Ce04-02 - 1 PDF

February February 2004 2004
The AACE International Journal of

Cost Estimation, Cost/Schedule Control, and Project Management
Our Vision: Advancement of Cost Engineering Through Total Cost Management
Cost Cost Engineering Engineering Focus: Focus: IN IN THIS THIS ISSUE ISSUE
Certification Paper Application of Appropriate Project Controls Tools for Contract Type
AACE AACE INTERNATIONAL INTERNATIONAL SPECIALTY SPECIALTY CERTIFICATIONS CERTIFICATIONS
Technical Article Work and Resource Breakdown Structures for Formalized Bottom-Up Estimating
Executive Article BestBiz Ways are Your Ways
Education Board
Distance Learning Opportunities
Education Spotlight Preparing Cost Engineers for Todays Construction Industry Challenges
Certification Spotlight The Web Vision for Certification
Certification Corner
Mentoring: A True Win-Win
FIRST PSP EXAM SET FOR JUNE 12, 2004!
Special Series The Keys to Forecasting - #1 Scope

Promoting the Planning and Management of Cost and Schedules
Visit our website at www.aacei.org
AACE International Board of Directors

President Ozzie F. Belcher Belstar, Inc., VA 703-645-0280/fax: 703-645-0286 e-mail: president@aacei.org President-Elect Clive D. Francis, CCC, Black & Veatch, MI 734-622-8543/fax: 734-622-8700 e-mail: preselect@aacei.org Past President Dr. James E. Rowings Jr., PE CCE Peter Kiewit & Sons, Inc., NE 402-943-1334/fax: 402-271-2989 e-mail: pastpres@aacei.org Vice President-Finance Robert B. Brown, PE PMA Consultants of Illinois, LLC, IL 312-920-0404/fax: 312-920-0405 e-mail: vpfinance@aacei.org Vice President-Administration William E. Kraus, PE CCE B & C Project Services, CO 970-206-0947/fax: 970-226-1818 e-mail: vpadmin@aacei.org Vice President-Regions Joseph Wallwork, PE CCE GREYHAWK North America, NY 516-921-1900/fax: 516-921-5649 e-mail: vpregions@aacei.org Vice President-TEC James G. Zack Jr. Fluor Daniel, CA 949-349-7905/fax: 949-349-7919 e-mail: vptec@aacei.org Director-Region 1 Mahendra P. Bhatia SNC-Lavalin Inc., Calgary, Canada 403-294-2100x2421/fax: 403-294-2875 e-mail: dirregion1@aacei.org Director-Region 2 Douglas W. Leo, CCC Eastman Kodak Co., NY 716-722-6466/fax: 716-722-1100 e-mail: dirregion2@aacei.org Director-Region 3 Robert E. McCoy, CCC BWXT Y-12, LLC, TN 865-482-7658 e-mail: dirregion3@aacei.org Director-Region 4 Marvin Woods, CCE Project Controls Group, Inc., MO 314-838-4987/fax: 314-389-8957 e-mail: dirregion4@aacei.org Director-Region 5 Stephen W. Warhoe, PE CCE 303-740-2665 e-mail: dirregion5@aacei.org Director-Region 6 Mark G. Grotefend, CCC 253-835-8081 e-mail: dirregion6@aacei.org Executive Director Barry G. McMillan e-mail: bmcmillan@aacei.org
The AACE International Journal of

Cost Estimation, Cost/Schedule Control, and Project Management
ESTABLISHED 1958
Depar tments
Presidents Message ................................3 In Our Estimation ..................................5 Letters to the Editor................................6 Executive Article ....................................8 Education Board News ........................10 Education Spotlight..............................11 Certification Spotlight ..........................14 Certification Corner ............................16 The Ethics Corner................................17 For the Bookshelf..................................21 Professional Services Directory ..............38 AACE International Bulletin ..............39 Article Reprints and Permissions ..........42 Calendar of Events ..............................43
Featured Ar ticles The Keys to Forecasting - #1 Scope

James E. Baar and Stephen M. Jacobson, CCC
This is the second in a series of articles that will look at forecasting. They are being presented in a non peerreviewed format by James E. Baar and Stephen M. Jacobson, CCC.
18
Application of Appropriate Project Controls Tools for Contract Type

Lori A. Floyd, CCC
25
There are numerous types of contracts available to implement in the execution of capital projects. These various contract forms all have their advantages and disadvantages and are implemented based on evaluation of the individual project. Many factors can play a role in which contract type will be employed. These include, but are not limited to, schedule constraints, level of project definition, project size, local economic climate/conditions, resources available and company financial status.
Work and Resource Breakdown Structures for Formalized Bottom-Up Estimating

Dr. Parviz F. Rad. PE CCE, and Dr. Denis F. Cioffi
31
This article introduces the concept of a resource breakdown structure (RBS). Analogous to the traditional work breakdown structure, the RBS lists in a methodical fashion, the resources with their specific cost rates that are available for the projects contemplated within an organization. Because proper use of the RBS requires precision and standardization in terms of units and dimensions, we review the basic nomenclature and present an example. When combined with a deliverable-oriented WBS, an up-to-date RBS greatly facilitates both initial project planning and the inevitable iterations on the original plans. In particular, the RBS enables simple, but accurate, calculations of the project's costs at the various levels of the WBS and as a function of essentially any variable that the project manager desires. It is a simple but valuable tool.
In This Issue
Board of Directors Contact List ........................1 Call for Volunteers ..........................................9 PSP Certification and Application ..............22 Index to Advertisers ......................................38 2004 Editorial Calendar................................38 AACE International Online Bookstore ........44
On the Cover: Mike Ray, Chair; Vera Lovejoy, Paul Makris, Rob Seals, Donald McDonald, Ron Winters, and Heath Suddleson, part of the Planning and Scheduling Professional Certification Task Force, met in November 2003 at Denver, CO. Photos by Barry McMillan.
COST ENGINEERING
Vol. 46, No.2/February 2004
AACE International Headquarters

209 Prairie Avenue, Suite 100 Morgantown, WV 26501 ph: 800.858.COST fax: 304.291.5728
Managing Editor - Marvin Gelhausen e-mail: mgelhausen@aacei.org

Graphic Designer/Editor - Noah Kinderknecht e-mail: nkinderknecht@aacei.org
Policy concerning published columns, features, and articles Viewpoints expressed in columns, features, and articles published in Cost Engineering journal are solely those of the authors and do not represent an official position of AACE International. AACE International is not endorsing or sponsoring the authors work. All content is presented solely for informational purposes. Columns, features, and articles not designated as Technical Articles are not subject to the peer-review process.
Cost Engineering (ISSN: 0274-9696) is published monthly by AACE International, Inc. Periodicals postage paid at Morgantown, WV, and at additional mailing office. POSTMASTER: Send address changes to AACE International; 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Single copies: US$8 members/ US$12 nonmembers (both +shipping), excluding special inserts available to AACE members only. Subscription rates: United States, US$60/year; all other countries, US$76/year. Overseas airmail delivery is available at US$99. Subscriptions are accepted on an annual-year basis only. Copyright 2003 by AACE International, Inc. All rights reserved. This publication or any part thereof may not be reproduced in any form without written permission from the publisher. AACE assumes no responsibility for statements and opinions advanced by the contributors to its publications. Views expressed by them or the editor do not necessarily represent the official position of Cost Engineering, its staff, or AACE International, Inc. Printed in Pontiac, IL, USA. Cost Engineering is a refereed journal. All technical articles are subject to review by a minimum of three experts in the field. To submit a manuscript for peer review, please e-mail it to info@aacei.org. Cost Engineering is indexed regularly in the Engineering Index., Cambridge Scientific Abstracts, by EBSCO Publishing, and in the ABI/Inform database. Cost Engineering is available online, via the ProQuest information service; on microform; electronically on CD-ROM and/or magnetic tape from Bell & Howell Information and Learning, PO Box 1346, Ann Arbor, MI 48106. Photocopy permission : Authorization to photocopy articles herein for internal or personal use, or the internal or personal use of specific clients, is granted by AACE International, Inc., provided that the base fee of US$4.00 is paid directly to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923 USA. Telephone: 978.750.8400. For those organizations that have been granted a photocopy license by CCC, a separate system of payment has been arranged. The fee code for users of the transactional reporting service is ISSN0274-9696/02 US$4.00. This permission to photocopy does not extend to any Cost Engineers Notebook, AACE Recommended Practices supplements, or membership directories published in this magazine and/or special inserts. Payment should be sent directly to CCC. Copying for other than personal or internal reference use without the express permission of AACE is prohibited. Address requests for permission on bulk orders to the editor. ADVERTISING COPY: Contact Network Publications Inc., Executive Plaza 1, 11350 McCormick Road, Suite 900; Hunt Valley, MD 21031. Telephone: 410.584.1998. E-mail: costengineering@networkpub.com for rates. Advertisers and advertising agencies assume liability for all content (including text, representation, and illustrations) of advertisements printed and also assume responsibility for any claims arising therefrom made against the publisher. The publisher reserves the right to reject any advertising that is not considered in keeping with the publications mission and standards. The publisher reserves the right to place the word advertisement with copy which, in the publishers opinion, resembles editorial matter. All advertising accepted for publication in Cost Engineering is limited to subjects that directly relate to the cost management profession. Current rate card available on request. COST ENGINEERING DEADLINES : Submissions for Cost Engineering must be received at least 7 weeks in advance of the issue date. Send to: Editor, 209 Prairie Ave., Suite 100, Morgantown, WV 26501 USA. Deadlines do not apply to technical papers.
P residents P residents Message

