What is Cost Engineering?

Report
www.costengineering.eu
Degree:
Mechanical Engineering
Experience:
Technical Director, Cost Engineering Consultancy B.V.
More than 40 years of industrial experience in consulting various
industries such as oil & gas, petrochemical, power, mining & minerals,
chemicals, construction and pharmaceutical.
Professional Field:
Co-founder of Cost Engineering Consultancy
Member of NAP/DACE, AACEI, ICEC and AcostE
Teacher of cost engineering courses
Cost Engineering Consultancy:
Cost Engineering LinkedIn Group (> 6000 members)
Facebook
Twitter
[email protected]
www.costengineering.eu
What is Cost Engineering?
•
Cost Estimating
•
Cost Control
•
Planning
Challenges of the Modern Cost Engineer
Achieving an Integrated Work Process through a
Holistic Mindset
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AACEI defines Cost Engineering as:
“That area of engineering practice where engineering
judgment and experience are utilized in the application
of scientific principles and techniques to the problems
of cost estimating, cost control and profitability”.
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The Profession of Cost Engineering:
Applying methods and techniques for:
Cost Estimating
Cost control
Planning
Contracting / Tendering
Quantity survey
Risk Assessment
Value Engineering
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Some advise:
Keep it simple, Cost Engineering is not
“Rocket Science”
In science 1 + 1 = 2,
in cost engineering 1 + 1 = 3
Keep in mind that cost engineering is a
profession!
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“It costs time”
“It costs resources”
“ It costs money”
Everything invested
in assets and projects
is a Cost
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A day in the office
Telephone rings…..
A business partner !!!!
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Cost Estimating
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Past performance is no
guarantee for future results
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“An evaluation of all the costs of the elements of a
project or effort as defined by an agreed-upon
scope.” (AACE 10S-90)
Cost Estimate
•
Involves assumptions and unknowns
•
Involves probabilities (and therefore ranges of
costs)
•
Involves a given scope
•
Contingency covers variability within the
defined scope - not changes in scope
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Identification phase
Project
initiation
note
Definition phase
Feasibility
study
Development
plan
± 40%
Screening
estimate
± 25%
Study
estimate
± 25%
Budget
estimate
Economics
Economics
Economics
Step 1
Step 2
Step 3
Initial
commit.
plan
Approval
Approval
initial
execution
plan
Basis for
design
Execution phase
Project
specification
Detailed
design
± 10%
Control
estimate
commit.
plan
Economics
Step 4
Materials
procurement
Construction
Commit. &
cost control
Change
control
± 5%
Counter
estimate
Step 5
Project
execution
plan
Operations
reference
plan
Contract
control
Operational
phase
Abandon
phase
Step 6
Step 7
Identical
to
Execution
phase
Identical
to
Execution
phase
Commission.
start-up
handover
Operations
reference
plan
Close out
Abandon
project
Project
debrief
Purchase
order control
Review
Review
Reporting
Approval
Approval
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An estimate should not be regarded as a single point
number (or cost)
An estimate is a range of potential cost outcomes,
and associated probabilities of occurrence
Thus – the accuracy range of an estimate is a
probabilistic assessment of how far a project’s final
actual cost can be expected to vary from the
estimate
• The range is driven by risks
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Estimate
Level
Level of Project
definition
End Usage
Methodology
Capacity factored
Parametric
Models, Judgment or
analogy
5
0% to 2%
Concept
Screening
4
1% to 15%
Study or Feasibility
3
10% to 40%
2
1
Expected Accuracy
Range
Preparation
Effort
L: -20% to -50%
H: +30% to +100%
1
Equipment factored
or Parametric
Models
L: -15% to -30%
H: +20% to +50%
2 to 4
Budget,
Authorization or
Control
Semi-detailed unit cost
with assembly level line
items
L: -10% to -20%
H: +10% to +30%
3 to 10
30% to 70%
Control or Bid /
Tender
Detailed Unit Cost with
Forced Detailed takeoff
L: -5% to -15%
H: +5% to +20%
4 to 20
50% to 100%
Check Estimate or
Bid / Tender
Detailed Unit Cost with
Detailed
take-off
L: -3% to -10%
H: +3% to +15%
5 to 100
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90/10
+40%
90/10
50/50
Base
-25%
~2-8%
Bas
e
Bas
e
10%
+10%
90/10
90/10
~1-5%
50/50
Base
Base
Base
10/90
Order of
magnitude
D
Class5
Study
Type
C
Class4
Budget
Type
B
Class3/2
Control
Estimate
Class1
Zero baseline
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Influences on the estimate
Scope definition
Tools
Database
Risk
•
Systemic Risk
•
Project Specific Risk
Market influences
Knowledge of the cost engineer
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What happens with too much pressure?
