of the WBS............................................................................................................ 61
11.3.3 WBS Application guidelines ....................................................................................................... 61
11.4 Project Cost Management ............................................................................................................. 62
11.4.1 General ....................................................................................................................................... 62
11.4.2 Cost Planning ............................................................................................................................. 63
11.4.3 Cost Control................................................................................................................................ 64
12 PROJECTS AND THE RIP................................................................................................................... 65
12.1 Overview........................................................................................................................................ 65
12.2 RIP ................................................................................................................................................. 65
12.3 Stages of Estimates ....................................................................................................................... 69
13 QUALITY ASSURANCE....................................................................................................................... 73
14 MAIN ROADS CONTRACT TYPES..................................................................................................... 73
Annex A: Site Visit Risk Checklist and Record
Annex B: Estimate Peer Review Checklist
Project Cost Estimating Manual Table of Contents

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Table of Contents
December 2007

Annex C: Work Breakdown Structure Construction Activities
Annex D: Work Breakdown Structure Non-Construction Activities
Annex E: MPO Estimating Business Rules
Project Cost Estimating Manual Introduction

Page 1 of 73
Introduction
December 2007

1 INTRODUCTION
1.1 Purpose and Application
The purpose of this manual is to provide rules and standards for the preparation of cost estimates for all
transport infrastructure projects developed by the Queensland Department of Main Roads (MR).
This manual covers the preparation of estimates over the total project life cycle to provide reliable cost
information for:
a) initial justification of a projects business case (for example cost/benefit analysis)
b) ongoing cost control during the projects development, implementation and finalisation phases, and
c) project and program management.
Costs are accumulated during all phases of a project from concept to finalisation. Consequently, total project
cost estimates must include the costs of all components, including developing the concept design and
business case; conducting investigations and developing the design; detailing the design; acquiring land;
relocating public utility plant; construction and handover. It is important, too, that project managers and
estimators have an appreciation of the context (in terms of management of the road system) in which the
project has been developed.
This manual provides information on a range of processes and techniques to suit the varying circumstances
under which estimates are developed. In the early stages of project development, estimates will be based on
scope as defined in investment strategies. Provision needs to be made for the uncertainties surrounding the
project by way of contingencies. Just prior to construction, the estimate will be based on detailed design
information and an accurate bill of quantities.
Project cost management, of which project cost estimating is a part, is to be applied in the context of OnQ,
MRs project management methodology.
1.2 Glossary of Terms
Accountability
The final responsibility for completion of tasks and achievement of results within delegated authority and to
established performance standards.
Activity
An element of work performed during the course of a project. An activity normally has an expected duration,
cost and resource requirement. Activities can be subdivided into tasks.
Actual Cost
The final out-turn dollar expenditure on a project.
Anticipated Final Cost
The sum of expenditure to date and the forecast expenditure, in out-turn dollars, to complete the project.
Base Date
The calendar date at which the current project estimate has been calculated (i.e. before escalation).
Component
A definable part of a project, including elements of planning, design and construction, that contributes to the
total project cost.
Concept Estimate
An estimate prepared towards the end of a projects concept phase after the options analysis, for the
purpose of evaluating the project in the business case. The estimate, which is based on the scope of the
preferred option, forms the basis of the project budget. It is expressed in out-turn dollars for the year the
project is scheduled for construction.
Introduction Project Cost Estimating Manual

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Introduction
December 2007

Concept Phase
The initial phase of a project during which project scope is defined. It commences with the development of a
project proposal and concludes with the approval of the business case. Community consultation commences
during this phase.
Concurrence Review
A review of a project to achieve concurrence (agreement) on the project cost.
Contingency
An amount to cover the costs of unforeseen factors related to the delivery of the project objectives, which are
not provided for elsewhere in the total job costs.
Construction / Contract Budget
The contractors tendered price plus a suitable allowance for the Principals costs.
Control
The process of comparing actual performance with planned performance, and analysing variances,
evaluating possible alternatives and taking appropriate corrective action.
Corrective Action
Changes made to bring expected future performance of the project into line with the project plan.
Cost Budgeting
Allocating the cost estimate to individual project components.
Cost Control
Controlling changes to the project budget.
Cost Estimating
Estimating the cost of the resources needed to complete project activities.
Cost Performance Index
The ratio of budgeted cost to actual cost.
Cost Variance
Any difference between the estimated cost and the actual cost.
Definitive Estimate
An estimate that is reported as a single sum.
Deliverable
Any measurable, tangible, verifiable outcome, output, result or item that must be produced to complete a
project or part of a project or phase.
Detailed Design Estimate
The total estimate of all components of a project prepared prior to calling of tenders for construction, and
based on final designs, specifications and statements of rates. It is expressed in out-turn dollars.
Development Phase
The phase that follows the concept phase and the approval of the business case, during which the preferred
option is developed into a detailed design and tenders called.
Direct Costs
Costs that can be directly attributed to the work being performed. For construction, it refers to the costs of
constructing the physical project works (resource costs of plant, labour, materials and subcontract).
Earned Value (EV)
A method of measuring project performance. It compares the amount of work that was planned with what
was actually accomplished to determine if cost and schedule performance is as planned.

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Introduction
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Elemental Costing
An estimate of project costs prepared using composite rates for major components of a project.
Escalation
The anticipated increase in project costs over time as a result of various factors such as inflation, scope
changes due to change in standards, design development, increased certainty in quantities.
Estimate
A calculated prediction of the amount of money required to undertake a specific amount of work, expressed
in dollar values of the year in which it was prepared or, alternatively, in out-turn dollars. It is prepared in a
systematic manner appropriate to the size and complexity of the project, and to a level of accuracy
commensurate with the available information and the intended use of the information developed. It may
include some prior expenditure.
Estimate at Completion (EAC)
The expected total cost of an activity, a group of activities or the project when the defined scope of work has
been completed.
Estimate to Complete (ETC)
The expected additional cost needed to complete an activity, a group of activities or the project.
Finalisation Phase
Activities required to commission the works completed in the implementation phase, finalise project
administration, evaluate performance and communicate learnings.
First Principles (Basic Cost) Estimating
A high-order (detailed and bottom up) estimating method based on a detailed study of work breakdown, work
methods, production rates and resource requirements. The estimate is structured to provide details of direct
costs, on-site overheads, off-site overheads, contingencies and margin.
Global Estimating
A very approximate, low-order estimating method based on "all in" or global rates such as $/km of road.
Implementation Phase
The phase during which the work identified in the project plan is constructed to produce the final product.
Indirect Costs
Costs that are not directly attributable to work items. For a construction project, these costs include on-site
overheads (such as site supervision and site facilities) and off-site overheads (corporate/business costs).
They are exclusive of contingency and profit.
Inflation
An allowance for the rising cost of the project due to rise and fall factors external to the project definition.
Investment Strategies
Strategies that define the activities required on the functional road categories to achieve road system
outcomes.
Job
A stand-alone component of a project.
Management Reserve
A provisional amount to cover uncertainty that is outside the control of the project (sometimes called
"unknown unknowns"). Management Reserve may involve cost and/or schedule (time) reserve. Management
Reserve is to be administered at program level.
Margin
An allowance that includes the contractors corporate overheads and profit.

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Introduction
December 2007

Monitoring
The capture, analysis and reporting of project performance, usually as compared to plan.
OnQ
Main Roads Project Management Framework that provides the direction and guidance for effective
management and delivery of projects.
Optimism Bias
The demonstrated systematic tendency for people to be over optimistic about the outcome cost of planned
actions.
Out-turn Dollars
Cost expressed in dollars of the period in which the work was or will be performed. Estimates prepared at a
particular date can be converted to out-turn dollars by applying the appropriate escalation rate to the time
series cost of the project.
P90 Estimate
An estimate prepared at any stage of a project which has a 90% confidence factor of not being exceeded by
cost at completion.
Probabilistic Estimating
A method of generating estimates which takes into consideration that quantities measured (or allowed for)
can change, rates assumed can vary and risks with a probable outcome can materialise.
Project
A series of inter-related activities with defined start and end dates designed to achieve a unique and
common objective.
Project Budget
The approved project estimate.
Project Cost Management
A subset of project management that includes the processes required to ensure that the project is completed
within the approved budget. It consists of resource planning, cost estimating, cost budgeting and cost
control.
Project Estimate
The total estimated cost of a project in out-turn dollars for all components of a project from the
commencement of the concept phase to the end of the finalisation phase.
Project Life Cycle
The total duration of a project normally dissected into sequential phases (that is concept, development,
implementation and finalisation).
Project Management
The discipline of planning, organising, monitoring and controlling all aspects of a project in a continuous
process to achieve its objectives, both internal and external.
Project Phase
A collection of logically related project activities, usually culminating in the completion of a major deliverable.
Project Plan
A formal approved document used to document project baselines. It is the plan against which project
performance is measured.
Provisional Items
Items that should be included in an estimate when the designer knows that work is required but cannot
quantify it.

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Introduction
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Range Estimate
An estimate that is reported as a range of values within which the cost at completion is considered to lie.
Resource Planning
Determining what resources (plant, labour and materials) are needed in what quantities to perform project
activities.
RIP
Roads Implementation Program; published annually on a rolling 5-year basis.
Risk
The chance of something happening that will have an impact upon project objectives. It is measured in terms
of consequences and likelihood.
Scope
The sum of the products and services to be provided as a project.
Scope Creep
Increase in work required to meet a previously given outcome.
Smart Cost
A resource-based estimating tool that utilises Expert Estimation in the preparation of early project estimates
and may be used by Main Roads to validate estimates.
Strategic Estimate
An estimate in out-turn dollars prepared as an output of a road network or road link strategy.
Sunk Cost
Cost that has occurred and charged to the project.
Value
The lowest dollar value to reliably accomplish a function in accordance with required levels of quality and
performance.
Value Management
A structured, analytical process that seeks to achieve value for money by providing all the necessary
functions at the lowest total cost consistent with required levels of quality and performance.
Variation
Extras or deductions to the work on a project.
Work Management
The management of project deliverables, e.g. options, in order to meet stakeholder's needs and expectations
from a project.
Works Management System (WMS)
A system that supports the development of road preconstruction activities in the areas of scheme formation
and project estimating.
1.3 Relationship to other Manuals
This manual has been structured as a concise reference on project cost estimating for project managers and
estimators, within the context of MR's generic project management methodologies, and other planning and
control processes.
The departments various manuals and annexures are intended to be complementary. However, where a
conflict occurs, the manual with the latest publication date takes precedence.
Note: Any such conflict should be reported to the manual owner through the feedback process so that
necessary corrective action can be taken.

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Introduction
December 2007

1.4 References
The following list of publications may assist estimators in the course of their work. Many of these can be
found at www.mainroads.qld.gov.au.

Bent Flyvberg & COWI 2004, Procedures for Dealing with Optimism Bias in Transport Planning Guidance
Document, for the British Department of Transport, included as Appendix 3 of Evans and Peck 2007, A
Review of the Reliability of Cost Estimation of MR Projects funded under Auslink, Brisbane.
Evans and Peck 2007, A Review of the Reliability of Cost Estimation of MR Projects Funded under Auslink,
Brisbane
Main Roads 2005, Preconstruction Processes Manual: Scope, Risk and Cost Management and Approval
Processes with a Project Management Approach, draft ed., the Dept., Brisbane.
Main Roads 2004, Project Managers Risk Management Guidelines, the Dept., Brisbane.
Main Roads 2000, Road Planning and Design Manual, the Dept., Brisbane.
Main Roads 1999+, Roads Policy Manual, the Dept., Brisbane.
Main Roads 2006, Standard Specification Roads, Third Edition, Volume 1 and 2, the Dept., Brisbane.
Main Roads 2004+, Program Delivery Policy for Project Management and Performance Measurement of
Roads Implementation Program (RIP) Projects, the Dept., Brisbane.
Main Roads 2004+, Project Management Reference Guide, the Dept., Brisbane.
Project Management Institute 2000, A Guide to the Project Management Body of Knowledge (PMBOK
guide), PMI, Upper Darby, PA.
Roads and Traffic Authority of New South Wales 2001, Project Estimating, RTA, Sydney.
Standards Australia 2004, Risk management, AS/NZS 4360:2004, Standards Australia, Sydney.
Standards Australia 1994, Value management, AS/NZS 4183:1994, Standards Australia, Sydney.

