AACEInternationalRecommendedPracticeNo.

18R97

COSTESTIMATECLASSIFICATIONSYSTEM
ASAPPLIEDINENGINEERING,PROCUREMENT,ANDCONSTRUCTION
FORTHEPROCESSINDUSTRIES
TCMFramework:7.3CostEstimatingandBudgeting
Rev.March1,2016
Note:AsAACEInternationalRecommendedPracticesevolveovertime,pleaserefertowww.aacei.orgforthelatestrevisions.

Contributors:
Disclaimer:Theopinionsexpressedbytheauthorsandcontributorstothisrecommendedpracticearetheirown
anddonotnecessarilyreflectthoseoftheiremployers,unlessotherwisestated.

(March1,2016Revision):
DanMelamed,CCPEVP
LarryR.Dysert,CCPCEPDRMP(Author)
ToddW.Pickett,CCPCEP
LaurieS.Bowman,CCPDRMPEVPPSP
RichardC.Plumery,EVP
PeterR.Bredehoeft,Jr.CEP

(November29,2011Revision):
KennethK.Humphreys,PECCE
PeterChristensen,CCE(Author)
DonaldF.McDonald,Jr.PECCEPSP
LarryR.Dysert,CCCCEP(Author)
C.ArthurMiller
JenniferBates,CCE
ToddW.Pickett,CCCCEP
JefferyJ.Borowicz,CCECEPPSP
BernardA.Pietlock,CCCCEP
PeterR.Bredehoeft,Jr.CEP
WesleyR.Querns,CCE
RobertB.Brown,PE
DonL.Short,IICEP
DorothyJ.Burton
H.LanceStephenson,CCC
RobertC.Creese,PECCE
JohnK.Hollmann,PECCECEP
JamesD.Whiteside,IIPE
CopyrightAACEInternational

AACEInternationalRecommendedPractices

AACEInternationalRecommendedPracticeNo.18R97

COSTESTIMATECLASSIFICATIONSYSTEM AS
APPLIEDINENGINEERING,PROCUREMENT,AND
CONSTRUCTIONFORTHEPROCESSINDUSTRIES
TCMFramework: 7.3CostEstimatingandBudgeting
March1,2016
PURPOSE

AsarecommendedpracticeofAACEInternational,theCostEstimateClassificationSystemprovidesguidelinesfor
applyingthegeneralprinciplesofestimateclassificationtoprojectcostestimates(i.e.,costestimatesthatareused
toevaluate,approve,and/orfundprojects).TheCostEstimateClassificationSystemmapsthephasesandstagesof
projectcostestimatingtogetherwithagenericprojectscopedefinitionmaturityandqualitymatrix,whichcanbe
appliedacrossawidevarietyofprocessindustries.

Thisaddendumtothegenericrecommendedpractice(17R97)providesguidelinesforapplyingtheprinciplesof
estimateclassificationspecificallytoprojectestimatesforengineering,procurement,andconstruction(EPC)work
fortheprocessindustries.Thisaddendumsupplementsthegenericrecommendedpracticebyproviding:
Asectionthatfurtherdefinesclassificationconceptsastheyapplytotheprocessindustries.
Achartthatmapstheextentandmaturityofestimateinputinformation(projectdefinitiondeliverables)
againsttheclassofestimate.

Aswiththegenericrecommendedpractice,theintentofthisaddendumistoimprovecommunicationsamongall
of the stakeholders involved with preparing, evaluating, and using project cost estimates specifically for the
processindustries.

The overall purpose of this recommended practice is to provide the process industry with a project definition
deliverablematuritymatrixthatisnotprovidedin17R97.Italsoprovidesanapproximaterepresentationofthe
relationship of specific design input data and design deliverable maturity to the estimate accuracy and
methodologyusedtoproducethecostestimate.Theestimateaccuracyrangeisdrivenbymanyothervariables
andrisks,sothematurityandqualityofthescopedefinitionavailableatthetimeoftheestimateisnotthesole
determinateofaccuracy;riskanalysisisrequiredforthatpurpose.

Thisdocumentisintendedtoprovideaguideline,notastandard.Itisunderstoodthateachenterprisemayhave
its own project and estimating processes and terminology, and may classify estimates in particular ways. This
guidelineprovidesagenericandgenerallyacceptableclassificationsystemforprocessindustriesthatcanbeused
asabasistocompareagainst.Thisaddendumshouldalloweachusertobetterassess,define,andcommunicate
theirownprocessesandstandardsinthelightofgenerallyacceptedcostengineeringpractice.