Ozzie F. Belcher, President
Key Data Points for a Global Economy

daptability, flexibility and commitment are key data points in your organizations blueprint for succeeding in a global economy. AACE International is recognized as the world's leader in building these essential skills for "the management of cost and schedules." Our blueprint is derived from our strategic plan which was developed by our members, committee chairs, and various boards of directors. Globalization has been developing at a faster and faster pace for over 300 years. Over this period, history has shown us that the world has become less economically dependent on the first age of globalization in which the world was an agricultural-based society. We have seen that during the second age of globalization, the industrial-age, many nations became highly developed industrial nations. We are just beginning to see the world grow and develop into an information/services-based society. This is generally recognized as the third age of globalization. This was explained in a recent magazine article in The Economist entitled, "2004 World in Review [2]. The article stated that the third age of globalization began at the end of 2001 and ended of one of the longest global expansions in history. The same edition of The Economist also coined the phrases, "knowledge class" and "creative class" as tag lines for members of the third age of globalization [1]. The members of this new age of globalization will have a greater understanding of the need to develop knowledge-based systems that are flexible and adaptable [3]. They will be able to stand behind the results of the systems they create and make recommendations on how their organizations can commit limited resources. Today we are seeing the early impacts of change. Those impacts are influencing which countries are building factories and which are becoming the centers of excellence for education, innovation, and research. The impacts also influence which ones are the supply chain countries that are the critical links for international organizations. Globalization means second and third
world countries are fast joining the world's developed nations. Correspondingly, we will begin to see citizens of developed countries pursue opportunities for advancement and growth in the developing countries at an even faster rate. Therefore, organizations will need to make critical decisions at an even faster pace. Nearly all of these decisions will have tangible and intangible aspects where "the management of cost and schedules" will be essential to making the most reasonable and cost effective conclusions. Making these decisions at an even faster pace will ultimately produce leaders that are adaptable, flexible, and able to successfully commit and implement their organization's resources in a global economic environment. Also having an organizational model that is flexible, adaptable, committable, and easy to implement globally, will be the key to succeeding in the third age of globalization. AACE International continues to be a global leader and the one internationally recognized professional society where you can continue to develop your personal and your organization's skill level in "the management of cost and schedules." Just a few of our global initiatives include the continued development of our web site, including a new home page link where court-recognized experts can list individual and corporate qualifications. The AACE International website is growing and now gets over 600,000 hits a month. AACE International is in the process of developing a Planning and Scheduling Professional Certification Exam, plus continued development in our online and distance learning training, and many other exciting new offerings. These are but a few of the key initiatives that AACE International can offer to you and your organization. AACE International has an internationally-recognized record of performance that offers continued training and development of your organizations personnel, which in turn enhances their value to your organization. AACE International members, many who are their organization's project managers, are generally recognized as being able to provide management with cost and sched-
Cost Engineering Vol. 46/No. 2 FEBRUARY 2004
ule estimates as part of their recommended project solutions. I urge you to take the AACE International challenge and visit our website; visit our on-line library, or call our headquarters office to find out how AACE International can help your organization develop the performance of its most important resource its people. "The management of cost and schedules" is a vital part of any organization's blueprint for succeeding in today's global economy. Ozzie F. Belcher AACE International President
REFERENCES: 1. Baber, Lionel. The New American Job. The Economist 2004 World in Review. (2004): 30-31. 2. Hindle, Tim. The Third Age of Globalization, The Economist 2004 World in Review. (2004): 97-98. 3. Sull, Donald N. Managing by Commitments. Harvard Business Review (June 2003): 82-91.
Mark Your Calendar

for AACE Internationals
48th Annual Meeting

June 13-16, 2004 Washington, DC info@aacei.org / www.aacei.org
Plan Now for Spring Distance Learning Courses - March 29, 2004
More and more individuals are taking advantage of AACE's convenient, low-cost on-line distance learning courses. Check out our schedule to see what's available.
You can enroll now for one of the distance learning courses in our catalog. All classes in the following list consist of one class each week during the 10-week semester. Students are not required to attend class at specific times but can do the course work each week at their own convenience. Topics for the upcoming semester include: Project Management for Construction Supervisors Construction Productivity Improvement Estimating and Bidding 1 Introduction to Blueprint Reading Accident Prevention and Loss Control And remember, "Introduction to Construction Estimating" and "An Applied Framework for Project Management" can be started at any time. Find complete course outlines and registration forms on the AACE International website, www.aacei.org.
II n Our Estim n Our Estimation

Barry G. McMillan, Executive Director
The New Professional Planning & Scheduling Certification is Coming

ow is the time for any professional who wants to be among the first to be certified as a Planning & Scheduling Professional (PSP) to make plans to sit for the inaugural PSP exam to be conducted at the 2004 AACE Annual Meeting in Washington DC, June 12. Now is the time to look at what the PSP requires, and to decide if this certification is right for you. This new certification has been over a year in development. A prestigious group of industry professionals has been working on all aspects of the program, including long term operating parameters, test structure and data base, appropriate content, relevant references, and the many other aspects of what it takes to offer a competent and meaningful program. The PSP will be aimed at providing a credentialing process for professionals who operate at an experienced level, doing professional planning and scheduling work. To be among the first certified, you must do the following:
Review the qualifications as shown on page 22 to see if you qualify. Review the scope of the exam so you understand what is the PSP content and test parameters. Determine if the exam fits your expectations for your skills and knowledge in the profession. Check page 10 or www.aacei.org to see what references are listed for the exam. Decide if PSP Certification is something that would add to your ability to market your skills. Submit an application, pages 23-24 with appropriate fees to AACE International Headquarters by the May 2, 2004 deadline. Plan to study and review materials that you believe are areas where you are the most weak. Make plans to be in Washington DC at the Omni Shoreham Hotel on June 12, and be prepared to sit for a four-part exam which will last a total of about eight hours, not counting a lunch break.
One major difference in this program versus the more diversified CCC/CCE certification is that it will not require a professional paper to be written. However, it will require a communications exercise as one part of the exam. Candidates will be required to write a professional analysis of a test scenario. So this important professional skill is not being ignored, but rather handled in a different way. In recent years AACE International expanded first to include the ICC Certification from the original CCC/CCE. Now we are adding the PSP certification. Each serves a particular purpose, and shows a different level of emphasis and required background. The association also plans to apply for appropriate accreditation of the PSP through both the ICEC and CESB groups as appropriate when all the details have been properly defined, finalized, and implemented. Of course the new PSP will also require recertification after three years, which is to ensure that those who earn that designation are current with the latest technology and techniques of the profession. As in the past, this program was created based on a perceived need by those in industry who wanted a third-party validation of the capabilities of those who achieve the PSP. Is it right for you? If so now is the time to make your plans and begin preparing to become part of the inaugural class of PSP's in 2004. (For the next PSP exam, you will need to wait until December since there are no plans to offer it at the section level until after the first exam has been successfully given and we have critiqued the results.) x Barry G. McMillan may be reached by phone at 800.858.COST or 304.296.8444, and by e-mail at bmcmillan@aacei.org.
DUES REMINDER
The 2003 AACE International Memberships Expired Dec. 31, 2003
Please pay your 2004 dues now. Easily pay online at www.aacei.org or call 1-800-858-COST If you have moved, be sure to let AACE Headquarters know your new mailing address.
We are excited about this new certification, and think it will add a new facet to our growing services in specialty certification. As with AACE International's other certification programs, it provides another certification option for professionals who handle project controls and related management areas. It also broadens AACE International's specialty certification options, and allows those who specialize in this area, to demonstrate their capability through the PSP certification exam process.
LLetters to the etters to the Editor

