Addressing uncertainties in decommissioning cost estimates

03 October 2017

Historical experience of estimating decommissioning costs has not been particularly satisfactory. In response to this, the process of decommissioning cost estimation is evolving, writes Simon Carroll.

The general trend is towards showing greater levels of detail in estimates and more explicit representation of the uncertainties that may bear on project cost. In this context, the OECD Nuclear Energy Agency (NEA) and the International Atomic Energy Agency (IAEA) have published new guidance on addressing uncertainties in nuclear decommissioning cost estimates.

The need for better estimates

The technical ability to decommission nuclear facilities shut down after normal operation is well demonstrated. Issues of current concern include the ability to accurately calculate and demonstrate the validity of decommissioning cost estimates and the development of tools for improving project delivery. Driving these developments is a need to give greater confidence that funding will be sufficient and to enhance managers' ability to control costs during decommissioning projects.

The International Structure for Decommissioning Costing (ISDC) was published in 2012 by the OECD NEA, the IAEA, and the European Commission (EC). The ISDC provides a useful common reporting format for decommissioning costing. Its approach builds up a deterministic Project Baseline Estimate starting from the scope and assumptions set out in a detailed basis of estimate (BoE).

Addressing uncertainties

The ISDC used the term 'contingency' to describe a provision for a number of uncertainties within the defined scope of the project. These are associated with conduct of work under other than the ideal (theoretical) conditions used to derive the project base cost. These uncertainties are likely to occur during the execution of a project such as equipment breakdown, inclement weather, logistical delays, etc. The ISDC assumes this provision will be fully spent during execution of the project.

However, the ISDC does not address the full range of uncertainties or explain how to incorporate these in estimates. A more comprehensive treatment of uncertainties in decommissioning cost estimation would aid comparison between estimates and enhance understanding of and confidence in the estimates themselves.

In 2014, the NEA and IAEA initiated a joint activity to incorporate uncertainties into nuclear decommissioning project cost estimates in an integrated manner, and as a complement to the existing ISDC approach. The results of this project are now published in the report Addressing Uncertainties in Cost Estimates for Decommissioning Nuclear Facilities. The report offers an approach to treating uncertainties reflecting current good practices in cost estimating. Specifically, it describes how uncertainties in decommissioning cost estimation can be addressed using standardised methods of estimating uncertainty and risk analysis. Its recommendations aim at enabling a consistent and comprehensive treatment of risk and uncertainty in the preparation of decommissioning cost estimates.

Developing and refining the Project Scope

The ISDC addressed the development of an estimate for a given, defined scope and did not fully consider issues relating to poorly defined or immature scope, and how these should be addressed in an estimate.

To address this, the new report describes an iterative process of scope refinement or optimising of the initial project scenario. It may take several iterations of scenario development to optimise the base scenario for the project, with an understanding of the potential impacts of alternative decommissioning strategies. This iterative development of the base scope can be undertaken progressively at any time in the cost assessment process. Where an initial assessment reveals potential events and outcomes that may be seen as intolerable or undesirable, these may be better dealt with by adding appropriate risk mitigation scope to the original Base Scope, rather than by being addressed separately as risks. The additional cost for the risk mitigation scope should then be estimated as part of a revised Base Cost for the project, and used to produce the Project Baseline Estimate.

Adjusting ISDC terminology

The new report remains consistent with the ISDC approach, and much of the terminology remains unchanged. However, it renamed the ISDC's 'contingency' provision 'estimating uncertainty'. This is because the new report considers a wider range of uncertainties than addressed in the ISDC. In particular, it includes threats and opportunities that may impact on project delivery and therefore on costs. These threats and opportunities are referred to as 'risk' in the new approach, and are explicitly addressed in the estimation process.

Thus, in the new report, the Project Baseline Estimate is the estimated cost of the base scope of the project as defined by the BoE, and including provision for the Estimating Uncertainty. The rationale for taking a wider range of uncertainties into consideration is to address the need for an additional provision for risk above the Project Baseline Estimate.

Adding risk elements to the ISDC

As we are dealing with a potential range of outcomes, it is logical to consider both deterministic and probabilistic means to derive a funding provision to risk. This entails a step-wise approach to the analysis of risk and how this can be used to derive a cost provision in the final cost estimate. The process involves risk identification, assessment and analysis to generate a set of outcomes for several different scenarios (and hence a range of cost provisions) that are directly tied to a probability of occurrence.

A determination also needs to be made as to which extent these risk elements are to be funded or not, as a funded risk provision and unfunded risk respectively. Where a decision is made not to fund certain risks, it is essential that the basis for this is made explicit in the estimate and the implications fully communicated.

The additional funded risk provision above the Project Baseline Estimate can now be included in the estimate to yield a Final Funded Cost. Putting all these elements together allows the production and presentation of a cost estimate that can integrate treatment of issues of scope maturity, estimating uncertainty within the defined project scope, and provision for risk.

Estimates are more than just numbers

The quality of the estimate and risk analyses are tied to the quality of the input data and the analysis of specific risks and impacts. To enhance understanding of the estimate and confidence in the results, the analyses and calculations underpinning these provisions need to be traceable, the processes understandable, and the estimate output needs to be able to be referenced to the input data. It is therefore important to consider aspects of quality assurance and how these are addressed in an estimate.

The report provides an overview of approaches used to enable better transparency and consistency in cost estimating. Sensitivity analysis can also be used to give greater insight into an estimate and the underlying calculation processes. By means of this analysis, insight is provided into how and to what extent changes in particular variables may influence the model outputs. Scenario analysis may also be used to explore the possible cost outcomes of alternative scenarios and options.

Better estimates?

Estimates will evolve as knowledge is accumulated and planning for the decommissioning project develops. Changes may occur for example as a result of modifications made to the defined project scope, increasing maturity of project scope, and developments in the definition and analysis of risks at different points in time. A systematic approach to addressing the impact of uncertainty and risk in financing of decommissioning projects is necessary. Ultimately funds will need to cover the Project Baseline Estimate, and include sufficient provisions for the uncertainties and risks assessed. By explicitly and comprehensively addressing project risk, there will be increased assurance that a cost estimate is complete and provides a credible picture of project cost.

OECD-NEA model for decommissioning cost estimates - 460
OECD-NEA model for decommissioning cost estimates (Image: OECD-NEA)

The report is available here: 

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Simon Carroll is an analyst at the Swedish Radiation Safety Authority (SSM) & Chair of the OECD Nuclear Energy Agency’s Decommissioning Cost Estimation Group.