Benchmarking is one of the critical aspects of estimating. Any estimate when supported with suitable benchmarking, becomes easier to explain and get approvals for. It is a ‘top down’ approach to validate / cross-check any estimate. Benchmarking also helps to identify the major differences in scope of the current project from a typical project from around the globe. Benchmarks are very useful during commercial bid evaluations to demonstrate that the best value is being obtained from the market.
If sufficient historical data from similar previously executed projects is available within the organisation, then suitable in-house benchmarks can be developed to support the current estimate. Alternatively, there are specialist companies who provide third party benchmarking services for specific type of projects. These companies have collected data from various owners & contractors and have built up their own databases to respond to various benchmarking requests.
However, for some projects, there may not be any suitable in-house databases available and for various reasons (lack of funds, time required to place a contract, etc.) engagement of a third party might be difficult. In those cases, instead of not providing any benchmarking to support the estimate during the review process, I would recommend trying to generate a fit-for-purpose benchmark curve using open source information from the internet. A surprising amount of usable information is freely available on the internet, through news reporting, company websites, government announcements, etc. It might sometimes need a significant number of estimator-hours to undertake internet research to find any suitable data, but when generated could prove to be very useful.
For example, for power plant projects, there could be news articles on the internet when a major contract is placed with its value and MW capacity. If enough data is gathered from the internet, then an overall cost Vs capacity (MW) curve could be generated as a benchmarking tool, roughly showing the market values of different capacity power plants.
Similarly for pipeline projects, news articles might advertise the total value and the pipeline diameter and length when a major project is awarded. A benchmark graph could be generated for the cost/km value against the various diameters.
No two projects are exactly similar, but this kind of benchmarking will definitely give an idea of the expected range. They can also be used during concept engineering and also for bid / no-bid analysis.
Such benchmarking can be used in addition to or in the absence of any in-house or any third party benchmarking data. These graphs would be free of cost, fully transparent and auditable and can be easily shared with everybody as there would be no proprietary data issues.
Clients always want to know (at a very high level) how much others have paid for a similar project. They will definitely do their own research, but if the estimate comes with this kind of supporting document, it immediately generates that extra level of confidence in the estimate.
Case in Point: During the approval process for the sanctioning of project X, in addition to the in-house benchmarking graph and also third party check-estimates, I prepared and successfully presented additional internet based open source benchmarking graph as a supporting document with the overall estimate. This was done to generate additional confidence in the estimate presented and also to demonstrate what unit price others were paying for similar projects.
In another project, there was no in-house data, and the third party benchmarking exercise was perceived to be too expensive for the project budget. I successfully developed and presented a suitable internet based open source benchmarking graph which was well received both by the internal management and also the client’s team including government authorities.
Note: It may not always be possible, for a particular kind of project, to generate any suitable benchmarking based on internet based information.
I will upload some self-made, open source benchmarking examples for reference and guidance in some of the future blogs. They will be suitable to use as is and can always also be modified to meet specific needs and escalated to any future year as needed.
This article was published as an opinion piece in July-2018, in the Project Control Professional which is the journal of The Association of Cost Engineers.
2 thoughts on “Open Source Benchmarking”