W9_AI_Contingency Estimation of O&M Cost Offshore Regasification Project

  1. Problem Definition

Offshore Regasification Project has been one of the most priority project. Therefore, calculation of O&M Cost of Offshore Regasification Project must be developed.

The objective of this calculation is to determine cost overrun probability during O&M period. Therefore, it is necessary to prepare cost contingency for the project to anticipate the additional cost.

  1. Identify the Possible Alternative

There are 4 methods to estimate cost (also time) contingency, as follow:

  • Expert Judgment
  • Predetermined Guidelines
  • Simulation Analysis
    • Range Estimation
    • Expected Value
  • Parametric Modeling

For this case, Author uses Simulation Analysis with Range Estimation method.

Range estimating is a risk analysis technology that combines Monte Carlo sampling, a focus on the few critical items, and heuristics (rules of thumb) to rank critical risks and opportunities. This approach is used to establish the range of the total project estimate and to define how contingency should be allocated among the critical items.

  1. Development of The Outcome for Alternative

The following steps will be used to determine cost contingency using range estimating:

  • Determines of ranges for each cost items.
  • Determines the probability that each item can be completed within the estimate.
  • Running Monte Carlo simulation for the cost range.
  • Determines of critical items based on result of Monte Carlo simulation.
  • Determine of contingency with reference to critical items only.

Following are base estimates for each cost items:

Table 1. Base Estimate of O&M Cost Offshore Regasification Facilities

Estimator has developed table (1) above, to determine range of each cost item. Good estimate shall be calculated equal probability of overrun and underrun (50% probability), hence the assumption being that some project will overrun while others will underrun, and in the end they will balance out.

But estimator shall be added some risk-aversed attitude, in this calculation P80 will be used. It means that probability of 80% that the project will not overrun.

Table 2. Range and Desire Probability of Each Component

After determining range and desire probability of component cost, further step is to conduct Monte Carlo simulation with 1000 iterations. The result as follow:

Table 3. Monte Carlo Simulation Result

  1. Selection Criteria

Estimator using Bottom Line Critical Variance to categorize critical item of each cost component, table show below:

Table 4. Bottom Line Critical Variances

  1. Analysis & Comparison of Alternative

Using Bottom Line Critical Variance table above, critical item result as follows:

Table 5. Critical Items

  1. Selection of the Preferred Alternative

After categorize critical component, then the next step is determining cost contingency, as shown in following table:

Table 6. Cost Contingency

Hence the total cost contingency will be used for this project is $ 126.000 (only for critical item).


  1. Performance Monitoring and The Post Evaluation of Result

During the implementation of Offshore Regasification Project, it is necessary to monitor O&M cost to prevent cost overrun exceed cost contingency.


  1. AACE International Recommended Practice No. 41R-08
    Retrieved from https://www.yumpu.com/en/document/view/50838191/41r-08-risk-analysis-and-contingency-determination-using-range-
  2. AACE International Recommended Practice No. 44R-08
    Retrieved from http://nebula.wsimg.com/ab1871cc797714d7bf4dc2bfc4f5c243?AccessKeyId=593FFA6B20F5002887D7&disposition=0&alloworigin=1
  3. Milza, R. (2016). W10_RM_Contingency Estimation in Gas Station Project.

Retrieved from https://goldenaace2015.wordpress.com/2016/03/08/w10_rm_contingency-estimation-in-gas-station-project/

  1. Asro. Y. W. (2014). W20_YAW_Contingency Estimation in Storage Tank Project.

Retrieved from  https://kristalaace2014.wordpress.com/2014/07/07/w20_yaw_contingency-estimation-in-storage-tank-project/


1 thought on “W9_AI_Contingency Estimation of O&M Cost Offshore Regasification Project”

  1. AWESOME, Bu Irene….. Nice work on this…… My only suggestion for Step 7 would be not only to track your actual vs estimated costs but at the same time, track the consumption of CONTINGENCY vs Physical % Complete.

    Explained another way, you need to ISOLATE the tracking of costs from the consumption of contingency. And as a PROFESSIONAL if you do find out that your contingency was too high, you need to think about turning at least some of that contingency BACK to your management so they can take those allocated funds and use them on some other project. To see more on this, go to Module 9.5 and scroll down the page to the case study from Freeport and your fellow Indonesian colleague, Danny Dangdua….

    Keep up the good work but WHERE IS YOUR PAPER? Don’t get too far ahead and then find out you’ve made a mistake and have to go back to fix it……. Let me work with you and mentor you STEP BY STEP……

    Dr. PDG, Jakarta, Indonesia


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