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 AACE® International Recommended Practice No. 111R-20

ESTIMATING FOR LONG RANGE PLANNING – AS APPLIED

FOR THE PUBLIC SECTOR
TCM Framework: 3.2 – Strategic Asset Planning

Rev. March 19, 2021

Note: As AACE International Recommended Practices evolve over time, please refer to web.aacei.org for the latest
revisions.

Any terms found in AACE Recommended Practice 10S-90, Cost Engineering Terminology, supersede terms defined in
other AACE work products, including but not limited to, other recommended practices, the Total Cost Management
Framework, and Skills & Knowledge of Cost Engineering.

Contributors:
Disclaimer: The content provided by the contributors to this recommended practice is their own and does not necessarily
reflect that of their employers, unless otherwise stated.

Paul Galeno (Primary Contributor) Crystal Fleet

Lisa M. Taylor (Primary Contributor) John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life
Gregory Brink Douglas W. Leo, CCP CEP FAACE Hon. Life
Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life Dan Melamed, CCP EVP FAACE
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This document is copyrighted by AACE International and may not be reproduced without permission. Organizations may obtain permission
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AACE® International Recommended Practice No. 111R-20
ESTIMATING FOR LONG-RANGE PLANNING – AS
APPLIED FOR THE PUBLIC SECTOR
TCM Framework: 3.2 – Strategic Asset Planning

March 19, 2021

TABLE OF CONTENTS

Table of Contents ..........................................................................................................................................................1

1. Introduction ...............................................................................................................................................................2
1.1. Scope ..................................................................................................................................................................2
1.2. Purpose ..............................................................................................................................................................2
1.3. Background.........................................................................................................................................................3
2. Communication .........................................................................................................................................................4
2.1. Unclassified / Class 10 - Long-Range Planning Estimate ....................................................................................4
2.2. Improving Communication in the Estimating Process .......................................................................................5
2.3. Long-Term Needs Versus Near-Term Projects ...................................................................................................5
2.4. Anchoring Bias ....................................................................................................................................................5
2.5. Stakeholder Perception ......................................................................................................................................6
2.6. Competing and Evolving Needs ..........................................................................................................................6
2.7. Portfolio Management .......................................................................................................................................7
2.8. Long-Range Capital Budgeting ...........................................................................................................................7
3. Recommended Practice .............................................................................................................................................8
3.1. Rationale for Long-Range Planning Unclassified / Class 10 Estimates ...............................................................8
3.2. Communicating the Basis of Estimate ................................................................................................................9
3.3. Total Cost Management (TCM) Integration .....................................................................................................10
3.4. Cost Communication to Stakeholders ..............................................................................................................11
4. Classification for Long-Term Planning and Asset Life Cycle Cost Estimates ............................................................11
5. Conclusion ...............................................................................................................................................................12
References ...................................................................................................................................................................12
Contributors ................................................................................................................................................................13

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1. INTRODUCTION

1.1. Scope

This recommended practice (RP) of AACE International identifies special considerations that apply when estimating
project costs for long-range strategic asset planning, including documenting and communicating the estimate basis.
The strategic asset planning that is specifically addressed by this RP supports long-range planning for public sector
organizations or similar entities that is required in order for them to better accomplish their objectives. This includes
estimating as well as communicating needs and concepts that may pre-date the creation, existence, or emergence
of an asset by many years, such as planning for future capacity/infrastructure. These estimates are prepared as
planning-level predictions for facilities that may be constructed 10-50+ years in the future. These extreme front-end
predictions are necessary for public sector organizations to determine their financial and capital strategies often
decades in advance.

These highly conceptual estimates may be revisited periodically during the extended planning-level process. There
is often an anchoring effect, i.e., decision-makers are biased towards initial cost estimates prepared at the beginning
of a long-range planning estimating process. Subsequent cost analyses are often based on and compared to the
initially prepared long-range planning estimate, sometimes ignoring significant changes in scope or strategies, and
without adequate consideration of technology change and escalation over time.

These long-range planning estimates are differentiated from traditional AACE International Class 5 estimates for a
near-term project where the accuracy range of -20/-50 percent to +30/+100 percent may be sufficient. Long-range
planning estimates are prepared for potential facilities within a 10-50+ year strategic asset planning timeframe. It
must be acknowledged that the long-range planning estimate is unlikely to be accurate, and the original scope may
not be representative of the final solution and associated costs. Unpredictable scope and risk challenges over the
extended long-range planning timeframe include economics, technology, availability of resources, critical
infrastructure, population dynamics, regulations, organizational and asset resiliency, climate, energy, and natural
influences. Clearly, costs are affected by many factors in addition to escalation.