Marvin Gelhausen, Editor Dear Editor: In the November 2003 issue of Cost Engineering, in the certification paper titled, "Measured Mile Process" written by Thomas W. Presnell, CCC, in the paragraph titled, "Estimating Plan," there is a definition reference I believe to be incorrect. The first several sentences refer to developing a "definitive" estimate. This is a term that I believe went out of use many years ago. At Fluor, the highest quality estimate is not described as "definitive" because that can be understood to imply full definition of the project. Instead, the term "detailed" is used, reflecting the estimating method without qualifying the project definition used as the estimate basis. This may be something AACE International feels is a minor point, but I thought I would point it out anyway. Regards, Bruce Bradley Manager of Estimating FLUOR Oil, Gas & Power Group - Houston Phone: (281) 263-4363 Fax: (281) 263-2029 Editors note: In checking with Christian Heller, Staff Director, Technical Operations, the term "definitive estimate", (currently a part of AACE International Recommended Practice No 10S-90, "Cost Engineering Terminology") is in the process of being replaced in order to be consistent with AACE Recommended Practices No. 17R-97 "Cost Estimate Classification System" and No. 18R-97 "Cost Estimate Classification System - As Applied in Engineering, Procurement, and Construction for the Process Industries." Currently in 10S-90: DEFINITIVE ESTIMATE as the name implies, this is an estimate prepared from very defined engineering data. The engineering data includes as a minimum, nearly complete plot plans and elevations, piping and instrument diagrams, one line electrical diagrams, equipment data sheets and quotations, structural sketches, soil data and sketches of major foundations, building sketches and a complete set of specifications. This category of estimate covers all types from the minimum described above to the maximum definitive type which would be made from "approved for construction" drawings and specifications. It is normally expected that an estimate of this type would be accurate within plus 15 percent and minus 5 percent. Proposed replacement: (in rough draft form) "COST ESTIMATE CLASSIFICATIONThere are numerous characteristics that can be used to categorize project cost estimate types. Some of these characteristics are: degree of project definition, end usage of the estimate, estimating methodology, and the effort and time needed to prepare the estimate. The primary characteristic used to define the classification category is the degree of project definition -- the level of project definition determines the estimate class. The other characteristics are considered secondary. The level of project definition defines maturity, or the extent and types of input information available to the estimating process. Such inputs include project scope definition, requirements documents, specifications, project plans, drawings, calculations, lessons learned from past projects, reconnaissance data, and other information that must be developed to define the project. Each industry will have a typical set of defining deliverables that are used to support the type of estimates used in that industry. The set of deliverables becomes more definitive and complete as the level of project definition (e.g., project engineering) progresses. For projects, the estimate class designations that follow below are labeled Class 1, 2, 3, 4, and 5. A Class 5 estimate is based upon the lowest level of project definition, and a Class 1 estimate is closest to full project definition and maturity. This "countdown" approach considers that estimating is a process whereby successive estimates are prepared until a final estimate closes the process." Furthermore, the proposed definition (rough draft) for a Class 1 Estimate is as follows: "CLASS 1 ESTIMATE (Typical level of project definition required: 50% to 100% of full project definition.) Class 1 estimates are generally prepared for discrete parts or sections of the total project rather than generating this level of detail for the entire project. The parts of the project estimated at this level of detail will typically be used by subcontractors for bids, or by owners for check estimates. The updated estimate is often referred to as the current control estimate and becomes the new baseline for cost/schedule control of the project. Class 1 estimates may be prepared for parts of the project to comprise a fair price estimate or bid check estimate to compare against a contractor's bid estimate, or to evaluate/dispute claims. Class 1 estimates are typically prepared to form a current control estimate to be used as the final control baseline against which all actual costs and resources will now be monitored for variations to the budget, and form a part of the change/variation control program. They may be used to evaluate bid checking, to support vendor/contractor negotiations, or for claim evaluations and dispute resolution." AACE Recommended Practices No. 17R-97 "Cost Estimate Classification System" and No. 18R-97 "Cost Estimate Classification System - As Applied in Engineering, Procurement, and Construction for the Process Industries" may be downloaded free of charge to AACE International members at www.aacei.org/technical/rps Readers are encouraged to respond. Dear Barry McMillan, Executive Director: The chart in article, Progress and Performance Measurement, page 28 of the November 2003 issue of Cost Engineering journal is incorrect. The forecast line should always be plotted from the actual to try and improve towards the planned, but does not continue from the planned as depicted. The forecast data points in figure 1, at the bottom of page 28, cannot be the same as the planned. Only future productivity can be the same as planned. Progress cannot equal planned for all future months. You cannot in this case jump from the actual line to the planned line in one month. This is impossible. Ive seen this kind of reporting on projects and it means someone is lazy and wont take the time to forecast the work to go. The volunteer peer reviewers should be better chosen for recommending these papers for the journal. They usually do okay. I just happened to notice this one. Good luck on future papers. x Mike Gordon Comments and Suggestions If you have any comments or suggestions about anything you have read in the Cost Engineering journal, letters to the editor may be sent to Marvin Gelhausen, AACE International, 209 Prairie Avenue, Suite 100, Morgantown, WV 26501 or e-mailed to mgelhausen@aacei.org.
E Executive xecutive Article

