Procedure 2504 KBR

Estimates
Operations Review
A.
B.
C.

Approved by: G. L. Minicone

Effective Date: 15SEP00
Revision: 02

PURPOSE OF THIS STATEMENT/SCOPE

1. To describe the guidelines for conducting an Operations Review which is the final step in the estimating process.
AFFECTS
1. All Company Operations.
REVISION SUMMARY
Since the last issue dated 30 JAN 97, this procedure was revised in its entirety to reflect current business practice and
nomenclature.

D.

E.

F.

G.

DEFINITIONS
1. OPERATIONS REVIEW - Final analysis of the total proposal/project estimate to provide management with a detailed
and precise overview of the operations cost, including home office services, direct materials, construction, precommissioning, commissioning, other plant services, and recommended operation contingency, as applicable.
2. Refer to Procedure 2602 - Cost Management/Glossary of Terms, for other definitions.
OBJECTIVES OF THE REVIEW
1. Update management on the scope of the project.
2. Demonstrate the competitiveness and completeness of the estimate.
3. Obtain management's approval of the estimate.
4. Establish the operations contingency necessary to cover the assessed risk.
5. Review contract risk.
KEY INFORMATION PRESENTED
1. Project Overview.
2. Scope of Work.
3. Key Milestone Dates.
4. Competition.
5. Project Viability.
6. Contract Summary.
7. Summary of the Proposal/Project Strategy.
8. Project Execution.
9. Estimate Philosophy and Methodology.
10. Basis of Estimate
11. Estimate Review including Comparative Data from similar projects.
12. Contingency Recommendation.
13. Commercial Issues (Cashflow, Currency).
14. Contract Risk including Funded Liability.
KEY ESTIMATE DATA PRESENTED
As a minimum, the following estimate data is included:
1.

2.

Estimate Description
a. Scope of Work including Summary of Changes since last estimate
b. Type, Use, and Accuracy of the Estimate
c. Cost Basis
d. Special/Client format and WBS requirements
e. Special/Contractual requirements
Basis of Estimate
a. Documentation Basis
(1) Equipment List
(2) Plot Plan
(3) Process Flow Diagram
(4) P&ID's
(5) Electrical One Line Diagram
(6) Materials of Construction
(7) Project Master Schedule
(8) Work Group Plans
b. Materials
(1) Equipment
(a) Extent of Quotes, Estimates, etc.
(b) Major items contributing to cost
(c) Historical Growth
(2) Bulks
(a) Extent of MTO's and Unit Pricing, Estimates, etc.
(b) Major Items Contributing to Cost

(c)

(3)
(a)
(b)
(c)
(d)
h.
i.

Design Development (Material Growth and Take Off Allowances) with Comparative
Data from recent projects/proposals
Material Related
Sales and Use Tax
Export and Shipping Costs
Third Party Services

Spares

Construction Subcontracts (Material and Labor)

Home Office/Expatriate
(1) Special Salary Rates
(2) Direct Costs, such as use of 3D CADD
(3)

j.

Special Mark-ups

Construction Field Costs

(1) Execution basis-open shop, union, subcontract
(2) Special requirements
(3) Revamp considerations
(4) Construction productivity factors, costing level, etc.
(5) Construction OH & I - Construction equipment, Expatriate requirements
(6)

Tools-own, Third Party, etc.

(7) Indirect Material

(8)
k.
l.

Supplier Representatives

Commissioning/Operations and Maintenance

Other Costs
(1) Insurance
(2) Project Completion Costs
(3) License Fees and Royalties
(4) Currency Exchange Protection
(5)

3.

Cash flow / Cost of money

m. Project Schedule
Estimate Support Information
a. Overall Estimate Summary Sheet
b. Analysis of Estimate/Comparison to past projects
(1) Materials-Equipment, Bulks, Material Related, Subcontracts
(2)

Construction Field Costs

(3) Home Office

(4) Commissioning/Operations and Maintenance
(5) Other Costs
Estimate Risk Memo
Operations Contingency Analysis/Recommendations
Liabilities
Costs to Date - On check estimates, the latest predictors are budgeted and compared to the check
estimate costs.
g. Escalation analysis and recommendation
PROCEDURE FOR CONDUCTING REVIEW
1. The estimate and all supporting documentation shall be reviewed and approved by the Principal Estimator,
Estimating Manager, and Proposal/Project Manager before the Operations Review meeting.
2. Proposal/Project Manager
a. Schedules and conducts the Operations Review.
b. Notifies the attendees as soon as practical, but no less than 48 hours before the scheduled Review date.
c.
d.
e.
f.