This RP will identify special considerations and define the required project documentation and management
communication necessary to provide stakeholders and end-users with clear understanding of costs and associated
risks at any point of estimating process for long-range planning in order to convey the story of scope progression
and corresponding costs and risks. It will examine estimating for long-range asset planning not at a point in time but
as a developing portfolio of cost, best identified as an AACE International Unclassified / Class 10 estimate.

1.2. Purpose

This RP is intended to provide guidelines (i.e., not a standard) for long-range planning estimates applied to the public
sector. This examines communication to management, taxpayers, ratepayers, and applicable stakeholders that most
practitioners would consider to be good practices that can be relied on and considered for use where applicable.

Public sector organizations routinely face long-range planning decisions around future capacity requirements
resulting from growth, compliance, and regulatory mandates. In order to ensure that these responsibilities are met,
public sector comprehensive planning units continuously engage to identify future system, capacity, technology
needs, and requirements. These needs along with potential solutions must often be communicated to management,
stakeholders, public officials, taxpayers, and ratepayers’ decades in advance in order to garner support; identify and
compete for scarce financial resources; and then eventually design, procure, and implement the solution. Developing
and communicating scope and cost information so far in advance for large scale projects is a daunting task for
planners, engineers, and cost professionals. Cost estimates are prepared with traditional methods utilizing all

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information that is known at the time, while fully realizing that over time, scope will change as well as the methods
of execution.

The following scenario illustrates the difficulty both private- and public-sector organizations routinely face in long-
range system planning:

Planning has determined that several decades in the future the volume of wastewater flows produced by the
region is projected to be significantly greater than the utility’s existing capacity. Expanding services to
accommodate the increase in capacity will require significant public works projects. Despite the fact that these
future capacity needs are decades away and the agency can only speculate as to what future solutions might
ultimately entail, the agency must develop and publish scope and cost information to address the problem and
place probable programs and projects into its capital improvement portfolio and rate structure.

A public sector’s capital portfolio is a compilation of small to large, complex engineering, and construction projects
that maintain existing infrastructure; add new capacity; and address safety, operations and maintenance, and
regulatory requirements. These projects are non-recurring and typically involve construction or renovation of such
things as: transportation corridors, underground utilities, plants, supporting facilities, pipelines, transmission
systems, etc. The reality of these projects is that final, actual costs tend to greatly-exceed comprehensive long-rang
planning-level estimates. After-the-fact comparisons of end-product actual costs to early estimates are generally
critical to key stakeholders, management, public officials, taxpayers and ratepayers. In reality, the early cost estimate
was likely within the Class 5 range associated with such estimates if the base scope had not changed.

Criticism of the early estimate often derives from poor communication and/or anchoring bias. Poor communication
is a factor when an adequate basis of estimate, including all assumptions and discussion of uncertainty, is not
prepared. Anchoring bias is a factor as it is a normal reaction to “anchor” to the first estimate value, compare against
it, and make judgments based upon its initial, albeit outdated premise.

Initial estimates would have been prepared without knowing an exact location, capacity, or process. In reality, the
only practical way to prepare such estimates is to apply a real-time solution to the problem that would be available
at the time of estimate preparation, and then develop pricing around that hypothetical solution. Additional
challenges that face planners, engineers, and cost professionals are the inability to predict advances in technology,
public/stakeholder involvement, economic conditions, political environment, changes to regulations, building codes,
life cycle costs, and so on. Another complicating notion and common misconception by many are that the fore
mentioned factors are somehow covered by escalation. Both the uncertainty of escalation and any additional future
uncertainty must be clearly communicated. These are just some of the causes of uncertainty that affect the scope
and cost of the end product. To address these challenges, this RP will address a long-range planning estimate
methodology for communication of conceptual costs that focuses on understanding costs early in the project life
cycle with limited scope definition.

Target audience: estimators, cost modelers, and risk analysts; primary decision makers/executive management;
planners; external influencing stakeholders; portfolio managers; program/project managers.

1.3. Background

This RP provides an understanding of project communication for estimate costs developed during strategic long-
range planning. Often there is great disconnect when comparing initial conceptual project costs to final costs over
long-time horizons such as 10 to 50+ years.

Need requirements and external conditions will change. Management, stakeholders, public officials, and ratepayers
are interested in costs to satisfy and deliver those needs. The defining characteristic is the time horizon in which

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anticipated needs and requirements must be satisfied. Near-term solutions, with the assumption of known scope,
have more certainty in line with the series of AACE Classification RPs. Where solutions are far off in the future, and
the assumption of known scope no longer applies, uncertainty increase and is less predictable.

