Challenges of Accurate Cost Estimation for Facilities

Abstract

Cost estimation for facilities depends on early concept selection and critical inputs, often complicated by uncertainty in one or more of the critical inputs. Empirical cost models and cost modeling methods using these inputs vary in degrees of scope, comprehensiveness, and robustness. Cost modeling is critical in developing project economics to determine if a project is a sound investment. Its importance extends from concept comparison and selection to use in planning and optimization of field development, and to benchmarking of projected and actual costs. Although idiosyncrasies in projects and their required facilities drive cost estimations, differences in organizational capabilities further affect the validity and reliability of these estimations. This article will examine the industry’s approach to cost estimation, highlighting challenges and sources of error, and then discuss models specific to the Arctic and offshore Gulf of Mexico (GOM) regions.