H.

NOTE: Management is asked to reserve Tuesday and Thursday afternoons from 1-4pm for OP's Reviews.
c.

Issues an agenda, with the following key estimate information, to all attendees 24 hours in advance of the
meeting. Distribution of key estimate information shall be limited to those who are to participate in the
review.
(1) Transmittal memo covering proposal/project highlights, scope of supply and list of data being
transmitted
(2) Project fact sheet
(3) Guarantee philosophy statement

(4) Proposal/Project Manager's risk analysis, operations contingency recommendation memo

(5) Assessment of contract risk
(6) Proposal/Project schedule
(7) Alternatives and exceptions being proposed
Attendance, depending on the type and value of the estimate as defined by the Estimate Review Levels (refer to
Section I), should include:
a. Proposal/Project Manager
b. Project Controls Manager/Management
c. Principal Estimator
d. Appropriate Vice President, Project Management
e. Engineering
f.
Construction/Plant Services representative
g. Procurement
h. Technology Acquisition and Development representative, when appropriate
i.
Manager, Estimating
j.
Proposals
k. Financial representative
NOTE: Attendance and sign-off may be delegated to appropriate senior people, if necessary.
4. A quorum of three Vice Presidents, including one Vice President from Project Management, must be present for EPC
fixed price proposals/projects, and two Vice Presidents including one Vice President from Project Management are
required for all other types of EPC proposals/projects. Construction only proposals require a Construction Vice
President present.
5. Distribution of key information shall be limited on each estimate to those who are to participate in the review. The
estimate summaries are presented during the meeting and are not distributed in advance. The recommended
operations contingency approved by the Principal Estimator, Manager of Estimating, and the Proposal/Project
Manager following the Estimating Department and team review are shown on the signed estimate summary sheet.
6. Attendees are responsible for review of assessment of risk and liability exposure.
7. The Proposal/Project Manager is responsible for ensuring that on conclusion of the meeting, all key information
packages are collected in the meeting room and shredded, except those issued to key individuals, such as the Vice
President, Contract Management; Vice Presidents Project Management; Manager, Estimating; and the
Proposal/Project Manager.
8. The Proposal/Project Manager is responsible for follow up actions as necessary.
9. Upon completion of the review(s), the Proposal/Project Manager shall have the estimate summary signed-off.
(Refer to Section I for estimate review levels.) If revisions occur during the Operations Review, the Proposal/Project
Manager will have the revised estimate summary sheet hand-carried for sign-off.
10. The signed-off original of the estimate summary shall be returned to the Principal Estimator for Estimating's secure
files.
ESTIMATE REVIEW AND APPROVAL LEVELS
3.

I.

Review and approvals are required for any estimate above the dollar amounts shown.
For All
Proposals

(1)

Product
Director(4)

VP PM

Other
Sr. VP EPC
VP's/Directors/Managers Operations
(Formal Operations
review required) (7)(C)

(2)

Projects ,
and Studies

(D)

Area Sales
VP/Director(8)
(Review Only)

Estimates(3)
Reimbursable

$250 K(4)

Fixed Price (Lump

Sum)

All(4)

Non-Binding
Capital Cost (11)

All(4)

$1 MM

$10 MM

$20 MM

All

All

$1 MM

$5 MM

All

All

(5)

$100 MM

All

Change Notices(6)
Reimbursable & XNo.'s

$ 500 K(4)

$1 MM

$10 MM

$20 MM

---

Fixed Price (Lump

Sum)

$ 250 K(4)

$250 K

$1 MM

$5 MM

---

NOTES:
(1)

Manager, Proposals signs off all Proposal Estimates.

(2)

Project Control Estimates (ICE, IAC, FCE and PCE) approval (except Manager, Proposals) and sign off levels
are the same as proposals.

(3)

Proposal/Project Manager, Manager of Estimating, and Principal Estimator approve all estimates and attend
Operations Reviews.

(4)

The appropriate Product Director will approve estimates involving technologies under the auspices of
Technology Acquisition and Development.

(5)

At discretion of Vice Presidents-Project Management.

(6)

Project Manager approves all Change Notices estimates. Principal Estimator approves Change Notices
estimates over $1 MM.

(7)

Formal Operations Review Meeting is attended by Proposal/Project Manager, Proposals, Manager of

Estimating, Principal Estimator, Financial representative, Project Controls, Vice President - Project
Management, Engineering, Construction, Plant Services, if applicable, Procurement, and also Technology
Acquisition and Technology, when appropriate. (Refer to Note 9 below.)

