W2_Stephon_Statistical Assessment of Owner Scope Definitions Using Contractor Bids

1.    Problem Definition

The offshore construction section of an IOC in Nigeria manages a portfolio of “Minor Plant Modification” projects which are executed by “Local EPCI” contractors as a policy. The number of change orders as well as claims on these projects is unacceptable by management and the root cause(s) is/are to be investigated.

This study which is the first in a series of studies will focus on the effectiveness of project scope definitions in the department as reflected by the disparities in contractor bids. This study will try to confirm the presence or otherwise of unacceptable variations in EPCI contractors bids and its root cause.

2.    Feasible Alternatives

For this assessment, sets of bids for sixteen different projects will be analyzed using simple descriptive statistics. To make these populations comparable, the Coefficient fo Variation (CV) of each set will be used. The presence of unacceptable variations in the bids will be considered indicative of one of the following:

<!--[if !supportLists]-->1.     <!--[endif]-->Inadequate scope definition in the Requests for Quote.

<!--[if !supportLists]-->2.     <!--[endif]-->Ineptitude on the part of the local contractors given that these projects do not require widely varied strategies to execute to warrant widely disparate quotes.

3.    Develop the Outcomes for each Alternative

      A graphical plot of the mean quotes and the company estimates for project is given below as part of the assessment. Note that the figures are adjusted by a uniform factor for confidentiality.

Fig 1:  Company Estimates vs Mean Contractor Quotes

   

Two statistics will be obtained from the sample of CVs and will be used for an initial description of the population of bids received in this department based on the current method of work scope description.

      The statistics used are:

The Sample mean

 

  

The Standard Deviation

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4.    Acceptable Criteria

The process/method of scope definition as given to contractors will be considered adequate based on the following criteria

<!--[if !supportLists]-->1.     <!--[endif]-->The sample mean of CVs <= 15

<!--[if !supportLists]-->2.     <!--[endif]-->The Standard Deviation of CVs <= 10

5.    Analysis and Comparison of the Alternatives

 Given the sample of the CVs from the bids of 16 different projects:

The sample mean = 289.01/16 = 18.06

The Standard Deviation = √1953.97/16-1 = 11.41

6.    Select the Preferred Alternative

Based on the fact that the figures obtained from the statistics above fall outside the range of acceptance, we refer to our first alternative which is that the scope definitions are inadequate. Also, the graph plot of company estimates and mean bids indicate a one to one relationship between these two sets which is an indication that the contractors’ bids are in prepared correctly. The large spread observed can be attributed to points in the scope of work that the contractors were inadvertently left to assume.  

7.    Performance Monitoring & Post Evaluation of Result

Further studies will be carried out on the contractor bids

References:

1.    Kvanli, A. H., Pavur, R. J. & Guynes C. S. (2000).  Introduction to Business Statistics. Chapter 3

2.    Amos, S.J. (2007). Skills & Knowledge of Cost Engineering Fifth Edition. Chapter 29