AACEInternationalRecommendedPracticeNo.

17R97

COSTESTIMATECLASSIFICATIONSYSTEM
TCMFramework:7.3CostEstimatingandBudgeting
Rev.November29,2011
Note:AsAACEInternationalRecommendedPracticesevolveovertime,pleaserefertowww.aacei.orgforthelatestrevisions.

Contributors:
Disclaimer:Theopinionsexpressedbytheauthorsandcontributorstothisrecommendedpracticearetheirown
anddonotnecessarilyreflectthoseoftheiremployers,unlessotherwisestated.

PeterChristensen,CCE(Author)
KennethK.Humphreys,PECCE
LarryR.Dysert,CCCCEP(Author)
DonaldF.McDonald,Jr.PECCEPSP
JenniferBates,CCE
C.ArthurMiller
JefferyJ.Borowicz,CCCCEPPSP
BernardA.Pietlock,CCCCEP
PeterR.Bredehoeft,Jr.CEP
ToddW.Pickett,CCCCEP
RobertB.Brown,PE
WesleyR.Querns,CCE
DorothyJ.Burton
DonL.Short,IICEP
H.LanceStephenson,CCC
RobertC.Creese,PECCE
JamesD.Whiteside,IIPE
JohnK.Hollmann,PECCECEP
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AACEInternationalRecommendedPractices

AACEInternationalRecommendedPracticeNo.17R97

COSTESTIMATECLASSIFICATIONSYSTEM
TCMFramework: 7.3CostEstimatingandBudgeting

November29,2011
PURPOSE

AsarecommendedpracticeofAACEInternational,theCostEstimateClassificationSystemprovidesguidelinesfor
applying the general principles of estimate classification to asset project cost estimates. Asset project cost
estimatestypicallyinvolveestimatesforcapitalinvestment,andexcludeoperatingandlifecycleevaluations.The
CostEstimateClassificationSystemmapsthephasesandstagesofassetcostestimatingtogetherwithageneric
maturityandqualitymatrixthatcanbeappliedacrossawidevarietyofindustries.

Thisguidelineanditsaddendahavebeendevelopedinawaythat:
provides common understanding of the concepts involved with classifying project cost estimates,
regardlessofthetypeofenterpriseorindustrytheestimatesrelateto;
fullydefinesandcorrelatesthemajorcharacteristicsusedinclassifyingcostestimatessothatenterprises
mayunambiguouslydeterminehowtheirpracticescomparetotheguidelines;
uses the maturity level of project definition deliverables as the primary characteristic to categorize
estimateclasses;and
reflectsgenerallyacceptedpracticesinthecostengineeringprofession.

An intent of the guideline is to improve communication among all of the stakeholders involved with preparing,
evaluating,andusingprojectcostestimates.Thevariouspartiesthatuseprojectcostestimatesoftenmisinterpret
thequalityandvalueoftheinformationavailabletopreparecostestimates,thevariousmethodsemployedduring
theestimatingprocess,theaccuracylevelexpectedfromestimates,andthelevelofriskassociatedwithestimates.

Thisclassificationguidelineisintendedtohelpthoseinvolvedwithprojectestimatestoavoidmisinterpretationof
the various classes of cost estimates and to avoid their misapplication and misrepresentation. Improving
communications about estimate classifications reduces business costs and project cycle times by avoiding
inappropriate business and financial decisions, actions, delays, or disputes caused by misunderstandings of cost
estimatesandwhattheyareexpectedtorepresent.

Thisdocumentisintendedtoprovideaguideline,notastandard.Itisunderstoodthateachenterprisemayhave
its own project and estimating processes and terminology, and may classify estimates in particular ways. This
guidelineprovidesagenericandgenerallyacceptableclassificationsystemthatcanbeusedasabasistocompare
against.Ifanenterpriseororganizationhasnotyetformallydocumenteditsownestimateclassificationscheme,
thenthisguidelinemayprovideanacceptablestartingpoint.

INTRODUCTION

AnAACEInternationalguidelineforcostestimateclassificationfortheprocessindustrieswasdevelopedinthelate
1960sorearly1970s,andasimplifiedversionwasadoptedasanANSIStandardZ94.0in1972.Thoseguidelines
and standards enjoyed reasonably broad acceptance within the engineering and construction communities and
withintheprocessindustries.However,inthe1980s,empiricalresearchonthecorrelationofthematuritylevelof
project definition and cost growth and schedule slip led to better understanding of project risks and the wide
implementation of project phase or stagegate scope development processes [3]. This recommended practice
guideanditsaddenda,inconsiderationofthisresearchimproveupontheearlierstandardsby:
1. providingaclassificationmethodapplicableacrossallindustries;
2. unambiguously identifying, crossreferencing, benchmarking, and empirically evaluating the multiple
characteristicsrelatedtotheclassofcostestimate;and
3. aligningwithtypicalphasegateprojectscopedefinitionpractices.
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17R97:CostEstimateClassificationSystem

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November 29,2011

Thisguidelineisintendedtoprovideagenericmethodologyfortheclassificationofprojectcostestimatesinany
industry, and will be supplemented with addenda that will provide extensions and additional detail for specific
industries.

CLASSIFICATIONMETHODOLOGY

There are numerous characteristics that can be used to categorize cost estimate types. The most significant of
thesearethematuritylevelofprojectdefinitiondeliverables,endusageoftheestimate,estimatingmethodology,
and the effort and time needed to prepare the estimate. The primary characteristic used in this guideline to
definetheclassificationcategoryisthematuritylevelofprojectdefinitiondeliverables.Theothercharacteristics
aresecondary.

Categorizing cost estimates by maturity level of project definition is in keeping with the AACE International
philosophyoftotalcostmanagement,whichisaqualitydrivenprocessappliedduringtheentireprojectlifecycle.
Thediscretelevelsofprojectdefinitionusedforclassifyingestimatescorrespondtothetypicalphasesandgatesof
evaluation,authorization,andexecutionoftenusedbyprojectstakeholdersduringaprojectlifecycle.

Primary
Characteristic

MATURITYLEVEL
OFPROJECT
DEFINITION
ESTIMATECLASS
DELIVERABLES

SecondaryCharacteristic

PREPARATION
EFFORT

ENDUSAGE

METHODOLOGY

Typicalpurposeof
estimate

Typicalestimating
method

Stochastic
(factorsand/or
models)or
judgment

4to20

Expressedas%of
completedefinition

Notes:

EXPECTED
ACCURACY
RANGE

Typicaldegreeof
Typical+/range
relativetoindexof1 effortrelativetoleast
[b]
costindexof1
(i.e.Class1estimate)
[a]

Class5

0%to2%

Screeningor
feasibility

Class4

1%to15%

Conceptstudyor
feasibility

Primarily
stochastic

3to12

2to4

Class3

10%to40%

Budget
authorizationor
control

Mixedbut
primarily
stochastic

2to6

3to10

Class2

30%to75%

Controlor
bid/tender

Primarily
deterministic

1to3

5to20

Class1

65%to100%

Checkestimate
orbid/tender

Deterministic

10to100

[a]Iftherangeindexvalueof"1"represents+10/5%,thenanindexvalueof10represents+100/50%.
[b]Ifthecostindexvalueof"1"represents0.005%ofprojectcosts,thenanindexvalueof100represents0.5%.

Table1GenericCostEstimateClassificationMatrix

Five cost estimate classes have been established. While the maturity level of project definition is a continuous
spectrum, it was determined from benchmarking industry practices that three to five discrete categories are

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