(8)

Appropriate Area Sales Vice President/Director reviews all TIC estimates before presenting any preliminary
cost information to clients.

(9)

Construction-only estimates, use the above dollar amounts and only require Construction Vice President and
Senior Construction Vice President approval for Columns (C) and (D).

(10)

Any lump sum proposal over $40 MM (price) must be approved by the President of KBR, as well as, CFO
Halliburton Company, and any lump sum proposal over $100MM (price) must be approved by COO
Halliburton Company.

Non-binding capital cost estimates that may result in a fixed price bid at some point should be handled the
same as Fixed Price Estimates.
RELATED POLICIES, PROCEDURES, AND INSTRUCTIONS
1. Procedure 2501 - Classes of Estimates.
2. Procedure 2502 - Estimate Plan and Basis of Estimate.
3. Procedure 2503 - Risk Analysis and Contingency Development.
4. Procedure 2602 - Cost Management/Glossary of Terms.

(11)

J.

Procedure 2602 KBR

Cost Management
Glossary of Terms

Approved by: R. Myers

Effective Date: 08 MAY 03

A. PURPOSE OF THIS STATEMENT/SCOPE

To define the terms used in the Cost Management procedures.
B. AFFECTS
All Onshore operations.
C. REVISION SUMMARY
Since the last issue dated 04 May 00, this procedure was revised in its entirety to reflect current
business practice and nomenclature.
D. DEFINITIONS
1. ANTICIPATED BILLABLE COST (ABC) - The sum of all costs and cost markups as represented
in the Current Forecast on a KBR basis that are expected to be billed to the client. This is
applicable for open cost work only.
2. AS-SOLD BASIS (ASB) - The initially agreed to budget between KBR Management and the
client. The ASB may become the Original Budget if there are no subsequent changes prior to
contract award or the contract effective date.
3. BASE ESTIMATE CHANGE NOTICE (BECN) - A type of estimate that documents, quantifies,
and communicates additions/changes between the Proposal Estimate (after sign-off) and
the agreed to Original Budget.
4. BACKCHARGE - Costs associated with the reworking and correction of third party
nonconformance. This cost and its associated markup are subsequently charged back to the
supplier/vendor/subcontractor.
5. CCO / PV REGISTER A listing of approved Client Change Orders and Project Variances
used to document the approved changes to the project cost budgets and forecast.
6. CHANGE MANAGEMENT - A process established to define the responsibilities and procedures
for early identification, communication, management, quantification, and approval of
changes to the project contract, scope, execution plan, cost, and schedule. Change