Abe WalkingBear Sanchez
BestBizWays are Your Ways: Business Practices that are Powerful in Effect with Little Wasted Effort
very business operates on knowledge, and yet many companies never organize and document that knowledge into useable Policies and Procedures (P&P). As a result of this failure to organize and document the knowledge it takes to operate a business, many companies operate on a word of mouth basis.
THE FIVE ORGANIZATIONAL Ps PURPOSE: Every business function must have a clearly stated purpose which compliments the plan and answers the question, "Why incur the cost ?" POLICIES: Goal driven guidelines for each of the major components within the function. PROCEDURES: The steps needed to be taken in order to accomplish established goals. PEOPLE REQUIREMENTS: Based on the procedures hire the right people for the job. PROCESS MONITORING/PERFORMANCE MEASUREMENTS: Track key steps in the process and measure against the goals.
"The new guy learns from the old guy who learned from the dead guy." Scott Stratman Business Friction/Costs Ronald Coase, of "Coase's Law," says that there is friction involved with being in business. The original friction or cost is finding customers for a company's products/services, and of finding vendors/suppliers who can take care of the company's needs. Beyond acquisition costs, there's the ongoing friction of doing business; transactional costs. The most expensive cost/friction is that of failure. Regardless of the industry, the most expensive work done in a business is the re-do. As Right As Possible, the First Time Some companies just don't seem to understand or care that when something goes wrong it drives up their cost of doing business, and it also drives up the cost of doing business for their customers and vendors. Its like they really think that they don't have time to do things right the first time. Baloney. A major source of errors, omissions, miscommunications, and screw ups is the lack of written P&P, of operating on a word of mouth basis. The cost? A $30 mistake can take $300 in time and effort to correct, and if that company is doing a five percent PTP (pre tax profit), it takes (20X$300) $6000 in sales to cover the cost of failure. And if a customer is involved, there's no way of knowing the impact/cost of the mistake on/to that customer. And there's no way of knowing who that customer might have told about the failure. What's the cost in lost business from negative word of mouth advertising? "The true cost of errors is unknown and unknowable." Edwards Deming The 5 Organizational Ps Every company needs a plan, a strategy that drives it's actions. The plan may be to increase market share, to reduce costs, retain existing customers, provide new products/services to old customers, or it may be to have the lowest price, always. Wait a minute that plan is already taken.
8
PurposeBased on the plan, every business function must have a purpose that compliments the plan and which answers the question, "Why incur the costs that go with this business function?" For example, distributors incur the costs of having a warehouse so that they can meet or exceed customer expectations, so that they have an acceptable fill rate. A distributor doesn't have to have 100 percent of what customers want 100 percent of the time, but if they don't have an acceptable fill rate, the customers will go elsewhere. Purpose is the first of the 5 Ps. PoliciesOnce the purpose is established, every business function can be broken down into it's major components. In our warehouse example, those major components might be receiving, shipping, truck maintenance, and inventory control. The goal for each major component is the basis for policies, for goaldriven guidelines. Policies are the second of the 5Ps. ProceduresThere are six billion people on the world and there are six billion versions of reality. The third of the 5Ps is procedures, and one size does not fit all. Purpose and policies are determined by managers; who, if they're smart, let the experts (the guys doing the job) tell them how the goals established will be accomplished. PeopleThe fourth of the 5 Ps is people. Based on the steps needed to achieve established goals, hire the right people for the job. Process Monitoring/Performance MeasurementsThe fifth and most important of the 5Ps is process monitoring /performance measurements. The key steps in the procedures need to be monitored to ensure things aren't falling through cracks, that
the process is on track. In life and in business, things will happen for which we haven't planned. In 1969 I was living in Denver and I was going to drive out to San Francisco. My plan was simple enough, I'd drive north to Cheyenne, Wyo. and turn left. Outside of Boulder, Colorado, there was a hippie and his girlfriend holding up a sign saying, "SF." I picked them up. They had a large bag of soy nuts and of this other stuff which they shared; we missed our turn. Montana was nice, and we eventually got to S.F.. It was a trip. Performance must be measured against goals. If the goals are well thought out and achievable, but are not being met, its one of two things; either the procedures are wrong or you have the wrong people for the job. It doesn't matter what you ask for, its what you monitor and measure for that tells employees what you really want from them. "Employees respect what managers inspect, not what they expect." Don Rice, Texas A&M BestBizWays; Powerful in Effect With Little Waste of Effort Document the knowledge needed to run a business and you'll do a better job of hiring the right people, you'll reduce training time with new employees, errors will be minimized, customer service levels will rise and the bottom line will go up. Organize and document the knowledge needed to operate a company and you increase it's value by having a cookbook. In Closing Harvest new knowledge by asking new employees to tell you how things can be done better. Do this in the first two weeks on the job, before a new employee starts thinking like everyone else. P&P are never done, things are always changing. P&P should have a cover sheet that says, "Under Construction." The best information in the world is worthless until you put it to work. Its up to you. x
ABOUT THE AUTHOR Abe WalkingBear Sanchez is an international speaker and trainer on the subject of cash flow/sales enhancement and business knowledge, organization, and use. He is the founder and president of www.armgusa.com. Mr. Sanchez also sits on the board of www.BestBizways.com Inc. A hard hitting and fast paced speaker, he brings life and energy to a critical business function, whose true potential has yet to be realized by most businesses. The following are but a few of the groups, schools, companies and associations for whom Mr. Sanchez has conducted programs. TEC (The Executive Committee), Inc. Magazine Annual Business Conference, CU (Denver), CSU (Ft. Collins), Texas A&M, NACM, IDA, AWCI, ARWI, PEI, BCFM, RAB, STAFDA, WIMA, ISD, Pet Industry Distributors Assn., Rain Bird, American Lock, Southern Wholesalers Assn., IBM, and Touchstone/2000 Software. Abe Sanchez can be reached through: A/R Management Group, Inc., P.O. Box 457, Canon City, CO 81215. His phone is (719) 276-0595; or email: Abe@armg-usa.com. The website address is: armg-usa.com.
This article Copyright 2003 A/R Management Group, Inc. www.armg-usa.com All Rights Reserved
CALL FOR VOLUNTEERS!

Volunteers are needed for the AACE Certification Board. It's fun, fulfilling, frustrating, satisfying, time-consuming, and rewarding - all of these adjectives describe what it is like to be a member or chair of the AACE International's Certification Board. The Certification Board meets twice a year. For those who do not have company support for the travel, this can be a rather expensive proposition, although one of the meetings is normally held at the Annual Meeting. Perhaps your foremost justification is the ability to have a direct influence on the content and direction of your Association's certification operations. Additionally, you will find that satisfaction of helping to produce new materials and directions for other cost/management professionals can be very rewarding personally.
You simply need to contact the Certification Administrator at:

AACE International Headquarters (304) 296-8444 or e-mailing: info@aacei.org.
EXCITING TECHNICAL PROGRAM PLANNED FOR WASHINGTON DC, JUNE 13-16, 2004
AACE International's Annual Meeting technical program is a great place to gain ideas of how today's cost professionals are using the latest techniques to manage projects. This year's program presents real-world projects and problem solving by more than 100 speakers. Our program format with eight concurrent tracks provides the greatest variety of topics for participants, so you can select the schedule that best fits your needs. Can't decide which presentation is best for you? Prepaid registrants can visit the AACE website and download papers before the meeting to help them plan. This year's program continues the expanded Skills and Knowledge track of two- and three-hour workshops on basic and intermediate topics that is great for those who are new to the profession, or for professionals who specialize in one aspect of cost engineering or cost management and want to refresh their skills in other areas. Key industry software suppliers will display the latest software designs in the Software Showcase each day, with more in-depth demonstrations than are possible in the exhibit area. The AACE International Annual Meeting offers opportunities for professional development, networking, and examining the latest products in the industry. What more could you need? The technical program
schedule is available now on our website, www.aacei.org/annualmeeting. Check it out, and start planning now to attend.
E Education ducation Board News

Frank D. Postula, PE CCE, Education Board Member
Distance Learning Opportunities
f you haven't visited the Distance Learning page on the AACE International website (www.aacei.org) lately, you may be surprised to learn that AACE International is now offering 15 training courses. These are courses in construction estimating, project management, and courses that will help hone your skills in planning and scheduling, contracting, production control, productivity, and many more topics with more to come. Our state-of-the-art courses are provided by two delivery methods: InternetThese courses are accessed by the student via a web browser. CorrespondenceThese are the traditional distance learning courses that are sent in hard copy to the student.
There are two types of courses available: Instructor-Lead and Self-Paced. The instructor-lead courses start on specified a date and are completed on a set schedule. The student benefits from interaction with the instructor. Self-paced courses allow students to complete the instruction on their own schedule. Our current course offerings have been developed by third parties and AACE International acts as their agent. Because of the hard work of Charla Miller, Staff DirectorEducation and Administration at Headquarters, we are continuing to pursue arrangements for additional course offerings. Your feedback on the existing courses and desired new courses is important to our efforts to provide current and relevant course offerings. We are now exploring conversion of the very popular Skills
& Knowledge documents and training sessions to distance learning media. The first S&K module being converted is the estimating training module. We hope to have this distance learning course available later this year. The Certification Study Guide is also on our list to be converted to distance learning. Many Sections have used the Certification Study Guide to prepare members for the certification exam. A distance learning version would enable training by those who are unable to attend section training. This will be a useful companion to the certification exam that will soon be available via the Internet. Conversion of AACE International training material will require significant financial support beyond our current budget. We have identified the cost to convert each S&K module and welcome your donations toward the completion of this important project. Please contact Charla Miller at cmiller@aacei.org, for information on donations. Our distance learning course list continues to grow. Keep watching our website for updates and your e-mail for announcements. If you are not a member of AACE International, you can still be notified each time a new course is added to our catalog just send your contact information, including e-mail address, to Charla Miller. x Frank D. Postula, PE CCE AACE International Fellow Education Board Member
PLANNING & SCHEDULING PROFESSIONAL CERTIFICATION SUGGESTED STUDY REFERENCE BIBLIOGRAPHY*

We are attempting to make arrangements to make some of these references available through the AACE International Online Bookstore. Check the www.aacei.org to find out what is available, or order directly from the publisher. 1. 2. 3. 4. 5. 6. 7. 8. Construction Planning & Scheduling, Publ. No. 1107.1, Associated General Contractors CPM in Construction Management, 5th Ed 1999, O'Brien & Plotnick Project Management; Systems Approach, 5th ed 1995, Harold Kerzner AACE Skills & Knowledge of a Cost Engineer 4th edition, AACE Construction Schedule: Preparation, Liability & Claims, Wickwire, Driscoll, Hurlburt Construction Project Scheduling, AACE Planning & Scheduling Professional Practice Guide, AACE P3 Manual from Primavera
*This list represents a core set of materials for study, but certainly many other good books are available that describe the concepts used by today's professionals to do planning & scheduling.
10 Cost Engineering Vol. 46/No. 2 FEBRUARY 2004
E ducation E ducation Spotlight