Page 7 of 73
Introduction
December 2007

1.5 Acronyms and General Definitions
Term Definition
BOQ Bill of Quantities
CERI Cost Escalation Road Input
D&C Design & Construct
DD District Directors
DDG Deputy Director General
DG Director General
DJC Direct Job Costs
DoTaRS Department of Transport and Regional Services
E&T Engineering & Technology
ECI Early Contractor Involvement
GM General Manager
ICT Information Communication Technology
IT Information Technology
MPO Major Projects Office
MR Department of Main Roads
MWC Minor Works Contract
MWPC Minor Works Performance Contracts
NH National Highways
OnQ
The project management methodology framework used by Main Roads and
Queensland Transport
OSCR Other State Controlled Roads
PAI Principal Arranged Insurance
PCEM Project Cost Estimating Manual
PD&D Program Development and Delivery
PDI Project Delivery Improvement
R&DP Road and Delivery Performance
RCC Road Construction Contract
RICI Roads Input Cost Index
RIP Roads Implementation Program
RMPC Road Maintenance Performance Contract
RPC Roadworks Performance Contract
WBS Work Breakdown Structure
WMS Works Management System
$OT Out-turn Dollars

Project Cost Estimating Manual Estimating Policy

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Estimating Policy
December 2007

2 ESTIMATING POLICY
2.1 Policy Statement
MR develops investment strategies based on the states strategic transport needs to ensure that consistent
outcomes are delivered in accordance with government priorities and objectives.
Identifying and funding the highest priority works to meet these needs, and delivering them through an
efficient roads program, is critical to realising the benefits of these outcomes for the community.
All these processes rely on sound estimates of project cost and cost control to ensure the integrity of
decisions relating to project justification, government priorities and programming. Incorrect estimates can
lead to delay in funding and approval of a project, or impact on other projects, leading to economic loss as
well as cost overruns.
MR will maintain a system for estimating and cost control that will ensure a high level of confidence in project
cost estimates, and reduce the incidence of cost overruns and scope creep.
MR's estimating policy is focused on the preparation of P90 estimates: "unlikely to be exceeded but not
excessively conservative" estimates. This means that the estimate prepared at any stage of a project has a
90% confidence factor of not being exceeded by the cost at completion.
Estimating in the current market environment requires a conservative but realistic view of the project scope
together with the associated risks and contingencies, particularly in the early project stages where less
detailed project information is available. Estimators must make provision for items that are considered likely
to be required, having regard to such inputs as environmental determinants and community input on the final
project scope. Such items should be included as provisional items and not through an increase in
contingency.
The challenge for the estimator is to arrive at a realistic (that is, not overly conservative) view of the project
scope and risks, and assign appropriate contingencies in order to produce a meaningful estimate within the
P90 "not to be exceeded but not to be excessive" band of acceptability.
All estimates must include a detailed consideration of MR's project costs, including project management.
These costs must be estimated essentially on a first principles basis, taking into account the expected MR
personnel required for the project and their costs. Estimates are applicable only to a particular project
scope, or range of scopes, which must be clearly set out as part of the estimate.
Periodic reviews of the scope definition shall be conducted with a view to achieving continuous
improvements in performance.
2.2 Estimating Principles
MR's estimating policy is founded on five key principles.
1. All projects are to be project managed in accordance with the OnQ project management methodology.
2. P90 estimates, prepared on an "unlikely to be exceeded but not excessively conservative" basis at
various stages of the project life cycle will provide confidence in the processes of project priority,
affordability and strategic fit.
3. Estimates are subject to a review and approval process based on consistent clear lines of
responsibility and accountability that will ensure costing standards and control are applied to any
budget information that is to be released.
4. Regular project and system reviews will be conducted to encourage and facilitate continuous
improvement.
5. Project learnings will be shared to increase corporate knowledge.
Estimating Policy Project Cost Estimating Manual

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Estimating Policy
December 2007

2.3 Project Types
Type 1
Project
Significant road/infrastructure project that is complex, high risk or high cost and thus requires
higher amounts of rigour and control.
Type 2
Project
Relatively straightforward, low-risk road/infrastructure project for which a lesser amount of rigour
and control is appropriate.
Type 3
Project
Small, simple, low cost road/infrastructure project that progresses quickly through the concept
phase.
2.4 Estimating Rationale
Estimating rationale recognises that cost management, including cost estimating, must be exercised in the
broader context of project management. Estimating is an integral part of a system of interdependent core
inputs of scope, time, cost and quality.
The project budget results from approval of the business case concept estimate at the conclusion of the
concept phase. This project estimate, which is based on a sound definition of the scope of the preferred
option from the options analysis, is of critical importance in the economic justification (cost/benefit) of the
project.
Estimates for Type 1 and 2 Projects should be expressed at a P90 level for budget proposals. From
December 2007 onwards, business case estimates are not to be accepted unless expressed or recorded in
out-turn dollars with P90 confidence levels.
Once the project is justified, it is eligible for inclusion in the Roads Implementation Program (RIP). The
amount published in the RIP for years 3 to 5 is treated as indicative for program purposes.
This manual recognises that projects are inherently uncertain and that, irrespective of the stage of a project,
there will be incomplete scope information on which to base the project estimate. The aim is to establish as
complete a set of project parameters as possible, and apply a risk assessment process to allocate
contingencies to cover probable eventualities.
Total project cost estimates must include the costs of all component activities from the initiation of the project
proposal to finalisation. These will include the cost of developing the concept design and business case;
conducting investigations and developing the design; detailing the design; acquiring land; altering public
utility plant; construction and handover.
It is expected, as project scope and design detail are progressively refined and uncertainty reduced, that the
various stage estimates (concept/preliminary design/detailed design) will improve in accuracy.
The preliminary design estimate is used to confirm the project budget before being incorporated in the
committed Years 1 and 2 of the RIP.
Each estimate shall be presented using a standard estimate work breakdown structure format, and
incorporate a report that defines the scope and assumptions on which the estimate has been based.
Estimates shall be reported in out-turn dollars based on an assumed construction date and escalation rate.
Control of project costs will be achieved by the application of a systematic review and approval process
based on clearly defined accountabilities.
2.5 Performance Standards
Estimates prepared for inclusion in the RIP (refer Section 12), when compared with the actual cost at
completion, are expected to fall within the ranges shown in Table 2.1.
The expectation is that individual project estimates, prepared at all stages of a project from Business Case
forward, have a 90% confidence factor of not being exceeded by the cost at completion.

Project Cost Estimating Manual Estimating Policy

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Estimating Policy
December 2007

Table 2.1 Budget Estimate Standard
Percentage of Completed Project Cost
Project Phase Budget Estimate
Lower Upper
Pre-project and
Strategic
Strategic & Pre-project
(this manual does not
apply to these estimates)
-50% (percentages will
vary according to project
definition)
+200% (percentages will
vary according to project
definition)
Concept Proposals and Options -30% +100%
Concept Business Case (P90) -15% +20%
Development Preliminary Design (P90) -10% +15%
Development Detailed Design (P90) -5% +10%
Pre-project or Strategic Estimates will necessarily be developed on poor or negligible information. Great
care needs to be exercised in publishing these estimate figures. The percentage ranges on these types of
estimates are indicative only, and must be viewed against the background information upon which these
estimates are developed.
Performance against these standards shall be reviewed in the finalisation phase of the project as per Figure
9.4, Project Cost Estimate (Approval).
As the above measure is a lag indicator, districts may wish to adopt other measures to indicate whether their
estimating processes are under control at any particular time. Variance from previous stage estimate may be
one such measure.
2.6 Performance Measures
The estimating performance of MR districts will be measured annually by an independent auditor to assess
estimate consistency and accuracy. These will be reported internally to the General Manager (Program
Development & Delivery) and the District Director.
Internal reports on Major Projects Office projects should go the General Manager (Major Projects Office).
These measures are detailed in Main Roads Program Delivery Policy for Project Management and
Performance Measurement of Roads Implementation Program (RIP) projects.
Project Cost Estimating Manual Estimating Processes

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Estimating Processes
December 2007

3 ESTIMATING PROCESSES
3.1 General
The project management environment in which cost estimating takes place is described in Section 11.4,
Project Cost Management. The purpose of this section is to discuss the general sequence of activities
involved in the production of a cost estimate.
The estimating process comprises four key activities:
i. Scope definition
ii. Risk identification/quantification
iii. Estimate planning
iv. Cost estimating
The procedure for concurrence review and approval of estimates at concept, preliminary design and detailed
design is illustrated in Figures 3.1 to 3.4.
3.1.1 Concept Phase
The concept phase is the first and, arguably, the most important phase of the methodology and the estimate
which is developed in the concept phase is critical to a projects success. The concept estimate will be the
benchmark against which all future estimates will be referred.
The objectives of the concept phase are to:
understand the nature of the problem, need or opportunity;
articulate the functional requirements that any solution must satisfy;
identify all possible solutions, evaluate them and select the preferred option;
develop the preferred option sufficiently such that its associated costs and risks can be confidently and
reliably included in the business case; and
present an un-biased business case that portrays the costs and benefits applicable to the potential
project from an organisational perspective.
The concept phase provides the reason for the projects existence and sets the criteria by which the project
will be judged to have succeeded or not. It is important to obtain customer agreement to the articulated
problem and the functional requirements that define the solution. Such agreement provides an important
baseline for controlling subsequent design development resulting from approved functional or standards
changes.
Design development is related to:
growth in the designed works required to meet the agreed functionality, and
growth in functionality itself due to changed standards. (For example, growth in functionality may
require a different project.)
The key project management deliverables of the concept phase are the:
the Proposal
the Options Analysis
the Business Case
Risk Analysis
Peer Review.
The key components of work associated with each of these project management deliverables are included in
the OnQ project management methodology.
Estimating Processes Project Cost Estimating Manual

Page 14 of 73
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Figure 3.1 Procedure for Preparation, Concurrence and Approval: Concept Estimate

Estimate Planning
List Key
Assumptions
List and Quantify
Known Risks
Prepare Concept
Estimate
Peer Review &
Reality Check
Estimate
Recommendation
Is Estimate
>$10M NH, or
>$20M OSCR
Estimate Approval
Scope
- Review existing road plans.
- Longitudinal sections (cut/fill),
type cross-section, critical sections
- Site identification checklist (annex
A), major utilities
- Establish estimate team
For Concept Estimate the following
needs to be considered
- Limit of work
- Design standard
- Section staging
- No. of lanes, widths
- Pavement (new or rehabilitation)
- Property effect
- Physical constraints
- Environmental constraints
- Geotechnical
- Bill of Quantities

Risk Management Report (M4213)
- WMS Estimating Module
- WBS Non-Construction/
Construction (Annex C&D)
- See Table 4.6 for Estimate Type
- Use benchmarking

- Peer review checklist (annex B)
- Reality check ($/km pavement,
$/m
2
bridge)
- Project Cost Estimate Summary
Template (Fig 9.3)
- Project Cost Estimate Approval
Template (Fig 9.4)
See Figure 3.4 Concurrence Review
YES
NO
Project Team
Estimator
Project Team
Project Team
Peer Reviewer &
District Director
Project
Manager
District Director
Sponsor
Acceptance
END
Project
Manager
Sponsor
START PROCESS MAP

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December 2007

Figure 3.2 Procedure for Preparation, Concurrence and Approval Preliminary Design Stage
Estimate

Estimate Planning
Review Key
Assumptions
Update and Review
Risk Management
Prepare Preliminary
Design Estimate
Peer Review &
Reality Check
Estimate
Recommendation
Is Estimate
>$10M NH, or
>$20M OSCR
Estimate Approval
Scope
Management
For Preliminary Design Estimate
the following needs to be
considered
- Does current scope align with
approved business case?
- Design standard
- Section staging
- Property effect
- Geotechnical
- WMS Estimating Module
- See Table 4.6 for Estimate Type
- Use benchmarking
- Reality check ($/m
3
pavement,
$/m
3
earthworks, $/lane km)
Template (Fig 9.3)
Template (Fig 9.4)

YES
NO
Sponsor
Acceptance
END
Project Team
Project Team
Project Team
Estimator
Peer Reviewer &
District Director
Project
Manager
Project
Manager
District Director
Sponsor
START PROCESS MAP
- Update site identification checklist
(Annex A), major utilities
- PUP investigation / relocations

