Www.costengineering.eu. Degree: Mechanical Engineering Experience: Technical Director, Cost Engineering Consultancy B.V. More than 40 years of industrial

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The Key Role of the Cost EngineerAchieving an Integrated Work Process through a Holistic Mindset

by

Ko des BouvrieTechnical Director – Cost Engineering Consultancy


About Ko des Bouvrie

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 ConsultancyMember of NAP/DACE, AACEI, ICEC and AcostETeacher of cost engineering courses

Cost Engineering Consultancy:Cost Engineering LinkedIn Group (> 6000 members)[email protected]


Agenda

What is Cost Engineering?• Cost Estimating• Cost Control• PlanningChallenges of the Modern Cost EngineerAchieving an Integrated Work Process through a Holistic Mindset


What is Cost Engineering?

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”.


What is Cost Engineering?

The Profession of Cost Engineering:Applying methods and techniques for:

Cost EstimatingCost controlPlanningContracting / TenderingQuantity surveyRisk AssessmentValue Engineering


Is Cost Engineering a Science?


Is Cost Engineering a Science?

Some advise:Keep it simple, Cost Engineering is not “Rocket Science”In science 1 + 1 = 2, in cost engineering 1 + 1 = 3Keep in mind that cost engineering is a profession!


Cost is Everything

“It costs time”“It costs resources”

“ It costs money”

Everything invested in assets and projects

is a Cost


Challenges of the Modern Cost Engineer

A day in the office

Telephone rings…..

A business partner !!!!



Cost Estimating


What is Cost Estimating?


Can We Predict the Future Based on the Past?

Past performance is noguarantee for future results


What is Cost Estimating?

“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


Project Life Cycle

Projectinitiation

note

± 40%Screeningestimate

Economics

Step 1

Feasibilitystudy

± 25%Study

estimate

Economics

Step 2

Developmentplan

± 25%Budget

estimate

Economics

Step 3

initialexecution

plan

Initialcommit.

plan

Basis fordesign

Projectspecification

± 10%Control

estimate

commit.plan

Economics

Step 4

Operationsreference

plan

Projectexecution

plan

Detaileddesign

Materialsprocurement Construction

Commission.start-up

handover

Approval Approval

Review

Approval

Review

Approval

Identicalto

Executionphase

Abandonproject

Commit. &cost control

Contractcontrol

Purchaseorder control

Reporting

Operationsreference

plan

Close out

Projectdebrief

Changecontrol

± 5%Counterestimate

Step 5

Identification phase Definition phase Execution phaseOperational

phaseAbandon

phase

Step 6 Step 7

Identicalto

Executionphase


What is Accuracy?

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


Cost Estimate Classification (AACEI)

Level of Project definition

End Usage Methodology Expected Accuracy Range

PreparationEffort

Primary Characteristics

Secondary Characteristics

5

4

3

2

1

EstimateLevel

0% to 2%

1% to 15%

10% to 40%

30% to 70%

50% to 100%

ConceptScreening

Study or Feasibility

Budget, Authorization or

Control

Control or Bid / Tender

Check Estimate or Bid / Tender

Capacity factoredParametric

Models, Judgment or analogy

Equipment factoredor Parametric

Models

Semi-detailed unit cost with assembly level line

items

Detailed Unit Cost with Forced Detailed take-

off

Detailed Unit Cost with Detailed take-off

L: -20% to -50%H: +30% to +100%

L: -15% to -30%H: +20% to +50%

L: -10% to -20%H: +10% to +30%

L: -5% to -15%H: +5% to +20%

L: -3% to -10%H: +3% to +15%

1

2 to 4

3 to 10

4 to 20

5 to 100

Cost Estimate Classification System


Accuracy Level of the Estimate

StudyTypeCClass4

90/10

Order ofmagnitudeDClass5

Base

~2-8% ~1-5%

BudgetTypeBClass3/2

ControlEstimateClass1

+40

%

+10

%

-25%

- 10%

Base

50/50 Base

10/90

90/10

Zero baseline

Base

90/10

90/10

50/50 Base

Base


What Defines the Accuracy?

Influences on the estimateScope definitionToolsDatabaseRisk• Systemic Risk• Project Specific RiskMarket influencesKnowledge of the cost engineer


Budgets Are Always Under Pressure

What happens with too much pressure?