Kenneth Robson, CPC, and Douglas D. Gransberg, PE CCE
Preparing Cost Engineers for Todays Construction Industry Challenges

n the last 20 years, the US design and construction industry has changed the way it is doing business. This has caused the industry to reassess its traditional roles, revise business practices, and look for ways to add value to the process without adding cost. The increased use of alternative project delivery systems such as design-build (DB) and construction management (CM) is one of the major results of these changes in the industry [1]. The increase in popularity of alternative project delivery methods has significantly revised the set of professional skills and knowledge that the cost engineer must have to be successful in this business. Alternative project delivery methods require the construction contractor to establish a lump sum amount for a facility for which design is not complete. Thus, the cost engineer must be able to base the cost estimate on something other than a detailed quantity survey. He or she must also be able to communicate time, cost, and constructability constraints to the designer during the design phase of the project in a manner that enhances the value of the final project, without compromising the professional integrity of the design-build team. Additionally, today's cost engineer must be comfortable working in the world of performance criteria rather than yesterday's legalistic prescriptive specifications. This requires a better understanding of the
owner's requirements and a more responsive business approach. While these skills are certainly being acquired on the job by today's practicing cost engineers, it is incumbent upon university construction education programs to adjust the curriculum and ensure that entry-level cost engineers are entering the industry with the educational background to quickly assimilate into this new, faster-paced environment. Thus, the purpose of this article is to describe how the University of Oklahoma's Construction Science program has adapted its curriculum to fulfill this need. Background There are three construction specific bodies of knowledge that have been impacted by the industry's shift in project delivery methods: estimating, scheduling, and contract administration. Additionally, the shift has created a requirement for construction professionals to be more fluent in their writing, and more polished in their public speaking/presentation skills. They must also have an excellent business background that will help them integrate all of the above. The traditional construction estimating curriculum is based on the preparation of bids for fully designed projects. As a result, the emphasis is on quantity surveying and pricing for competitive
Table 1 Integrating Alternative Project Delivery Topics into the Undergraduate Curriculum
Cost Engineering Vol. 46/No. 2 FEBRUARY 2004 11
bidding where the submission of the low bid is the object. Similarly, scheduling focuses on developing detailed schedules from which the actual construction can be managed after the award of the contract. Finally, the emphasis in construction administration is on learning the intricacies of the contract between the owner and the construction contractor. While these are certainly essential elements of the required body of knowledge, they are focused on the design-bid-build (DBB) project delivery method. Adjusting the Curriculum to Fit the Market Alternative project delivery methods require the construction industry to be able to establish a firm, fixed-price at a much earlier point in design development. This means that both cost and time estimates must be made based on performance criteria, rather than completed design. Then after contract award, construction professionals now must make input into the details of design in terms of value engineering and constructability to ensure that the final product meets both cost and schedule constraints. To do this, a new set of relationships must be established with both the design professional and the owner. In the case of DB, often the design professional no longer has a contract with the owner, but rather will have some contractual relationship with the construction professional. Finally, as both CM and DB contracts are competitively negotiated, the ability to both prepare a responsive proposal and then present it to the owner is critical. The obvious change that must be made in the current construction curriculum is to shift the focus from the low bid mentality to one that recognizes that the future construction professional must operate in an environment with a greater amount of technical uncertainty and much more input into the process of design development. To do so, seven elements must be included in the construction management curriculum: conceptual estimating; conceptual scheduling; value engineering; alternative contract administration; constructability; partnering; and proposal preparation and presentation techniques
Submitted photo
University of Oklahoma construction science students at work in project management laboratory. Shown above in the front from left to right are Eulises Chacon, Susan Beck, and George Knuckles. In the back are Brandon Barrett and Crystal Conner.
The University of Oklahoma's Construction Science Division's basic approach was to take the two cost estimating courses and the construction capstone course and use them in a building block fashion to cover the quantitative skills necessary for the three project delivery methods. Thus, cost estimating 1 students focused on design-bid-build and completed a hard bid project, cost estimating 2 students completed a construction manager at risk project, and the capstone project involved designbuild project delivery. Scheduling and planning was inserted between estimating 1 and estimating 2, so that students could learn the basic concepts of scheduling. The integration of the estimate and the schedule takes place in estimating II and the capstone project. Table 1 shows how these seven elements have been incorporated into existing courses. The other courses were viewed as opportunities to reinforce those bodies of knowledge, as well as the place where the project management skills necessary in alternative project delivery were taught. Additionally, both
written and oral presentation skills were taught and exercised in all the courses to maximize communications skills. When combined with the 21 hours of business classes required by the construction science degree, future cost engineers are receiving a very timely and relevant education that prepares them to fully address the changing construction market. Realization that the above changes needed to be made was a product of both the faculties' consulting work and input from the OU construction industry advisory board. Goal setting sessions determined the need for addressing alternative project delivery methods and developed the means and methods for accomplishing the previously discussed alterations to the construction curriculum. The integration of the estimate and schedule in these classes, along with the written and oral presentation skills and the business classes already required in the construction science curriculum, is better preparing future cost engineers to practice in the construction industry. An interesting situation existed in the OU graduate program. Most of the students had undergraduate degrees in architecture or engineering rather than construction science or construction management. Thus, as the student body basically consisted of graduate design professionals who were studying to become construction professionals, it was decided to revise the graduate curriculum to create an emphasis on design-build. To do so, four new courses were created: facilities acquisition planning; design-build contracting; project management and controls; and construction contracts and finance
These were added to two existing courses in construction quality management and construction information technology to form the core of the 32-hour master of construction administration degree. Most students are required to take the cost estimat-
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ing 1, scheduling, and contract administration undergraduate classes as leveling courses. Thus, the graduate students receive exposure to all three project delivery methods as well. The graduate program requires all of its students to take and pass the Interim Cost Consultant examination at the conclusion of their studies and uses the results of that examination to assess the accomplishment of cost engineering educational objectives. he design and construction marketplace has changed its mode of doing business, and this has created a requirement for academia to adjust its curriculum as well. As the construction industry is probably most affected by the move to alternative project delivery methods, the University of Oklahoma's Construction Science program is better preparing future cost engineers through program revisions. This fundamental shift in the way the nation delivers its facility projects must also be recognized by architectural and engineering programs as well. While the facility design will not change in and of itself, the concept of integrating both cost and constructability input from the construction community during design development is virtually unrecognized in the architecture and engineering curricula. To prepare the next generation of cost engineering professionals, all three disciplines must graduate with both a knowledge and an understanding of how alternative project delivery impacts the various components of planning, design, and construction. x
REFERENCES: 1. Beard, Jeffery. "Advanced Design-Build" Conference by the Design-Build Institute of America/Georgia Institute of Technology, (May 28 and 29, 1998). Atlanta, Georgia.
ABOUT THE AUTHORS Kenneth Robson, CPC, is an Associate Professor and the Director of the University of Oklahoma's Construction Science Program. He can be contacted at The University of Oklahoma, Construction Science Division, 830 Van Vleet Oval, Room 162, Norman, Oklahoma 73019-6141. The phone number is 405-325-6404; fax: 405-325-7558, and e-mail is krobson@ou.edu. Douglas D. Gransberg, PE, CCE, is an Associate Professor of Construction Science at the University of Oklahoma. He is the Chairman of AACE International's Construction Special Interest Group and a frequent author and presenter at AACE International functions. He can be contacted at The University of Oklahoma, Construction Science Division, 830 Van Vleet Oval, Room 162, Norman, Oklahoma 73019-6141. The phone number is 405-325-6092; fax: 405-325-7558, and e-mail is dgransberg@ou.edu.
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C tificatio Cer ertification Spotlight