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December 2007

Figure 3.3 Procedure for Preparation, Concurrence and Approval Detailed Design Stage

Estimate Planning
Review Key
Assumptions
Update and Review
Risk Management
Prepare Preliminary
Design Estimate
Peer Review &
Reality Check
Estimate
Recommendation
Is Estimate
>$10M NH, or
>$20M OSCR
Estimate Approval
Scope
Management
- Update site identification checklist
(Annex A), major utilities
- PUP investigation / relocations
For Preliminary Design Estimate
the following needs to be
considered
- Does current scope align with
approved business case?
- Design standard
- Section staging
- Property effect
- Geotechnical

- See Table 4.6 for Estimate Types
- Use benchmarking
- Reality check

Template (Fig 9.3)
Template (Fig 9.4)
YES
NO
Sponsor
Acceptance
Project Team
Project Team
Project Team
Estimator
Peer Reviewer &
District Director
Project
Manager
Project
Manager
District Director
END Sponsor
START PROCESS MAP

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December 2007

Figure 3.4 Procedures for Concurrence Review and Approval of an Estimate of Cost for Concept,
Preliminary and Detailed Design Stages

Submit Estimate for
Concurrence
Review for DDs

Sign off
(Concurrence
Review)
Sign off Approval Template
(see Section 9.4)
Return Estimate &
Information with MPO
Concurrence Review to DD
Submit Estimate for
Approval
Estimate Approved

Project
Manager
to revise
Estimate /
Details
Typical Information to be
submitted:
- Estimate type
- Plans
- Scope + Key Assumptions
- Known Risks

YES
NO
Log Receipt of
Estimate
Is Supporting
Information
Acceptable?
Project
Manager
Project
Manager
Major Projects
Office
END
Sponsor
Acceptance
District Director
Sponsor
Major Projects
Office
CONTINUE PROCESS MAP

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December 2007

3.2 Project Scope Definition
The starting point for any estimate is definition of the project scope. It is vital that the defined scope be
checked against the desired outcome to assess whether the network needs, as defined in the project
proposal, are satisfied by this definition of project scope.
The scope statement provides a documented basis for making future project decisions and for confirming or
developing a common understanding of the project scope among the stakeholders. It is supplemented by the
project plans and specifications.
As project planning progresses, the scope statement may need to be revised or refined to reflect the
increased understanding of the project as a result of acquiring further information. The scope work
breakdown structure involves subdividing the major project deliverables into smaller, more manageable
components in order to improve the accuracy of cost, time and resource estimates, define a baseline for
performance measurement and control, and facilitate clear responsibility assignment.
Proper scope definition in terms of the physical scope of the product and work methods is critical to
achieving accurate estimates. Therefore, project scope definition is determined by:
Project Objectives
Project Performance Requirements
Project Definition, and
Physical Scope.
Together these form the Project Brief. Improving project scope definition can be better achieved by a good
understanding of and better documentation of what IS and what IS NOT included. Scope should be defined
using the processes in the Main Roads Preconstruction Processes Manual, 2005.
All project estimates require the preparation of a bill of quantities (BOQ) in as much detail as is feasible for
the stage of the project. Computer aided design methods such as terrain and design modelling should be
utilised where possible to obtain quantities for all stages of estimate.
Note: The project manager needs to ensure the scope is defined in sufficient detail so as not to
unnecessarily rely on contingencies.
3.2.1 Categories of Cost Change
The categories listed below impact on the cost of a project. Estimators must consider allowing cost
contingencies for these changes. The categories can also serve as a management tool to identify the
regular issues and to help find ways of managing them on future projects:
Policy and Standards: This category includes changes to the design and management requirement
mandated by MR through ongoing improvements in safety, and whole-of-life consideration.
Function and Capacity: This category may include increased requirements such as traffic capacity,
axle loadings, ramp speed, additional access points, design speed etc compared to what was
originally described at project definition.
Third Party Influences: This category includes requirements of authorities other than MR (for
example power, water and gas utilities, rail etc) in respect of service relocations and other design
adjustment that need to be considered.
Design Development Changes: Increased cost from greater work scope identified during the design
process required to meet the previously stated performance requirement. These increases are often
incurred through lack of investigation and survey work. This category typifies "scope creep" i.e.
increase in work requirement to meet a previously given outcome.
Client costs: This category includes MR staff costs, consultants fees, peer reviewers costs and so
on. These costs will vary with the type of delivery method chosen for the project.
Property acquisition: This category includes the actual cost of property purchases as well as the
planning and legal fees involved in the land transfers.

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December 2007

Inflation Allowance: This may be impacted by revised value of works, revised duration additional
delay in the works (including both preconstruction and delivery phases), and change in indices %pa.
rates.
Contingency: The change in the allowance for contingency since the previous estimate. It is
anticipated that this figure should reduce as design development progresses.
3.3 Optimism bias
Optimism bias is the demonstrated systematic tendency for people to be over-optimistic about the outcome
of planned actions. Optimism bias applies to professionals and lay people alike. Optimism bias arises in
relation to estimates of costs and benefits and duration of tasks. It must be accounted for explicitly in
appraisals, if these are to be realistic. When plans are implemented, optimism bias typically results in cost
overruns, benefit shortfalls and delays.
Methods to mitigate optimism bias include:
Emphasis on realistic budgeting as an ideal and review over-optimistic budgeting as routine;
Introduction of fiscal incentives against cost overruns, for example through requiring local co-financing
of project cost escalation where possible;
Formalised requirements for high-quality cost and risk assessment at the business case stage;
Introduction of independent appraisal supported by necessary procedures.
(British Department for Transport, Procedures for Dealing with Optimism Bias in Transport Planning
Guidance Document, June 2004)
3.4 Estimate Planning
As part of estimating planning, all documents and plans produced to date are reviewed, the estimating team
formed, and a site visit conducted.
A Site Visit Risk Check List and Record template is provided in Annex A as input to the estimate.
Information relevant to the estimate will include:
Project history
Project objectives
Investigation reports (for example technical and environmental)
Project scope statement
Construction staging plans/methodology and temporary works
Plans and specifications
Bill of Quantities
Project delivery strategy
Preliminary program of work
Costs expended to date
Record of site visit risk identification
Historical cost information.
The estimator shall prepare a simple estimating plan to guide the estimates production within the projects
constraints.

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3.5 Resource Planning
3.5.1 General
Resource planning involves determining what kind and quantity of resources (plant, labour, materials and
sub-contract) are required to perform project activities.
In practice, resource planning is performed in conjunction with the next step in the estimating process, cost
estimating.
Note: Resource planning requires a clear definition of project scope, a Work Breakdown Structure that
subdivides the project into component work packages, an understanding of the work methods to achieve the
specified requirements, the likely availability of resources to perform the work, and the expected productivity
of labour and plant.
The Estimate Breakdown should be based on a WBS level 2 structure so that prices can be related to the
established market benchmarks.
The estimator will be required to obtain market rates for components normally carried out by specialised sub-
consultants and subcontractors. This may be done by either a formal procurement process or alternatively by
maintaining contact with industry suppliers.
The process can be summarised in terms of its inputs, key activities and outputs as indicated in Table 3.1.
Table 3.1 Resource Planning Overview
Inputs Activities Outputs
Work Breakdown Structure
Resource groups
Schedule of work activities
Resource pool analysis
Project cost records and
reports
Work method studies
Procurement/market testing
Resource requirements
Resource prices
Activity durations
3.5.2 Work Method Studies (Constructability)
Studies are often required for significant items to determine the feasibility and efficiency of alternative
production methods.
For example, when considering the construction component of a project, the estimator may need to examine
the earthworks mass haul diagram to evaluate haul quantities and distances, borrow and spoil requirements
and the most effective construction fleet for the particular site conditions.
Similarly, for major projects in high traffic areas, it may be necessary to develop traffic management and
construction-staging plans in order to evaluate the cost of traffic management activities.
Estimators need to match the level of estimating effort with the expectations of estimating accuracy for the
estimate stage being considered.
3.6 Cost Estimating
This is the process of developing the cost estimate.
To produce a project cost estimate, all components of the project need to be estimated, including:
concept planning
design development
detailed design
land acquisition
risk contingencies

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December 2007

alterations to public utility plant
construction
temporary works (including sacrificial works) and traffic management
handover
project management.
The first principles (basic cost) estimating method, outlined in section 4.2.3, involves calculating the cost of
all the resources needed to complete the project, including an assessment of the likely risks to be
encountered and allocation of contingency amounts to accommodate these risks.
For strategic, concept and preliminary design estimates, estimators are encouraged to use updated historical
information as a reality check when building up their first principles estimates. This requires districts to keep
accurate information on previous project costs in the form of a date/cost table for resources such as rock,
gravel, sand, cement and concrete.
Because of the wide range of activities to be estimated, components of the estimate may have to be
developed within their respective functional areas and combined to form the total project cost estimate. For
example, designers would have input into the estimate for the planning and design components, constructors
for the civil construction component, traffic technicians for the traffic signals and street lighting component
and so on.
The estimator will coordinate the assembly of the various cost components to form the total estimate.
The process can be described in terms of its inputs, its key activities and its outputs, as indicated in
Table 3.2.
Table 3.2 Cost Estimating Overview
Inputs Activities Outputs
Work breakdown structure
Bill of Quantities
Program of work with
resource requirements,
resource prices, activity
durations
Risk schedule
Project cost records
Unit rate estimating
Risk assessment
Contingency assignment
Total project cost estimate
in current dollars and out-
turn dollars.
Supporting details
Assumptions
Cost management plan
(cost make-up)
Archived records

3.7 Cost Budgeting
The project budget is expressed in out-turn dollars ($OT) to reflect the actual completion cost of the project.
These costs will include the component costs of concept development, design development, detailed design,
land acquisition, alterations to public utility plant, construction, handover and project management client
costs, commencing with the development of the project proposal.
Out-turn costs are calculated by adding an allowance for inflation to the cost estimate which has been
developed in current year dollars. This allowance is based on a calculation of the MR established cost
escalation forecast applied to the estimated project cash flow. (See Section 5.6)
Table 3.3 Example of Inflation Calculation
Description Year 1 Year 2 Year 3 Year 4 Year 5 Total Project Cost
Expenditure profile in current
year dollars
$0.50M $1.50M $25.00M $40.00M $15.00M $82.00M
Inflation 1.00 1.03 1.03
2
1.03
3
1.03
4

Project budget $0.50M $1.55M $26.52M $43.71M $16.88M $89.16M
Project Cost Estimating Manual Estimating Approach

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Estimating Approach
December 2007

4 ESTIMATING APPROACH
4.1 Estimating Structure
4.1.1 General
All estimates comprise:
dividing the project into sufficiently small elements so as to allow a single rate or unit cost to be
applied to each element;
extending the quantities and rates to determine a cost for each element;
summing the resulting elemental costs and, finally,
applying indirect costs to give a complete estimate.
The cost structure of a typical project is illustrated in Figure 4.1.
Figure 4.1 Project Cost Structure

Estimating Approach Project Cost Estimating Manual

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Estimating Approach
December 2007

4.1.2 Direct Job Costs
Each activity within the standard work breakdown structure (WBS) is sub-divided into sub-activities or tasks
according to the processes needed to complete the work. These work activities are usually detailed in the
project specification (and as per detailed scope definition). For example, concrete in a bridge deck is typically
subdivided into formwork, reinforcement steel, concrete supply and placement, finishing and curing. To
determine the direct cost of the activity, resources such as plant, labour and materials are then allocated to
the scheduled quantity of work according to their capacity to meet the requirements of the project, resource
availability, production rates and unit costs The sum of the activity direct costs gives the Direct Job Costs
(DJC) of the project.
Costs included in direct job costs are expressed in current dollar terms and are summarized in Table 4.1.
Table 4.1 Examples of Direct Job Costs (in current dollar terms)
Cost Category Components Sub-components
Gross wages and salaries
Award allowances (for example construction worker allowance,
construction camp allowance, overtime loading, annual leave loading,
site-specific allowances and severance allowance)
Superannuation
Training
Work cover
Payroll tax
Personal protective equipment
Labour
Labour administration support costs
Plant hire rate for contractors plant and plant supplied externally on a
dry hire basis (that is exclusive of fuels, oils, expendables, ground
engaging tools and operator)
Fuels, oils, consumables and ground engaging tools of plant items
Plant
Transport of plant items
Permanent material incorporated in the final works (for example supply
and delivery of pavement materials, supply only of RC pipe & box
culverts, supply of bridge expansion joint, etc)
Materials
Temporary materials not incorporated in the final works (for example,
traffic barriers, sheet piling, formwork, silt fences, setting-out pegs, etc)
Direct job costs
Sub-contract Components of the work (permanent or temporary) sub-contracted by
the head contractor (for example erection of deck units, installation of
sheet piling etc), and including subcontractors indirect job costs and
offsite costs
Subcontract plant hired on a wet hire basis (for example plant including
fuels and oils, expendables, ground engaging tools and operator)
4.1.3 Indirect Job Costs
Indirect Job Costs include the allowances that contractors require to manage the project, and cover their risk,
corporate overheads and margins. Estimates prepared by MR and its service providers must show specific
line items for each of the indirect cost categories.
Options include:
separate schedule item for indirect costs

