By Kevin Mattheys. This is the first part of a two-part series of articles on cost engineering and project controls. The two parts are as follows:
Part 1 – What is Cost Engineering?
Part 2 – My five best Cost Engineering practices
In Part 1, I present some background information and discuss how cost engineering differs from project controls. In Part 2, to be published next month, I share my five best cost engineering practices.
Cost Engineering as a discipline has been around for a number of years. A number of standards have been developed over these years by various organisations. The most widely recognised organisation for these standards currently is the Association for the Advancement of Cost Engineering International or AACEI.
Before these standards became widely accessible and acceptable, corporates developed their own, relatively similar standards, using in-house databases (mainly spreadsheets). These spreadsheets resided on each individual’s computer, were not integrated into other systems and became the ‘intellectual knowledge’ of that individual instead of the company. The soon to be retiring ‘grey beards’, who have this intellectual knowledge, have presented many corporates with the huge challenge now of how to capture this dispersed intellectual knowledge into their corporate systems for future use before they retire.
Many corporates and project companies have taken, or used, the standards mentioned above and translated them into something that they believe provides them with a competitive advantage and that is aligned with their unique terminology or culture. The personnel on the projects (Cost Engineering and/or Project Controls) then apply these standards to the project for its natural duration or for however long they may be required to do so.
An area, I find, that leads to a lot of confusion is the manner in which different terms are interpreted. This tends to lead to misunderstanding especially between owner organisations and contracting organisations. In this article, and others to follow, I attempt to articulate the difference between Cost Engineering and Project Controls as a starting point.
So What Is Cost Engineering ?
Many formal definitions exist and they can be found in literature or on the internet. In my mind, Cost Engineering is the practice of applying formal processes, procedures and techniques, systematically throughout each phase of the project, in the areas of business analysis, planning and scheduling, estimating and cost control to enable the project team to forecast, and communicate, realistic end-of-job costs and completion dates continuously during the project.
In many cases the terms ‘Cost Engineer’ and ‘Project Controls’ are used interchangeably. If we try and keep it simple, Project Controls is deemed to be the control required from the disciplines of Planning and Scheduling, as well as Estimating and Cost Control against an agreed and signed off scope. Cost Engineering, on the other hand, looks at the asset holistically from initial idea to asset demolition and acts as the integrator of all the information in order for the scope to be defined into manageable chunks for Project Control during the different phases of the project.
In a study done by IPA in 2009 titled Project Control Best Practices for Recent Projects, conducted by Robert Brown and Jennifer Martin, the following definitions were included:
Cost Engineering refers to cost, schedule and resource analysis, planning, estimating, forecasting, control, and change management practices. Note that:
The word ‘engineering’ reflects the linkage of cost and schedule skills with specific technical knowledge;
Owner cost engineers work jointly with design engineers to optimise the project scope and improve its business value.
The ‘control’ practices of cost engineering including control level cost estimating and project control through execution.
With this as backdrop, I suspect that because the owner companies prepare defined packages of work (scope) for engineering contractors, these contractors, who are assigned a defined scope of work, use the term ‘Project Controls’ correctly. However, the owner companies, who develop these packages and then typically provide on oversight role, get subjugated by this apparent dichotomy and then revert to calling their employees ‘Project Controls Manager’, ‘Project Controls Leader’ or something similar. The owners forget, however, that they are in fact Cost Engineers who have helped to develop the scope and then need to see it through to completion and beyond.
Granted, there may be owner personnel who do perform a ‘project controls’ role, but the defining principle is whether you’ve helped to develop the scope or you control an agreed scope.
To assist further in clarifying this, let us reference the Total Cost Management Framework shown in Figure 1. This framework provides an excellent macro level starting point for all of the areas where Cost Engineers/Project Controls will probably be required. It also serves as an invaluable checklist to ensure that potential gaps are identified and then closed. These high level processes are further subdivided into sub-processes below this framework.
Figure 1: Total Cost Management Framework (A product of the Technical Board of AACE International)
As you can see from this model, Project Controls kicks off just before ‘Projects Implementation’. However, there is normally a large amount of definition and preparation work required during the Strategic Asset Management Process. I deem this to be primarily the work of the Cost Engineers who, together with Project Controls and the rest of the project team, must ensure that everything is correctly set up for effective project control. Areas to be addressed are understanding of the contracting strategy, systems to be used especially for forecasting, resources to be secured, reporting needs, etc.
I must also say that in my career Quantity Surveying was always included in the Project Control arena as they also have a unique and important role to play during project execution when it comes to progress and payment assessments. I must reiterate that the statements above are my personal view and can be interpreted differently by others.
And Where Does The Cost Engineer Fit In?
The Cost Engineer plays a key integration role on projects. The Cost Engineer must liaise and co-ordinate primarily with the Business Manager, the Project Manager and the Engineering Manager to make sure all parties are aligned at all times regarding cost, schedule and scope. The Cost Engineer is the eyes and ears of the project and must stay alert for any critical bits of information which could potentially affect the project.
Communication is crucial, as is the ability to process information and present it in a way that is meaningful, understandable and facilitates management decisions, especially the project end-of-job information. In this regard the Cost Engineer is damned if he does and damned if he doesn’t, especially if such news is not positive. No one likes bad news, especially Project Managers who have to present this to the various boards. However, the Cost Engineer must believe in, and stand by his findings. This is difficult to do against a tough project manager whom you are not able to convince about your analysis.
Cost Engineering is the practice of applying formal processes, procedures and techniques, systematically throughout each phase of the project, in the areas of business analysis, planning and scheduling, estimating and cost control to enable the project team to forecast, and communicate, realistic end-of-job costs and completion dates continuously during the project.
The term ‘Cost Engineer’ reflects the linkage of cost and schedule skills with specific technical (engineering) knowledge. Owner cost engineers work jointly with design engineers to optimise the project scope and improve its business value.
Brown, R. & Martin, J., 2009, Project Control Best Practices for Recent Projects, International Project Analysis (IPA)
Total Cost Management Framework – A product of the Technical Board of AACE International