69R-

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 AACE International Recommended Practice No. 69R-12

COST ESTIMATE CLASSIFICATION SYSTEM – AS APPLIED IN

ENGINEERING, PROCUREMENT, AND CONSTRUCTION FOR
THE HYDROPOWER INDUSTRIES
TCM Framework: 7.3 – Cost Estimating and Budgeting

Rev. August 7, 2020

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.

August 7, 2020 Revision:

Peter R. Bredehoeft, Jr. CEP FAACE (Primary Contributor) John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life
Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life (Primary Contributor)
(Primary Contributor) Todd W. Pickett, CCP CEP (Primary Contributor)

July 26, 2019 Revision:

Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life
(Primary Contributor) (Primary Contributor)
Peter R. Bredehoeft, Jr. CEP FAACE

January 25, 2013 Revision:

Raminder S. Bali, P.Eng. (Primary Contributor) Oleg Kantargi, P.Eng. CCE (Primary Contributor)
John M. Boots, P.Eng. (Primary Contributor) John B.C. Rogers, P.Eng. (Primary Contributor)
Chantale Germain, P.Eng. (Primary Contributor) Jeff D. Acland, P.Eng.
Michel Guevremont, P.Eng. PSP (Primary Contributor) Glen Cook, P.Eng.
John K. Hollmann, PE CCE CEP (Primary Contributor) Ryan H. Penner, P.Eng.

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AACE® International Recommended Practice No. 69R-12
COST ESTIMATE CLASSIFICATION SYSTEM – AS
APPLIED IN ENGINEERING, PROCUREMENT, AND
CONSTRUCTION FOR THE HYDROPOWER INDUSTRIES
TCM Framework: 7.3 – Cost Estimating and Budgeting

August 7, 2020

TABLE OF CONTENTS

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

1. Purpose ......................................................................................................................................................................1
2. Introduction ...............................................................................................................................................................2
3. Cost Estimate Classification Matrix for the Hydropower Industries ..........................................................................3
4. Determination of the Cost Estimate Class .................................................................................................................6
5. Characteristics of the Estimate Classes .....................................................................................................................6
6. Estimate Input Checklist and Maturity Matrix .........................................................................................................13
7. Basis of Estimate Documentation ............................................................................................................................16
8. Project Definition Rating System .............................................................................................................................16
9. Classification for Long-Term Planning and Asset Life Cycle Cost Estimates ............................................................16
References ...................................................................................................................................................................17
Contributors.................................................................................................................................................................18
Appendix: Understanding Estimate Class and Cost Estimate Accuracy .......................................................................19

1. PURPOSE

As a recommended practice (RP) of AACE International, the Cost Estimate Classification System provides guidelines
for applying the general principles of estimate classification to project cost estimates (i.e., cost estimates that are
used to evaluate, approve, and/or fund projects). The Cost Estimate Classification System maps the phases and
stages of project cost estimating together with a generic project scope definition maturity and quality matrix, which
can be applied across a wide variety of industries and scope content.

This recommended practice provides guidelines for applying the principles of estimate classification specifically to
project estimates for engineering, procurement, and construction (EPC) work or other contractual arrangements
and execution venues, both for owners and service providers, and their related work in developing hydropower
projects. It supplements the generic cost estimate classification RP 17R-97 [1] by providing:
• A section that further defines classification concepts as they apply to the hydropower industries and their
unique differences to other industries
• A section on the regulatory requirements and resulting impacts that are specific to hydropower projects
• A chart that maps the extent and maturity of estimate input information (project definition deliverables)
against the class of estimate.

As with the generic RP, the intent of this document is to improve communications and consensus among all the
stakeholders involved with preparing, evaluating, and using project cost estimates specifically for the hydropower
industries.

The overall purpose of this recommended practice is to provide the hydropower industries with a project definition
deliverable maturity matrix which is not provided in 17R-97. It also provides an approximate representation of the

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relationship of specific design input data and design deliverable maturity to the estimate accuracy and methodology
used to produce the cost estimate. The estimate accuracy range is driven by many other variables and risks, so the
maturity and quality of the scope definition available at the time of the estimate is not the sole determinate of
accuracy; risk analysis is required for that purpose.

This document is intended to provide a guideline, not a standard. It is understood that each enterprise may have its
own project and estimating processes, terminology, and may classify estimates in other ways. This guideline provides
a generic and generally acceptable classification system for the hydropower industries that can be used as a basis to
compare against. This recommended practice should allow each user to better assess, define, and communicate
their own processes and standards in light of generally-accepted cost engineering practice.

2. INTRODUCTION

For the purposes of this document, the term hydropower industries is assumed to include private and public utilities
involved with the production of electrical power, exclusive of transmission and distribution, using natural
gravitational force of falling or flowing water, excluding tidal forces, to drive a turbine that powers a generator.

The common thread among private and public utilities (for the purpose of estimate classification) is their reliance on
user requirements, statement of objectives, design reports (i.e. geotechnical investigations, sourcing borrow
materials and hydraulic design/modeling) and/or environmental data collection and studies as primary scope
defining documents. These documents are key deliverables in determining the degree of project definition, and thus
the extent and maturity of estimate input information.