Management keeps the work quantification, schedule, and budget current with the approved
project scope and execution.
7. CHECK ESTIMATE - A fully detailed estimate of project costs prepared during the course of
the project. Check estimates are performed normally at changes in project phase, such as
completion of IFD P&IDs or near completion of home office engineering design. Each phase
dictates appropriate accuracy and extent of detail included.
8. CLIENT BASIS - Project revenue based on contractual markups as well as funded liability,
G&A and profit.
9. CLIENT CHANGE ORDER (CCO) A formal contract-related document for presenting to the
client a change in the project contractual terms/conditions, project scope
additions/deletions, and changes in the execution plan, cost or schedule that was requested
or agreed to by the client. CCOs are the means to update the Current Budget from the
Original Budget, insuring a consistent agreed to budget by both KBR management and the
Client.
10. CLIENT CHANGE ORDER NO. 0 - A change document that identifies and communicates
modifications to scope, schedule, or budget.
a. For fixed price projects - Sums up all client-requested additions/deletions/revisions
between when the Proposal Estimate is approved by Operations management and
the issuance of the Original Estimate.
b. For open cost projects - Sums up all changes authorized in the period between the
As Sold Basis for cost and the Original Budget.
11. COMMITTED COSTS - Costs that are legally obligated by purchase order, subcontract, and
third party royalty payments. Also includes payroll and direct costs through the reporting
period. It may include, at any point in time, a mixture of Formal Award and Notice of
Commitment values.
12. CONSTRUCTION EQUIPMENT - All manner of powered equipment used in the Construction
process to move and erect material, including earthmoving equipment. Small tools are also
included.
13. CONSTRUCTION PRACTICE ALLOWANCE A material cost allowance included in the
estimate for waste due to normal construction practices (i.e. concrete over pour, conduit,
and cable drops etc.)
14. CONTINGENCY - A forecast cost to cover project risk and uncertainties. Contingency is not
intended to cover Client Change Orders. Contingency is generally subdivided into two
components,
a. Operations Contingency to cover project execution risks and
b. Fixed Contingency to cover contractual risks i.e., warranties, liquidated damages etc.
15. CONTROL ESTIMATE - An estimate, based on point in time core Engineering documents
(P&IDs, Plot Plan, Equipment List, etc.), and used to establish a current basis for analysis of
quantities, material types, and plant configuration that comprise the project scope with
respect to an evolving plant design. For open cost projects, it is the latest client approved
estimate of project cost. For Fixed Price Contracts, the Control Estimate is often used to
adjust the Work Content Budget (WCB) and the Current Forecast.
16. CURRENT BUDGET An Onshore standard budget type used to represent the current
approved budget for the contract scope, as agreed to by the client and KBR management.
Changes represented here include changes to contractual terms and conditions, additions,
or deletions to project scope and regulatory changes that affect project scope; that generate
changes in budget, scope, or schedule. These changes are identified by approved Client
Change Orders (CCO). The sum of the Original Budget, plus all approved CCOs as well as
Internal Transfers equals the Current Budget. The Current Budget is synonymous with the
following terminology: Control Budget & Client Approved Cost (CAC).
17. CURRENT FORECAST An Onshore standard forecast type used to represent the anticipated
costs at project completion. The Current Forecast is the sum of committed costs to date plus
the Estimate to Complete. The Current Forecast is also calculated as the Work Content
Budget (WCB) plus approved Forecast Variances (FV). The Current Forecast can also be
viewed as the Original Budget Cost plus Client Change Orders, plus Work Content Variances
plus Forecast Variances. The Current Forecast is synonymous with the following
terminology: Estimate at Completion (EAC).
18. CURRENT PRICE - The market price for materials and labor in effect at the moment.
19. DESIGN ALLOWANCE An allowance for normal growth of equipment and bulk material
quantities as design evolves. The amount of design allowance is based on the completeness
of the estimate quantification method. It is applicable to the associated labor, material, and

subcontract costs. Design allowance is typically consumed on a project. This allowance also
incorporates growth and take-off as part of the percentage.
20. DEVIATION - Change or nonconformance to a project reference document (Contract, scope,
execution plan, cost estimate, or schedule). They are events taking place on a project which
impact cost and/or schedule causing diversion from the original plan.
21. DIRECT MATERIAL - All plant equipment and bulk materials used in the construction of a
plant. Direct materials become an integral and permanent part of the plant. Direct Material
includes scaffolding and formwork which are non-permanent materials.
22. ESCALATION - The allowance for the anticipated increase (inflation) in current labor,
material, and subcontract costs based on the project schedule.
23. ESTIMATE RECAST For lump-sum, fixed price contacts the As Sold cost is the basis for
controlling the project. Often these estimates are not in the proper format or broken down
in sufficient detail for cost analysis. A re-cast of the As Sold cost estimate, re-organizes
the estimate in proper format and sufficient detail to be utilized as the control baseline.
24. ESTIMATE-TO-COMPLETE (ETC) - An estimate of cost for remaining work, based on either:
a. budgeted rates and unit prices
b. current rates and unit pricing
c. any combination of such factors to generate a likely cost outcome
25. ESTIMATE TURN-OVER MEETING A meeting that takes place after each estimate (Bid
Estimate, First Check Estimate, Production Check Estimate, etc.) that takes the execution
team through the details of the Basis of the Estimate.
26. EXTRA WORK ORDER (EWO) - A cost control document to identify costs that are either:
a. outside the contract scope and not pursued as a Client Change Order, backchargeable to a third party, or
b. required to be segregated for control or financial purposes
27. FIRST CHECK ESTIMATE (FCE) - A mandatory Conceptually Defined estimate prepared
after P&ID Issue IFD and approval of the plot plan, usually when engineering is 30%
complete. This estimate is executed in sufficient detail to establish a quantity baseline for
Field Operations as well as re-quantify elements of risk. The First Check Estimates are
generally used as a mechanism for updating the Work Content Budget and Current Forecast
for both Fixed Price and Open Cost contract types. It is typically the basis for loading the
budgets into the Automated Craft Ledger System (ACLS).
28. FIXED CONTINGENCY An amount of money allocated to cover issues such as liquidated
damages (LDs) for schedule, financial risks, currency issues, warrantees, and other
contractual risk. Fixed Contingency is reviewed by Operations Management but is not part of
the signed-off operations costs. The Fixed Contingency is synonymous with the following
terminology: Funded Liability.
29. FORECAST Projection of final quantities, workhours, and cost based on analysis of actual
trends and estimate to complete. It is the same as the Current Forecast and the Estimate at
Completion.
30. FORECAST VARIANCE (FV) An Onshore standard project variance type / classification
within the agreed scope that impacts the Current Forecast workhours and costs and includes
such deviations as changes in unit rates / prices, and cost for subcontracts,
overhead/indirect and engineering non-labor.
31. INTERNAL TRANSFER An Onshore standard variance type / classification used to represent
internal budget shifts. The impact is to transfer budget and scope from one control element
to another (zero bottom line cost effect). They are used to align the budgets and forecasts
to the current execution plan. (i.e. shifts from direct hire to a subcontract approach).
32. KBR BASIS - Cost information prepared for workhour salary rates and direct costs, using
internal KBR costing rates (includes non-reimbursable costs). It is true internal cost using
internal markup rather than client / contractual markups.
33. MANDATORY CHANGE - A change required for plant operability, safety, or compliance with
codes and/or regulations that has the approval of the originating work group's Chief
Technology Engineer and Department Manager, Project Engineer, and Project Manager.
Recovery is sought through approved Client Change Orders in accordance with the terms of
the contract.
34. OPEN COST - A Contract type where costs incurred are reimbursed by the client. This may
include billing rates, where reimbursement for certain cost elements are accomplished by
means of a billing rate, in place of the actual expense incurred.