Baseline of Cost Control

“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


Cost Control


Cost Control


What Is Cost Control?

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.


Change Management

All changes shall be documented, regardless if no net change in schedule

or cost has happened.

Don’t run and hide !!!


What Is Forecasting?

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.


Earned Value, Budget & Schedule Forecasting

0

200

400

600

800

1000

1200

1400

1600

1800

1-apr 7-apr 14-apr 21-apr 28-apr 5-mei 12-mei 19-mei 26-mei 2-jun 9-jun 16-jun 23-jun

Budget Earned Actual

BCWS(Budgeted cost of work scheduled) ACWP

(Actual cost of work performed)

Budget plan

BCWP (Budgeted cost of work performed




BusinessPlanning

FeasibilityPlanning

ProjectPlanning

Execution Start-up

Inv

olv

em

en

t

Process Engineering

Project ControlEstimating

Project Director ConstructionOperations

/CommissioningBusiness

Feedback/Learning/Knowledge Engineering

Detailed Engineering /Procurement

Involvement Process for Technical Projects


Money

Business Case

Process Engineers

Engineering

Quality

Time / Schedul

e

Environment

Safety

Cost Engineers

Project Lead

Process

Flow

Data sheets

Sub Contracto

rs

Health

Regulation

Contractors

Permits

Government

Risk Assessmen

t

Discipline Engineers

Involvement Process for Technical Projects


Current Approach to Deal with Complexity (over the wall syndrome)


Common Problem with Current Approach

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


Better Scope Definition Drives Better Absolute, Bottom-Line Cost Performance

Front End Loading (FEL)

Per

cen

tag

e A

bo

ve o

r B

elo

w

Ind

ust

ry A

vera

ge

Co

st

-10%

-5%

0%

5%

10%

15%

20%

3 3,5 4 4,5 5 5,5 6 6,5 7 7,5 8 8,5 9FEL Index

From: Hollmann, John K., Best Owner Practices For Project Control, 2002 AACE Transactions

5% Lower Cost = 1% Better ROE

SCREENINGPOORFAIRGOODBEST


Less than 30% of Projects Achieve All Business Objectives

Per

cen

t T

hat

Ach

ieve

O

bje

ctiv

e

As Reported by IPA, Inc.


Achieving an Integrated Work Process through a

Holistic Mindset


From only calculating to…


…What-if Analysis


Regression Analysis


Key Metrics Analysis


From Just Estimating, to…


...Solutions in 4D or 5D Interfacing (BIM)


INITIATION THROUGH CLOSE-OUT PHASE

Close-out phase

CounterEstimate

“Close-out”Report

Cost Control

Execution phase

StudyEstimate

BudgetEstimate

ControlEstimate

ScreeningEstimate

Estimating Cycle: The Ideal Scenario


From Specialist to All-Round Cost Engineer

Mixing all different ideas together


Continuous Improvement Cycle

A process for collecting, maintaining, and analyzing project historical information so that it is ready for use in an effective form by each functional processEmpirical information is the most fundamental project planning resource availableIt 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)


Estimating Cycle: The Ideal Scenario

Scoping & Work PlanningTendering

Purchasing & Warehousing

Execution

Scheduling

EstimatingProject

Controls


Continuous Improvement Cycle

SchedulePlanning andDevelopment

Physical Progressand Performance

Measurement

Cost Accountingand Resource

Tracking

Cost Estimatingand Budgeting

PerformanceAssessment

ResourcePlanning

Project Historical Database Management

EstimatingReferenceInformation

ScheduleReferenceInformation

ResourceReferenceInformation

Forecasting andChange

Management

ProcurementPlanning

Value and RiskManagement

ScopeDevelopment

ActualSchedule

Data

ActualCostData

ActualResource

Data

ProjectLearnings

ProjectSystem

Learnings

Measurement Methods and Tools Planning Methods and Tools

ControlBaseline

Information

Forecast &Change

Information

Benchmarks/Validation

Metrics

Assessment Methods and Tools

Measurements

AssessmentSupport

Information

ReferenceTools

ReferenceTools

Asset Historical Database Management (6.3)

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”Good Scope and Communicatio

n is ESSENTIA

L!


Questions?

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 42E-mail: [email protected]


Documents

Www.costengineering.eu. Degree: Mechanical Engineering Experience: Technical Director, Cost Engineering Consultancy B.V. More than 40 years of industrial