Nicholas L. Kellar, CCC, Chair - Certification Board
The Web Vision for Certification

he road to a web-based certification has been a long one for AACE International that started with a simple vision/goal. The interesting thing about visions is that sometimes you don't really know what it is in a real sense, nor do you know how to get there. Nevertheless, when you let it, a vision can take you on a road to discovery and improvement. The webbased certification was to become that type of vision for AACE International. The interesting thing about goals is that most of the time you really have no idea how to accomplish them either. By committing to the vision/goal, and working toward the goal, the correct solution appears and the goal is met. The first daunting task was to convert all of the traditional essay-type questions into a format that could be supported within a database environment. To accomplish this, AACE International solicited the support of several psychologists who were experts in the area of test question development. Working with this team, AACE International developed a training workshop that instructed members of the Technical, Education, and Certification boards on how to write effective questions. This training workshop proved so successful that it remains a free course conducted during each annual meeting for certified members who would like to learn the basics for the development of test questions. The next step for AACE International was to incorporate the newly developed questions into an actual database. Using a team of our own members with the support of a database programmer, AACE International developed its first multiple-choice exam for the original CCC/CCE exam. By reviewing the problems other organizations had experienced when converting from an essaybased exam to that of a multiple-choice format, we avoided several problems. For example, other organizations found that passing rates for re-formatted exams were often substantially lower for the first couple of years. The reduced passing rates were generally related to poorly written questions and candidates not being prepared for the new format. AACE International watched the results of the first two exams very carefully and found that the rate of passing actually improved from the traditional pass rate of 7072 percent to a range closer to 80 percent. Success of the format transition was attributed to the early work of carefully writing effective questions and providing candidates with examples of the new test format. The next challenge, to actually produce and score the exam on the web, would prove to be even more difficult than converting the exam from essay to multiple choice. There were three main areas to address: 1) the security of the exam on the web, 2) proctoring of the exam while using the web, and 3) how to contain exam administration costs. Compared to a hand-graded printed test, web testing costs significantly more. If thousands of exams are produced each year, the per-test cost becomes more reasonable. To address item one, we selected testing software that used a
"Citrix" client interface to the testing database. Citrix provided a means of communication that kept the data on the web server and only images of the test questions were seen on the screen by the exam candidate. For item two, "proctoring," is always a concern regardless of testing format. The problem was resolved by developing criteria for the environment where a web exam would be conducted. At least for the immediate future, web exams will be limited to locations hosted by a company or section where a certified AACE International member will proctor, or within a facility of a third party company that is approved to host exams. To solve the cost problem in item three, AACE International evaluated numerous options to produce the test and selected a company called "Examiner" that met our needs for service, technology, and they would allow AACE International to retain as much of the exam administration as possible, yet reduce workload. This arrangement allows AACE International to avoid the higher cost of other third party testing experts which are commonly used. A plan was then set in place to bring the representative of "Examiner" together with members of the implementation team, and with AACE International staff to work through issues of training, software configuration, procedures, and trial runs. On Nov. 17-18, 2003, a joint effort was sponsored in Morgantown to bring it all together. Thanks to the efforts of this team, a mock-up web exam was conducted on Nov. 18. With the training in place and the technology proven, AACE International was nearly ready to conduct it's first ever web exam. The remaining component was to select a third party testing facility that could be used to evaluate how difficult the test would be to set-up (Citrix connection and drivers) and to administer (log-on scripts, candidate identification, and passwords). To complete this last step a location was chosen in a non-populous area where telecommunication connections could be difficult. AACE International worked with the DCS training center in Anchorage, Alaska, to conduct a web test at their offices, for the ICC certification. As a precautionary backup to the web exam, AACE International had also provided a certified proctor at the DCS facilities along with four complete exam packets (the paper version of the test) should any technical difficulties occur while taking the exam. However, these were not needed as the web test was successful! While there are more issues to resolve before we fully implement the web test for all of our certifications, it is great to see a vision come to life. Where does this road take us next to complete our vision? Most likely to a point where we begin to understand how to more effectively use this tool in our organization. For some applications, the web test will be a great way to host and test on demand anytime and anywhere in the world. For other applications, we will most likely see that the existing paper exam is the
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most efficient and effective way to host a certification exam. What we do know is that our vision is to bring you certification exams for CCC/CCE, ICC, and specialty exams for sched-
uling, earned value, or ??? in the timetable that you need, in a format that fits your situation, and at a cost that is affordable. x
Piloting the Web-based Examination

n December of 2003, DCS Learning Center, located in Anchorage, Alaska, joined with the AACE International Examination Chairperson, Nicholas Kellar, to conduct the pilot web-based examination. The pilot test involved four participants, all testing for AACE International certification. The pilot examinations were the first using the web-based tool. The web-based exam host uses the thin-client Citrix platform. Citrix is renowned for its security. The DES-level encryption and use of multiple passwords make the Citrix-hosted testing a safe alternativethere is nothing left upon an examiners machineno trace in even a temporary folder! Technical requirements for web-based testing are nominal, and the proctor for any examination, regardless of its delivery should have a professional skill set that includes the ability to multi-task while maintaining a vigilant eye over individuals that are testing. Proctors guarantee the security of the exams and the honesty of the candidates. They are also needed in case technical difficulties arise before or during the exam. Even though web testing makes it easier for the candidate and the grading of the exam, the need for a proctor still exists. As for the piloting exam itself, four ICC candidates from
Alyeska Pipeline Company sat for the exam on Dec. 6, 2003. The exam started at 8:30 a.m. Alaska time and within three hours it was over. As each candidate finished, they were able to click a button to score the exam. Each of the candidates received instant feedback about the test, including how many questions were completed, how many questions had been answered correctly, how they statistically performed in the various areas of estimating, scheduling, costing, contracts, value engineering, economics, etc., and lastly they learned if they passed. What really made this first event even more exciting was that all four candidates passed the exam. As for the tester, an Alyeska Pipeline Service Company employee, who participated in the pilot test, stated: "The test format was easy to follow. Pop up windows (were displayed) when you hovered over buttons with explanations in plain English! Its a user friendly program...I really liked the instant (test) results. The ability to go back to questions was also a big plus." x
Lisa Gravel, Education Advisor,
San Francisco Bay Area and Southern California Sections
Western Winter Workshop

March 12-14, 2004
e-mail: trclarki@bechtel.com Friday, March 12th Saturday, March 13th
Sunday, March 14th
15
C tificatio Cer ertification Corner

Nicholas L. Kellar, CCC, Chair - Certification Board
Mentoring, A True Win-Win

Looking at a project from a financial perspective is like watching the project through a rear-view mirror, problems are generally detected after it's too late to really correct them.
et me tell you a true story that starts with the photo above. Can you sense the intensity that these people seem to have for what they are studying? Both are highly skilled and experienced accountants, one holds the designation of a CPA, and they are both studying for an AACE International certification. How the story starts is with a question to me. "How do you know so much about your projects, why is it that you seem to spend a fraction of the time that I do to review them, and why are our conclusions often very different from each other?" My answer was this, Looking at a project from a financial perspective is like watching the project through a rear-view mirror, problems are generally detected after it's too late to really correct them. The difference is the use of earned value (EV) to determine if we are accomplishing what was planned, and if what was spent to accomplish the work is close to what was budgeted. By using EV, we monitor projects on more of an exception basis. More time is spent on the projects that are not progressing according to plan and less on projects that are meeting their plan. After spending a little time and giving a few examples of the differences the process of mentoring had begun. As a pilot, I know that the best way to spark an interest in flying is to take someone flying, and the organization that I belong to as a pilot encourages me to mentor by getting people involved with aviation. As project managers and project cost/schedule or estimating engineers who belong to AACE International, we also need to recognize the value and rewards of mentoring. There are a lot or organizations that sell books and certifications if candidates can memorize the terms and definitions used
in their industry, but what is the true value to the individual who was awarded the certification and to the company that most likely paid for the certification? The value of an AACE International certification is that it goes far beyond a memory test of definitions, it challenges you to apply what you learn to real world examples. These challenges are designed to prepare you for the types of problems that you are likely to encounter in your professional life. The people in the photo did not pursue an AACE International certification to add credentials behind their name, they went through the training, reading, and self-discovery to achieve their own goals, to add value to their resume, and to better support the company they work for. And yes, this story ends with a happy ending and two more AACE International certified professionals. If you are certified, consider mentoring, it is always rewarding and a process of growth for both you and those you mentor. If you are interested in getting a certification, looking for a mentor, or have other questions, give us a call at 1-800-858-COST. We will try to find mentors in your area. x Nicholas L. Kellar, CCC Certification Board Chair and Mentor
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T he E thics C T he E thics Corner