As discussed in the Purpose section, long-range time horizons present a challenge for capital investment planners.
Although new needs are continuously emerging, there is often little clarity of concept, cost, or duration to satisfy
the need and meet demand. When timelines extend beyond a five-year time horizon, the economics and dynamics
of the business case become further challenged. Uncertainty becomes more pronounced the further the conceptual
time horizon. This is reinforced by AACE International RP 62R-11 [2].

The five estimate classes espoused in the AACE International estimate classification RPs do not cover the breadth of
the longer-term and address the dynamic nature of conceptual estimates for long-range system planning, such as
those associated with the public sector, without clear assumptions of known business scope. The question is, “What
is the appropriate estimate class to use for strategic long-range planning?”

The concept of an AACE International Unclassified / Class 10 long-range planning estimate originated from the fact
that long-range planning is not addressed by traditional phase-gate capital project decision making processes.
Unclassified / Class 10 is associated with costs estimates prepared for longer-term planning needs, where specific
project definition is primarily supported by the description of an identified future need, but not a specific project
scope. Long-range planning (i.e., Class 10) estimating involves developing a specific scope scenario that works at the
present time but will likely change at the point where investment enters traditional phase-gate capital planning (i.e.,
Class5).

Over the extended long-range planning duration, various Unclassified / Class 10 cost estimates may be prepared or
revised that will be documented and communicated so that key stakeholders, management, public officials,
taxpayers and ratepayers will have a clear understanding around what has changed over the 10-50+ year timeframe
of the long-range plan regarding scope evolution and resulting costs.

2. COMMUNICATION

2.1. Unclassified / Class 10 - Long-Range Planning Estimate

The Unclassified / Class 10 long-range planning estimate represents a class of estimate type that addresses the
challenges of developing and communicating long-term system planning costs. This type of estimate is highly
conceptual, with limited scope definition, and often based on parametric or analogous assumptions. Specific
engineering information and project development details are typically lacking, even more so than for a Class 5
estimate. At this early stage, there is no explicit substance to the means and methods of delivery or how exactly such
a need would be fulfilled, only that the need exists and must eventually be satisfied.

A long-range planning estimate is intended for early concepts with limited scoping information, the need is emerging
or under development, and where detailed concepts may not be developed for years or decades to come. The degree
of scope definition and any semblance of a technically developed and detailed concept is lacking. Specific location
factors and technical engineering details are not yet known as is the nature of long-range system planning. While
needs and anticipated demands are forecasted (i.e., scope is assumed for purposes of estimating), specific solutions
that satisfy those needs cannot yet be identified for a considerable length of time.

Communicating the uncertainty of anticipated conceptual costs is needed to communicate that scope and costs for
future capital investment are dynamic. A highly conceptual long-term estimate classification is needed to understand
relative costs and plan for future capital expenditures. In this sense, the long-range planning estimate has a longer-

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term time horizon with an inherently wider range of cost predictability. Based on historical experience, costs may
increase by many multiple of Class 5 high range expectations over the course of 10-50+ years, excluding escalation.

Long-range planning estimates will obviously be affected by escalating prices over the course of 10-50+ years.
Estimates prepared in current day costs, calculating escalation at only 3% per year over a 50-year planning cycle
could see an increase from the original current day estimated costs in excess of 400% without taking into
consideration any scope growth, changes in technology, or execution strategies.

2.2. Improving Communication in the Estimating Process

A typical public sector capital portfolio for an ongoing asset or service may range from tens to hundreds of millions
of dollars plus annually, involving hundreds of potential projects and associated staff. Although existing cost-
estimating practices are generally sound, the process of communicating those estimates to a variety of internal and
external stakeholders often requires improvement. Confusion or ambiguity primarily centers on the following
recurring themes, or questions, in communication of conceptual planning costs:
• What is the identified conceptual scope and its boundaries?
• Are there specific exclusions in the conceptual estimate?
• What assumptions were made?
• What changed from the previous estimate?
• What primary risks, if any, are accounted for in the estimate?
• Who is the audience for this estimate?
• What will the estimate be used for?

Public sector organizations need to understand that improving its communication of conceptual costs benefits their
agency and better manages stakeholder expectations. Life cycle estimating is typically not required at this stage.

2.3. Long-Term Needs Versus Near-Term Projects

A near-term project versus a long-term need is one of the key differences between a traditional Class 5 estimate and
long-range planning Unclassified / Class 10 estimate. A long-range need is typically nebulous, lacking a well-defined
scope. Experience demonstrates that a long-range need is significantly exposed to the forces of time that will drive
significant changes to the eventual known and defined scope. Long-range needs are generally not fully developed or
formulated into a specific project. It remains a need—not yet a project—and exists only in concept. While there may
be an emerging issue in need of a solution that the concept attempts to resolve, the details of the project and how
it will be delivered are not yet defined. However, in the end, a scope must be assumed in order to prepare an
estimate (unless cost modeling with dynamic scope is applied).