Cost estimates for hydropower facilities are typically composed of key features such as:
• Reservoir area preparation (e.g., clearing, removal of structures and earthmoving).
• River management (e.g., cofferdams, diversion channels or tunnels, sediment management plans,
environmental monitoring programs).
• Principal structures (e.g., dams, dykes, intakes, penstocks, powerhouse(s), low level outlet(s), power
tunnel(s), de-silting basin(s), and spillway structure(s)).
• Permanent infrastructure (e.g., access roads, railroads, bridges, offices, warehouse and housing).
• Temporary infrastructure (e.g., construction camp, site access roads, airport, workshops, construction
power etc).
• Environmental mitigation features (e.g. fish ladder(s), water bypass and creation of new fish or wildlife
habitat).
• Owner’s costs (e.g., stakeholder involvement, licensing, studies and investigations, administration and
overhead, catering.).

Some, but not all, of these features are unique to the hydropower industries.

Typical hydropower facilities may include: turbines, generators, exciters, governors, transformers, gates for intake,
spillway and draft tubes, and supporting electrical, mechanical, telecom, protection, and control systems. The water
storage reservoir is typically required to support the operations of the hydropower facility.

This RP specifically does not address cost estimate classification for other industries such as commercial building
construction, environmental remediation, transportation infrastructure, process (oil & gas), “dry” processes such as
assembly and manufacturing, mining and mineral processing, transmission and distribution of electricity, thermal,
wind, solar, tidal and geothermal generation, “soft asset” production such as software development, and similar
industries.

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The cost estimates covered by this RP are primarily for engineering, procurement, and construction (EPC) work
during implementation. Planning and regulatory compliance cost during the identification and definition phases of
the project and final testing and commissioning at close-out is also covered under this RP. Operation and
maintenance during the life of the hydropower facility are not addressed in this RP.

This RP reflects generally-accepted cost engineering practices and is based upon consolidated practices from the
hydropower industry that covers its major production facilities.

This RP applies to a variety of project delivery methods such as traditional design-bid-build (DBB), design-build (DB),
construction management for fee (CM-fee), construction management at risk (CM-at risk), and private-public
partnerships (PPP) contracting methods.

3. COST ESTIMATE CLASSIFICATION MATRIX FOR THE HYDROPOWER INDUSTRIES

A purpose of cost estimate classification is to align the estimating process with project stage-gate scope
development and decision-making processes.

Table 1 provides a summary of the characteristics of the five estimate classes. The maturity level of project definition
is the sole determining (i.e., primary) characteristic of class. In Table 1, the maturity is roughly indicated by a
percentage of complete definition; however, it is the maturity of the defining deliverables that is the determinant,
not the percent. The specific deliverables, and their maturity, or status, are provided in Table 3. The other
characteristics are secondary and are generally correlated with the maturity level of project definition deliverables,
as discussed in the generic RP. [1] The characteristics are typical for the hydropower industries but may vary from
application to application depending on location and output of power profile.

Primary Characteristic Secondary Characteristic

MATURITY LEVEL OF EXPECTED ACCURACY
ESTIMATE PROJECT DEFINITION END USAGE METHODOLOGY RANGE
DELIVERABLES Typical purpose of Typical variation in low and high
CLASS estimate
Typical estimating method
Expressed as % of complete ranges at an 80% confidence
definition interval
Capacity factored, parametric L: -20% to -50%
Class 5 0% to 2% Concept screening
models, judgment, or analogy H: +30% to +100%
Equipment factored or L: -15% to -30%
Class 4 1% to 15% Study or feasibility
parametric models H: +20% to +50%
Budget
Semi-detailed unit costs with L: -10% to -20%
Class 3 10% to 40% authorization or
assembly level line items H: +10% to +30%
control
Control or Detailed unit cost with forced L: -5% to -15%
Class 2 30% to 75%
bid/tender detailed take-off H: +5% to +20%
Check estimate or Detailed unit cost with L: -3% to -10%
Class 1 65% to 100%
bid/tender detailed take-off H: +3% to +15%
Table 1 – Cost Estimate Classification Matrix for the Hydropower Industries

This matrix and guideline outline an estimate classification system that is specific to the hydropower industries. Refer
to Recommended Practice 17R-97 [1] for a general matrix that is non-industry specific, or to other cost estimate
classification RPs for guidelines that will provide more detailed information for application in other industries. These

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will provide additional information, particularly the Estimate Input Checklist and Maturity Matrix which determines
the class in those industries. See Professional Guidance Document 01, Guide to Cost Estimate Classification. [2]

Table 1 illustrates typical ranges of accuracy ranges that are associated with the hydropower industries. The +/- value
represents typical percentage variation at an 80% confidence interval of actual costs from the cost estimate after
application of appropriate contingency (typically to achieve a 50% probability of project cost overrun versus
underrun) for given scope. Depending on the technical and project deliverables (and other variables) and risks
associated with each estimate, the accuracy range for any particular estimate is expected to fall within the ranges
identified. However, this does not preclude a specific actual project result from falling outside of the indicated range
of ranges identified in Table 1. In fact, research indicates that for weak project systems and complex or otherwise
risky projects, the high ranges may be two to three times the high range indicated in Table 1. [3]

In addition to the degree of project definition, estimate accuracy is also driven by other systemic risks such as:
• Level of familiarity with technology.
• Unique/remote nature of project locations and conditions and the availability of reference data for those.
• Complexity of the project and its execution.
• Quality of reference cost estimating data.
• Quality of assumptions used in preparing the estimate.
• Experience and skill level of the estimator.
• Estimating techniques employed.
• Time and level of effort budgeted to prepare the estimate.
• Market and pricing conditions.
• Currency exchange
• Experience of the project execution team.