Dr. Kenneth K. Humphreys, PE CCE
Ethics and the Law

ost US state and territorial licensing and registration boards have adopted rules of practice, generally based upon the National Society of Professional Engineers (NSPE) Code of Ethics for Engineers. In some states, ethical requirements have been written into law rather than being promulgated as rules of practice by the licensing board. Consider the following excerpt from the Engineer, Land Surveyor, and Geologist Registration Law (Act 367, Section 4(g)) of the Commonwealth of Pennsylvania:
It shall be considered unprofessional and inconsistent with honorable and dignified bearing for any professional engineer 1. To act for his client or employer in professional matters otherwise than as a faithful agent or trustee, or to accept any remuneration other than his stated recompense for services rendered. 2. To attempt to injure falsely or maliciously, directly or indirectly, the professional reputation, prospects, or business of anyone. 3. To attempt to supplant another engineer.after definite steps have been taken toward his employment. 4. To compete with another engineerfor employment by the use of unethical practices. 5. To review the work of another engineerfor the same client, except with the knowledge of such engineer or unless the connection of such engineerwith the work has terminated. 6. To attempt to obtain or render technical services or assistance without fair and just compensation commensurate with the services rendered: Provided, however, the donation of such services to a civic, charitable, religious or eleemosynary organization shall not be deemed a violation. 7. To advertise in self-laudatory language, or in any other manner, derogatory to the dignity of the profession. 8. To attempt to practice in any field of engineeringin which the registrant is not proficient. 9. To use or permit use of his professional seal on work over which he was not in responsible charge. 10. To aid or abet any person in the practice of engineeringnot in accordance with the provisions of this act or prior laws. This section of the Pennsylvania law specifically empowers the Pennsylvania Board to discipline any registrant who violates this code of ethics. The Pennsylvania Board has also promulgated additional regulations governing the ethical practice of engineering in that state. John R. Speed, PE, Executive Director of the Texas State Board of Registration for Professional Engineers once said: .As engineers, ethics should be considered a part of every action. More specifically, ethics is the way we act.
Do we achieve our goals in a manner that is trustworthy? What is the impact of our actions on others? Do we act based on instinct, or do we act upon that which we know? Do we present our actions to others in an honest and complete manner? I propose that the most fundamental elements of ethical behavior center around three things: objectivity, honesty, and trustworthiness. Our board rules reflect these critical facets of ethical behavior, and our enforcement cases document the failure of engineers to work within them. Ethical practice of engineering is the law in Pennsylvania, in Texas, and in every other state and territorial jurisdiction of the US. There are no exceptions. The message should be clear engineers, whether licensed as professional engineers or not, not only have a moral obligation to practice ethically, they are legally required to do so. x
This column is adapted from Chapter 12 of the book, What Every Engineer Should Know About Ethics by Kenneth K. Humphreys, PE CCE, Marcel Dekker, Inc., New York. A previously published column, Ethics and International Project Work was inadvertently published without noting that it is also adapted from Dr. Humphreys book. The book is available for purchase at Section 12 of the AACE International Online Bookstore, www.aacei.org or www.cost.org. Cost Engineering journal invites your comments on this article and your suggestions for future Ethics Corner articles. Comments and suggestions may be sent to Dr. Kenneth K. Humphreys, PE CCE, 1168 Hidden Lake Drive, Granite Falls, NC 28630, (828)728-5287, Fax - (828) 728-0048, email - icec@ICostE.org The viewpoints expressed in column published in Cost Engineering journal are solely those of the authors and do not represent an official position of AACE International, nor is AACE International endorsing or supporting the authors work. The columns are presented solely for review and informational purposes by our readers, who are encouraged to respond.
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S Seri Special pecial Series

The Keys to Forecasting#1 Scope

Editors Note: In the January 2004 issue of Cost Engineering journal, six keys to facilitate better forecasting were introduced. The six include: scope, work breakdown structure, change control, data flow, timing, and communications. Realizing that the initial article provided only a cursory discussion of these keys, the next six issues of Cost Engineering journal will provide discussion of each of the six keys in greater depth, beginning with the primary keyscope. The Critical Nature of Scope It is important to note that as a project moves through its lifecycle the scope will evolve. These scope changes or modifications may be minor or dynamic in nature. A structured and systematic approach to tracking and documenting scope evolution is required to both provide a disciplined decision-making process and to detail the specific causes for forecast changes. This documentation of scope must include more than the physical attributes of the project. In understanding the project forecast, consideration must include the execution strategy, resources, and all other aspects associated with the who and of how the scope is delivered. The relationship of scope to other sources of variance is illustrated in Figure 1, Single Scope Cost Variation, which shows the variation in cost with an unchanged scope and variation from other sources. As a project with Scope A progresses without change in scope, there are cost estimate variances that are the result of other sources (i.e., quantity variations, weather conditions, work sequence, etc). The scope of work for the project creates a cost baseline upon which all other variables interact. Although the cost forecast will fluctuate as affected by other sources of variance, the unchanged scope of work does not support the fluctuation. There may be extraordinary circumstances whereby one of the other sources of variance could become the factor that creates the baseline for the project, however, in most capital project estimates, this is a rare situation. Figure 2, Multiple Scope Cost Variation, illustrates the affect of proper scope change management. While other sources of variance affect Scope A, the recognition of revised scope creates Scope B which becomes the new cost baseline upon which all other variables interact; and accurately identifies the significant variance in forecast. The largest impact on cost forecasting is the differing scope, which has created a new baseline B, from which forecasting fluctuation can now be more accurately projected.
hat element or set of components can possibly have greater impact on the outcome of a project, than a well-defined scope? Scope is the single greatest cost driver without exception. This first key and its significant influence on your ability to forecast is self-evident for the experienced project professional. This article is intended to reinforce this knowledge for the experienced and provide greater awareness for the beginner. The clear understanding of what constitutes scope is critical to project success, both from the stakeholders perspective of receiving the desired deliverable and from the project teams ability to define, estimate, and subsequently forecast the cost and time required. These two perspectives must be aligned in order to estimate the scope accurately. The specific characteristics as to how the scope is defined and understood by the project team, contribute to this alignment and eventual forecasting success. All stakeholders must practice a disciplined approach to defining the scope and make certain that project elements that are deemed required are included in the pertinent scope documents, drawings, specifications, execution plans, etc. Without clear definition of inclusion or exclusion of scope elements the estimate accuracy will be adversely affected. This in turn will effect future forecasting ability. The elements of scope documentation determine the level of scope definition.
Figure 1 Single Scope Cost Variation

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Figure 2 Multiple Scope Cost Variation

