(PUBLIC REVIEW DRAFT) 137R-25: Owners Costs: Definition and Considerations for Estimating

  • 1.  Owner's Costs correlation to Project Size and Complexity

    Posted 04-27-2025 10:09 PM

    I work for a Project Management Consultant (PMC) company. 

    One of the key challenges in determining Owner's Costs for the projects that our company manage: CLIENT expect the Owner's Costs is at a pre-determined ratio as against the Final Investment Decision (FID) cost. For example, if the project is USD 100,000,000, CLIENT expect it to be 10%. And even the project is USD 1,000,000, CLIENT still expect it to be 10%. Unfortunately, based on our historical data, there is no specific trend to determine Owner's Cost ratio as against FID. This is because each project is unique, different complexity factors that need to be considered other than the magnitude of investment (CAPEX). 

    I would appreciate if anyone can share any studies with regards to whether there is specific Owner's Costs correlation to Project Size and Complexity.

    Thank you.



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    Norhidayah Ismail
    Project Control Manager
    Petroliam Nasional Berhad (Petronas)
    Kuala Lumpur
    norhidayah_ismail@petronas.com
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  • 2.  RE: Owner's Costs correlation to Project Size and Complexity

    Posted 04-28-2025 09:45 AM

    Norhidayah, a study of Owner's cost vs. various drivers including size and complexity is a topic of a paper to be presented at the 2025 Expo in Anaheim. The study was by a consortia of Canadian power utilities that I facilitated. There are various statistically-significant drivers of Owner's costs as a percent of total project; however, project size was NOT one of them (although project duration may be). Surprisingly, Owner's cost % is negatively correlated with complexity! (but the cost growth of non-owner cost does increase with complexity). The strongest driver of Owner's cost % is the proportion of owner-procured material and owner-performed construction because they affect the amount of owner construction management (decrease and increase respectively). The mean % Owner's costs for the study dataset was 17% (the project management team (PMT) cost mean was 12%; the definition of Owner's costs and PMT is in the upcoming RP 137R-25). The only published study found in AACE library was for upstream, offshore oil and gas by The Performance Forum (A. Jamieson, "Estimating the Optimal Size of the Project Management Team," 2019). For PMT, note that both the Utility and O&G study found a rule-of-thumb of about 1.0 FT per CAN$10 million) for projects of moderate size (scales down for megas).



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    John Hollmann
    Owner
    Validation Estimating LLC
    Ashburn
    jhollmann@validest.com
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    Original Message


  • 3.  RE: Owner's Costs correlation to Project Size and Complexity

    Posted 04-28-2025 12:09 PM

    Dear John,

    Thank you so much for your sharing. The information you've shared is aligned with the studies I made on my historical data, that correlation of Owner's Cost to Project Investment Size is not founded, or at least not the only factor. Thank you for pointing out other factors that may correspond to Owner's Costs i.e., duration and magnitude of effort that Owner has to put on the project. 

    We'll try to arrange so that our company's representative would be able to join the 2025 AACEI Conference & Expo in Anaheim. Thanks for prompting me on this.

    Much appreciated!



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    Norhidayah Ismail
    Project Control Manager
    Petroliam Nasional Berhad (Petronas)
    Kuala Lumpur
    norhidayah_ismail@petronas.com
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    Original Message


  • 4.  RE: Owner's Costs correlation to Project Size and Complexity

    Posted 04-29-2025 08:52 AM
    Norhidayah,

    Your interest in providing better support is admirable. The updated RP 137R-25 provides much improved clarity regarding Owner's costs.
     
    However, I strongly urge you to capture only what the client instructs you to include. It's not uncommon for the Owner/client to specify a percentage as a placeholder. Always follow their guidance.

    Owner costs are much more than 10% of the project estimate if you consider the whole picture. They incur business development expenses which include pre-project marketing, R&D, early process design, etc. They also incur extensive costs for land, licensing, legal, third-party, internal and external staffing support, commissioning and start-up, supply chain / product logistics, owner supplied equipment and facilities, and extensive interest/investment considerations. The Owner/client list of costs is long.

    Please be very careful. Owner costs are also always considered highly sensitive, proprietary, and business confidential. No Owner will share that information outside their business for obvious reasons. Owners/clients typically use internal resources (such as SME folks like me) to develop that part of the total cost investment, not EPC's or Consultancies. IPA states that Owners save costs and time utilizing internal resources, but confidentiality also plays a big role as well.
     
    I posted a chart identifying benchmarks for engineering costs. If it doesn't make it into the updated RP and you are still interested, let me know and I'll send you a copy.  

    Chris Kinney



    Original Message


  • 5.  RE: Owner's Costs correlation to Project Size and Complexity

    Posted 05-06-2025 07:20 AM

    Hello Ma'am,

    There are so many cost elements present in the Owners cost like : Earlier study cost (feasibility, feed etc.), Preliminary cost, Pre operative cost, Working capital Margin, Interest during construction (IDC), Insurance, Training, Business trip (owners specialized person travelling for equipment FAT), TPI services,  Manpower including corporate overhead (Design, PMT, Admin & General), Consultancy cost (PMC), Scope variation, Forward escalation, Local Agent cost, Process Licenser Fee & Royalty, Legal Expense, land Leasing Cost and Spares. 

    As a general practice, in a deterministic estimate, all the items mentioned above have different estimate methodology. If we follow individual estimate, more realistic value can be achieved supported by the percentage norm as stated in your discussion. In general, This percentage varies based on the company itself. Global % can not be applied to calculate owners cost due to geographical variation and salaries of project personnel and varying % of raw material. Every company has its own norm that has been established over time. 

    Based on my experience, median % for owners cost could be 14% for the size of the project mentioned by you (Excl. all finance related cost). 

    Thanks and regards,



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    Sanjoy Roy
    Cost Estimation Engineer
    Mangaf
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    Original Message