Systemic risks such as these are often the primary driver of accuracy, especially during the early stages of project
definition. As project definition progresses, project‐specific risks (e.g. risk events and conditions) become more
prevalent (or better known) and also drive the accuracy range. [4] Project risks that are typical and often significant
for the hydropower industry include the following:
• Project duration length (including studies and investigations) that is often measured in decades.
• Large areas where sub-surface geotechnical conditions are unknown due to restricted access (i.e.
environmental regulatory restrictions, hazardous conditions).
• Difficulties in completion of transmission connection.
• Hydrology and hydraulic studies.
• Management or prevention of scouring and sediment transport due to construction.
• Safety accidents unique to in-water work.
• Mass material sources and utilization (e.g., concrete and aggregate).
• Excavated material disposal.
• Construction season (restrictions due to environmental regulation, weather).
• Limited supplies of quality hydropower equipment and delivery delays.
• Ambiguous environmental regulation with respect to the industry.
• Environmental mitigation measures (terrestrial, avian, fish).

Another concern in estimates is potential organizational pressure for a predetermined value that may result in a
biased estimate. The goal should be to have an unbiased and objective estimate both for the base cost and for
contingency. The stated estimate ranges are dependent on this premise and a realistic view of the project. Failure
to appropriately address systemic risks (e.g. technical complexity) during the risk analysis process, impacts the
resulting probability distribution of the estimated costs, and therefore the interpretation of estimate accuracy.

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Figure 1 illustrates the general relationship trend between estimate accuracy and the estimate classes
(corresponding with the maturity level of project definition). Depending upon the technical complexity of the
project, the availability of appropriate cost reference information, the degree of project definition, and the inclusion
of appropriate contingency determination, a typical Class 5 estimate for a hydropower project may have an accuracy
range as broad as -50% to +100%, or as narrow as -20% to +30%. However, note that this is dependent upon the
contingency included in the estimate appropriately quantifying the uncertainty and risks associated with the cost
estimate. Refer to Table 1 for the accuracy ranges conceptually illustrated in Figure 1. [5]

Figure 1 also illustrates that the estimating accuracy ranges overlap the estimate classes. There are cases where a
Class 5 estimate for a particular project may be as accurate as a Class 3 estimate for a different project. For example,
similar accuracy ranges may occur if the Class 5 estimate of one project that is based on a repeat project with good
cost history and data and, whereas the Class 3 estimate for another is for a project involving new technology. It is
for this reason that Table 1 provides ranges of accuracy values. This allows consideration of the specific
circumstances inherent in a project and an industry sector to provide realistic estimate class accuracy range
percentages. While a target range may be expected for a particular estimate, the accuracy range should always be
determined through risk analysis of the specific project and should never be pre-determined. AACE has
recommended practices that address contingency determination and risk analysis methods. [6]

If contingency has been addressed appropriately approximately 80% of projects should fall within the ranges shown
in Figure 1. However, this does not preclude a specific actual project result from falling inside or outside of the
indicated range of ranges identified in Table 1. As previously mentioned, research indicates that for weak project
systems, and/or complex or otherwise risky projects, the high ranges may be two to three times the high range
indicated in Table 1.

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Figure 1 – Illustration of the Variability in Accuracy Ranges for Hydropower Industry Estimates

4. DETERMINATION OF THE COST ESTIMATE CLASS

For a given project, the determination of the estimate class is based upon the maturity level of project definition
based on the status of specific key planning and design deliverables. The percent design completion may be
correlated with the status, but the percentage should not be used as the class determinate. While the determination
of the status (and hence the estimate class) is somewhat subjective, having standards for the design input data,
completeness and quality of the design deliverables will serve to make the determination more objective.

5. CHARACTERISTICS OF THE ESTIMATE CLASSES

The following tables (2a through 2e) provide detailed descriptions of the five estimate classifications as applied in
the hydropower industries. They are presented in the order of least-defined estimates to the most-defined
estimates. These descriptions include brief discussions of each of the estimate characteristics that define an estimate
class.

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For each table, the following information is provided:

• Description: A short description of the class of estimate, including a brief listing of the expected estimate
inputs based on the maturity level of project definition deliverables.

• Maturity Level of Project Definition Deliverables (Primary Characteristic): Describes a particularly key
deliverable and a typical target status in stage-gate decision processes, plus an indication of approximate
percent of full definition of project and technical deliverables. Typically, but not always, maturity level
correlates with the percent of engineering and design complete.

• End Usage (Secondary Characteristic): A short discussion of the possible end usage of this class of estimate.

• Estimating Methodology (Secondary Characteristic): A listing of the possible estimating methods that may
be employed to develop an estimate of this class.

• Expected Accuracy Range (Secondary Characteristic): Typical variation in low and high ranges after the
application of contingency (determined at a 50% level of confidence). Typically, this represents about 80%
confidence that the actual cost will fall within the bounds of the low and high ranges if contingency
appropriately forecasts uncertainty and risks.

• Alternate Estimate Names, Terms, Expressions, Synonyms: This section provides other commonly used
names that an estimate of this class might be known by. These alternate names are not endorsed by this
recommended practice. The user is cautioned that an alternative name may not always be correlated with
the class of estimate as identified in Tables 2a-2e.