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Estimating Approach
December 2007

indirect costs distributed through the schedule activities, either as a uniform percentage mark-up on
direct job costs or allocated to specific activities.
Contractors preparing detailed estimates for tenders normally adopt the basic cost method. It is the most
accurate estimating method, but relies on a high level of scope definition for best results.
On-site indirect costs, often referred to as on-site overheads, are summarised in Table 4.2.
Table 4.2 Examples of Contractors On-site Indirect Job Costs
Cost Category Component Sub-component
Project Manager Project management
Project Engineer
Supervisors
Administration officer
Systems officer
Surveyor
Works management
Laboratory technician
Office rentals (for example accommodation, facsimile,
photocopier, computer hardware and software)
Service utility charges (for example telephone, power, water and
sewerage)
Site facilities
Cleaning charges (for example office cleaning, septic pumping,
refuse disposal, etc.)
Plant and equipment Site staff vehicles
Job truck (general purpose)
Pumps and generators
Floating plant and loose tools
Stationery Consumables
Miscellaneous materials
Insurance and permits State government and local government permit fees, insurances
required by the contractor, bank guarantees and financial
charges
On-site indirect
job cost
Overheads
(recurring)
Travel Travel costs not included in wages and salaries
Site establishment Transport and erection of site facilities On-site
Overheads
indirect job
costs (fixed)
Mobilisation
Mobilisation, site offices and amenities for contractor, clients
team and in some cases, subcontractors

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Off-site indirect costs, often referred to as off-site overheads, are summarised in Table 4.3.
Table 4.3 Examples of Contractors Off-site Indirect Job Costs
Business unit costs Local area costs associated with the management of
operations, finance, human resources and business
systems
Off-site indirect job
costs, corporate
overheads
(recurring)
Corporate costs Costs associated with strategy and policy development,
business development, finance, human resources, business
systems, technical advice, and contract advice
Off-site allowances
(fixed)

Contingencies and
Risk allowances
An amount to cover the costs of unforeseen factors related
to the delivery of the project objectives which are not
provided for elsewhere in the total job costs
Margin Profit margin Provision for profit often applied as a percentage of the total
job costs (direct job cost plus on-site overheads)
4.1.4 Principals Costs
These are the costs of the project attributable to the Principal during the project lifecycle. The estimator
must allow for these costs as separate line items in the estimate. Care needs to be taken in the proper
allocation of escalation to these costs. Note also that although the Contract Costs will attract a margin
percentage, the Principals Costs will not.
Table 4.4 Examples of Principals Costs
Establishment
Costs
Planning, design, land
acquisition,
administration
Planning, community consultation, land acquisition, MR staff
costs, geotechnical surveys, cadastral & engineering surveys,
Principal Arranged Insurance, Principals Risks not included in the
Contract risks, contract administration and so on
Contingencies and
risk allowances
An amount to cover the costs of unforeseen factors related to the
delivery of the project objectives which are not provided for
elsewhere in the total job costs
Project
allowances
Design growth and
standards growth
Increase in costs due to the change in design and construction
specifications and community expectations over the life of the
project
4.1.5 Unmeasured (Unidentified) Items
In addition to the items listed in the pricing schedule for the Strategic, Concept and Detailed estimates for
items which have not been identified during the quantity take-off process, the estimator shall allow the
following lump sum price amounts in the contract works contingency register:
Detail Design Estimate => 1% to 3%, of total construction cost
Concept Estimate =>3% to 5% of total construction cost
Strategic Estimate => 5% to 7% of total construction cost
4.1.6 Inflation
Inflation is the increase in project costs over time due to rise and fall and applies to the whole of the
estimated costs.

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Estimating Approach
December 2007

Table 4.5 Inflation
Project
allowances
Inflation Within the context of project cost in MR, escalation is the increase in
project costs over time resulting from rise and fall, and is applied to all
estimated costs
4.2 Estimating Methods
The basic difference between different methods of estimating is the degree to which a project is divided into
elements and the method used to apply rates and additional costs. The more rigorous the process used, the
greater will be the certainty of estimate outcomes/the accuracy of the estimate.
4.2.1 Global Estimate (Benchmark rates)
Global estimating, or Order of Magnitude estimating, describes an approximate or low order method of
estimating involving the use of all in or global composite rates. The project could be considered as
consisting of one estimating element only and the estimate prepared on this basis (approximately a Level 2
WBS). Examples are road cost per km and bridge costs per square metre of deck area.
Note: Global estimating has been found to be unreliable in achieving the level of estimating accuracy
required by MR, even for strategic estimates. Consequently, global estimating must not be used for
budgeting purposes or for media releases.
4.2.2 Unit Rate Estimate
Unit rate estimating calculates the cost of each element of the project by multiplying the quantity of work by
historical unit rates. The project cost is then determined by the sum of the elemental costs. The unit rate is
normally determined from a careful analysis of unit costs of a number of recently completed projects of the
same type, allowances being made for project differences. It is important that the project analysis
recognises that the rates may include indirect costs such as contractor's management, risk, overheads and
margins, which must be adjusted when converting a unit rate to the direct cost rate.
Adjustments to be considered include:
inflation
site conditions (mountainous or flat terrain)
market conditions
on-site and off-site overheads and profit
scale of works (large or small quantities)
site location (urban or remote)
design complexity (unique or routine)
risk profile ground type
construction methods (specialised or conventional)
specification of materials and finishes (for example architectural or plain finish).
Unit rate estimating is a relatively quick method of estimating but lacks precision, especially in the
interpretation of what exactly is provided for in the unit rate. Accuracy of an estimate requires emphasis on
scope, reflected in a comprehensive schedule of work items that is unique to the project. Unit rates can vary
from project to project, but the use of the historical unit rate, adjusted by an experienced estimator and
applied to a detailed schedule, produces a more accurate estimate than a global estimate.
With a sufficient level of information in terms of the scope of the project, the work breakdown, quantities and
careful selection of appropriate historical rates, the unit rate method of estimating is capable of producing
estimates suitable for all project stages through to detailed design.

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December 2007

Note: Historical costs can be misleading as they are not current rates and caution will need to be exercised
in the absence of a controlled set of historical cost information. Historical costs should be used only as a
reference indicator for an item.
4.2.3 First Principles (Basic Cost / Detailed) Estimate
The foundation of first principles estimating, sometimes referred to as basic costs estimating, is the
calculation of project-specific costs based on a detailed study of the resources required to accomplish each
activity of work contained in the projects work breakdown structure.
Caution should be exercised so that an adequate allowance for items not properly documented (see section
4.1.5) is made and included in the estimate schedule.
Before attempting to use first principles estimating to estimate construction costs, if estimators do not have
experience or knowledge of the likely constructors production rates, they should seek assistance from those
who do, i.e. obtain the correct information.
Consideration needs to be taken of such things as the site conditions likely to be encountered, the program
of work, work methods to be employed (including alternatives), resource availability, productivity of labour
and plant, procurement of materials and subcontractors as well as risks likely to be encountered during the
course of the project.
4.2.4 Hybrid (Unit Rate/First Principles) Estimate
The hybrid method uses some features of the unit rate method and some of first principles method, thereby
increasing estimating accuracy above that of the unit rate method.
The estimate is completed in a similar manner to the first principles estimate, by the application of typical
percentages for on-site and off-site overheads and profit to a direct job cost estimate compiled using a direct
cost unit rate method.
A weakness of the method is that it relies on the availability of direct cost unit rates (that is rates which are
equivalent to the direct job costs component of the first principles method before the distribution of indirect
costs). These are not normally available from industry unless the organisation itself carries out basic cost
estimating. Given the correct information, experienced estimators can make an adequate analysis of a
contractor's tender schedule and bring the costs back to a direct cost level.
For example, a business case with limited project development detail uses first principles for high value, high
risk items and unit rates for low risk items.
4.2.5 Monte Carlo analysis
Monte Carlo analysis must be carried out by expert qualified practitioners to define the P50 and P90 bounds
of the estimate. Refer to section 6 and section 7.1.3 of this manual.
4.3 Selecting the Appropriate Method
The method chosen for the preparation of an estimate depends on both the purpose for which the estimate is
to be used (and therefore the required level of confidence of the estimate) and the level of detail of the
available data.
In practice, it is common for combinations of estimating methods to be used on the business case estimate.
Most of the effort should be directed to ensuring the accuracy of the 20% of items that often make up 80% of
the costs the Pareto approach.
4.3.1 Recommended Method
The methods recommended for various types of estimates are shown in Table 4.6.
The project manager is responsible for using the appropriate estimating method to provide a P90 estimate
for the different types of projects defined in the OnQ system. The project manager must decide the type of
project (using OnQ) and agree with the estimator as to the estimating methodology to be employed. This
table is a guide to the type of estimating methodology that may be used.

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Estimating Approach
December 2007

Table 4.6 Recommended Estimating Methods
Estimate Stage Type I Type 2 Type 3
Strategic or Pre-
project
PCEM not applicable PCEM not applicable PCEM not applicable
Proposal Unit Rate method Unit Rate method Global Estimate
Options Analysis
60% value at Unit Rates
Estimate, 40% value at
First Principles Estimate
Unit Rate method Global Estimate
Business Case
First Principles Estimate at
WBS3
Unit Rate method
Preliminary
Design
WBS3
Estimate, 80% value at First
Principles Estimate
Detailed Design
WBS3
at WBS3
WBS3
Project Cost Estimating Manual Contingency