35. OPERATIONS CONTINGENCY - A portion of contingency funds assessed to cover project

execution risks. Examples include material escalation, labor market changes, schedule risk,
installation methodologies, and schedule urgencies.
36. ORIGINAL BUDGET - An Onshore standard budget type used to document the initial, agreed
to cost for the project work scope by both the client and KBR Management at Effective Date
of Contract. The Original Budget is an archive budget that never changes and upon which all
changes and adjustments are incremented, whether in-scope or out of scope. The Original
Budget is synonymous with the following terminology: Initial Approved Costs (IAC).
37. OVERHEAD & INDIRECT COST - Company field supervision staff and field office staff
assigned to a construction site to manage and administer the field labor, subcontracts,
materials, and equipment. Does not include foreman level supervision, which is included in
Direct Cost. It also includes temporary facilities (field office costs, construction trailers, lay
down, temporary roads, camps, catering, temporary power and water, etc.), services
(security janitorial, accounting, etc.) workman supplies, safety supplies, gasses,
communications travel, etc..
38. PDN SYSTEM - An on-line computer program used to facilitate identification and
communication of PDNs to all affected work groups and the return communication of
quantities, costs, workhours, and schedule impact from the affected work groups.
39. PDN REGISTER A status report of the PDNs submitted to the Project Change Management
Team (PCMT) and their development, authorization/ approval status. The register contains
the change management milestone dates and allows the PCMT to identify the status of each
PDN and expedite those that are outstanding.
40. PENDING CLIENT CHANGE ORDER - A Client Change Order with client agreement,
authorized by the KBR Project Manager for implementation, prior to receiving formal client
approval of the cost and schedule impact. This type of change is recorded against the Work
Content Budget until such time that it is approved by the client. This allows proper and
accurate performance and progress measurement.
41. PRODUCTION CHECK ESTIMATE (PCE) A mandatory Definitive Estimate that is prepared
on each EPC project when Engineering is about 70% complete. The PCE utilizes actual
available cost information including subcontracts that have been awarded and actual
purchase orders that are in place. Quantities and other deliverables are based to the extent
possible on Construction Issue information. The PCE becomes the new forecast for the
project and the quantities are typically loaded in ACLS.
42. PROJECT CHANGE COORDINATOR - Project team member assigned by the Project Manager
to coordinate all changes, whether Client Change Orders or Project Variance from their
inception to final approval. This includes communication to all members of the project team
as to the disposition of the changes already written as well as potential changes that will be
written. This person is generally a Project Engineer. Often, the Project Controls Manager or
Cost Specialist assigned to the project assist in this effort.
43. PROJECT CHANGE MANAGEMENT TEAM (PCMT) A subgroup of the project team organized
by the Project Manager whose purpose is to review proposed PDNs, assess their validity,
assign a variance type / classification (CCO or PV), and authorize or reject their
implementation.
44. PROJECT DEVIATION NOTICE (PDN) A standard change management form used to
identify, document and communicate changes to the project reference documents (contract,
scope, execution plan, cost or schedule). They can be initiated by any project team member
based on client requests or internal decisions. A deviation may occur because of changes in
market conditions, company design changes and/or rework, supplier data changes, changes
in home office salaries, field labor rates, field labor productivity changes, schedule
improvement / slippage, etc., that in turn impact costs and/or schedules. Project Deviation
Notices do not increment any budgets or the forecast until they are approved to proceed as
either a Client Change Order, or Project Variance.
45. PROJECT CODE of ACCOUNT (PCoA) - A structured set of cost codes, identifying the
responsible work group or craft as well as the specific work operation being performed. It
includes labor and any material resource costs used during performance of that operation.
46. PROJECT OPERATIONS COST STATUS REPORT (POCSR) - A quarterly cost status report that
details the budget / forecasts utilizing KBR internal costing rates. This report is for internal
distribution only and is not shown to the client.
47. PROJECT STATUS REVIEW (PSR) - A monthly report used in Project Reviews that includes
prior meeting open action items, current significant events, safety and quality activities and