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CLASS 5 ESTIMATE

Description: Estimating Methodology:

Class 5 estimates are generally prepared based on very limited Class 5 estimates generally use stochastic estimating methods
information, and subsequently have wide accuracy ranges. As such as cost/capacity curves and factors, historical data and
such, some companies and organizations have elected to other parametric and modeling techniques.
determine that due to the inherent inaccuracies, such
estimates cannot be classified in a conventional and Expected Accuracy Range:
systematic manner. Class 5 estimates, due to the requirements Typical accuracy ranges for Class 5 estimates are
of end use, may be prepared within a very limited amount of -20% to -50% on the low side, and +30% to +100% on the high
time and with little effort expended—sometimes requiring less side, depending on the technological complexity of the
than a day to prepare. Often, little more than a proposed project, appropriate reference information and other risks
facility layout, location, and generation capacity based on a (after inclusion of an appropriate contingency determination).
statement of objectives are known at the time of estimate Ranges could exceed those shown if there are unusual risks.
preparation.
Alternate Estimate Names, Terms, Expressions, Synonyms:
Maturity Level of Project Definition Deliverables: Factored, ballpark, blue sky, seat-of-pants, WAG, first cut, idea
Key deliverable and target status: General arrangement study, conceptual level estimate, order-of-magnitude
diagram/sketch that defines the project location and estimate, guesstimate, rule-of-thumb, top down.
statement of objectives agreed by key stakeholders and
project sponsor/initiator. 0% to 2% of full project definition.

End Usage:
Class 5 estimates are prepared for any number of strategic
business planning purposes, such as but not limited to market
studies, assessment of initial viability, evaluation of alternate
schemes, project screening, project location selection studies,
evaluation of resource needs and high level budgeting, long-
range capital planning, etc.
Table 2a – Class 5 Estimate

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CLASS 4 ESTIMATE

Description: Estimating Methodology:

Class 4 estimates are generally prepared based on limited Class 4 estimates generally use stochastic estimating methods
information and subsequently have fairly wide accuracy such as cost/capacity graphs or curves and factors, historical
ranges. They are typically used for project screening, data and other parametric and modeling techniques.
determination of feasibility, alternative concept evaluation,
and definition phase (preliminary) budget approval. Typically, Expected Accuracy Range:
engineering is from 1% to 15% complete, and would comprise Typical accuracy ranges for Class 4 estimates are
at a minimum the following: Feasibility design for several -15% to -30% on the low side, and +20% to +50% on the high
alternative layouts to include design criteria, generation side, depending on the technological complexity of the
capacity, feasibility level drawings, preliminary one-line project, appropriate reference information, and other risks
diagrams, and comprehensive user requirements. (after inclusion of an appropriate contingency determination).
Ranges could exceed those shown if there are unusual risks.
Maturity Level of Project Definition Deliverables:
Key deliverable and target status: Feasibility design report for Alternate Estimate Names, Terms, Expressions, Synonyms:
feasible alternative schemes. 1% to 15% of full project Screening, top-down, feasibility level, definition phase
definition. authorization, factored, pre-design, pre-study.

End Usage:
Class 4 estimates are prepared for a number of purposes, such
as but not limited to, detailed strategic planning, business case
development, project screening at more developed stages,
alternative scheme analysis, confirmation of economic and/or
technical feasibility, selection of a feasible alternative and
preliminary budget approval to proceed to next stage of the
project (definition phase).
Table 2b – Class 4 Estimate

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CLASS 3 ESTIMATE

Description: Estimating Methodology:

Class 3 estimates are generally prepared to form the basis for Class 3 estimates generally involve more deterministic
budget authorization, appropriation, and/or funding. As such, estimating methods than stochastic methods. They usually
they typically form the initial control estimate against which all involve predominant use of unit cost line items, although these
actual costs and resources will be monitored. Typically, may be at an assembly level of detail rather than individual
engineering is from 10% to 40% complete, and would comprise components. Factoring and other stochastic methods may be
at a minimum the following: Preliminary general arrangement used to estimate less-significant areas of the project.
drawings, powerhouse, intake and spillway drawings and
specifications, essentially complete geotechnical Expected Accuracy Range:
investigations and hydrotechnical studies, preliminary Typical accuracy ranges for Class 3 estimates are
earthwork drawings for excavation defining unclassified and -10% to -20% on the low side, and +10% to +30% on the high
rock, rock support and foundation treatment and for side, depending on the technological complexity of the
embankment c/w definition for various zones, complete one- project, appropriate reference information, and other risks
line diagrams, equipment performance specifications (after inclusion of an appropriate contingency determination).
complete for turbines, generators, governors, and exciters, Ranges could exceed those shown if there are unusual risks.
preliminary auxiliary mechanical and electrical systems, and
preliminary piping and instrument/protection & Alternate Estimate Names, Terms, Expressions, Synonyms:
control/telecom systems. Also, procurement strategy Budget, scope, sanction, semi-detailed, authorization,
identifying long lead items of equipment. preliminary control, preliminary design level estimate, target
estimate, bottom-up.
Maturity Level of Project Definition Deliverables:
Key deliverable and target status: Preliminary design report
complete with project description. 10% to 40% of full project
definition.

