1. Problem recognition, definition and
evaluation
After
last tender was failed, it will be conducted next tender to obtain EPCI’s
contractor of gas field project. The tender was considered as successful tender
of the bidder submitted price wouldn’t exceed maximum 10% of owner estimate
(OE). Using cost inputs from last tender and third consultant, the existing OE needs
to be updated. Analysis shall be done prior to submitting new OE to Bid committee.
2. Development of the feasible alternative
The cost analysis using simulation approach was selected to develop the cost
estimation.
3. Development of the outcome
There were 4 project heads needed to be completed as project schedule of
30 months. The three-point estimate for each cost item was categorized in
Project Heads as shown in Table 1.
Triangular distribution was used since it more closely reflects the
variation in typical project data. In the triangular distribution, a straight line
relationship is assumed between the minimum value, up to the most likely/moderate
value, and from the moderate value down to the maximum value.
• Minimum is the value based on analysis of the best case scenario,
which means the lowest budget (at which the
probability is almost zero)
• Moderate is the value based on realistic expectations for cost element (at which the probability is
greatest)
• Maximum is the value based on analysis of the worst case scenario,
which means the highest budget (at which the
probability is zero)
Table 1. Breakdown Project Head Cost
4. Selection of criteria
The analysis was done using Software Simulation of Crystal Ball. Monte
Carlo simulation was generated with total 10,000 iterations and 5% limiter of
two tails.
5. Analysis
The range of cost
distribution was resulted from simulation as presented in Figure 1, and the simulated
cost using cumulative probability was shown in Figure 2.
Figure 2. Simulated EPCI Cost
Figure 2. Simulated EPCI Cost
(Cummulative)
6. Selection of alternative
According
to Figure 1 and Figure 2 above, USD 200 million was selected as the optimized
result since it represented the 75% confidence level that was used as a
threshold to determine the baseline cost.
7. Performance monitoring and
post-evaluation of results
Although the confidence level was not so high, the baseline cost as new owner
estimate could be proposed to management to get approval. However, a 75%
confidence level should be informed to them and might be upgraded to higher confidence
level to leverage the possibility of successful tender if there were no economic
constraints in this project. Otherwise, a negotiation
with prospective bidders must be held prior to next tender to avoid the failed
tender.
References:
·
Oracle.
(2008). Documentation for Oracle® Crystal Ball, Fusion Edition. Oracle
Corporation
·
Asmoro, Trian
H. and Autie, M.P. (2012, May 16). Balancing Project Schedule & Cost on
Sour Gas Development Project Case Study (pp. 9). Doha, Qatar: the SPE
International Production and Operations Conference and Exhibition
·
Asmoro, Trian
H. (2012, Oct 1). W7_TRI_ EPCI Payment Term & Tender Price. Retrieved from:
http://aacemahakam.blogspot.com/2012/10/w7tri-epc-payment-term.html
·
Asmoro, Trian
H. (2012, Nov 16). Negotiation: Your Starting Points. Retrieved from: http://3an.blogspot.com/2012/11/negotiation-your-starting-points.html
Another AWESOME posting, Trian!!! Wonderful case study and very impressive use of simulation.
ReplyDeleteNot sure if you have seen it or not, but take the time to download the scathing assessment of NASA's cost estimating by Glenn Butts? http://www.build-project-management-competency.com/wp-content/uploads/2010/09/Glenn.Butts-Mega-Projects-Estimates.pdf
Read over his Joint Confidence Level Probabilistic Calculator (JCL-PC) You may want to consider taking his approach and experimenting to see if that will give you more realistic cost estimates?
BR,
Dr. PDG, back in Jakarta