W11_Mohammed_ the vary in Cost estimation when using a non standard WBS - case study

Problem definition

Reference to the W_10 Blog, the use of the standard WBS will refine the scope and minimize the omissions, considering the depth of the details. This blog seeks to establish that there is a strong link between a project’s WBS and its cost estimate, and also show how the estimate is affected when the WBS is defective when using a non standard WBS. As a result, the establishment or adoption of a standardized WBS is a major factor that will help re-align cost estimates and ensure an increase in their accuracies and reliability.

Development of the feasible alternatives

An example WBS that was prepared for a real project (well head tie-in construction project) has been adapted and presented in the paper, together with its associated cost data. This will be used as a case study, and will form the basis of the discussion.

 Development of the outcomes for each alternative

The project's work was not define enough for the team to build their estimate

The customer or project team discovers obstacles or possible efficiencies that require them to deviate from the original plan which affects the estimates.

The customer or project team is inefficient or incapable of developing a good estimation.

Accepted Criteria

Considering the use of standard deviation and the Coefficient of Variation, the cost estimates of three contractors and the company were evaluated accordingly. Where as:

-Standard Deviation: is a measure of the dispersion of data from the mean value, and varies directly as the degree of dispersion of the data set.

σ = [σ²]^1/2 = [ 1/n∑ (x-µ)] ^1/2

-The coefficient of variation is very useful in allowing a comparison of the degree of variation from between data sets.

CV = σ/µ (100) %

where n = number of entries for the WBS element

xi = the ith item of the WBS element, represented by the respective estimates for each company

            µ  = Estimate Mean, is calculated from:  µ = 1/n∑ (Xi)

Analysis and comparison of the alternatives

 Table 1:  Cost Estimates off level 2 WBS elements for the case Study and Mean Estimates. 

Table 2:  Variation of estimates and Standard Deviation and CV

Selection of the preferred alternatives

The results of the CV from the above tables could have the following interpretation:

• Estimates with a CV less than 16.6% are considered reliable for general use.
• Estimates with a CV between 16.6% and 33.3% contain high levels of error, and users should be warned accordingly.
• Estimates with a CV higher than 33.3% are deemed to be unreliable.

It can been seen from the above calculated values of CV for the WBS elements, that the range of those values are from  32% to 39%, and that when the results are interpreted based on the three statements above, the following inferences can be made:

There is no value of CV that is less than 16.6 %, hence, none of the estimates can be said to be reliable.

The CV for ‘‘Site Mobilization’’ and ‘‘Complete Erection and Pre-Commissioning’’ (32%) has a very high level of error and cannot be trusted. Its use should be accompanied by a warning about these high levels of error.

The CVs of all other WBS elements (apart from the two above), are higher than 33%, considered to be unreliable, and cannot be said to have been properly estimated. 

Performance monitoring and the post evaluation of results

Considering the above analysis and finding out, the main causes of defective cost estimates is the non unified and standardized WBS, more case studies have to be taken to proof this results.

Conclusion

The establishment of a credible cost estimate using a non-standardized WBS remains a very great challenge. The use of a standard WBS should not only be encouraged, but should also be adopted for cost estimation purposes.

References

Ø  Elrashid, M. (2012). Blog W10_Mohammed_ Our Current WBS Vs Omniclass and 3D model. retrieved from http://aacemahakam.blogspot.com/

Ø  Elrashid, M. (2011). Blog W_8 Reasons behind change orders in Sudan. Retrieved from http://www. Kristal2011aace.wordpress.com

Ø  Samuel, K (2011). the use of non-standard work breakdown structures and its effect on cost estimation - a case study

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