End Usage:
Class 3 estimates are typically prepared to support full project
funding requests and become the first of the project
implementation phase control estimates against which all
actual costs and resources will be monitored for variations to
the budget.
Table 2c – Class 3 Estimate

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CLASS 2 ESTIMATE

Description: Estimating Methodology:

Class 2 estimates are generally prepared to form a detailed Class 2 estimates generally involve a high degree of
contractor control baseline (and update the owner control deterministic estimating methods. Class 2 estimates are
baseline) against which all project work is monitored in terms prepared in great detail, and often involve thousands of line
of cost and progress control. For contractors, this class of items. For those areas of the project still undefined, an
estimate is often used as the bid estimate to establish contract assumed level of detail takeoff (forced detail) may be
value. Typically, engineering is from 30% to 75% complete, and developed using unit cost line items in the estimate instead of
would comprise at a minimum the following: final geotechnical relying on factoring methods.
investigations, and hydrotechnical reports, professional
engineer sealed drawings and specifications for general Expected Accuracy Range:
arrangements, earthwork excavation and embankments, Typical accuracy ranges for Class 2 estimates are
powerhouse, intake and spillway (for all engineering -5% to -15% on the low side, and +5% to +20% on the high side,
disciplines), for major equipment (i.e. turbines generators, depending on the technological complexity of the project,
governors and exciters), auxiliary mechanical and electrical appropriate reference information, and other risks (after
systems, one-line diagrams, and piping, instrument, protection inclusion of an appropriate contingency determination).
and control and telecom systems, and permanent/temporary Ranges could exceed those shown if there are unusual risks.
infrastructure. Vendor quotations, detailed project execution
plans, procurement strategy identifying all major items of Alternate Estimate Names, Terms, Expressions, Synonyms:
equipment, resourcing and work force plans, etc. would also Detailed control, forced detail, execution phase, master
be required. control, engineer’s estimate, bid, tender, change order
estimate, bottom-up.
Maturity Level of Project Definition Deliverables:
Key deliverable and target status: Tender specifications,
reports, background information and drawings complete for
tender purposes. 30% to 75% of full project definition.

End Usage:
Class 2 estimates are typically prepared as the detailed
contractor control baseline (and update the owner control
baseline) against which all actual costs and resources will now
be monitored for variations to the budget and form a part of
the change management program.
Table 2d – Class 2 Estimate

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CLASS 1 ESTIMATE

Description: Estimating Methodology:

Class 1 estimates are generally prepared for discrete parts or Class 1 estimates generally involve the highest degree of
sections of the total project rather than generating this level deterministic estimating methods and require a great amount
of detail for the entire project. The parts of the project of effort. Class 1 estimates are prepared in great detail, and
estimated at this level of detail will typically be used by thus are usually performed on only the most important or
subcontractors for bids, or by owners for check estimates. The critical areas of the project. All items in the estimate are
updated estimate is often referred to as the current control usually unit cost line items based on actual design quantities.
estimate and becomes the new baseline for cost/schedule
control of the project. Class 1 estimates may be prepared for Expected Accuracy Range:
parts of the project to comprise a fair price estimate or bid Typical accuracy ranges for Class 1 estimates are
check estimate to compare against a contractor’s bid estimate, -3% to -10% on the low side, and +3% to +15% on the high side,
or to evaluate/dispute claims. Typically, overall engineering is depending on the technological complexity of the project,
from 65% to 100% complete (some parts or packages may be appropriate reference information, and other risks (after
complete and others not) and would comprise virtually all inclusion of an appropriate contingency determination).
engineering and design documentation of the project, and Ranges could exceed those shown if there are unusual risks.
complete project execution and commissioning plans.
Alternate Estimate Names, Terms, Expressions, Synonyms:
Maturity Level of Project Definition Deliverables: Full detail, release, fall-out, tender, firm price, bottoms-up,
Key deliverable and target status: All deliverables in the final, detailed control, forced detail, execution phase, master
maturity matrix complete. 65% to 100% of full project control, fair price, definitive, change order estimate.
definition.

End Usage:
Generally, owners and EPC contractors use Class 1 estimates
to support their change management process. They may be
used to evaluate bid checking, to support vendor/contractor
negotiations, or for claim evaluations and dispute resolution.

Construction contractors may prepare Class 1 estimates to

support their bidding and to act as their final control baseline
against which all actual costs and resources will now be
monitored for variations to their bid. During construction,
Class 1 estimates may be prepared to support change
management.
Table 2e – Class 1 Estimate

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6. ESTIMATE INPUT CHECKLIST AND MATURITY MATRIX

Table 3 maps the extent and maturity of estimate input information (deliverables) against the five estimate
classification levels. This is a checklist of basic deliverables found in common practice in the hydropower industry.
The maturity level is an approximation of the completion status of the deliverable. The completion is indicated by
the following descriptors:

General Project Data:

• Not Required (NR): May not be required for all estimates of the specified class, but specific project
estimates may require at least preliminary development.

• Preliminary (P): Project definition has begun and progressed to at least an intermediate level of completion.
Review and approvals for its current status has occurred.

• Defined (D): Project definition is advanced, and reviews have been conducted. Development may be near
completion with the exception of final approvals.

Technical Deliverables:
• Not Required (NR): Deliverable may not be required for all estimates of the specified class, but specific
project estimates may require at least preliminary development.

• Started (S): Work on the deliverable has begun. Development is typically limited to sketches, rough outlines,
or similar levels of early completion.

• Preliminary (P): Work on the deliverable is advanced. Interim, cross-functional reviews have usually been
conducted. Development may be near completion except for final reviews and approvals.

• Complete (C): The deliverable has been reviewed and approved as appropriate.

