FTA Oversight Procedures - Federal Transit Administration - U.S. ...

isk assessment described herein; the PMOC shall obtain this Cost Risk Assessment worksheet and
fully familiarize itself prior to undertaking the work of this section.
Stripped Cost Estimate Based upon analyses performed in accordance with OP‐33, the PMOC
shall adjust Grantee’s Preliminary or Base Cost Estimate to remove all contingency funds embedded
therein. Such contingency funds to be removed may include both unallocated funds (usually
applied as a percentage of summary costs) and allocated (usually applied as increases to individual
estimate line items). Both patent (and exposed) contingency funds and latent (or hidden)
contingency funds shall be identified; the identification of latent contingency funds will likely
involve interviews with the Grantee. Further, particular attention should be paid to contingent
funds that may be embedded within estimates of inflation or escalation.
Once identified, these contingency funds shall be quantified and removed from the estimate to form
a Stripped Cost Estimate.
Adjusted Cost Estimate Utilizing scope, cost, schedule, etc. information developed in prior‐
performed Operational Procedures, the PMOC shall appropriately revise the Stripped Cost Estimate,
increasing or decreasing the various estimate line items to produce an Adjusted Cost Estimate.
Care should be taken to identify whether items so adjusted should also become elements of the Risk
Register developed in 6.2.1. Any such adjustments and their rationale shall be fully documented.
Note that the adjusted estimate, at a minimum, shall include one level of breakdown below the
lowest level of Standard Cost Categories (SCC Cost Elements).
SCC Cost Element Ranges Utilizing the procedures outlined below, the PMOC shall establish likely
ranges of cost for estimated line items, or elements, within Standard Cost Categories (SCC)—
spanning the range of 10% likelihood to 90% likelihood; that is, the range from which there is only
a 10% chance of cost underrun to the point at which there is 90% likelihood that costs will be
lower. For the purposes of this SCC Cost Element Range assessment, it shall be assumed that the
probabilistic range of cost follows a Lognormal Probability Distribution curve.
Lower SCC Cost Element Range Establishment The Adjusted Cost Estimate (with contingency
funds removed) for each SCC Cost Element is to be established as the lower (or 10%) value of the
SCC Element Cost Range.
Upper SCC Cost Element Range Establishment The PMOC shall establish the Upper SCC Cost
Element Range value through multiplying the Lower SCC Cost Range value by a range factor
(hereinafter referred to as the Beta Range Factor or BRF); i.e., 90th percentile = BRF*10th
percentile.
Beta Range Factor Establishment The PMOC shall establish the Beta Range Factor values
through a process of initially utilizing the guidelines indicated below, and then varying the
developed Beta Factors based upon specific project attributes (including those noted in the Risk
Register), in consultation with the Grantee and FTA work order manager.
Beta Range Factors are sums of Risk Category factors; i.e., total risk for an SCC Element is the sum of
individual Risk Category Factors for Requirements Risk, Design Risk, Market Risk, and Construction
Risk, added to a base factor of 1.05. The base factor indicates a minimum level of risk for a project.
These factors are presented in Table 1 and Figure 1. Note that at any given point in a project, SCC
OP 40 Risk Assessment and Mitigation Review
Revision 0, June 2008
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