Documenting Your Turnaround Estimate

Gordon Lawrence discusses the value of a basis of estimate document for a maintenance turnaround team

MAINTENANCE turnarounds (sometimes called shutdowns or outages) are significant events in the long-range plan of any refinery, petrochemical plant, offshore production asset or other facility that uses large, continuous production process plant. They consume a lot of time, money and resources and they represent a considerable lost production opportunity while the facility is shut down.

Until recently, much of the focus for maintenance turnarounds was on schedule, executing the work in as predictable a time as possible. However, the focus is gradually moving more towards predictable cost as well. Consequently, maintenance turnaround teams are beginning to consider how to improve their cost estimating capabilities, in order to improve cost predictability.

As they try to improve, turnaround teams have realised the value of borrowing ideas from the capital project world. This absorption of ideas has led to the concept of phased preparation of a turnaround, starting around 2 years beforehand, much as a capital project team goes through a stage gate process before receiving funding.^1,2 Another idea that is gaining traction is the need to define cost estimate “classes”. The Association for the Advancement of Cost Engineering – International (AACE-I) provides recommended practices for estimate classes in a range of industries and project types. In March 2021 the AACE-I published a recommended practice giving cost estimate classifications for maintenance turnaround estimates.³

Development of cost estimate classes would, by extension, require a greater ability to review and assess which class a cost estimate fits into. The ability to do this would be improved by the adoption of another concept from the capital project world; namely the concept of the “basis of estimate” document.

This article discusses the concept of a basis of estimate document, describes why it would be a valuable addition to any turnaround team’s preparation efforts, and lays out a generic set of contents as a template for any team seeking to include a basis of estimate document with their estimate.

What is a basis of estimate and what is it useful for?

AACE-I defines a “basis” document as: “Written documentation that describes how an estimate, schedule, or other plan component was developed 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.”⁴ A “basis of estimate” document is therefore a written record explaining how an estimate was compiled and what the estimate covers (and just as importantly, what it does not cover).

Basis of estimate documents are routinely produced for capital projects. But they are almost unheard of for maintenance turnaround cost estimates. A basis of estimate document has a number of uses for a turnaround team. The first and most obvious use is that it provides a written record of what scope has been accounted for in the estimate. The positive knock-on effect of this use is that the act of compiling a basis of estimate provides a prompt and a focus for discussion within the team, to help them in ensuring that they have accounted for the total scope.

Basis of estimate documents are routinely produced for capital projects. But they are almost unheard of for maintenance turnaround cost estimates. A basis of estimate document has a number of uses for a turnaround team

A second use is in providing a written record of where and how uncertainty and risk has been accounted for in the estimate. Again, the positive knock-on effect of this use is that the act of compiling a basis of estimate provides a prompt and aide-memoire to ensure all uncertainty and risk is correctly considered when compiling the estimate.

The basis of estimate also helps the team by providing written evidence to help defend and explain the cost estimate to a management team that is occasionally more interested in trimming the estimate to fit a pre-conceived budget number than in understanding the likely cost of the proposed scope. As turnaround teams find themselves increasingly asked to justify their estimate for a corporate or external reviewer, a basis of estimate is an essential starting point for the discussion.

For capital project teams, the basis of estimate is also useful in defining the baseline for all future discussion of change management. Turnaround teams may view this as of less importance to them, since there tends to be less focus on variations and change orders than there is in a capital project environment. But nevertheless, having a documented basis of what scope has been allowed for, what allowance has been made for scope growth, and what allowance has been made for other uncertainties and risks will help turnaround teams in any post-mortem, or lessons-learned review at the end of a successful or unsuccessful turnaround.

Finally, the basis of estimate also provides a historical record for future estimators. If an estimator has to prepare an estimate for a new project or turnaround, it is far easier to do so if there is a clear record available of what was estimated the last time, to provide a good initial foundation.