statistics, Client satisfaction status, progress overview, key project milestones, a financial
overview, cash flow status and issues / areas of concern.
48. PROJECT VARIANCE (PV) - An Onshore standard variance type / classification and change
management form used to document changes within the current work plan / scope. Includes
changes to the work content, and performance to plan adjustments. PV's often originate as
PDN's, and may be further classified as Work Content Variances, or Forecast Variances. They
require KBR Project Management approval, but not client approval.
49. PROPOSAL ESTIMATE - The estimate prepared during the proposal phase. It serves as
support for the price that is included in the commercial proposal.
50. SUBCONTRACT CLAIMS ALLOWANCE An estimate allowance added for potential claims and
additional expenses submitted by a subcontractor due to delays scope changes, unavailable
access to parts of the site, late drawings and information, etc. that they believe KBR or the
client is responsible for. It is included as part of the subcontractor direct cost in the
estimate.
51. TYPES OF ESTIMATES - As a reference for levels of accuracy and timing:
a. Order of Magnitude, 30-50%, time frame is pre-proposal.
b. Factored Estimate, - 15-25%, time frame is proposal.
c. Conceptual Defined, 10-15%, typical basis for Control Estimate.
d. Definitive Estimate, 5-10%, typical basis is Production Check Estimate.
52. WORK BREAKDOWN STRUCTURE (WBS) - A systematic and progressive subdivision of
project work to a level of detail sufficient for quantification and proper execution
management, in accordance with contractual terms, financial considerations, and/or timephasing constraints. WBS elements are represented by WBS Codes in management
systems. When the proper PCoA Codes, financial codes, job numbers, etc., are attached, it
allows all systems to share the project data appropriately.
53. VARIANCE TYPE / CLASSIFICATION A subset of the change management process that
documents the type of deviation. There is a direct relationship between the variance type
and the budget / forecast impacted. The Onshore standard Variance types and their related
budget / forecast include:
a. Client Change Orders (CCO) Update the Current Budget (CB)
b. Work Content Variances (WCV) Update the Work Content Budget (WCB)
c. Forecast Variances (FV) Update the Current Forecast (CF)
d. Internal Variances (IT) Update the Current Budget (CB)
54. WORK CONTENT BUDGET (WCB) An Onshore standard budget type used to document the
current projected quantities at the estimated unit rates. It is the basis for measurement of
project productivity and progress. The Current Budget plus Work Content Variances equals
the Work Content Budget. In the past it was also referred to as the Quantity Adjusted
Budget, and the Target Budget.
55. WORK CONTENT VARIANCE (WCV) An Onshore standard variance type used for changes
in the work content (quantities) within the current project scope. The variance impact is
calculated as the change in quantities at the original estimate unit workhours per unit. This
type of variance impacts both the Work Content Budget (WCB) and Current Forecast.
E. ACRONYM REFERENCE
Following is a summary of the acronyms used in some of the preceding definitions along with the
corresponding description:
ABC

