TIME
On Thursday 27 May 2021 at 8:30 PM to 9:30 PM (AEST) (6:30pm AWST)
EVENT
Every project cost estimate includes some allowance for price escalation in its midst. However, few recognize escalation for the potentially devastating risk that it can be. For example, from 2005 to 2008 the price to get a process plant built increased by 50% at a time of negligible inflation. Economic cycles like these are sporadic but their volatility can span a decade; mega-projects have a good chance of hitting one. Such a decade may be starting now with Covid-19. Despite this experience, few quantify escalation as a risk; i.e., it is not forecast probabilistically. Further, many confuse escalation and inflation. Even if that mistake is avoided, few realize that the price indices they use for escalation estimates (e.g., producer price indices) do not track the price of services that are bid, i.e., the price of engineering, construction, fabrication that dominate major project estimates. The good news is that there are industry practices (from AACE International) that get it right; i.e., that define how to analyze escalation probabilistically using adjusted indices that align with reality. This presentation will address the historical experience, the misperceptions and methodological issues, and describe the best practices. The session is based on Chapter 13 of the presenter’s book: “Project Risk Quantification: A Practitioner’s Guide to Realistic Cost and Schedule Risk Management”.
ABOUT THE SPEAKER
John K. Hollmann, PE CCP CEP DRMP Hon. Life AACE.
John Hollmann, lead author of AACE® International’s TCM Framework (2006) and author of “Project Risk Quantification” (2016), owns Validation Estimating, LLC (VE). He works with capital program managers and project leaders in a variety of industries from process to infrastructure to improve their cost engineering practices including estimating, project control, and risk quantification. Mr. Hollmann is a frequent speaker at international conferences, has written many papers, and often leads training workshops. He is an Honorary Life Member of AACE® and also recipient of their Award of Merit and Lifetime Achievement Awards. He was Director of Recommended Practices at AACE® and also led development of the AACE® Decision and Risk Management Professional certification. Prior to founding VE, Mr. Hollmann led metrics and controls research efforts at Independent Project Analysis, Inc. Prior to that he worked in estimating and controls for owner and contractor companies. His latest venture is cloud-based risk quantification software called ValidRisk (www.validrisk.com) based on his 2016 book.