Cost Estimation and Risk Integration at PMO Level for Ship Electrical Projects (Early Phase)

Abstract

This paper explores cost estimation and risk integration at PMO level in ship electrical projects in early phase. Every ship electrical project is challengeable because every project is unique and scope is not fully finalized at the tender stage. So poor estimation during early phase can be reason for the entire project profit or partially lost. As per the literature cost estimation and risk management are studied separately. But there are only limited findings on the combination of these two in the Project Management Office (PMO) Level in ship electrical projects. The main objective of this study is how cost estimation and risk integration at PMO level can be used to improve better ideas and cost predictability within the early phase of ship electrical project. Cost estimation, risk integration, contingency determination engineer-to-order (ETO) project characteristics and PMO governance are the key concept of this thesis. This research is mainly based on the qualitative analysis of two completed ship electrical projects within the one organization. Tender stage estimations, commercial offers, cost overrun reports and project closure meeting records are the documents used in here. Five dimensions of analysis used in both projects. There is estimation methodology, risk identification, risk to cost integration, contingency determination and PMO governance. The company also confirmed that there are not any risk registers during the tender stage, and this directly help for the main empirical finding of the research. From both projects, analysis has shown that cost estimation and risk management were taken as separate factors. In tender stage existing documents could not found any formal risk register. There is not any separate contingency existed. So, the profit markup considered as commercial margin and risk buffer. PMO approval checklist also not completed. And performance indicators like KPIs only checked the pipeline values not the accuracy of the estimation. After reviewing all documents, eight systematic gaps were found. These are organizational failure rather than individual failures. One project faced a financial loss due to three foreseeable risks without cost provision. Some of these same risks found in previous project closure meeting were not adopted to inputs for future estimations. As a solution for that, five-phase PMO level framework has been introduced. This framework designed compulsory risk identification, contingency calculation based on probability and cost impact, estimation restructure with base cost, contingency and margin separately, PMO reviews and lesson learned feedback. Finally, to support this framework, simple excel tool has been created. By using this framework retrospectively, the document financial loss may have been drop down and risk involvement may have been identified before the tender submitted to client. As per those findings, it is showed risk integration in PMO level is practical and as well as commercial. Proposed framework is simple and addictive. It does not need special training or software. And this can be used automatically with each completed project.