Chemical Engineering December 2018 - 47

tion remains to be seen how much it
will be. A properly estimated project
will have identified the various inputs
based on clearly delineated material
costs. The project can account
for the uncertainty with a modified
calculation of the usual escalation
factors for each cost item. This number
would be summarized below the
cost total. Business management
would have to decide what level of
risk to accept in negotiations, either
internal or external, for the project to
move ahead.
The estimate got a great PDRI
Business
schools
teach the importance
of measuring performance.
As mentioned before, one
of the accepted ways of measuring
the accuracy of an estimate is
by means of the Project Definition
Rating Index (PDRI). The methodology
is a comprehensive checklist of
estimate inputs to which the project
team give a completion score:
five being not defined, to one being
completely defined.
This can be a very effective tool
if one is aware of two hidden flaws,
both of which can give a deceptively
low score. First, while the checklist
identifies all of the activities (inputs)
necessary to support an estimate,
there is no practical way to know if
every input is correct. And because
the method does not give an absolutely
true relative weight to each of
the inputs, it is difficult for an outside
manager to know which part to
focus on. It is up to each discipline
lead and the project manager to
know whether the input was worth
the paper it was printed on.
Second, the PDRI evaluation is
done at the end of an estimate effort.
It therefore becomes a de facto
report card on the project team and
specifically the project manager.
So, it comes back to that business
of human nature and relations. Not
being an expert in such matters, I
venture a guess that the average
project manager would be loath to
admit to management or the client
(or both), that the time and money
spent produced a less-than-perfect
product. And at the same time, there
will only be scant objections from the
project team that does not want to
confront their manager.
While discretion is advised on advertising
any deficiencies in the input
to the estimate, the project manager
can utilize the PDRI table to validate
the accuracy of these inputs. This
evaluation
of
course,
is
required
while the work is being done and not
at the end of the estimate.
Resource allocated for estimate
In an article about the high failure rate
of mega projects in the upstream oiland-gas
sector, Edward W. Merrow
identified one of the main culprits as
being inadequate front-end loading
(FEL) being performed [8]. I submit that
this problem can be just as detrimental
to any size project. The lack of an adequate
FEL, either because of budget
constraints or lack of time, equals poor
input to the cost estimate effort. While
managers have attempted to plug that
gap with " experience " , this replacement
tool has a very dull blade and
should be used with care.
If the FEL effort is bid out as a
fixed-cost project, there should be a
very detailed listing of the final deliverables,
and a plan on how to reach
them in the time allocated. The
project manager should be careful
that the team is not under duress
to declare completion without finishing
the work, either because of
time or budget constraints. If that
is the case, then the inputs should
be carefully vetted and the claimed
accuracy of the estimate appropriately
downgraded.
There should be an open communication
channel between the
discipline leads and the estimating
group so that inputs are submitted
on a timely basis and the information
is useful toward the production of an
accurate estimate.
Concluding remarks
The more things change, the more
they stay the same. It seems that
while technology has revolutionized
the way we live, the nature of project
management remains the same. The
four main reasons for cost overrun
given by my colleagues 40 years ago
at UCC were:
1. There was not enough effort put
into the development of the job
scope. Frequently, preliminary proCHEMICAL
ENGINEERING WWW.CHEMENGONLINE.COM
DECEMBER 2018
cess studies turned into full-fledged
projects without further development.
Subsequently, many project
experienced major scope changes.
2. The first point was a manifestation
of capital shortage. Management
increased effort to conserve cash
for project execution. The obvious
place to cut was " unproductive "
project scoping efforts. This was
deemed possible as most of the
staff had many years of experience
at this plant site. It was more important
to get more project authorization
applications in the pipeline.
3. Subordinates were reluctant to
question project sponsor decisions,
even though they know it to
be incorrect.
4. In another manifestation of capital
shortage and wishful thinking,
cost estimates were arbitrarily reduced
because " It just can't cost
that much. "
n
Edited by Gerald Ondrey
References
1.
Project Definition Rating Index Overview, Construction
Industry Institute (CII), Austin, Tex., September 1, 2018,
www.construction-institute.org/resources/knowledgebase/pdri-overview
2.
Hyman, L. and Tilles, W., Southern Company Just Raised
Cost Estimates for this Megaproject Again, OilPrice.
com, August 11, 2018., https://oilprice.com/energy/
energy-general/southern-company-just-raised
estimates-for-this-megaproject-again.html
cost3.
American Society of Estimators, The Ultimate Guide
to Project Cost Estimating, www.aspenational.org/
page/sep, October 26, 2018, www.smartsheet.com/
ultimate-guide-project-cost-estimating.
4. ASTM E2516-11, Standard Classification for Cost Estimate
Classification System, 2011, ASTM International, West
Conshocken, Pa., www.astm.org/standards/E2516.htm
5. Chiu, A., The Time Value of Money, Chem. Eng., December
2017, pp. 47-49.
6. " Cost Estimating and Assessment Guide " , p. 38, Government
Accountability Office, Washington, D.C., GAO-093SP.
www.gao.gov/new.items/d093sp.pdf.
7. Chiu, A., Ten Tips for Smart Project Managers, Chem.
Eng., January 2012, pp. 40-43.
8. Merrow, E.W., Oil and Gas Industries Megaprojects: Our Recent
Records, Oil and Gas Facilities, April 2012, pp. 38-42.
Author
Alfred Chiu is a project manager
with S & B Engineers and Constructors
Ltd. (7825 Park Place
Blvd. Houston, TX 77087; Phone:
713-845-4156; Email:
achiu@
sbec.com). Chiu is a registered
professional engineer in the state
of Texas. He received his B.E.Ch.E.
degree from the City College of
New York, and an executive M.B.A.
degree from the University of Houston. Chiu has 40
years of experience in petroleum refining, chemicals
and water processing. Before joining S & B, he worked
for Union Carbide Corp., Lummus Co. and Stone and
Webster Engineering Corp.
47
http://www.construction-institute.org/resources/knowledge https://www.oilprice.com/energy/ http://www.aspenational.org/ http://www.smartsheet.com/ http://www.astm.org/standards/E2516.htm http://www.gao.gov/new.items/d093sp.pdf http://WWW.CHEMENGONLINE.COM
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