Page 31 of 73
Contingency
December 2007

5 CONTINGENCY
5.1 General
Contingency, in terms of managing risk on a project, can take many forms. It may be a time allowance in the
program of work for delay such as wet weather, a cost allowance in the project cost estimate to account for
the residual risk or a contingency process in case an event happens. The amount of the contingency is
reassessed at project review points to reflect current knowledge and level of uncertainty of the project, with a
view to forecasting the most likely outcome.
5.2 Exclusions
Contingency amounts are not meant to cover all eventualities. It is important, therefore, to understand the
limitations imposed. These limitations include:
Contingency does not cover changes in scope. That is, contingencies reflect only circumstances
within the approved scope of the project. In the event that a decision is made to change the scope of a
project, then the project will need to be justified again. This is required each time there is a revised
scope definition, and a new estimate reflecting a level of contingency applicable to the revised scope.
Contingency is limited to probable events. These are events that are foreseeable and pose a risk
to the project in terms of their perceived likelihood and consequence. These are sometimes referred to
as known risks.
Contingency does not include "unknown" events. Events that are unknown in terms of their
existence and likelihood of occurrence are excluded from the contingency allowance provided in the
project cost estimate. This assumes that the project manager has an obligation to reasonably
investigate the environment in which the project exists to minimise the number of unknowns.
5.3 Applying Contingencies
The risk treatments that result from the risk management process can be categorised as follows:
Category 1 Specific provision in the design or delivery method of the product that overcomes all or
part of the risk (that is risk avoidance, risk reduction or risk transfer)
Category 2 The retained risk is allocated a contingency allowance that is included in the cost
estimate, either as :
o the Principal's contingency amount, and/or
o the District Directors contingency amount, and/or
o a separate provisional item addressing the risk.
In Category 1, the cost of avoiding, reducing or transferring the risk is provided for in the cost of the work
activities for the adopted design and does not appear as a contingency. (It will need to be provided in the
contract estimate).
In Category 2, the accepted or residual risk is allocated a contingency allowance that is included in the cost
estimate, either:
as a Principal's contingency amount, or
a separate provisional item addressing the risk (for example inclusion of a provisional item for
removing and replacing unsuitable material, or inclusion of an item for setting up for re-driving of
piles).
Total project contingency is the sum of the Category 2 contingencies, unless it is decided that a statistical
approach should be applied.
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5.4 Quantification of Contingencies
Quantification of contingency allowances for cost estimating items is achieved by applying the risk
management processes detailed in AS/NZS 4360:2004.
Because of the uncertain nature of the assessment process, it is difficult to be prescriptive as to how
contingency costs should be estimated. Sufficient to say that the estimator and project manager must use
their experience and professional judgment to weigh the competing factors to arrive at the most likely
value. Historical events may be used as a guide.
Where risks are significant and complex, it is recommended that a statistical evaluation method be used.
Refer to Section 6 or 7.1.3 for information on the Monte Carlo method.
This area of cost estimating is relatively new to MR and it is appropriate that some guidance is given as to
the level of contingencies that will be accepted. .
The guidance given by Table 5.1 assumes that the project manager and designers have exercised
reasonable care in defining the scope so as not to unduly rely on contingencies. Larger contingency
allowances must be justified.
Table 5.1 Expected Contingency Range
Estimate Stage Typical Contingency Range
Strategic Estimate 30% to 50%
Concept Estimate 30% to 40%
Preliminary Design 20% to 30%
Detailed Design Estimate 10% to 20%
5.5 Reviewing Contingencies
Under the risk management strategy adopted by MR, risks are reviewed at intervals throughout the project
life cycle and assessments updated to reflect the current level of uncertainty surrounding the project.
Risks for which contingencies were provided early in the project may, at some later time, be overcome by
further investigation or modification of design within the original scope. For example, a contingency
allowance for rock in cuttings early in the project may be replaced by specific quantities and costs following a
geotechnical investigation with no residual uncertainty.
This example serves to highlight the importance of identification of contingencies separately from the base
cost of work activities, and for the recording of reasons for their inclusion. The risk register provides a
convenient place to record such decisions, in particular whether the risk is owned by the customer, by the
deliverer, or by the Project Manager as the Manager of provisional scheduled items.
In terms of contingency allocation, the project manager owns the contingency for known project risks. The
program manager owns the contingency for unknown project risks.
5.6 New Cost Escalation Road Input Index for Main Roads
The Cost Escalation Road Input (CERI) index has been developed by MR as a tool to assist district staff
improve the accuracy of their estimates. It replaces the discontinued Road Input Cost Index (RICI). The
CERI cost escalation index measures change in the average unit rate per quarter or year, as applicable. The
base CERI index and its forecasts can be used as part of the process to turn current estimates into out-turn
estimates at time of delivery.
The index utilises an innovative statistical model to map a broad suite of economic factors into a single
weighted index. The system also constantly monitors market movements to ensure that the most influential
and important factors are included in the rolled up index.
Procurement Development and Research Branch will be publishing regular CERI forecasts for up to two
years ahead, using industry best practice methods. The latest CERI index can be obtained from the Branch.

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6 PROBABILISTIC ESTIMATING
This chapter sets down the parameters for the preparation of an estimate using probabilistic simulation.
6.1 Overview
Probabilistic Estimating is a method of generating estimates taking into consideration that quantities
measured (or allowed for) can change, rates assumed can vary and risks with a probable outcome can
materialise.
Probabilistic estimating complements, and does not replace, the estimating procedures outlined in
the previous chapters.
The calculation of the base estimate for strategic, concept and detailed estimates will be undertaken as per
the relevant sections of this estimating manual.
Probabilistic simulation should be used to determine the appropriate contingency for the project. The
contingency is equivalent to the difference between the cost determined using the probabilistic simulation
and the cost adopted in the base estimate.
6.2 Requirements
Main Roads estimating policy requires that the Actual Cost of a project has a 90% probability of not being
greater than the estimate prepared or, as expressed differently, the estimates are to have a 90% confidence
factor of not being exceeded.
The 90% confidence level is the mandatory requirement for Main Roads estimates.
P90 denotes the value of the estimate that exceeds 90% of the values generated by the simulation.
6.2.1 Risks
For risks which have been identified, reference should be made to the project risk analysis. Estimators shall
review the risks identified and add any other possibilities which they may consider appropriate.
This shall include the costs associated with handing over the project and other items of cost represented in
the Estimate Summary Sheet, such as:
Finalisation Refurbish old route
Finalisation Project data and post-completion review
6.3 Probability Distributions
All variables such as quantities, rates, risk costs, can vary from the figures adopted in the base estimate.
The extent of the variance of the values for these variables can be presented by a probabilistic distribution.
All variables such as quantities, rates, costs, and so on, shall be subject to a probability distribution to allow
for uncertainty and possible variation in their quantitative value.
The probability distribution adopted shall be based on historical records, industry performance, technical
capabilities and other relevant performance information.
The probabilistic distribution shall be used to represent the variance of the estimated value in a model of the
estimate.
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7 RISK
7.1 Risk Management Overview
7.1.1 Concepts of Risk
Risk is defined as the chance of something happening that will have an impact upon project objectives. It is
measured in terms of consequences and likelihood (AS/NZS 4360:2004 Risk Management).
Risk management is about managing a project within its inherent environment of uncertainty.
It is helpful at the outset to distinguish between the concepts of uncertainty and risk:
Risk is experienced on being exposed to the chance or probability of suffering a loss or profit. Risk is
then a measure of the probability of that loss or profit occurring.
Uncertainty, therefore, represents unknown or ill-defined variables, whereas risk lies essentially in the
perception of the decision-maker as to the possibility of a loss occurring.
There is no one common standard of risk. A set of circumstances declared "risky" by one individual may not
necessarily be so when assessed by another using a different perspective.
The prevailing view should be aligned with MRs organisational goals as expressed in the departments
strategic plan.
Within the context of a project, the project manager must consider all the uncertainties during the course of
the project, and make a judgment as to the likelihood and consequences of a risk emerging that will threaten
the objectives of the project. It should be remembered that these objectives are not necessarily internal to
the project, but can include organisational and community considerations.
7.1.2 Management of Risk
Management of risk is an integral part of the project management process. Risk management is a multi-
faceted process, certain aspects of which are often best carried out by a multi-disciplinary team. It is an
iterative process designed to progressively diminish risk as uncertainty about the project outcomes is
reduced.
Risk Assessment must be properly applied and concentrate on:
lower and upper ranges used for risk on measured items;
type of distribution used (as probabilistic estimating favours the most likely figure, unless range is
wide);
correlation between estimate items, otherwise risk can be under-assessed;
application of extensive and substantial contingent risk at the concept stage of a project.
The concept of an uncertainty cone in Figure 7.1 may help explain how uncertainty changes with time.
Figure 7.1 Uncertainty Cone

As the project moves through the phases, the range of solution options diminishes as uncertainty is reduced.
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Risk identification processes are applied and documented to ensure that identified risks are tracked and
progressively responded to throughout the project life cycle to ensure project objectives are achieved.
At project review and approval points, a projects risk status should be determined so as to provide the
program manager with an opportunity to make a business decision on how to proceed. The project cost
estimate for the review point will include, in the form of a contingency allowance, provision for all expected
risks that have been identified at that time.
Project Risk Management includes the processes associated with conducting risk management planning,
identification, analysis, responses and control on a project. The objectives of risk management are to
increase the probability and impacts of positive events, and reduce the probability and impacts of events
adverse to project objectives.
Risk management is an iterative, ongoing activity that will increase the likelihood of project success. The
adoption of a structured approach to risk management encourages:
better informed decision-making and project justification
reliable project delivery
effective and efficient allocation and use of resources
high standard of accountability
creativity and innovation in management practice
improved capacity to manage in the face of competing obligations
increased understanding of project
realistic schedule and cost estimates
build-up of statistical data for future projects
proactive management and more effective use of time.
7.1.3 Statistical Techniques
With any estimate, there will be activities that exhibit uncertainty and variability.
Traditionally, estimating techniques tried to capture this uncertainty in one of three ways: point estimates,
range estimates and what-if scenarios.
Point estimates are produced when the estimator uses what is thought to be the most likely values
(technically referred to as the mode) for the uncertain variables. These estimates are the easiest to
produce, but can return very misleading results.
Range estimates typically calculate three scenarios: the best case, the worst case and the most likely
case. These types of estimates can demonstrate a range of outcomes, but not the probability of any of
these outcomes.
What-if scenarios are usually based on the range estimates, and calculate as many scenarios as the
estimator thinks fit for the project. This form of analysis is extremely time-consuming, and generates
lots of data, but still does not provide the probability of achieving different outcomes.
One method of taking into account the uncertain variables involves the use of a model designed to simulate
or imitate a real life system.
For each uncertain variable (one that has a range of possible values), the estimator defines the possible
values with a probability distribution. The type of distribution selected is based on the conditions surrounding
that variable.
A simulation calculates multiple scenarios of a model by repeatedly sampling values from the probability
distributions for the uncertain variables.
Software commonly used in the analysis and quantification of risk (in the Monte Carlo analysis) includes:
Crystal Ball
@ Risk.

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7.1.4 Risk Management Terminology
The following lists key risk management terms.
Assumption
A particular group of risks where the probability of occurrence is neither so high (nearly 100%) or so low
(nearly 0%). In such cases the project assumes the probability to be either zero (ignore) or one hundred
percent (constraint).
Constraint
A barrier to how the project achieves its objectives. A constraint is not a risk because it has no uncertainty; it
is a given.
Contingencies
Can also be defined as the cost of retained risk or opportunity which has been allotted to the project
manager (and/or program manager) to control.
Issue
An issue occurs when a risk (including opportunities) eventuates.
Opportunity
A particular type of risk where the potential impact is beneficial rather than negative.
Risk
The chance of something happening that will have an impact upon project objectives. It is measured in terms
of consequences and likelihood.
7.1.5 Risk Management References
The main elements of the risk management process are shown in Figure 7.2, taken from AS/NZS
4360:2004.
Estimators and project managers should check MRs Project Manager's Risk Management Guidelines and
use the risk management database included in Tools in the OnQ site.

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Figure 7.2 Risk Management Processes


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7.2 Risk Management Processes and Their Application
The risk management processes detailed in AS/NZS 4360:2004 Risk Management provide a means of
achieving some consistency in how risks are managed.
These processes can be applied at all levels in the organisation, including projects. It provides a logical and
systematic approach to guide the Project Manager through an iterative process, as depicted in Table 7.2.
Managers need to identify their role in contributing to the organisations wider goals, objectives, values,
policies and strategies when making decisions about risk. These help to define the criteria by which it is
decided whether a risk is acceptable or not, and form the basis of controls and management options.
Risk evaluation and treatment is project-specific. Advice is provided in the Main Roads Project Managers
Risk Management Guidelines.
7.2.1 Establish the Risk Management Context
The goals, objectives, strategies, scope and parameters of the activity, or part of the organisation to which
the risk management process is being applied, should be established. Key questions which need to be
asked include:
What is the policy, program, process or activity?
What are the major outcomes expected?
What are the dollar values?
What are the significant factors in the organisations internal and external environment?
A component of this step is establishing risk criteria and constraints. Consideration should be given to the
level of risks the organisation is prepared to accept. The criteria are used to rank risks to decide whether
they are acceptable or not in the evaluation step. Key questions which need to be asked include:
What are the major threats and opportunities the program presents?
What are its strengths and weaknesses?
Who are the stakeholders?
What problems were identified in previous reviews?
What risk criteria should be established?
What is the best way of structuring the risk identification tasks?
7.2.2 Identify the Risks
This refers to the identification of the risks to be managed and involves listing all risks the project may face
during its lifecycle that are known at the time. Comprehensive identification using a systematic process is
critical, because a potential risk not identified at this stage is excluded from further analysis.
A top-down approach is often taken as the project is looked at as a whole. It provides for an overview of the
project from an early planning perspective.
A bottom up-approach ensures coverage of lower level aspects - specific issues affecting individual tasks;
implementation and progress of the project.
Useful techniques include risk workshops, reviewing past project documentation and talking to the "wise old
man". Some risk categories to consider in this stage include:
political
related projects
scope definition
communications

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resources
traffic
technical
contractual environment
workplace health and safety
organisational
financial
business interruption
suppliers
natural events
cultural
subgrade
stakeholders
embankments
timing / schedule
drainage structures
7.2.3 Analyse the Risks
Risk analysis involves determining the likelihood of events occurring, the magnitude of their consequences
should they occur, and combining these values to produce an overall risk rating.
A preliminary analysis can be carried out so that similar or low-impact risks are excluded from detailed study.
Excluded risks shall, where possible, be listed to demonstrate the completeness of the risk analysis. As the
project progresses, a more detailed approach may be required.
The risk management process can not only address negative impacts, but also be used to consider
opportunities to achieve benefits. The results of progressive risk review include:
identification of risks
application of positive treatments
cost/benefit analysis
realisation of benefits
project progresses to target milestones and objectives, and
no surprises management.
7.2.4 Evaluate the Risks
The risks are assessed in terms of their likelihood and consequence, according to the assessment tool in
Table 7.1, which provides a qualitative approach to risk analysis. The risks can then be categorised
according to their severity.