Known versus changing scope, that time makes more likely, becomes the distinct difference between near-term
projects and long-range needs. Traditional Class 5 near-term projects have sufficient scope and project definition to
enter the capital project delivery cycle. Although a near-term project may still be conceptual in nature, time is
effectively on its side as the project will soon move into delivery and technical solutions can be validated with support
of a dedicated (even if small) project team. As a result, the near-term project’s characteristics of being less exposed
to the forces of change over time result in less overall uncertainty in the range of anticipated probable costs.

2.4. Anchoring Bias

Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of
information offered (i.e., the "anchor") when making decisions. During decision-making, anchoring occurs when

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individuals use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgments
are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the
anchor. Even though preliminary concepts come and go, the first initial cost identified seems to never be forgotten.
A result, people tend to remember the first cost estimate offered up for a need before it even becomes a project.

It is not uncommon in long-range asset planning that a need is given a general descriptor or title, conceptual costs
are identified, and a rudimentary degree of scoping definition is attributed to the general concept. Anchoring bias
may have a more detrimental effect on long-range planning estimates as the overall need description may not have
changed no matter how much the scope solution or other project elements may have evolved and been further
developed over time. This can be particularly true for those unfamiliar with the capital project delivery cycle because
they tend to be unaware of or discount the influences and necessary concept development efforts required to
advance a long-range need into even a preliminary concept. Unfortunately, the first initial cost estimate values
ascribed to a long-range need often tend to stick in stakeholder minds.

2.5. Stakeholder Perception

Stakeholders often perceive cost estimates as being statements of fact based on rigorous definition, or that they are
based on defined and detailed measurements with accurate cost projections. Estimators know that estimates are
simply predictions of probable costs and are associated with a range of potential values. With a high level of project
definition, the potential range of values associated with an estimate may be relatively narrow; however, when the
level of project definition is low, then the range of potential cost values can be very broad, and this is especially true
of early conceptual and long-range planning estimates.

With little to no supporting technical definition, any point (or base) estimate for a long-range need will certainly be
incorrect. The key is communicating to stakeholders what the estimate is and what it is not. If more context
accompanies the estimate, stakeholders will better understand the limitations of the estimate. Too often, a single
point value for the estimate is remembered, but the contextual details and the potential estimate range associated
with the estimate are not. The project title along with its single point estimate are easily remembered and
transmitted, but what that estimate included and excluded, and the potential estimate range is not.

It is important to keep in mind that while an organization’s internal project planning and delivery teams understand
the details and limitations of what each estimate includes, other stakeholders may not. External stakeholders are
coming from an interest-based position; they only want to know what they are interested in, which typically includes
asking the following questions:
• What is it?
• When will I see it?
• How much will it cost?

It is important to know your audience and to not get mired down in details that serve no purpose. To that end,
succinct, summary-level information is best, as long as it communicates the limitations associated with the estimate.

2.6. Competing and Evolving Needs

Long-range planning attempts to identify future projects necessary to achieve an organization’s strategic objectives.
Unfortunately, the capital needs of most public or private organizations generally exceed available funding.
Determining when, where, and how much capital to invest is critically important for both the short-term and long-
term success of an organization. Collectively, investments are intended to implement an organization’s vision,
mission, and/or strategic initiatives. Although these individual investments address a specific need, when gathered

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collectively into the organization’s comprehensive portfolio, these conceptual needs, planned projects, and active
projects all must compete for limited funding.

The needs and strategy of any organization—public or private—are constantly evolving. There is no such thing as a
static plan. A plan may only be good for today, but strategic goals and objectives are far reaching. Competing,
evolving, and emergent needs will challenge even the best of plans. Key to understanding such competing and
evolving needs is the ability to compare relative anticipated capital expenditures on a common basis over a lengthy
period of time. As a result, there is a genuine need for a long-range planning Unclassified / Class 10 estimate
classification that standardizes a basis of comparison between the long-range conceptual need and a Class 5 near-
term project while considering and communicating their differing levels of uncertainty.

2.7. Portfolio Management

It is important to recognize that most major capital investment decisions are not made one at a time. Rather, major
capital investment decisions are made collectively and comprehensively within an organization. Common elements
are identified, and criteria are applied to evaluate and provide structure around decision-making. Organizational
needs are evaluated in common groupings as a portfolio of competing, emerging, and evolving needs and projects.
Portfolio management is the continual evaluation of problems, needs, and solutions all aimed at ensuring that the
right projects are implemented at the right time to deliver the maximum strategic outcome of an organization’s
mission and target objectives in consideration of uncertainty and risks.