INTRODUCTION

Forthepurposesofthisaddendum,thetermprocessindustriesisassumedtoincludefirmsinvolvedwiththe
manufacturing and production of chemicals, petrochemicals, and hydrocarbon processing. The common thread
amongtheseindustries(forthepurposeofestimateclassification)istheirrelianceonprocessflowdiagrams(PFDs)
and piping and instrument diagrams (P&IDs) as primary scope defining documents. These documents are key
deliverablesindeterminingthedegreeofprojectdefinition,andthustheextentandmaturityofestimateinput
information.

Estimatesforprocessfacilitiescenteronmechanicalandchemicalprocessequipment,andtheyhavesignificant
amountsofpiping,instrumentation,andprocesscontrolsinvolved.Assuch,thisaddendummayapplytoportions
of other industries, such as pharmaceutical, utility, water treatment, metallurgical, converting, and similar
industries.

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This addendum specifically does not address cost estimate classification in nonprocess industries such as
commercial building construction, environmental remediation, transportation infrastructure, hydropower, dry
processessuchasassemblyandmanufacturing,softassetproductionsuchassoftwaredevelopment,andsimilar
industries. It also does not specifically address estimates for the exploration, production, or transportation of
mining or hydrocarbon materials, although it may apply to some of the intermediate processing steps in these
systems.

Thecostestimatescoveredbythisaddendumareforengineering,procurement,andconstruction(EPC)workonly.
It does not cover estimates for the products manufactured by the process facilities, or for research and
development work in support of the process industries. This guideline does not cover the significant building
constructionthatmaybeapartofprocessplants.

This guideline reflects generallyaccepted cost engineering practices. This RP was based upon the practices of a
wide range of companies in the process industries from around the world, as well as published references and
standards. Company and public standards were solicited and reviewed, and the practices were found to have
significant commonalities. These classifications are also supported by empirical process industry research of
systemicrisksandtheircorrelationwithcostgrowthandscheduleslip[8].

COSTESTIMATECLASSIFICATIONMATRIXFORTHEPROCESSINDUSTRIES

A purpose of cost estimate classification is to align the estimating process with project stagegate scope
developmentanddecisionmakingprocesses.

Table 1 provides a summary of the characteristics of the five estimate classes. The maturity level of project
definitionisthesoledetermining(i.e.,primary)characteristicofclass.InTable1,thematurityisroughlyindicated
by a percentage of complete definition; however, it is the maturity of the defining deliverables that is the
determinant,notthepercent.Thespecificdeliverables,andtheirmaturityorstatusareprovidedinTable3.The
other characteristics are secondary and are generally correlated with the maturity level of project definition
deliverables,asdiscussedinthegenericRP[2].Thepostsanctionclasses(Class1and2)areonlyindirectlycovered
where new funding is indicated. Again, the characteristics are typical and may vary depending on the
circumstances.

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PrimaryCharacteristic

ESTIMATE
CLASS

MATURITYLEVELOF
PROJECTDEFINITION
DELIVERABLES
Expressedas%ofcomplete
definition

SecondaryCharacteristic
ENDUSAGE

EXPECTEDACCURACY
RANGE

METHODOLOGY

Typicalpurposeof
estimate

Typicalestimatingmethod

Typicalvariationinlowandhigh
ranges

Class5

0%to2%

Concept
screening

Capacityfactored,
parametricmodels,
judgment,oranalogy

Class4

1%to15%

Studyor
feasibility

Equipmentfactoredor L: 15%to30%
parametricmodels
H: +20%to+50%

Class3

10%to40%

Budget
authorizationor
control

Semidetailedunitcosts
L: 10%to20%
withassemblylevelline
H: +10%to+30%
items

Class2

30%to75%

Controlor
bid/tender

Detailedunitcostwith L: 5%to15%
forceddetailedtakeoff H: +5%to+20%

L: 20%to50%
H: +30%to+100%

Checkestimate
Detailedunitcostwith L: 3%to10%
orbid/tender
detailedtakeoff
H: +3%to+15%
Table1CostEstimateClassificationMatrixforProcessIndustries

Thismatrixandguidelineoutlineanestimateclassificationsystemthatisspecifictotheprocessindustries.Refer
tothegenericestimateclassificationRP[1]forageneralmatrixthatisnonindustryspecific,ortootheraddendums
for guidelines that will provide more detailed information for application in other specific industries. These will
provide additional information, particularly the project definition deliverable maturity matrix which determines
theclassinthoseparticularindustries.