ANTICIPATED BILLABLE COST

ASB

AS-SOLD BASIS

BECN

BASE ESTIMATE CHANGE NOTICE

CCO

CLIENT CHANGE ORDER

EAC

ESTIMATE AT COMPLETION

EWO

EXTRA WORK ORDER

FCE

FIRST CHECK ESTIMATE

FV

FORECAST VARIANCE

IAC

INITIAL APPROVED COST

IGP

INTERNALLY GENERATED PROFIT

IT

INTERNAL TRANSFER

PCE

PRODUCTION CHECK ESTIMATE

PCMS

PROJECT COST MANAGEMENT SYSTEM

PCMT

PROJECT CHANGE MANAGEMENT TEAM

PCOA

PROJECT CODE OF ACCOUNT

PDN

PROJECT DEVIATION NOTICE

POCSR

PROJECT OPERATIONS COST STATUS REPORT

PSR

PROJECT STATUS REVIEW

PV

PROJECT VARIANCE

WBS

WORK BREAKDOWN STRUCTURE

WCB

WORK CONTENT BUDGET

WCV

WORK CONTENT VARIANCE

Procedure 2502 KBR

Estimates
Estimate Plan and Basis of Estimate
A.

B.
C.

Approved by: G. L. Minicone

Effective Date: 21 JUN 00
Revision: 02

PURPOSE OF THIS STATEMENT/SCOPE

1. To describe the guidelines for preparing the Estimate Plan that organizes and directs the estimate preparation
process on a proposal/project.
2. To define the contents of the Basis of Estimate used to document the actual cost estimate.
3. These guidelines generally apply to major estimates.
AFFECTS
1. All Company Operations.
REVISION SUMMARY
Since the last issue dated 30 JAN 97, made minor revisions throughout the entire procedure to reflect current business
practice and nomenclature.

D.

E.

DEFINITIONS
1. BASIS OF ESTIMATE - A summary description of the estimate baseline documentation, issued as part of the
completed estimate, that outlines the scope and basis as estimated.
2. ESTIMATE PLAN - A document prepared early in the estimate preparation process that reflects the philosophy
developed in the Proposal Strategy Meeting and subsequent project execution strategies established during the life
of the project.
3. PROJECT CONTROL ESTIMATE BASIS (PCEB) - Form KG-0978, prepared by the Project Manager, that identifies key
documents and other pertinent information upon which a specific proposal or control estimate is based.
4. Refer to Procedure 2602 - Cost Management/Glossary of Terms, for further definitions.
ESTIMATE PLAN
1. Supplements the overall Proposal/Project Execution Strategy that outlines how the estimate is developed. It
provides detailed direction, assigns responsibilities, and schedules the activities.
2. Issued as an estimate kick-off document and prepared after the Proposal Strategy Meeting and subsequent project
execution strategies established during the project life cycle. It includes the PCEB form that identifies the
documents that are the basis for the preparation of the estimate.
3. Defines the:
a. Scope of work
b. Documentation basis
c. Type and accuracy of the estimate
d. Costing basis for categories of cost
e. Basis of design
f.
Responsibilities
g. Level of detail
h. Special/Client format and Work Breakdown Structure requirements
i.
Sales tax, escalated basis, currency conversions to be used
j.
Special/Contractual requirements
k. Estimate schedule

4.

l.
MTO plan
m. Construction strategy
n. Subcontract strategy
o. Scope or cost comparisons required
Responsibilities
a. Project Manager
(1) Issues the Estimate Plan with the PCEB form.
(2) Provides overall direction and strategy.
b.

(3) Assures proper and timely flow of information.

Principal Estimator
(1) Prepares the Estimate Plan draft.
(2) Provides input on required formats, levels of detail, due dates.
(3) Supplies current MTO standard checklists when appropriate.
(4) Prepares the estimate responsibility matrix.

c.

(5) Prepares budget for Estimating Services to present to the Project Manager (not to be published with
the Estimate Plan.)
Project Engineer
(1) Identifies the engineering documents to be used as the basis for the estimate on the PCEB form.
(2) Assigns responsibilities and completion dates for engineering input.
(3) Develops MTO plan with input from Material Control and Estimating.
(4) Assures that the engineering input complies with estimate formats.
(5) Provides engineering philosophy and basis of design.

(6) Indicates on the PCEB form which change requests will be included in the estimate ("freezes" the
scope).
d. Procurement
(1)
Reviews and provides input on pricing, timing and escalation.
(2)
e.

Reviews and contributes subcontract strategy.

(3)
Reviews and comments on MTO plan.
Construction
Reviews and contributes construction strategy, timing and escalation.

f.

Project Control
(1) Develops estimate schedule.

(2) Provides information on cost to date.