Portfolio management provides a rational framework to apply Unclassified / Class 10 estimates as a part of the
decision-making process to effectively understand anticipated capital requirements for long-term future needs on a
common basis. Not all needs advance uniformly, nor do all needs emerge as selected projects in the capital portfolio
that are moved forward into implementation and delivery. Many factors influence portfolio management, such as
capacity growth, new markets, asset management, strategic initiatives, emerging markets, regulatory changes,
organizational priorities, capital availability, and staffing resources. Such factors apply pressure when selecting one
concept over another. A key to successful portfolio management is devising a common basis of comparison that
aligns evaluation and selection criteria to organizational objectives while meeting the challenge inherent in planning
long-term future capital projects. A long-range planning Unclassified / Class 10 estimate classification, and
consideration of their relative uncertainty, better informs portfolio decision-making by addressing the impacts of
change on conceptual estimates and budgets.

2.8. Long-Range Capital Budgeting

Why would public sector organizations provide early conceptual cost estimates—even decades in advance of
projects—without well-defined scope definition? Building, operating, and maintaining the capital infrastructure
necessary for the public sector is expensive. Decisions made today have long-range capital and operating
implications on public sector’s financial planning and health. Keeping those future impacts in mind, the need for
better and more consistent initial cost projections, given issues of highly dynamic scope, is essential in identifying
the utility’s long-range portfolio capacity; supporting prioritization of projects; and ensuring that the finances
needed to plan, design, execute, and operate the resulting projects are in place.

Public sector capital spending is funded through the issuance of long-run bonds and other debt service, whereas
operating and maintenance costs, including debt retirement, are funded by user fees. Long-range asset/capital
planning is highly valued by bond-rating agencies as an indication of organizational health; that the utility is
considering the potential impacts of current decisions on the future, is able to acquire and retire debt, and is
managing finances in a manner that produces a balanced financial portfolio well into the future. Higher bond ratings
equate to significantly lower financing costs, which, in turn, facilitates delivery of cost-effective capital services.

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The conceptual estimates currently tied to the public sector organization’s long-term financial planning should be
based on common understanding of and acknowledgement that scope will evolve and the solution as presented at
an initial planning concept will most assuredly be different than the completed project, due to the extended planning
lifecycle which impacts the uncertainty of the long-range planning estimates. With this understanding of the
associated uncertainty, these estimates represent cost information that can be appropriately used as an input to
sound financial planning and long-term capital budgeting processes. This is important because long-term planning
cost projections are used to gauge the size and feasibility of an agency’s capital portfolio and resource planning; they
are also used to determine realistic timelines for launching programs and projects. These long-term planning cost
projections are used to smooth the predicted annual cash flow expenditures and optimize the longer-term picture
of planned expenditures.

3. RECOMMENDED PRACTICE

3.1. Rationale for Long-Range Planning Unclassified / Class 10 Estimates

The rationale for an Unclassified / Class 10 estimate is based on three fundamental pressures to preparing long-
range planning estimates: timing, change, and scope definition.
• Time: Early timing of when a planning-level estimate is typically produced.
• Change: Reality of changing requirements and evolving needs.
• Scope definition: Limited scope definition and degrees of understanding when conceptualizing a long-range
need versus when a project has been formed and concept screening can commence.

These pressures ensure that any conceptual long-range estimate may have little resemblance to the eventual
estimate that is prepared when the project scope is defined, and the budget is set. These factors demonstrate the
necessity for an additional type of estimate beyond the traditional five AACE estimate classifications.

Needs and requirements will change. Planners cannot reasonably be expected to accurately anticipate every change
and requirement that will present itself over the long term. For example, new information emerges, changing
requirements and regulations are realized, and technology advances. The long-term vision simply cannot have the
same clarity and focus that the near-term solution is afforded.

Every cost estimate along the time continuum is similarly impacted by the degree of scope definition and the range
of expectations of cost, both in terms of anticipated accuracy and relative reliability for development of long-term
budgets. As time progresses, what may have originally been envisioned as the conceptual solution to solving an
identified need will evolve. The ultimate solution may look quite different from its early predecessor. The following
questions should be asked:
• Were stakeholder expectations managed?
• Are criticisms focusing on the inability to get it right from the outset?
• Were stakeholders educated along the way as to what each cost estimate captured?
• Do stakeholder expectations also evolve over time?

