Link to thesis. - Concept - NTNU

cost estimation method category contain explicit critique of this practice. A fixed level ofaccuracy defined by a general decision alone may, according to the quality auditors, lead tounderestimation of the uncertainties involved in individual projects. The level of accuracy of anestimate should be obtained by assessing a particular project’s stage of development and maturity,and by an accompanying uncertainty analysis of costs. Another issue which has sparked someattention is the cost estimation practice in one particular agency. The method involvesmultiplying separate cost items presented by the project engineering team with a factor which issupposed to account for expected cost additions up to the stage of tendering. The next stepinvolves multiplying the separate cost item with another factor (based on historical experiencedata from completed projects) that is meant to cover expected cost additions during execution.Finally, an additional mark-up for uncertainty defined by an assessment of the project at hand isincluded. One of the pre-qualified consultancy firms has challenged the method and suggests thatit introduces bias in the result of the cost analysis. It would, according to the consultant result inexcessive estimates, because the same uncertainty factors are included several times (hence theuse of a factor based on experience data and an additional mark-up for unforeseen events) 11 , andfurthermore too low contingency allowance because dependencies between cost elements areignored. However, it may be noted that results for the 12 projects from this agency, which havebeen subjected to quality assurance review, show that in these particular projects the averagedifference is 3.4 % (which means that external consultants on average recommend higherbudgets). The agency’s average contingency allowance (7.7 %) displays a somewhat lower resultthan the allowance recommended by the quality assurer (10.3 %). The small sample does notallow concise conclusions, but suggests that the predicted impacts from methodical issues areonly partially supported by empirical evidence.While the quality of how cost estimations are facilitated or organized seems to have little affecton differences, the other notable issue in this category pertains how general procedures,processes, and input variables are documented. For example, most quality assurers find it hard tovalidate statements of the type ”We assume ten per cent allowance for unpredictable events”, andfrequently request that the background for such assumptions be described in greater detail.Judged by the literature reviewed above, one particularly interesting observation is the lack ofexplanations associated with scope changes. Scope changes were identified as explanatory factorfor differences in estimates in three cases. However, a look into further empirical evidencecollected from these projects shows that management of scope is not a neglected area. A study ofthe uncertainty elements most frequently identified by quality assurers in connection with QA2 in56 projects, as reported by Torp et al. (2006), show that scope management is the fourth largestof 16 identified issues. The data in this study reveal that differences in estimates can to a limiteddegree be explained by a different assessment of the impact of scope management. This impliesthat equal emphasis is placed on scope management by the project organizations and the qualityassurers.As shown in Figure 1, the sample covers eight years of experience with up-front assessments.What, then, can be said about potential developments over time in explaining differences? Dosome issues persist over time? It was observed that the explanations for differences changed littleover time, as they seem to be equally distributed along the time axis. In this respect, it’sillustrative to revert to the example above, in which a 2.3 % difference was observed and thequality assurer described the project organization’s estimation practice as poor. The QA2 reportin this particular project was completed in august 2005. In September 2006, the same consultancyfirm submitted a report from another QA2 assignment regarding a project under the same11 It is argued by the external experts that the factor based on data from completed projects may cover unpredictableevents which may arise in future projects.8