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“Measurements are the key. If you cannot measure it,
you cannot control it. If you cannot control it, you
cannot manage it. If you cannot manage it, you cannot
improve it.” - James H. Harrington
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Cost Control
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There are two processes used for controlling the costs of
the project.
1. Change Management – a formal process that
identifies any requested (or un-requested) changes
to the contract.
2. Forecasting – predictions of the costs at completion
for any cost elements in progress or not yet started.
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Don’t run and hide !!!
All changes shall be
documented, regardless if
no net change in schedule
or cost has happened.
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Forecasts are much like estimates. Whereas an estimate
is always for future activities and assets, forecasts are
predictions of the costs at completion for cost elements
in progress.
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1800
Budget plan
1600
1400
BCWS
(Budgeted cost of
work scheduled)
1200
ACWP
(Actual cost of
work performed)
1000
800
600
BCWP
(Budgeted cost of
work performed
400
200
0
1-apr
7-apr
14-apr
21-apr
28-apr
5-m ei
Budget
12-m ei
Earned
19-m ei
26-m ei
2-jun
9-jun
16-jun
23-jun
Actual
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Challenges of the
Modern Cost Engineer
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Involvement
Feedback/Learning/Knowledge Engineering
Business
Project Director
Operations
/Commissioning
Construction
Process Engineering
Detailed Engineering
/Procurement
Estimating
Business
Planning
Feasibility
Planning
Project
Planning
Execution
Project
Control
Start-up
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Involvement Process for Technical Projects
Regulation
Government
Engineering
Process
Flow
Project Lead
Permits
Money
Contractors
Process Engineers
Risk Assessment
Business Case
Data sheets
Safety
Sub Contractors
Time /
Schedule
Discipline Engineers
Quality
Health
Cost Engineers
Environment
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Potential of Decisions to
Influence Value
Potential of Changes to
Destroy Value
Project Life Cycle (Better Scope Definition/Time)
More involvement results in better scope definition
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From: Hollmann, John K., Best Owner Practices For
Project Control, 2002 AACE Transactions
Front End Loading (FEL)
Percentage Above or Below
Industry Average Cost
20%
15%
10%
5%
0%
5% Lower Cost = 1% Better ROE
-5%
-10%
BEST
3
3,5
4
GOOD
4,5
5
5,5
FAIR
6
6,5
FEL Index
POOR
7
7,5
SCREENING
8
8,5
9
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Percent That Achieve
Objective
As Reported by IPA, Inc.
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Achieving an Integrated
Work Process through a
Holistic Mindset
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Mixing all different ideas together
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A process for collecting, maintaining, and analyzing
project historical information so that it is ready for
use in an effective form by each functional process
Empirical information is the most fundamental
project planning resource available
It is manifested in the form of quantified and
documented historical data and information
The purpose is not to repeat history, but to learn
from it (continuous improvement)
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Measurement Methods and Tools
Cost Accounting
and Resource
Tracking
Planning Methods and Tools
Physical Progress
and Performance
Measurement
Control
Baseline
Information
Measurements
Assessment Methods and Tools
Performance
Assessment
Reference
Tools
Actual
Schedule
Data
Actual
Cost
Data
Forecasting and
Change
Management
Actual
Resource
Data
Project
Learnings
Assessment
Support
Information
Forecast &
Change
Information
Scope
Development
Resource
Planning
Cost Estimating
and Budgeting
Procurement
Planning
Schedule
Planning and
Development
Value and Risk
Management
Reference
Tools
Project
Schedule Estimating Resource Benchmarks/
System
Reference Reference Reference Validation
Learnings Information Information Information Metrics
Project Historical Database Management
Asset Historical Database Management (6.3)
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Suddenly, a heated
exchange took place
between the King and the
project manager
What was objective?
“dig a ditch next to the
castle wall”
or
“defend the castle from
attack”
Cost Engineering Consultancy
HQ - PO box 25, 3330 AA Zwijndrecht,
IJsselmeer 32e, 3332 EX Zwijndrecht
T: +31 78 620 09 10 F: +31 78 620 91 42
E-mail: [email protected]
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