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Table 7.1 Qualitative Risk Analysis Matrix
Consequences
Likelihood
Insignificant Minor Moderate Major Severe
Almost certain High High Extreme Extreme Extreme
Likely Medium High High Extreme Extreme
Moderate Low Medium High Extreme Extreme
Unlikely Low Low Medium High Extreme
Rare Low Low Medium High High

7.2.5 Treat the Risks
The output of risk management processes are decisions as to how the risks will be treated. This is recorded
in the project risk register, along with the assessment of contingency amounts to be provided for in the
project cost estimate.
The project risk register will become an important source for organisational learning and should be reviewed
in the project finalisation activities.
The project risk register can be developed using the generic risks listed in Annexure A Site Visit Risk
Checklist and Record.
Options for risk treatment are detailed in Table 7.2.
Table 7.2 Options for Risk Treatment
Risk Treatment Options Description
Avoid the risk Deciding not to proceed with the activity likely to generate risk.
Example:
The project manager may decide to avoid exposure to acid sulphate soils by
eliminating excavation in the affected area. The cost implications arising from
avoiding the risk would be provided for in the cost of the revised design items.
Inappropriate risk avoidance may increase the significance of other risks.
Reduce the likelihood
and/or consequences of
the occurrence
This is a common occurrence in the delivery of projects.
Example:
It may be appropriate to design a bound pavement as an alternative to a
granular pavement to minimize the damaging effect of wet weather. The cost
implications would be reflected in the cost of the substitute items.
It may be decided to carry out detailed geotechnical investigations into soft
ground conditions in order to make provision in the design for the risk of
embankment failure during construction and in service. The cost of this risk
reduction treatment will be reflected in the investigation costs of the project.
See Retain the Risk below, for how to handle residual risk.
Examples of how to reduce likelihood and consequences of an occurrence are
shown in Section 3.6 of AS/NZS 4360:2004.
Transfer the risk This involves another party bearing or sharing some part of the risk.
Mechanisms include the use of contracts, insurance arrangements and
organisational structures such as partnerships and joint ventures.
Main Roads construction and minor works projects allow for either contractor-
controlled ("all risks") insurance or principal-arranged insurance. Main Roads
has adopted, as policy, Principal Arranged Insurance (PAI) on open-bid
contracts for construction work forming part of the Roads Implementation
Program (RIP). The PAI policy is designed to comprehensively cover

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Risk Treatment Options Description
construction risks of all project works at all levels including the principal,
contractor and subcontractors.
In estimating for projects covered under the PAI program, provision needs to be
made for insurance premiums. Further information on PAI can be found through
MR Junction.
Example I:
It may be decided in the face of expected delays, to subcontract earthworks on
a unit rate basis rather than do the work using an organisations own resources
In this way, all or part of the delay costs may be included in the subcontract unit
rate thereby limiting the risk of to delay/costs.
In such circumstances, the selection of the subcontractor would include
consideration of the subcontractors capacity to handle the delay risk without
creating another risk such as non-performance of the work.
Example II:
The transfer of identified unique project risks may require customised
construction insurance. In such circumstances, early consultation with insurers
will be required for the settling of insurance specifications, the adaptation of the
existing Principal Arranged Insurance Program or the negotiation of a project-
specific policy. Insurers may include risk mitigation requirements with a direct
impact on project costs.
Retain the risk. After risks are reduced or transferred, there may be residual risks that are
retained.
The cost of dealing with any residual risk event, if it eventuates, should be
included as a contingency against the activities concerned or, alternatively,
included in a separate item.
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8 REVIEW AND APPROVAL OF ESTIMATES
This section establishes clear lines of accountability for the production, review and approval of project cost
estimates, with a view to achieving a high level of estimating quality and consistency across the organisation.
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Table 8.1 Responsibility Assignment Matrix Preconstruction Activities
Ref. Activity Estimator Planner
Designer
Peer
Review
PM FM DD GM MPO Stakeholder
Community
1.0 Strategic Planning (pre-project)
1.1 Prepare link strategy R A C C C
1.2 Scope statement R C A C
1.3 Prepare strategic cost estimate R I C A C
1.4 Approve link strategy I/C C A
1
C
2.0 Concept Phase
2.1 Prepare project proposal (including planning estimate) R A C C C
2.2 Detailed Scope statement R C C A
2.3 Approve project proposal R A
2.4 Develop options R C A C C
2.5 Conduct options analysis (inc. options estimates) R R C A C C
2.6 Approve options report I/C C C A
2.7 Develop scope of preferred option R C A C C
2.8 Prepare business case (inc. concept estimate) R R C A C C C
2.9 Review project I/C C A C R C
2.10 Approve business case (inc. concept estimate) I/C C A E
2
C
3.0 Development Phase (Preliminary Design)

1
General Manager (State-Wide Planning)
2
For District delivered projects this means General Manager (Program Development & Delivery). For MPO delivered projects this means General Manager (Major
Projects Office)

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Ref. Activity Estimator Planner
Designer
Peer
Review
PM FM DD GM MPO Stakeholder
Community
3.1 Develop solution design R C A C C
3.2 Scope statement R I C A C C
3.3 Prepare preliminary design cost estimate R R C A C C C
3.4 Review project I/C C A C R C
3.5 Approve preliminary design estimate I/C C A E
3

4.0 Development Phase (Detailed Design)
4.1 Prepare detailed design R C A C C
4.2 Prepare detailed design cost estimate R I C A C C
4.3 Peer review C R R R R
4.4 Approval to proceed to tender I/C C A E
3

Key 1: A = Accountability; R = Responsibility; C = Consult and Engage with; I = Provides Information; E = Endorse
(Convention: Accountability at one level implies accountability at higher levels in the organisation.)
Key 2: PM = Project Manager; FM = Functional Manager (for example design manager); DD = District Director; GM = General Manager, MPO = Major Projects Office

3
For District delivered projects this means General Manager (Program Development & Delivery). For MPO delivered projects this means General Manager (Major
Projects Office)
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8.1 Estimate Review Process
The review process can apply at any estimate stage and can be one of three types:
Type 1 Peer Review
Unless specified otherwise, the peer review is sponsored by the District Director as the officer accountable
for program delivery in the district. The review is conducted by the peer review officer (an experienced
project manager or officer authorised by the District Director but independent to the project) who will report
back to the District Director and project manager. The peer review officer is responsible for:
checking that all necessary documentation has been completed and submitted by the project manager
reviewing item quantities and rates using the Pareto approach (80:20 rule)
reviewing optimism bias
identifying potential errors in the estimate
reporting cost trends for the project
reviewing benchmarks for similar work
reviewing project constructability
reviewing risk registers and contingency allowances
assessing construction methodologies and checking the preferred options
verifying that key assumptions have been listed and appropriate allowances have been made in the
estimate ensuring that the scope is fully understood and addressed
verifying that previous quantities, rates, lump sums and contingencies have been reviewed as
additional information has become available, and
preparing an estimate peer review report (refer Annex B).
Any concerns or irregularities regarding the estimate shall be the subject of corrective action by the Project
Manager before it is submitted to the District Director for approval.
Type 2 Concurrence Review
A concurrence review is prepared by a suitably qualified independent internal resource (for example, MPO or
PDI) or an external party to assess:
estimate conformance against the estimating standards, and
estimate reasonableness.
Concurrence reviews are to be undertaken for projects that are:
state-funded projects with an estimated cost greater than $20 million
federally funded projects with an estimated cost greater than $10 million, or
all high-risk or complex projects.
The responsibilities of the reviewing officer are the same as for the peer review.
Any concerns or irregularities regarding the estimate shall be the subject of corrective action by the Project
Manager before being resubmitted for signing off concurrence.
Type 3 Program Review and Approval
In approving the project budget, the General Manager (PD&D) must be satisfied that the estimate is
reasonable and that the project can be funded through the RIP or federal government programs. Actions
taken are communicated back to the District Director.

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8.2 Estimate Approval Process
The approval process applies at every estimate stage. The decisions in the review and approval process are
to be recorded on the Project Cost Estimate template (see Figure 9.3) and communicated to the Project
Manager through the District Director.
The approval of the estimate does not confirm approval to expend funds on the project.
Table 8.2 Approval Levels for all Estimates
Estimate Value Approval Requirement
Estimate approval District Directors approve
Estimate acceptance Project sponsor accept
Note: The sponsor is required to sign off the project budget estimate for each stage of the project before it
advances to the next stage

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9 PRESENTATION OF ESTIMATES
9.1 General
MR has established methods for the presentation of estimates that have provided a high level of consistency
over the years. These are supported by new templates which, to ensure consistency, are to be used for
presentation at all mandatory estimate stages. The cost estimate templates are available from the OnQ
website.
9.2 Work Breakdown Structure (WBS)
9.2.1 General
It is important that the estimator understands how estimating interfaces with the broader spectrum of project
management. It is also essential to understand that the WBS is a component of the Works Management
System (WMS).
9.2.2 Construction Activities
Construction activities are assigned a unique number according to the standard work items detailed in
volumes one and two of Main Roads Standard Specification Roads Third Edition, in particular MRS11.
The standard item numbering system detailed in MRs standard specifications has been retained as the
basic building block for construction activities. The specifications describe the work activities and quality
standards required to complete each item of work.
The work items, by their nature, are very detailed and ideally suited for detailed estimates where design and
quantities are well developed. However, they have limitations when the estimate to be produced relies on
only a broad scope definition.
It is expected that project managers will develop an estimate based on a work breakdown structure that
reflects the level of information available for the estimate stage under consideration. The work breakdown
structure described in Annexure C shall be used as a guide to match the level of work breakdown with the
level of information available. For example, a strategic estimate might adopt mainly Level 1 or 2 activities,
based on broad work packages, whereas a detailed design estimate will require most activities to be
dissected to Levels 3 and 4 for example: WBS table showing Level 1, 2 and 3. Project managers and
estimators will use their experience to breakdown the WBS as needed to the appropriate Levels 4, 5, 6 and
so on.
The cost of construction work items is assumed to include distributed indirect costs.
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Figure 9.1 Road Infrastructure project overview (Project Management vs Works Management)


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Figure 9.2 is a structured way of breaking down a project into its various components.
Figure 9.2 Example of a projects components

The MRS11 series of standard specifications gives the Level 3 WBS required for First Principles estimates
as the Standard Item Number for each work activity. All estimates must follow the MRS11 WBS structure
and sequence. Table 9.1 table shows the WBS at Level 1.
Table 9.1 Example of the Work Breakdown Structure (WBS)
WORK BREAKDOWN STRUCTURE (WBS)
Standard Item
Number Group
From To
Description
1000 1999 Site Establishment, Provision for Traffic & Environmental Management
2000 2999 Drainage, Protective Treatments & Retaining Structures
3000 3999 Earthworks & Landscape Works
4000 4999 Unbound Pavements, Stabilised Pavements
5000 5999 Sprayed Bituminous Surfacing, Asphalt Pavements
6000 6999
Road Furniture, Pavement Marking, Electrical Conduit & Pits, Traffic Signal and Road
Lighting Footings, Traffic Signals, Road Lighting
7000 8999 Bridge
9.2.3 Non-Construction Activities
Non-construction activities are also assigned a unique number according to the project phase, management
type, activity group and activity. The non-construction work breakdown structure is included in Annexure D.
9.2.4 Options Development and Design Activities
The work breakdown structure for project management and work management activities reflects a phased
approach to project management and the essentially sequential series of processes that describe the
development of options and design processes from concept through to construction.
The work breakdown structure provides a cascading menu of activities, commencing with the broadest work
packages at Level 1 to the most detailed at Level 3, with unit rates made up of Level 4 (or more) detail.
It is intended that the work breakdown structure be flexible to accommodate the varying size and complexity
of projects encountered in the roads program. Activities may be deleted or inserted within the series to reflect
the scope of the particular project.