5. Typical Outline
6.
7.
ESTIMATE PLAN
8.
(To Be Adapted To Type Of Estimate)
9.
10.
1.0 Purpose
11.
12.
2.0 Description
13.
a) Scope of Work
14.
b) Type of Estimate
15.
c) Basis of Design
16.
d) Documentation (attach Estimate Document form)
17.
e) Key Dates and Schedule
18.
f) Costing Level
19.
g) Construction Strategy and Subcontract Strategy
20.
h) Special Requirements
21.
1) Client Work Breakdown Structure or area breakdowns
22.
2) Scope or cost comparison required
23.
3) Contractual requirements
24.
i) Responsibility Matrix
25.
j) Assignment Sheet
26.
27.
3.0 Approach
28.
a) Equipment
29.
b) Bulk Materials
30.
c) Material Related
31.
d) Subcontracts
32.
e) Construction
33.
f) Home Office Services
34.
g) Insurance and Completion Costs

F.

35.
h) Commissioning and Start Up
36.
37.
Included within each category:
38.
1) Level of Detail
39.
2) Quantity Development and MTO Plan
40.
3) MTO Standard Checklists
41.
4) Pricing Level
42.
5) Responsibilities
43.
6) Estimate Schedule
44.
7) Assumptions
45.
46.
4.0 Group Responsibilities
47.
a) Project Management
48.
b) Estimating
49.
c) Project Controls
50.
d) Procurement
51.
e) Project Engineering
52.
f) Vessel Mechanical
53.
g) Machinery
54.
h) Electrical
55.
i) Instrumentation
56.
j) Piping
57.
k) Piping Mechanical
58.
l) Systems Engineering
59.
m) Standards & Specs
60.
61.
5.0 Estimate Qualifications and Exclusions
62.
63.
6.0 Risk Analysis and Contingency Development
64.
a) Estimate Accuracy
65.
b) Contingency Development
BASIS OF ESTIMATE
1. Describes the scope of the estimate in sufficient detail to provide everyone involved, including the client, a
complete understanding of the basis for the estimated cost. It includes or refers to all documents, methodologies,
and conclusions.
2. Issued with the completed estimate. It includes the revised PCEB form that reflects additions/changes of key
documents. These changes must be approved by the Project Manager.
3. Defines the:
a. Scope of work
b. Documentation basis
c. Pricing basis for major elements
d. Basis of design
e. Escalation
f.
Exclusions
g. Assumptions
h. Allowances
i.
Qualifications
j.
Sales Tax
k. Contingency/Risk assessment basis
l.
Project schedule
4. Responsibilities
a. Project Manager
(1) Approves the Basis of Estimate.
b.

(2) Provides the revised PCEB form and all relevant correspondence.
Principal Estimator
(1) Prepares the Basis of Estimate.

c.

(2) Verifies the estimate documents including the revision number.

Project Engineer
(1) Provides the list of engineering documents including the revision number.
(2) Provides relevant correspondence.
(3) Provides scope descriptions.

(4) Provides basis of design.

5. Typical Outline
6.
7.
BASIS OF ESTIMATE
8.
(To Be Adapted To Type Of Estimate)
9.
10.
1.0 Purpose and General Approach
11.
12.
2.0 Description

G.

13.
a) Scope of Work
14.
b) Type of Estimate
15.
c) Documentation Basis (attach Estimate Document form)
16.
d) Basis of Design
17.
e) Project Schedule
18.
f) Special Conditions and Requirements
19.
20.
3.0 Estimate Basis
21.
a) Equipment
22.
b) Bulk Materials
23.
c) Material Related
24.
d) Subcontracts
25.
e) Construction
26.
f) Home Office Services
27.
g) Insurance and Completion Costs
28.
h) Commissioning and Start Up
29.
30.
Included within each category:
31.
1) Quantity development
32.
2) Pricing level
33.
3) Factors/allowances used
34.
4) MTO Standard Checklists
35.
36.
4.0 Estimate Qualifications and Exclusions
37.
a) Qualifications
38.
b) Assumptions
39.
c) Exclusions
40.
41.
5.0 Escalation
42.
43.
6.0 Risk Analysis and Contingency Development
44.
a) Estimate Accuracy
45.
b) Analysis Approach
46.
c) Contingency
RELATED POLICIES, PROCEDURES, AND INSTRUCTIONS
1. Procedure 2501 - Classes of Estimates (In revision)
2. Procedure 2503 - Risk Analysis and Contingency Development.
3. Procedure 2504 - Operations Reviews.
4. Procedure 2602 - Cost Management/Glossary of Terms.