Table1illustratestypicalrangesofaccuracyrangesthatareassociatedwiththeprocessindustries.The+/value
represents typical percentage variation of actual costs from the cost estimate after application of contingency
(typically to achieve a 50% probability of project overrun versus underrun) for given scope. Depending on the
technicalandprojectdeliverables(andothervariables)andrisksassociatedwitheachestimate,theaccuracyrange
foranyparticularestimateisexpectedtofallintotherangesidentified(althoughextremeriskscanleadtowider
ranges).

Inadditiontothedegreeofprojectdefinition,estimateaccuracyisalsodrivenbyothersystemicriskssuchas:
Levelofnonfamiliartechnologyintheproject.
Complexityoftheproject.
Qualityofreferencecostestimatingdata.
Qualityofassumptionsusedinpreparingtheestimate.
Experienceandskillleveloftheestimator.
Estimatingtechniquesemployed.
Timeandlevelofeffortbudgetedtopreparetheestimate.
Unique/remotenatureofprojectlocationsandthelackofreferencedatafortheselocations.
Theaccuracyofthecompositionoftheinputandoutputprocessstreams.

Systemicriskssuchastheseareoftentheprimarydriverofaccuracy,especiallyduringtheearlystagesofproject
definition.Asprojectdefinitionprogresses,projectspecificrisks(e.g.riskevents)becomemoreprevalentandalso
drivetheaccuracyrange[3].Anotherconcerninestimatesispotentialpressureforapredeterminedvaluethatmay
Class1

65%to100%

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result in a biased estimate. The goal should be to always have an unbiased and objective estimate. The stated
estimaterangesaredependentonthispremiseandarealisticviewoftheproject.

Failuretoappropriatelyaddresssystemicrisks(e.g.technicalcomplexity)duringriskanalysisimpactstheresulting
probabilitydistributionoftheestimatecosts,andthereforetheinterpretationofestimateaccuracy.

AnotherwaytolookatthevariabilityassociatedwithestimateaccuracyrangesisshowninFigure1.Depending
uponthetechnicalcomplexityoftheproject,theavailabilityofappropriatecostreferenceinformation,thedegree
ofprojectdefinition,andtheinclusionofappropriatecontingencydetermination,atypicalClass5estimatefora
processindustryprojectmayhaveanaccuracyrangeasbroadas50%to+100%,orasnarrowas20%to+30%.

Figure1alsoillustratesthattheestimatingaccuracyrangesoverlaptheestimateclasses.Therearecaseswherea
Class 5 estimate for a particular project may be as accurate as a Class 3 estimate for a different project. For
example,similaraccuracyrangesmayoccuriftheClass5estimateofoneprojectthatisbasedonarepeatproject
with good cost history and data and, whereas the Class 3 estimate for another is for a project involving new
technology.ItisforthisreasonthatTable1providesrangesofaccuracyrangevalues.Thisallowsapplicationofthe
specific circumstances inherent in a project, and an industry sector, to provide realistic estimate class accuracy
range percentages. While a target range may be expected of a particular estimate, the accuracy range is
determined through risk analysis of the specific project and is never predetermined. AACE has recommended
practicesthataddresscontingencydeterminationandriskanalysismethods.

If contingency has been addressed appropriately, approximately 80% of projects should fall within the ranges
showninFigure1.However,thisdoesnotprecludeaspecificactualprojectresultfromfallinginsideoroutsideof
thebandsshowninFigure1indicatingtheexpectedaccuracyranges.

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100

GrowthfromEstimatedCostsIncludingContingency(%)

90
80
70
60
50
40
30
20
10
0
10
20
30
40
MaturityLevelofProjectDefinitionDeliverables(%)

50
Class5

10
Class4

20
Class3

30

40

50
Class2

60

70

80

90

100

Class1

Figure1ExampleoftheVariabilityinAccuracyRangesforaProcessIndustryEstimate

DETERMINATIONOFTHECOSTESTIMATECLASS

The cost estimator makes the determination of the estimate class based upon the maturity level of project
definitionbasedonthestatusofspecifickeyplanninganddesigndeliverables.Thepercentdesigncompletionmay
becorrelatedwiththestatus,butthepercentageshouldnotbeusedastheestimateclassdeterminant.Whilethe
determinationofthestatus(andhencetheestimateclass)issomewhatsubjective,havingstandardsforthedesign
input data, completeness and quality of the design deliverables will serve to make the determination more
objective.

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