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The work breakdown level adopted will also reflect the likely delivery method. For example, if the detailed
design is being contracted out, it may be represented by a single activity based on the consultancy cost.
However, if the detailed design was to be undertaken in house, the cost must be built up using design
components such as geometric design, drainage design etc.
9.3 Project Cost Estimates
The release of the Project Cost Estimating Manual has introduced new templates and process requirements
to assist with consistent and reliable estimates. The standard format for cost estimates has not changed, i.e.
it must comprise an Item No., Description of Work, Unit of Measurement, Estimated Quantity, Unit Rate ($c),
and the Extension (quantity by cost unit rate) Amount.
The presentation templates and the Works Management System (WMS) will also allow estimators to monitor
the cost of individual work items in percentage terms relative to total cost, and identify the major construction
activity rolled-up group costs (for example Pavements 4000-4999) for any project. Using these tools, an
estimator can focus on the 20% of items that, when combined, often make up 70-80% of the costs.
The main change brought about by the introduction of this format relates to the way costs are presented.
Costs are broken up into project management or work management activities (where applicable) for each of
the generic road project phases where they would generally be expected to occur. Construction activities
and principals works and/or materials and/or costs and contingencies are added to these costs to estimate
the total project cost. The amount included for contingencies is to be transferred from the risk report and
shown as a lump sum. The breakdown of contingencies, if required, may be determined by referral to the risk
report.
Historically, project managers have tended to underestimate project costs because of insufficient rigor with
scope definition and lack of solid peer review particularly where the project is complex and high cost. The
introduction of a controlled process for risk assessment and contingency setting is designed to place
emphasis on this aspect of project management.
The estimated cost is expressed in out-turn dollars ($OT) to reflect the actual completion cost of the project
for the stated timing of that project.
9.4 Works Management System Estimating Module (WMS:
Estimating)
The Works Management System is an IT system to support the effective management and delivery of all
project works within the roads program through an integrated suite of modern systems. The WMS:
Estimating module is one of its modules. It allows estimators to record details of Proposal, Concept,
Preliminary Design and Detailed Design Estimates in accordance with Main Roads project management
methodology and the processes outlined in this manual.
The system is maintained by Business Solutions and Information. Reports developed in the module
automatically produce the standard presentation templates as illustrated in Figure 9.3 and Figure 9.4 which
are shown on the next two pages.


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December 2007

Figure 9.3 Standard Project Cost Estimate Template (page 1 of 2)


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December 2007

Figure 9.4 Standard Project Cost Estimate Template (page 2 of 2)


Page 55 of 73
December 2007

Figures 9.5 and 9.6 illustrate parts of the WMS system.
Figure 9.5 Welcome screen for WMS Estimating

Figure 9.6 Typical layout of estimate development in WMS: Estimating


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December 2007

9.5 Reality Check
The inclusion of a reality check (benchmark) on the estimate as a means of assessing the reasonableness of
an estimate is not new to MR. In the past, bitumen estimates have included a summary price per square
metre, and bridge estimates a price per square metre of deck area.
The process is only likely to pick up gross errors but, over time, should help to develop a better sense of
costs within the department.
9.6 Supporting Information
It is important that cost estimates are supported by information that is transferable throughout the project
lifecycle. The introduction of stage estimates means that periodic reviews of the project cost will become
routine. These review points will need access to past decisions and, in the case of estimates, documentation
that describes the project scope and risk status at any particular time.
Supporting information should include but not be limited to:
a detailed scope statement accompanied by current plans
a current risk schedule
a current program showing staging and significant activities
assumptions
options analysis
constraints
significant issues, and
current approval status.
9.7 Communication of Project Cost Estimate
There is an obligation to ensure that stakeholders, both within MR and external to the organisation, are
provided with appropriate information on projects, including cost. Communication plays an important part in
any project and needs to be planned to ensure that the correct information reaches the target audience in a
form that is easily understood. The fact that not all information will be communicated to everyone raises the
issue of classification of information.
Cost estimates that have not been approved are considered to form part of the deliberative process of
project development and, consequently, have no status as a project cost estimate. Estimates in this category
are restricted to internal communications only as part of the project management processes.
Public information on project costs is published each year in the RIP. These budget figures are based on
estimates that have been approved as part of a business case or subsequent updates and are expressed in
out-turn dollars ($OT).
Note: Supporting information should be provided whenever project cost information is communicated to
ensure the basis of the estimate is clearly understood.
Project Cost Estimating Manual Roles and Accountabilities

Page 57 of 73
Roles and Accountabilities
December 2007

10 ROLES AND ACCOUNTABILITIES
10.1 Overview
MRs General Managers Major Projects Office General Manager, State-wide Planning General Manager,
Program Development & Delivery General Manager and Corridor Management & Operations General
Manager and 14 districts are the main drivers of the development, implementation and delivery of an
estimating practice, process and culture that will deliver accurate estimates to the wider MR community.
Decentralised service delivery allows responsiveness and delivery of roads infrastructure for local needs
within a broader strategic framework.
The accountabilities for project delivery reflect this approach. Districts are accountable for project
development, construction and maintenance of all declared roads within their geographical area, and the
Program Development & Delivery group are accountable for project approval on behalf of the program
manager.
Because project cost management is a subset of project management, the responsibilities and
accountabilities outlined in this section refer equally to both. Their purpose is to ensure that those involved in
the delivery of projects understand their respective roles and the performance standards they have to
achieve.
10.2 Accountability
The District Director is accountable for the accuracy of the estimate at any stage in the project lifecycle.
MR districts are organised along strong functional lines closely aligned to the project delivery process. They
are made up of units that specialise in the sequential functions of strategic and concept planning, project
development and design, construction, asset maintenance and traffic operations.
Integration of functions is provided by the district management team, which ensures that the objectives of the
roads program are met across the wide spectrum of programs and projects.
In the case of individual projects, the project manager's role accepts accountability for project performance.
This is not to say that the one individual has to be available for a project from start to finish, but rather that
the project manager role is always filled. Management continuity and consistency is the key. An organisation
operating under a single project management system that incorporates an effective record system that
traces project history should be able to achieve this.
The organisational model depicted in Figure 10.1 illustrates how the functional and project management
roles interrelate.
Roles and Accountabilities Project Cost Estimating Manual

Page 58 of 73
Roles and Accountabilities
December 2007

Figure 10.1 Organisational Model
DISTRICT FUNCTIONS
Strategic &
Concept
Planning
Design
Development
& Detailed
Design
Construction Asset
Maintenance
Traffic
Operations
Project #2
Project #1
Corporate Management Systems
C
o
m
m
u
n
i
t
y

a
n
d

S
t
a
k
e
h
o
l
d
e
r
s

Project
Manager
Project
Manager
DD-G
(Program
Manager)
District
Director
Project Cost Estimating Manual Project Management

Page 59 of 73
Project Management
December 2007

11 PROJECT MANAGEMENT
11.1 General
This section has been included to provide a link between project cost estimating and the OnQ generic project
management methodology adopted by MR. It is important to remember that estimating is not an activity
carried out in isolation, but rather is an integral part of the project cost management process within project
management.
OnQ uses the following proforma templates:
R1001 A stand-alone Project Proposal template. Used for all projects.
R1002 A stand-alone Options Analysis template. Used for Type 1 Projects significant projects that
are complex, high risk or expensive and thus require higher amounts of rigour and control.
R1003 A stand-alone Business Case template. Used for Planning Projects, High Risk or Complex
Projects.
R1004 Use for Type 2 projects relatively straightforward, low-risk projects for which a lesser
amount of rigour and control is appropriate.
R1005 Use for Type 3 Projects small simple projects of low cost that progress quickly through the
concept phase.
Use the intent of the Finalisation Phase to progressively close out activities if/when they are completed, for
example, Performance Reports for Consultant Services.
R4001 Handover Report
R4002 Completion Report
R4003 Simplified Handover and Completion Report
Figure 11.1 shows how project cost estimating fits within project cost management and how it is integrated
into wider project management processes.
Please refer to the Main Roads OnQ Framework for Project Management in regards to policy, principles,
methodology, roles and responsibilities, approval processes, tools and techniques.
Project Management Project Cost Estimating Manual

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Project Management
December 2007

Figure 11.1 Overview of Project Management Elements (Knowledge Areas)

11.2 Project Phases
The OnQ methodology consists of four phases
Concept
Development
Implementation
Finalisation
Each phase is marked by the completion of one or more deliverables that require approval before
proceeding to the next phase. The deliverables, and hence the phases, are part of a generally sequential
logic designed to progressively refine the project definition from the broad concept to the final design before
commencing construction.

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Project Management
December 2007

11.3 Work Breakdown Structure
11.3.1 Overview
A work breakdown structure (WBS) is a product-oriented family tree of phases, activities and tasks which
organises, defines and graphically displays the total work to be accomplished in order to achieve the final
objectives of a project. Each descending level represents an increasingly detailed definition of the project.
The number of levels in the WBS depends on:
Level of detail
Level of risk
Level of control
Estimate accuracy
Work package value
Work package man-hours
The WBS is subdivides a project into manageable work packages, components or elements to provide a
common framework for scope, schedule, costs, allocation of responsibility, communications, risk assessment
monitoring and control (see figure 9.1). The WBS can assist project managers in a number of ways:
A thought process tool. The WBS assists the project manager and the project team visualise exactly
how the work of the project can be defined and managed effectively.
An architectural design tool. The WBS is actually a picture of the work which is to be completed in
the project and how each of the items is related to each other. It must make sense.
A planning tool. In the concept and development phases where planning is done, the WBS gives the
project team a detailed representation of the project as a collection of activities that must be
completed in order for the project to be completed. It is at the lowest activity level of the WBS that we
will estimate effort, time, resource requirements.
A project status reporting tool. The WBS is used as a structure for reporting project status. The
project activities are consolidated (or rolled up) from the bottom as the lower-level work is completed.
11.3.2 The purpose of the WBS
The purpose of the WBS includes:
Turning projects into manageable size pieces
Starting the development of the schedule
Starting the costing and budgeting process
Starting the risk identification process (bottom-up approach)
Providing the basis of control
Identifying and coordinating objectives
Providing a framework for identifying project skill sets
Defining responsibility within the project, thereby determining human resources and consequently
defining the projects organisation structure
11.3.3 WBS Application guidelines
Guidelines for the application of WBS include:
De-constructing the project to a pre-agreed level of detail - "Big bits to little bits"
No precedence
No activity should have a single lower level activity

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Project Management
December 2007

Every activity must describe work (not a function)
Every activity must have a deliverable
Every activity must be capable of being assigned to someone (responsibility)
The scope is the starting point
Have you reached task level?
Have you reached control and reporting level?
Noun (Product Breakdown Structure), Verb (WBS), Organisational or Combination approach?
11.4 Project Cost Management
11.4.1 General
Project cost management is concerned with the planning and control of project costs from concept to
finalisation. The processes include:
Resource Planning determining what resources (people, equipment and materials) and what
quantities of each should be used to perform project activities.
Cost Estimating developing an estimate of the cost of resources needed to complete project
activities.
Cost Budgeting allocating the overall cost estimate to individual work activities and timeframe.
Cost Control monitoring costs and controlling changes to the project budget.
These cost management processes are illustrated in Figure 11.3.

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Project Management
December 2007

Figure 11.3 Project Cost Management Processes

11.4.2 Cost Planning
Cost planning is concerned with the development of the project budget through the processes of resource
planning, cost estimating and cost budgeting. The cost estimate forms part of the stage deliverables
"business case" (concept phase) and "project plan" (development stage).
In practice, project cost management is an iterative process. Normally the process will occur at least once in
each of the concept and development phases of the project, and should include high level peer review to
ensure that the scope definition is as complete as possible and includes all stakeholder requirements.