Determining the estimate’s purpose is where the AACE estimate classification system comes into play as the
accepted recommended practice for Total Cost Management (TCM). In AACE RP 18R-97 [3], which is the key guidance
for process industries, a Class 5 estimate is applicable to concept screening during the phase-gate process. This
assumes some relative degree of scope definition that is substantial enough to loosely define a project.

During the long-range system planning stages which is outside of the phase-gate process, concepts are not being
screened. Needs and concepts are only preliminarily being identified. A traditional Class 5 estimate captures scope
definition as an entry point into a prescribed, near-term phase- gate or similar capital project process. A long-range

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planning Unclassified / Class 10 estimate focuses outside of the phase-gate or similar process. Although the current
Class 5 estimate is defined as conceptual in nature, the long-range planning Unclassified / Class 10 estimate may
superficially be the same as a Class 5 conceptual estimate but is much less likely to represent the eventual technical
solution because of the long-term pressures of time and change.

Public sector organizations’ improvement processes concentrate on how to improve communication of long-term
conceptual costs and subsequently manage stakeholders’ expectations. It has been found that long-term system
planning estimates are subject to a broader expected accuracy range than a traditional Class 5 estimate. Although a
Class 5 estimate, aligned with AACE RP 18R-97 [3] for example, has an expected range of accuracy of -20/-50 percent
to +30/+100 percent, capital organizations with long-term (10-year plus) system planning horizons and capital
budget cycles experience estimates that fall well outside of the top end of this range. Based on past experience and
empirical evidence, the anticipated range of expected accuracy for long-range planning Unclassified / Class 10
estimates is many multiples of a Class 5 estimate on the high side. Given that a key driver of an estimate’s expected
range of accuracy is the degree of project definition (where none exists in long-range planning), it is prudent to
expect a much wider range of potential outcomes.

3.2. Communicating the Basis of Estimate

From early conceptual planning to eventual project implementation, many different providers may develop costs
estimates, for many different purposes, and many different stakeholders. In some instances, an estimate is simply
revised from its predecessor, possibly by the same estimator. Often, a different estimator prepares an entirely new
estimate based on a different or evolving scope. In any case, during the span from the long-range planning concept
to phase-gate system implementation, change has assuredly occurred. The first estimate may have no correlation
to the third, fifth, or final estimate.

A primary challenge in terms of improvement for the public sector was how to capture and communicate the change
of costs over time. As such, the following questions were asked:
• What was the basis of the first estimate?
• How and why are subsequent estimates different?
• What changed?

Estimates prepared by organizations for long-term budgeting needs are often not estimated in the same manner, or
for the same reasons, as estimates prepared by dedicated project teams. To improve this process, public sector long-
range planning Unclassified / Class 10 estimates need to be designed to provide a new degree of rigor to how the
estimate is communicated. It is recommended that the public sector needs to tell a “better story” that ties the initial
long-range conceptual estimate to its eventual short-range project estimate. Stakeholders are being educated that
costs must be revisited with a degree of regularity because of evolving scope, project conditions, and extended
timeframes. Initial estimated costs cannot be seen as static, but will change as scope, conditions, and economics are
impacted. This is accomplished by ensuring that each estimate iteration is accompanied by a succinct yet
comprehensive basis-of-estimate (BOE) document. Key performance parameters may be included in the BOE to
identify key objectives for the project.

AACE RP 34R-05 [4] defines a well-prepared BOE as documenting the project scope and providing historical
relationships throughout the project life cycle. Given the long-term planning horizon that the public sector
experiences, varied estimating providers, and project stakeholders during an extended project life cycle, a well-
prepared BOE is critical at each step-in communicating costs and change. Every long-range planning Unclassified /
Class 10 conceptual estimate must clearly be able to “tell the story” of its represented scope, including the cost basis,
planning basis, assumptions, exclusions, and exceptions.

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Another key component from the public sector’s implementation of a long-range planning Unclassified / Class 10
estimate methodology is a sufficiently detailed estimate reconciliation between current and previous estimates. In
addition to information documented in the BOE, a defined change management and trend management process is
critical. A defined change management process as presented in AACE’s Total Cost Management Framework [5] is
typically not introduced at this extreme front end of the conceptual planning phase. Change management processes
are not officially implemented within project delivery until a project team is established with scope definition and
some degree of project engineering has been completed. Nevertheless, public sector project stakeholders require a
level of cost accountability at the earliest conceptual planning phase. By managing change and trends from the initial
long-range planning unclassified / Class 10 Cost Estimate, communicating of significant changes to stakeholders is
improved. The first conceptual estimate is viewed as a conceptual baseline and significant changes should be
recorded to reconcile costs as definition progresses and is transferred to the implementing project team.

