CEP Cost Estimation Techniques & Methods 5 — Questions and Answers
Question 1: Which type of estimate contingency is specifically set aside to cover known unknowns — identified risks that may or may not occur?
- Management reserve
- Allowance for undefined scope
- Contingency allowance (Correct answer)
- Escalation reserve
Correct answer: Contingency allowance
Contingency allowance covers identified risks and uncertainties within the defined project scope, as opposed to management reserve which covers unknown unknowns.
Question 2: What is the primary objective of Monte Carlo simulation in cost estimating?
- To identify the critical path for scheduling
- To model the probability distribution of total project cost by randomly sampling input variable ranges (Correct answer)
- To calculate the net present value of project cash flows
- To allocate overhead across cost accounts
Correct answer: To model the probability distribution of total project cost by randomly sampling input variable ranges
Monte Carlo simulation runs thousands of iterations, sampling input cost ranges to generate a probability distribution of the total estimated cost.
Question 3: In conceptual estimating for industrial facilities, what is the 'turnover ratio' method based on?
- Ratio of actual to budgeted costs from prior projects
- Ratio of annual sales revenue to total capital investment for similar plants (Correct answer)
- Percentage of equipment cost to total installed cost
- Ratio of indirect to direct field labor hours
Correct answer: Ratio of annual sales revenue to total capital investment for similar plants
The turnover ratio method estimates capital cost as a fraction of projected annual revenue, using industry-specific ratios from comparable facilities.
Question 4: Which of the following is a characteristic of a 'grass-roots' estimate versus a 'battery-limits' estimate?
- Grass-roots excludes all utilities and offsite infrastructure; battery-limits includes them
- Grass-roots includes all offsite facilities, utilities, and infrastructure; battery-limits covers only the process unit (Correct answer)
- Both terms are interchangeable in AACE standards
- Battery-limits estimates are always more expensive than grass-roots estimates
Correct answer: Grass-roots includes all offsite facilities, utilities, and infrastructure; battery-limits covers only the process unit
A grass-roots estimate encompasses the complete facility including all offsites; a battery-limits estimate covers only the defined process equipment and its immediate connections.
Question 5: What distinguishes 'quantity takeoff' (QTO) from other estimating methods?
- QTO relies on statistical factors rather than actual design documents
- QTO physically measures and counts materials and labor from engineering drawings to determine quantities (Correct answer)
- QTO uses only vendor pricing with no field verification
- QTO is only applicable to software development projects
Correct answer: QTO physically measures and counts materials and labor from engineering drawings to determine quantities
Quantity takeoff involves systematically measuring lengths, areas, volumes, and counts directly from design documents to establish precise material and labor quantities.
Question 6: An estimator is preparing an estimate for a hazardous materials remediation project. Which unique cost element is most critical to include?
- Higher equipment productivity factors
- Special handling, disposal, and regulatory compliance costs specific to the hazardous material type (Correct answer)
- Standard union labor wage rates without any premium
- Reduced contingency due to well-defined scope
Correct answer: Special handling, disposal, and regulatory compliance costs specific to the hazardous material type
Hazardous materials work requires specialized disposal methods, regulatory compliance, personal protective equipment, and permitting costs that can dominate the estimate.
Question 7: When using the 'Delphi method' for cost estimating, what is the defining procedural feature?
- A single subject-matter expert provides the estimate independently
- Structured rounds of anonymous expert input with controlled feedback until consensus is reached (Correct answer)
- A computerized algorithm calculates the mean of random samples
- A hierarchical review where only the project manager finalizes estimates
Correct answer: Structured rounds of anonymous expert input with controlled feedback until consensus is reached
The Delphi method uses iterative rounds of structured expert surveys with anonymous responses and statistical feedback to converge on a group consensus estimate.
CEP Cost Estimation Techniques & Methods 5
Which type of estimate contingency is specifically set aside to cover known unknowns — identified risks that may or may not occur?