ESTIMATE CLASSIFICATION
MATURITY LEVEL OF PROJECT
CLASS 5 CLASS 4 CLASS 3 CLASS 2 CLASS 1
DEFINITION DELIVERABLES
0% to 2% 1% to 15% 10% to 40% 30% to 75% 65% to 100%

GENERAL PROJECT DATA:

A. SCOPE:
Project Scope of Work Description P P D D D
Site Infrastructure (Access, Construction
NR P D D D
Power, Camp etc.)
B. CAPACITY:
Facility Output / Production Profile P P D D D
Electrical Power Requirements (when not
NR P D D D
the primary capacity driver)
C. PROJECT LOCATION:
Plant and Associated Facilities P P D D D

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ESTIMATE CLASSIFICATION
MATURITY LEVEL OF PROJECT
CLASS 5 CLASS 4 CLASS 3 CLASS 2 CLASS 1
DEFINITION DELIVERABLES
0% to 2% 1% to 15% 10% to 40% 30% to 75% 65% to 100%

D. REQUIREMENTS:
Codes and/or Standards NR P D D D
Communication Systems NR P D D D
Fire Protection and Life Safety NR P D D D
Environmental Monitoring NR NR P P D
E. TECHNOLOGY SELECTION:
N/A
F. STRATEGY:
Contracting / Sourcing NR P D D D
Escalation NR P D D D
G. PLANNING:
Regulatory Approval & Permitting P P D D D
Material Utilization (Borrow Sources) P P P/D D D
Logistics Plan P P P D D
Work Breakdown Structure NR/P P P/D D D
Decommissioning Plan NR P D D D
Integrated Project Plan1 NR P D D D
Project Code of Accounts NR P D D D
Project Master Schedule NR P D D D
Risk Register NR P D D D
Stakeholder Consultation / Engagement /
NR P D D D
Management Plan
Startup and Commissioning Plan NR P P/D D D
H. STUDIES:
Hydraulics P P D D D
Topography and/or Bathymetry P P P/D D D
Environmental Impact / Sustainability
NR P D D D
Assessment
Environmental / Existing Conditions NR P D D D
Soils and Hydrology NR P D D D
Geotechnical Investigation NR P P/D D D
TECHNICAL DELIVERABLES:
Block Flow Diagrams S/P C C C C
Hydraulic Design and Probable Maximum
S P C C C
Flood (PMF)

1 The integrated project plan (IPP), project execution plan (PEP), project management plan (PMP), or more broadly the project plan, is a high-level
management guide to the means, methods and tools that will be used by the team to manage the project. The term integration emphasizes a
project life cycle view (the term execution implying post-sanction) and the need for alignment. The IPP covers all functions (or phases) including
engineering, procurement, contracting strategy, fabrication, construction, commissioning and startup within the scope of work. However, it also
includes stakeholder management, safety, quality, project controls, risk, information, communication and other supporting functions. In respect
to estimate classification, to be rated as defined, the IPP must cover all the relevant phases/functions in an integrated manner aligned with the
project charter (i.e., objectives and strategies); anything less is preliminary. The overall IPP cannot be rated as defined unless all individual
elements are defined and integrated.

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ESTIMATE CLASSIFICATION
MATURITY LEVEL OF PROJECT
CLASS 5 CLASS 4 CLASS 3 CLASS 2 CLASS 1
DEFINITION DELIVERABLES
0% to 2% 1% to 15% 10% to 40% 30% to 75% 65% to 100%
Equipment Datasheets NR/S P C C C
Equipment Lists: Electrical NR/S P C C C
Equipment Lists: Process / Utility /
NR/S P C C C
Mechanical
Design Specifications NR S/P C C C
Electrical One-Line Drawings NR S/P C C C
General Equipment Arrangement
NR S/P C C C
Drawings
Instrument List NR S/P C C C
Construction Permits NR S/P P/C C C
Civil / Site / Structural / Architectural
NR S/P P C C
Discipline Drawings
Demolition Plan and Drawings NR S/P P C C
Erosion Control Plan and Drawings NR S/P P C C
Fire Protection and Life Safety Drawings
NR S/P P C C
and Details
Mitigation Measures (Aquatic, Terrestrial,
NR S P C C
Avian, Clearing, Heritage etc.)
Dam Design & Drawings NR S P P/C C
De-Silting Basins NR S P P/C C
Gates and Cranes Design & Drawings NR S P P/C C
Intake Design & Drawings NR S P P/C C
Penstock Design & Drawings NR S P P/C C
Power House Design and Drawings NR S P P/C C
Power Tunnel / Canal Design and
NR S P P/C C
Drawings
Spillway Design & Drawings NR S P P/C C
Turbine and Generator Design and
NR S P P/C C
Drawings
Electrical Schedules NR NR/S P P/C C
Instrument and Control Schedules NR NR/S P P/C C
Instrument Datasheets NR NR/S P P/C C
Spare Parts Listings NR NR P P/C C
Electrical Discipline Drawings NR NR S/P P/C C
Facility Emergency Communication Plan
NR NR S/P P/C C
and Drawings
Information Systems /
NR NR S/P P/C C
Telecommunication Drawings
Instrumentation / Control System
NR NR S/P P/C C
Discipline Drawings
Mechanical Discipline Drawings NR NR S/P P/C C
Auxiliary Electrical Design & Drawings NR NR S P C
Auxiliary Mechanical Design & Drawings NR NR S P C
Protection & Controls System Design &
NR NR S P C
Drawings
Table 3 – Estimate Input Checklist and Maturity Matrix (Primary Classification Determinate)

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7. BASIS OF ESTIMATE DOCUMENTATION

The basis of estimate (BOE) typically accompanies the cost estimate. The basis of estimate is a document that
describes how an estimate is prepared and defines the information used in support of development. A basis
document commonly includes, but is not limited to, a description of the scope included, methodologies used,
references and defining deliverables used, assumptions and exclusions made, clarifications, adjustments, and some
indication of the level of uncertainty.

