What is Probabilistic Estimating, and Why do it? It shows the level of confidence in the project being delivered within the recommended estimate – ranging to P2 to P98 P = % Probability

1. Construction Cost Insights
Probabilistic Estimating &
Establishing a P80 Estimate
28TH SEPT 2020

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What is Probabilistic Estimating, and Why do it?
• It shows the level of confidence in the project being delivered within the
recommended estimate – ranging to P2 to P98 P = % Probability
• There are many reasons the final cost can vary from the initial estimate,
which this process will draw attention to, to manage, including:
• What level of design documentation has the estimate been based upon,
and what provisions have been made for the ultimate designed scope?
• What market prices have been adopted, and where they sit in the range of
prices received – are you adopting many very low prices?
• What risks have been identified and what provisions have been included
within the recommended contingency adopted?
• Moves away from the illusion there’s only 1 correct price, forcing the
addressing of what level of comfort/confidence the client/reviewer is
prepared to sign off and accept?
• Australian Federally funded projects over $30m require it
https://www.finance.gov.au/publications/resource-management-guides/risk-
potential-assessment-tool-general-guidance-rmg-107
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE

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1.1 – Dept of Finance Resource Management Guide
Item 60 – The estimated cost includes an allowance for risk which is based on the probabilistic cost of
all the identified risks. That is, the most likely consequence ($) multiplied by the corresponding
probability )%) is the allowance to be included. Note that these are the residual risk consequences and
probabilities after the mitigation/management method is applied.
Item 69 – The documents that make up a DBC
g) cost plan including probabilistic risk components
(to P80 confidence – provided a certified quantity surveyor)
h) whole-of-life cost estimate
(to P80 confidence – provided by a certified quantity surveyor)
Glossary
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE
Risk Register = Contingencies

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1.2 – Dept of Finance Resource Management Guide
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE
Appendix A – Cost Analysis for First and Second Stage Approval

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2 – Components of an Estimate
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE
This Section Drives P80

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3 – Assessing Uncertainties, Appropriate Value
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE
The Value & % Probability Drive the Outcome

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4 – Sample Graph Output
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE

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5 – Monitoring Contingency Usage
PROBABILISTIC ESTIMATING – ESTABLISHING A P80 ESTIMATE