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Project Management
December 2007

Some of these processes have clear dependencies that will require them to be performed in essentially the
same order on the majority of projects. The interdependencies among the core elements of project planning,
namely scope, cost and time, are illustrated in Figure 11.4.
It is common to perform several iterations of these processes before completion of the project plan. For
example, the project cost may exceed funds available, requiring consideration to be given to varying the
scope of the project without loss of functionality or, alternatively, adopting a staged implementation over a
longer timeframe.
While cost planning primarily focuses on the cost of the project, project decisions should also take into
consideration whole-of-life costs and user cost.
Figure 11.4 Core Planning Processes Showing Interdependencies

11.4.3 Cost Control
Project performance, generally, must be measured regularly to identify variances from the project plan.
These variances are fed into a change control process for management purposes, with work elements and
impacts assessed for the project as a whole. Variances that threaten the objectives of the project will trigger
an adjustment to the plan by repeating the appropriate planning process (Refer Figure 11.4). This may result
in an adjustment to the plan in areas other than the area where the major variance occurred.
Cost control is concerned with influencing the factors which create changes to the cost baseline, identifying
when changes have occurred, taking corrective action to correct cost overruns or prevent their recurrence,
and informing appropriate stakeholders of authorised changes. For example, cost overruns may be occurring
through scope creep. This may prompt action to review the process of scope control, as well as reviewing
the design strategy for achieving the project objectives. If the variances are large enough, they might prompt
a review of the business case and re-justification of the project.
Project Cost Estimating Manual Projects and the RIP

Page 65 of 73
Projects and the RIP
December 2007

12 PROJECTS AND THE RIP
12.1 Overview
It is important for the project team and the estimator to have a clear understanding of the framework within
which the project will be developed. The RIP is the Main Roads Implementation Program published annually
on a rolling five-year basis.
12.2 RIP
Each year, MR prepares the RIP in consultation with local government, industry and other stakeholders. It is
a public statement of the planning, construction and maintenance activities which the state government
intends to progress over the next five years. It contains firm (committed) funding for the first two years and
planned (indicative) funding for potential projects in the subsequent three years. The program is published
annually to reflect variations over the previous 12 months and any changes in priorities or circumstances.
To provide confidence for the program management process, projects must meet certain criteria before they
become eligible for inclusion on the RIP. These are:
a) Planning Projects. The project budget must be based on an approved project proposal and include the
cost of completing the Concept Phase (that is conducting the options analysis and preparing the
business case). Planning projects will be created for more complex projects where significant funds
need to be committed to develop the business case.
b) Construction Projects. The project budget must be based on an approved business case and include
the total cost of the project (that is, planning, construction, alteration to public utilities and land
acquisition). The budget is presented in out-turn dollars based on the expected period for construction.
Fig 12.1 RIP Project Plan
Phase
PRE-
PROJECT
CONCEPT DEVELOPMENT IMPLEMENTATION FINALISATION
Process
Strategic
Planning
Proposal
Options
Analysis
Business
Case
Preliminary
Design
Detailed
Design
Construction
Project
handover
Preferred
Timing
Prior to
Year 5
Prior to entry on the RIP
Prior to
Year 2
Year 1
to 2
Year 1
Post
Construction
Federal
DoTaRS
Auslink
Project
Proposal
Report
Scoping
Phase

Auslink
Project
Proposal
Report
Development
Phase

Auslink
Project
Proposal
Report
Delivery
Phase

Estimate
Stage
Strategic
Planning
Estimate

Concept
Phase
work
only
Comparative
Cost of
Options
Concept
Estimate
Preliminary
Detailed
Estimate
Detailed
Design
Estimate
Accepted Tender
Price
Cost at
Completion
Concept WBS Level 1/2
Development WBS Level 3
MR
Estimate
Phase &
Required
WBS
Definition
Implementation & Finalisation-WBS Level 3
To get reliable cost estimates it is important for Main Roads to follow these processes at all times and apply
the processes using experienced practitioners, particularly experienced estimating personal. This is
especially important at the concept estimate stage (at the time of preparing the Business Case) when there
is less reliable information than at a later stage of a project. Experience and benchmarking data brought to
the project, at this stage can pay handsome dividends later in ensuring the production of a reliable cost
estimate that is unlikely to be exceeded throughout the projects development and implementation,
measured in constant dollars.
Projects and the RIP Project Cost Estimating Manual

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December 2007

Budget estimates must be based on the rigorous process of cost planning outlined in Section 11.4.2.
An overview of the project lifecycle is illustrated in Table 12.1.
The project stages and timing at which estimates are required are detailed in Table 12.2.
This framework provides for estimates to be prepared at intervals during the concept and development
phases of the project to assist planning and maintain control over the cost of the project.

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December 2007

Table 12.1 Overview of RIP Framework
PROJECT
PHASES
PRE-PROJECT CONCEPT DEVELOPMENT IMPLEMENTATION FINALISATION
Process Strategic Planning Proposal
Options
Analysis
Business
Case
Preliminary
Design
Detailed Design Construction Project Handover
Preferred
Timing
(Relative to
RIP)
Prior to Year 5 Prior to Entry on the RIP#
Prior to Year
2
Years 1 to 2 Year 1 Post-construction
Input
Road Network
Strategy;
Road Network
Investment
Strategy
Statement of
Needs
Approved
Proposal
Preferred
Option
Approved
Business
Case
Preliminary Design
Contract Letter of
Acceptance
Practical Completion
Activities Link Strategy
Project
Initiation,
Proposal
Development
Options
Analysis
Preliminary
Project Plan,
Final Scope
Definition,
Project
Justification
Project Plan,
Development
of Design
Documentation of
Scheme Prototype,
Call Tenders,
Award Contract
Construction of
works,
Commissioning
General Acceptance,
Project Close-out,
Review and
Evaluation
Output
Statement of
Needs
Approved
Proposal
Preferred
Option
Approved
Business
Case
Preliminary
Design,
Stage 1
Release
Scheme Documents,
Stage 2 Release,
Contract Letter of
Acceptance
Practical Completion
Completed Product
Consultant Report
Contractors
Performance Report
Post-construction
Report
Federal
DoTaRS
Auslink Project
Proposal Report
Scoping Phase

Auslink
Project
Proposal
Report
Development
Phase

Auslink Project
Proposal Report
Delivery Phase


Page 68 of 73
December 2007

PROJECT
PHASES
PRE-PROJECT CONCEPT DEVELOPMENT IMPLEMENTATION FINALISATION
Estimate
Stage
Strategic
Proposal
(concept
phase work
only)
Options Concept*
Preliminary
Design*
Detailed Design* Cost at Completion
Federal DoTaRS approvals: Department of Transport and Road Systems
Auslink Project Proposal Report Scoping Phase: Funding for strategic planning studies for road corridors and certain major works proposals.
Auslink Project Proposal Report Development
Phase:
Funding for preconstruction activities necessary to develop the project to the stage of calling tenders for
construction.
Auslink Project Proposal Report Delivery Phase: Funding for the construction of the project. All major works must have Stage 3a approval before tenders are called.
* These are mandatory estimates that are to be approved by District Directors.
# Prior to Year 2

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December 2007

12.3 Stages of Estimates
Table 12.2 Stages of Cost Estimates
Project
stage
Estimate
stage
When prepared Estimate Description
Pre-project Strategic Prepared as part of a link study to
assist in long-range strategic
planning.
Auslink Project Proposal Report
Scoping Phase (if applicable e.g.
large-scale strategic studies) secures
funding for Concept Phase.
Very low level of project
definition
High probability of
exceedence
Accuracy -50% to +200%
Proposal Estimate if the cost of undertaking
the planning functions required to
produce the options analysis and
business case
Usually applies to large or complex
projects where a significant cost will
be incurred before the proposal is
officially recognised as a project.
Entered into the RIP as planning
project (series 900)
Project definition up to 10%
Options Provides comparative costs only of
options prepared as part of the
options analysis. (N.B. No project
cost is produced at this stage. The
project cost can only be prepared as
part of the Business Case for the
preferred option. See Concept
estimate.)
Approval gives authorities for the
development of the preferred of the
preferred option.
Concept
phase
Business
Case
(Mandatory)
A total project cost estimate based
on the preferred option included in
the business case.
Very important as it forms the basis
of the economic justification of the
project and the project budget
Approval requirement before
inclusion in the RIP
Development Phase (old Stage 2a)
secures funding for Development
Phase.
P90 estimate indicates 10%
chance of being exceeded
Both P50 and P90 estimate
figures to be reported at this
stage to indicate the extent
of the estimate range to
program managers.
Development
phase
Preliminary
Design
(mandatory)
A total project cost estimate based
on the final design solution, but
usually before commencement of
design detailing and documentation.
Approval requirement prior to
inclusion in Year 2 of the RIP.
Project definition 30% to
70%
Detailed
Design
Prepared on completion of the
detailed design when final plans,
Project definition 50% to
100%

Page 70 of 73
December 2007

Project
stage
Estimate
stage
When prepared Estimate Description
(mandatory) specifications and bill of quantities
are available.
Forms part of the scheme prototype
documents needed for approval to
call tender.
Delivery Phase (old Stage 3a)
secures funding for Implementation
and Finalization Phases.
Refer to Section 4 for information on estimating methods.
It is acknowledged that projects can vary substantially in terms of scale and, therefore may have varying
requirements as to the number and staging of estimates.
The full range of estimates listed in Table 12.2 would be typical of a major project where significant
development activities take place between stages. There may even be a need to review estimates at
intervals within these stages, particularly if the development of the project is protracted.
Fewer estimates may be required for routine projects where options are limited. In these cases, the three
estimates marked "mandatory" should be provided.

Page 71 of 73
December 2007

Table 12.3 Accountabilities for Preparation, Review, and Approval
Estimating Process Responsibility Accountability Consultation Information
Estimate preparation Project estimator:
- Estimate plan
- Estimate preparation
- Contingency assignment
Project manager:
Project scope
statement
Project cost
estimate
Program of work
Risk assessment
Management review
Recommending
approval
Functional manager:
Planning and design
District Director:
Political issues
Program
management
Maintaining systems
Maintaining
historical information
Functional manager:
Design
documentation
Design records
Independent peer
review (refer to
section 8)
Independent peer review officer:
- Project objectives
- Scope of work
- Work breakdown structure
- Program of work
- Work methods
- Reasonableness of rates
- Contingency allocation
- Reality check
- Preparing peer review report
Peer reviewer:
Peer review process
Outcome of peer
review
Local corrective
action relating to
project management
systems
Functional manager:
Planning and design
Project manager
Project management
General Manager:
Program
management
Functional manager:
Design
documentation
Design records
Project manager:
Project management
records
Independent
concurrence review
(refer to Section 8)
Independent project review officer:
- Scope of work
- Achievement of project objectives
- Design documentation
- Project management documentation
- Project cost estimate
- Program of work
Concurrence reviewer:
Project review
process
Outcome of project
review
Corrective action
relating to state-wide
project management
District Director:
Project management
systems
Recommendations
of project review
Functional manager:
Design
documentation
Design records
Project manager:
Project management
records

Page 72 of 73
December 2007

Estimating Process Responsibility Accountability Consultation Information
- Risk assessment and contingency assignment
- Constructability
- Quality standards
- Reality check
- Preparation of a balanced project review report
systems
Approvals District Director:
- Project submissions in the appropriate format
- Recommendations for approval
GM (PD&D):
Budget approval
Advisors:
District program
Deputy Director-General:
RIP changes
DDG and GMs:
Recommendation
and support
information

Project Cost Estimating Manual Quality Assurance

Page 73 of 73
Quality Assurance
December 2007

13 QUALITY ASSURANCE
Estimating is an activity where errors are easy to make but difficult to detect. This is because of the detailed
nature of the process and the multitude of assumptions and calculations that have to be made to arrive at the
project cost.
This manual has been designed to achieve a reliable and consistent approach to project cost estimating at a
process level.
Standardisation of estimating computer software throughout the organisation will mean that the management
of the direct estimating tasks and the archiving of estimating information will also become more consistent
and reliable.
Districts may need to modify their quality procedures to reflect the processes outlined in the manual.
14 MAIN ROADS CONTRACT TYPES
The following is a list of commonly used MR contract types:
Road Construction Contract (RCC)
Road Works Performance Contract (RPC)
Design & Construct (D&C)
Design, Construct & Maintain (DCM)
Minor Works Contract (MWC)
Road Maintenance Performance Contact (RMPC)
Minor Works Performance Contracts (MWPS)
Early Contractor Involvement (ECI)
Alliance Contracts

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