3.3. Total Cost Management (TCM) Integration

Specific TCM cost-estimating improvements for public sector long-range planning include the development of a
comprehensive BOE accompanied by a standardized one-page estimate summary. The BOE serves as a tool to
document what the current concept or scope is, what it is not, what is included, what is excluded, key underlying
assumptions, and the basis for planning, design, cost, and risk from which the costs were derived. This becomes the
written expression of the capital project cost estimate. The one-page estimate summary is similarly an expression of
total project capital costs, in numerical form. In combination, both tools are used for long-range planning in an
integrated fashion to clearly communicate and track project costs over time. As a project evolves, reconciliation
actions and information can be updated and maintained in a clear, repeatable, concise, transparent, and traceable
manner.

Risk management enhancements, even at a highly conceptual level, should be initiated including scalable risk
analysis and both qualitative and quantitative modeling techniques that allow for better consideration of risk very
early on in long-term system planning. This can become important when determining appropriate levels of
contingency relative to any degree of known and defined scope. Techniques in risk-based estimating assists the long-
range planning Unclassified / Class 10 estimate by recognizing order-of-magnitude risks early on while identifying
the actions and steps needed to manage and control such risks.

The trend analysis program development for public sector long-range planning needs to focus on the ability to track
and communicate changes from early needs identification to concept planning through final project delivery. Trend
analysis is vested in change management principles to track events resulting in a change to scope, schedule, and
budget. Managing these trends improves communication to stakeholders about the impacts of change. It allows for
a change management process whereby trend events and changes can be accepted, mitigated, or rejected. This
practice supports better communication of the “project story” and how evolving conditions, influences, and
decisions made resulted in final outcomes that were far different from initial expectations, particularly when
considering a timeline of 10 to 50+ years.

Each of the integrated TCM elements incorporate a common element: the use of cost-estimate information and
data. As a result, each of the mentioned tools is scalable, allowing for evolution and progression of increasing scope
and project definition that will occur from early needs identification to final project delivery. Each TCM element
begins with the development of an Unclassified / Class 10 estimate, which is well documented in a BOE, followed by
the identification and analysis of risk factors into Unclassified / Class 10 estimate, which can then be tracked,
monitored, controlled, and communicated using trend analysis. This allows for improved conceptual planning cost
estimates and a smooth transition into the more traditional range of expectations for the subsequent AACE class
estimates.

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3.4. Cost Communication to Stakeholders

To produce a cost estimate, cost professionals research and analyze historical data, identify needs, confirm facts,
consider alternatives, and debate scenarios. Despite the time and hard work that went into developing that estimate,
most stakeholders typically only want the bottom-line number. It is important to communicate simply what the
estimate is and what it is not and to reconcile each estimate iteration from its predecessor so that its story over time
is clear.

Cost professionals must manage stakeholder expectations and ensure they understand the early and preliminary
nature of conceptual cost estimates. Where practical, it is important to graphically tell the story. Illustrate in a
timeline graphic where this problem or need currently resides compared to when it is likely to become a project;
when design might begin; when probable construction could occur; and ultimately when project completion will be
achieved.

4. CLASSIFICATION FOR LONG-TERM PLANNING AND ASSET LIFE CYCLE COST ESTIMATES

Classification maps the phases and stages of project cost estimating. Typically, in a phase-gate project system, scope
definition and capital cost estimating activities flow from framing a business opportunity through to a capital
investment decision and eventual project completion in a more-or-less steady, short-term (e.g., several years)
project life-cycle process.

Cost estimates are also prepared to support long-range (e.g., often as long as several decades) capital budgeting
and/or asset life cycle planning. Asset life cycle estimates are also prepared to support net present value (e.g.,
estimates for initial capital project, sustaining capital, and decommissioning projects), value engineering and other
cost or economic studies. These estimates are necessary to address sustainability as well. Often, these long-range
estimates are based on minimal scope definition as defined for Class 5. However, these asset life cycle “conceptual”
estimates are prepared so far in advance that it is virtually assured that the scope will change from even the minimal
level of definition assumed at the time of the estimate. Therefore, the expected estimate accuracy values reported
in Table 1 of the Cost Estimating Classification System Recommended Practices (describing the percent that actual
cost will be over or under the estimate including contingency) are not applicable because the Table 1 of the Cost
Estimating Classification System Recommended Practices accuracy values explicitly exclude scope change. For long-
term estimates, therefore one of the following two classification approaches is recommended:
• If the long-range estimate is to be updated or maintained periodically in a controlled, documented life cycle
process that addresses scope and technology changes in estimates over time (e.g., nuclear or other licensing
may require that future decommissioning estimates be periodically updated), the estimate is rated as Class
5 and the Table 1 of the Cost Estimating Classification System Recommended Practices accuracy ranges are
assumed to apply for the specific scope included in the estimate at the time of estimate preparation. Scope
changes are explicitly excluded from the accuracy range.

