Risk management in design engineering bids

Accurate engineering cost estimates are critical in developing bids for new work, and for effective resource allocation and project control. This study reports on design estimating methods found in the literature, and on the results of two empirical studies of how estimating techniques are used in professional practice and their accuracy. The study found great reliance on a classic {open_quotes}activity analysis{close_quotes} approach to estimating design resources, and significant hazards in commonly used parametric techniques. The study found that project managers expect their estimates to be accurate (with 80% confidence interval) of between -10% to +25%. The study also found that actual bids between engineering firms had a much greater range (-40% to +45%) than can be explained by accuracy. Perhaps most importantly the study found that none of the sampled design firms used probabilistic techniques to optimize their project bids or to manage financial risk in view of the uncertainty of their estimates. The study concludes with techniques to reduce risk, and recommended future study.