Master Class: Preparing Risk-Neutral Cost Estimates – Putting the Plan into Action

In March 2020 the US Undersecretary of Defense for Acquisition and Sustainment (USD/A&S) released guidance that encourages more realistic military construction project budgets. Select FY2023 Military Construction (MILCON) projects will be required to assess their inherent risk and build project cost estimates that include reasonable contingency for that risk. The opportunity to refine project budgets essentially ends with the 35% design estimate, so USD/A&S and subsequent clarifying guidance from Army Corps of Engineers (USACE) describes the requirement in much detail. The focus is on disciplined Cost-Schedule Risk Assessments (CSRAs) informed by the American Association of Cost Engineers’ (AACE) Recommended Practices (RPs). USACE guidance relies on Risk Registers, probability and consequence determinations, and monte carlo simulation range estimating to identify the risk-neutral estimate for projects. USD/A&S believes this will ensure cost-effective project execution by adhering to industry best practices.

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