The BOE is, in some ways, just as important as the estimate since it documents the scope and assumptions; and
provides a level of confidence to the estimate. The estimate is incomplete without a well-documented basis of
estimate. See AACE Recommended Practice 34R-05 Basis of Estimate for more information. [7]

8. PROJECT DEFINITION RATING SYSTEM

An additional step in documenting the maturity level of project definition is to develop a project definition rating
system. This is another tool for measuring the completeness of project scope definition. Such a system typically
provides a checklist of scope definition elements and a scoring rubric to measure maturity or completeness for each
element. A better project definition rating score is typically associated with a better probability of achieving project
success.

Such a tool should be used in conjunction with the AACE estimate classification system; it does not replace estimate
classification. A key difference is that a project definition rating measures overall maturity across a broad set of
project definition elements, but it usually does not ensure completeness of the key project definition deliverables
required to meet a specific class of estimate. For example, a good project definition rating may sometimes be
achieved by progressing on additional project definition deliverables, but without achieving signoff or completion of
a key deliverable.

AACE estimate classification is based on ensuring that key project deliverables have been completed or met the
required level of maturity. If a key deliverable that is indicated as needing to be complete for Class 3 (as an example)
has not actually been completed, then the estimate cannot be regarded as Class 3 regardless of the maturity or
progress on other project definition elements.

An example of a project definition rating system is the Project Definition Rating Index developed by the Construction
Industry Institute. It has developed several indices for specific industries, such as IR113-2 [8] for the process industry
and IR115-2 [9] for the building industry. Similar systems have been developed by the US Department of Energy. [10]

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

As stated in the Purpose section, 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., perhaps 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. Typically, 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

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level of definition assumed at the time of the estimate. Therefore, the expected estimate accuracy values reported
in Table 1 (percent that actual cost will be over or under the estimate including contingency) are not meaningful
because the Table 1 accuracy values explicitly exclude scope change. For long-term estimates, 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 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 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 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.

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.

REFERENCES

[1] AACE International, Recommended Practice No. 17R-97, Cost Estimate Classification System, Morgantown,
WV: AACE International, Latest revision.
[2] AACE International, Professional Guidance Document (PGD) 01, Guide to Cost Estimate Classification,
Morgantown, WV: AACE International, Latest revision.
[3] J. K. Hollmann, Project Risk Quantification, Sugarland, TX: Probabilistic Publishing, 2016.
[4] AACE International, Recommended Practice No. 42R-08, Risk Analysis and Contingency Determination Using
Parametric Estimating, Morgantown, WV: AACE International, Latest revision.
[5] AACE International, Recommended Practice No. 104R-19, Understanding Estimate Accuracy, Morgantown,
WV: AACE International, Latest revision.
[6] AACE International, Professional Guidance Document (PGD) 02, Guide to Quantitative Risk Analysis,
Morgantown, WV: AACE International, Latest revision.
[7] AACE International, Recommended Practice No. 34R-05, Basis of Estimate, Morgantown, WV: AACE
International, Latest revision.
[8] Construction Industry Institute (CII), "PDRI: Project Definition Rating Index – Industrial Projects, Version 3.2
(113-2)," Construction Industry Institute (CII), Austin, 2009.
[9] Construction Industry Institute (CII), "PDRI: Project Definition Rating Index – Building Projects, Version 3.2
(115-2)," Construction Industry Institute (CII), Austin, 2009.
[10] U.S. Department of Energy (DOE), "Project Definition Rating Index Guide for Traditional Nuclear and Non-
Nuclear Construction Projects, DOE G 413.3-12," U.S. Department of Energy (DOE), 2010.

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[11] AACE International, Recommended Practice No. 40R-08, Contingency Estimating – General Principles,
Morgantown, WV: AACE International, Latest revision.
[12] 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.
[13] 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.
[14] AACE International, Recommended Practice No. 10S-90, Cost Engineering Terminology, 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.

August 7, 2020 Revision:

Peter R. Bredehoeft, Jr. CEP FAACE (Primary Contributor)
Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life (Primary Contributor)
John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life (Primary Contributor)
Todd W. Pickett, CCP CEP (Primary Contributor)

July 26, 2019 Revision:

Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life (Primary Contributor)
John K. Hollmann, PE CCP CEP DRMP FAACE Hon. Life (Primary Contributor)
Peter R. Bredehoeft, Jr. CEP FAACE

January 25, 2013 Revision:

Raminder S. Bali, P.Eng. (Primary Contributor)
John M. Boots, P.Eng. (Primary Contributor)
Chantale Germain, P.Eng. (Primary Contributor)
Michel Guevremont, P.Eng. PSP (Primary Contributor)
John K. Hollmann, PE CCE CEP (Primary Contributor)
Oleg Kantargi, P.Eng. CCE (Primary Contributor)
John B.C. Rogers, P.Eng. (Primary Contributor)
Jeff D. Acland, P.Eng.
Glen Cook, P.Eng.
Ryan H. Penner, P.Eng.