• If the long-range estimate is performed as part of a process or analysis where scope and technology change
is not expected to be addressed in routine estimate updates over time, the estimate is rated as Unclassified
or as Class 10 (if a class designation is required to meet organizational procedures), and the Table 1 of the
Cost Estimating Classification System Recommended Practices accuracy ranges cannot be assumed to apply.
The term Class 10 is specifically used to distinguish these long-range estimates from the relatively short
time-frame Class 5 through Class 1 capital cost estimates identified in Table 1 of the Cost Estimating
Classification System Recommended Practices and this RP; and to indicate the order-of-magnitude
difference in potential expected estimate accuracy due to the infrequent updates for scope and technology.
Unclassified (or Class 10) estimates are not associated with indicated expected accuracy ranges.

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In all cases, a Basis of Estimate should be documented so that the estimate is clearly understood by those reviewing
and/or relying on them later. Also, the estimating methods and other characteristics of Class 5 estimates generally
apply. In other words, an Unclassified or Class 10 designation must not be used as an excuse for unprofessional
estimating practice.

5. CONCLUSION

Long-range planning estimates and their basis of estimate documentation will deliver the needed story to
management, stakeholders, public officials, taxpayers, and ratepayers that public sector organizations have been
demanding. This is the missing linkage from long-range planning to project execution.
• Clearly the story will be explainable when the costs are prepared.
• Clearly and in an easily understood transparent way.
• Accompanied by succinct detailed basis of estimate.
• Cost reconciled with any previous estimates.
• Scope development trended with appropriate change management.
• With risks identified, analyzed, managed, and mitigated.

The use of Unclassified / Class 10 estimates for public sector long-range planning is unique in its characteristics and
intended use and moves beyond the established five AACE estimate classifications. The Unclassified / Class 10
estimate type has given public sector long-range planning the ability to better communicate conceptual costs and
budgets to non-technical and external stakeholders. Using the classification, the public sector is positioned to more
effectively communicate why costs changed from the early conceptual budget-setting estimate to the eventual
project delivery costs. Expectations are better managed when the limitations of early estimates are clearly
communicated. Understanding that a conceptual estimate will always have a wide accuracy range, the Unclassified
/ Class 10 estimate provides an appropriate, understandable and traceable way to communicate long-range system
planning, estimated costs, and budgets. It is acknowledged that AACE International estimate classifications have
made great inroads in public sector project organizations and the Unclassified / Class 10 concept will further enhance
the usage and support that long range planning requires.

REFERENCES

[1] AACE International, Recommended Practice No. 41R-08, Risk Analysis and Contingency Determination Using
Range Estimating, Morgantown, WV: AACE International, Latest revision.
[2] AACE International, Recommended Practice No. 62R-11, Risk Assessment: Identification and Qualitative
Analysis, Morgantown, WV: AACE International, Latest revision.
[3] AACE International, Recommended Practice No. 18R-97, Cost Estimate Classification System – As Applied in
Engineering, Procurement, and Construction for the Process Industries, Morgantown, WV: AACE International,
Latest revision.
[4] AACE International, Recommended Practice No. 34R-05, Basis of Estimate, Morgantown, WV: AACE
International, Latest revision.
[5] H. L. Stephenson, Ed., Total Cost Management Framework: An Integrated Approach to Portfolio, Program and
Project Management, 2nd ed., Morgantown, WV: AACE International, Latest revision.
[6] AACE International, Recommended Practice No. 17R-97, Cost Estimate Classification System, Morgantown, WV:
AACE International, Latest revision.

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[7] AACE International, Recommended Practice No. 56R-08, Cost Estimate Classification System – As Applied in
Engineering, Procurement, and Construction for the Building and General Construction Industries, Morgantown,
WV: AACE International, Latest revision.
[8] AACE International, Recommended Practice No. 87R-14, Cost Estimate Classification System – As Applied in
Engineering, Procurement, and, Construction for the Petroleum Exploration and Production Industries
Morgantown, WV: AACE International, Latest revision.

CONTRIBUTORS

Disclaimer: The content provided by the contributors to this recommended practice is their own and does not
necessarily reflect that of their employers, unless otherwise stated.

Paul Galeno (Primary Contributor)

Lisa M. Taylor (Primary Contributor)
Gregory Brink
Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life
Crystal Fleet
John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life
Douglas W. Leo, CCP CEP FAACE Hon. Life
Dan Melamed, CCP EVP FAACE

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