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APPENDIX: UNDERSTANDING ESTIMATE CLASS AND COST ESTIMATE ACCURACY

Despite the verbiage included in the RP, often, there are still misunderstandings that the class of estimate, as defined
in the RP above, defines an expected accuracy range for each estimate class. This is incorrect. The RP clearly states
that “while a target range may be expected for a particular estimate, the accuracy range should always be
determined through risk analysis of the specific project and should never be predetermined.” Table 1 and Figure 1
in the RP are intended to illustrate only the general relationship between estimate accuracy and the level of project
definition. For the hydropower industries, typical estimate ranges described in RP 69R-12 above are shown as a
range of ranges:

• Class 5 Estimate:
• High range typically ranges from +30% to +100%
• Low range typically ranges from -20% to -50%
• Class 4 Estimate:
• High range typically ranges from +20% to +50%
• Low range typically ranges from -15% to -30%
• Class 3 Estimate:
• High range typically ranges from +10% to +30%
• Low range typically ranges from -10% to -20%
• Class 2 Estimate:
• High range typically ranges from +5% to +20%
• Low range typically ranges from -5% to -15%
• Class 1 Estimate:
• High range typically ranges from +3% to +15%
• Low range typically ranges from -3% to -10%

As indicated in the RP, these +/- percentage members associated with an estimate class are intended as rough
indicators of the accuracy relationship. They are merely a useful simplification given the reality that every individual
estimate will be associated with a unique probability distribution correlated with its specific level of uncertainty. As
indicated in the RP, estimate accuracy should be determined through a risk analysis for each estimate.

It should also be noted that there is no indication in the RP of contingency determination being based on the class
of estimate. AACE has recommended practices that address contingency determination and risk analysis methods
(for example RP 40R-08, Contingency Estimating – General Principles [11]). Furthermore, the level of contingency
required for an estimate is not the same as the upper limits of estimate accuracy (as determined by a risk analysis).

The results of the estimating process are often conveyed as a single value of cost or time. However, since estimates
are predications of an uncertain future, it is recommended that all estimate results should be presented as a
probabilistic distribution of possible outcomes in consideration of risk.

Every estimate is a prediction of the expected final cost or duration of a proposed project or effort (for a given scope
of work). By its nature, an estimate involves assumptions and uncertainties. Performing the work is also subject to
risk conditions and events that are often difficult to identify and quantify. Therefore, every estimate presented as a
single value of cost or duration will likely deviate from the final outcome (i.e., statistical error). In simple terms, this
means that every point estimate value will likely prove to be wrong. Optimally, the estimator will analyze the
uncertainty and risks and produce a probabilistic estimate that provides decision makers with the probabilities of
over-running or under-running any particular cost or duration value. Given this probabilistic nature of an estimate,
an estimate should not be regarded as a single point cost or duration. Instead, an estimate actually reflects a range
of potential outcomes, with each value within this range associated with a probability of occurrence.

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Individual estimates should always have their accuracy ranges determined by a quantitative risk analysis study that
results in an estimate probability distribution. The estimate probability distribution is typically skewed. Research
shows the skew is typically to the right (positive skewness with a longer tail to the right side of the distribution) for
large and complex projects. In part, this is because the impact of risk is often unbounded on the high side.

High side skewness implies that there is potential for the high range of the estimate to exceed the median value of
the probability distribution by a higher absolute value than the difference between the low range of the estimate
and the median value of the distribution.

Figure A1 shows a positively skewed distribution for a sample cost estimate risk analysis that has a point base
estimate (the value before adding contingency) of $89.5. In this example, a contingency of $4.5 (approximately 5%)
is required to achieve a 50% probability of underrun, which increases the final estimate value after consideration of
risk to $93. Note that this example is intended to describe the concepts but not to recommend specific confidence
levels for funding contingency or management reserves of particular projects; that depends on the stakeholder risk
attitude and tolerance.

Figure – A1: Example of an Estimate Probability Distribution at a 90% Confidence Interval

Note that adding contingency to the base point estimate does not affect estimate accuracy in absolute terms as it
has not affected the estimate probability distribution (i.e., high and low values are the same). Adding contingency
simply increases the probability of underrunning the final estimate value and decreases the probability of
overrunning the final estimate value. In this example, the estimate range with a 90% confidence interval remains
between approximately $85 and $103 regardless of the contingency value.

As indicated in the RP, expected estimate accuracy tends to improve (i.e., the range of probable values narrows) as
the level of project scope definition improves. In terms of the AACE International estimate classifications, increasing
levels of project definition are associated with moving from Class 5 estimates (lowest level of scope definition) to
Class 1 estimates (highest level of scope definition), as shown in Figure 1 of the RP. Keeping in mind that accuracy is
an expression of an estimate’s predicted closeness to the final actual value; anything included in that final actual
cost, be it the result of general uncertainty, risk conditions and events, price escalation, currency or anything else
within the project scope, is something that estimate accuracy measures must communicate in some manner. With
that in mind, it should be clear why standard accuracy range values are not applicable to individual estimates.

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The level of project definition reflected in the estimate is a key risk driver and hence is at the heart of estimate
classification, but it is not the only driver of estimate risk and uncertainty. Given all the potential sources of risk and
uncertainty that will vary for each specific estimate, it is simply not possible to define a range of estimate accuracy
solely based on the level of project definition or class of estimate.

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