The Need for Documentation Scope documentation in the estimating phase is critical in understanding what is included in the current estimated cost and what is not. For this reason, each estimate should have a written basis that itemizes what scope definition and assumptions have been made. The cost to deliver the project intent needs to be captured to determine the accurate cost as required elements of the project will be incorporated, regardless of whether they appear on a current set of contract documents. Additionally, any exclusions must be clearly communicated to maintain the alignment between stakeholders on what basis the forecast is presented. It is critical that your estimates independently document scope inclusions or exclusions regardless of how well-defined the supporting documents. To facilitate review and consistency in the forecast, the scope narrative or commentary must be done in a way that is consistent with the WBS. Without a clear linkage to the WBS, cost and scope will become incongruent. Without this relationship, the forecast becomes increasingly more difficult to reconcile to scope, and gaps and overlaps in each become increasingly difficult to identify. Level of Scope Definition In preparing a project estimate, the primary question is, what constitutes the scope and how is it defined or what is the description of the project? Depending upon the stage or progress of the effort, scope can be based upon an interest as broad as additional storage capacity for 100 neutral base stock, to very specific such as, two 500,000 gallon API 650 storage tanks with tie-ins to existing piping and equipment in tank farm II. At different times during the evolution of the project, these two levels of detail may be expressed to define the same project. Because the scope definition is the fundamental basis for preparing a project estimate, you must have a clear knowledge of what defines the scope. Is it the drawings, specification, schedule and scope narrative, or is it the businesss understanding of what the project is intended to accomplish (whether included in the scope documentation or not)? For estimators or project control professionals, understanding this scope definition ambiguity or specificity will dramatically impact the accuracy of your estimate and therefore, your ability to more accurately forecast. Forecast Accuracy = Increased Definition The critical nature of scope and the importance of its documentation are the foundation to forecasting accuracy. These assertions are supported by estimate classification characteristics and the increased accuracy associated with greater scope definition. The primary characteristic for defining an estimate classification is the percentage complete of the project definition [1]. This relationship between definition and accuracy is clearly demonstrated when comparing early estimates (conceptual or order-of-magnitude with minimal scope definition) that can have accuracy ranges up to or greater than +/- 50 percent versus those prepared at later phases (detailed or semi-detailed with forced or detailed take-off methodologies) with narrower ranges of +/- 5 to 15 percent. Figure 3, Reduced Forecast Variability with Increased Project Definition, illustrates the reduced variability of the estimate as the project becomes increasingly more defined. It is important to note that while the forecast cost becomes more
Figure 3 Reduced Forecast Variability with Increased Project Definition
accurate in later phases of the work, in early phases it may not be possible to determine in which direction the cost estimate will move, up or down, until that level of project definition is complete. While the increased scope definition is critical in preparing accurate estimates, the project team, not the estimator alone, determines the project scope definition. It is, however, a core responsibility of the estimator or project control professional to direct the team toward continuously refining scope definition and updated forecasts to correspond with each level of scope definition. This integrated process facilitates the consistent alignment of project scope, the corresponding estimate and the ability to cost forecast. In addition to the project team, other stakeholders are often able to change or redefine the scope more than is readily recognized. A critical activity is identifying these stakeholders and establishing their agreement on the scope. In best practice a structured approach is taken to refine a business opportunity into a single, well-defined scope, with an agreed execution strategy that is acknowledged as accepted by those in authority to influence it. The Importance of Perspective The importance of perspective in forecasting cannot be understated, and prior to preparing the estimate perspective must be well understood. One way to understand project scope is to define it as the work that must be done to deliver the project as defined by the contract documents (CDs). From a contractors perspective this is accurate and the basis of their estimates and forecasts. However from an owners perspective, this only reflects the scope as it is communicated to the contractor, which sometimes does not necessarily deliver the businesss intent. The owners cost to complete includes all cost associated with achieving the business objective, inclusive of what is shown on a drawing, what can be inferred from the CDs, and what must be in place to support the operating unit after it has been turned over at close-out. For this reason the scope being estimated must be well understood by the contractor, business or project team. An example of these differing scope perspectives is shown in Figure 4.
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cantly impacted by the level of scope definition, clearly stated basis of estimate, alignment of stakeholders on scope perspective, and quickly identifying changes in scope baselines. x
REFERENCE 1. Woodward, C.P. and M.T. Chen, Cost Estimating Basics, Skills & Knowledge of Cost Engineering, 4th Edition, 1999.
ABOUT THE AUTHORS James E. Baar has over 30 years of experience on total installed cost (TIC) projects. He has held positions as project scheduler, cost engineer, field project controls manager, and project manager. Mr. Baar is currently the manager of project controls for Jacobs Engineering Group, Inc., at Denver, CO. The author can be reached by e-mail at jim.baar@jacobs.com. Stephen M. Jacobson, CCC, has over 20 years of experience with expanding organizations contributing expertise in operations, project management, strategic planning, annual capital budgeting and cost engineering. Mr. Jacobson is an AACE International Certified Cost Consultant, and is the current Technical Committee Chair for Project and Cost Control. He has led cross-functional and multi-discipline teams throughout North America to identify and maximize investment opportunities contributing from concept through closeout. Mr. Jacobson has worked in both the public and private sectors and has experience in pharmaceutical, biotech, aerospace, forest products, and transportation industries. He has a BA from Gettysburg College and has taken graduate studies in engineering at Rutgers University. The author can be reached by e-mail at jacobsons@soundtransit.org.
Figure 4 Scope Perspective
he project scope has the single greatest affect on estimate accuracy and forecasting ability. The level of scope definition will greatly influence the accuracy and ultimately determine whether the desired estimate accuracy can be supported. Scope is not only what appears on CDs, but it is also the achievement of business intent. Other stakeholders influence project scope and their alignment must be sought when preparing cost forecasts. Each estimate must be accompanied by the appropriate written basis for the estimate to ensure the clear understanding of what is included, excluded, and revisions in scope or execution since the previous estimate. Our ability to forecast accurately as the project progresses will be most signifi-
FOR 2004, NATIONAL ENGINEERS WEEK TAKES ON THE WORLD

derscoring a decisive recognition of the globalization of professional engineering, National Engineers Week 2004, February 22-28, co-chaired by The Institute of Electrical and Electronics Engineers (IEEE/IEEEUSA) and the Fluor Corporation, celebrates the international engineering community with two key programs. New Faces of Engineering, developed in 2003 to showcase rising young stars in America's engineering profession, has expanded to include engineers from around the world. By promoting contributions of young engineers and their benefits to people worldwide, New Faces provides stimulation and incentive for college-level students and encourages younger students to consider engineering careers. The second major program for 2004, Connecting the World to Engineering, spearheaded by Fluor, establishes a global dialogue with a new web-based communication and discussion vehicle for engineering students, young professionals, and business leaders, targeted at engineering undergraduates to stoke and maintain interest in their chosen careers. New Faces of Engineering and Connecting the World gives that message substance, Lillie says, and confirms EWeek's commitment to the broad spectrum of engineering today. All National Engineers Week sponsoring societies may nominate candidates for New Faces from industry and academia. Nominees must hold an engineering degree, be employed as an engineer from two to five years, and have been involved
in projects that significantly impact public welfare or further professional development and growth. The Top 16 New Faces will be featured in USA Today during National Engineers Week, with all nominees included on the EWeek website at www.eweek.org. Connecting the World online discussion forums will explore electrical, civil, mechanical and other engineering disciplines, industries such as aerospace, IT, and chemical, and opportunities in geographical locations all over the earth. During National Engineers Week, prominent corporate leaders will also host teleconference discussions on the latest issues and developments with engineering societies and their student sections, along with university and corporate partners. The National Academy of Engineering will also present the annual $500,000 Charles Stark Draper Prize, the profession's highest honor for engineering achievement and innovation, and the biennial Bernard M. Gordon Prize for Innovation in Engineering and Technology Education, also valued at $500,000, at a black-tie dinner on February 24. The 2003 Draper Prize went to Ivan A. Getting and Bradford W. Parkinson for their individual efforts in the development of the Global Positioning System. For more information, visit www.nae.edu/awards. Information on these and all other National Engineers Week programs and events is available at www.eweek.org. x
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F the Boo For or the Bookshelf

Sydney J. Hymes
Architects Essentials of Cost Management

Architects Essentials of Cost Management, by Michael D. DellIsola, 2002, John Wiley & Sons, 320 pages, ISBN 047144359X
t is not often that a full-length publication about construction estimating can get into great detail without getting bogged down into minutiae and professorial prose. Written in a conversational tone, Dell'Isola's book, published by Wiley for the American Institute of Architects, does just that. As the title suggests, the author's goal is to provide a higherlevel introduction and review of the basics of construction management. It is not a textbook, though it could certainly be used as such. It provides enough of the essentials to capture the essence of construction cost estimating, while striking a functional balance with many advanced concepts. To be sure, one cannot and will not become an accomplished estimator solely by reading this text. For someone with the basic knowledge (or who needs a comprehensive review and refresher), the author quickly moves to more advanced topics, melding a number of highly related subjects into a cohesive presentation. In laying out his thoughts, Dell'Isola begins with a staccato introduction of cost management considerations and methodology. He quickly moves into a reasonably detailed discussion of building economics, targeting considerations that the owner and planner should both be addressing. He seemingly focuses on issues more closely identified with the facilities manager than the hard-bid contractor; yet, the information is equally valuable to the estimator, designer, or contractor engaging in a VE review. Not surprisingly, value management and value engineering get a great deal of attention in the book since those subjects are the focal point of the author's professional experience. To this reviewer, the most valuable chapter of the book is the third, "Cost-estimating Methodology." In this section, Dell'Isola devotes some 110 pages detailing the elements of successful estimating and budgeting, weaving in a discussion of VE, all the while keeping a perspective on his goal of writing an overviewlevel text. His discussion and comparison of the MasterFormat and UNIFORMAT systems is clear and beneficial, all the while
moving forward and integrating the discussion with new material and tips. Chapter 3 also includes a detailed discussion of present value and future value expense considerations, as well as an excellent introduction to risk management issues facing the designer, estimator, and owner. The author then seamlessly moves into the chapter on estimating tools, highlighting subjects such as the use of published indices and a very abbreviated, indeed cursory, series of comments on spreadsheets and the like. All but the most inexperienced of estimators can skip this particular section of Chapter 4. The final chapter of the book does a fine job of integrating and tying together the earlier information, working it in well with the discussion of delivery methods and considerations. The section on estimate budgeting is well presented and includes a number of checklist-building opportunities, though not explicit suggestions. To this reviewer, a minor (but noteworthy) flaw in the book concerns the chapter lengths. Whether by design or poor editing, too much information is presented contiguously; shorter chapters would allow the reader to ingest and consider what has been presented. This is certainly not a fatal flaw, but one which does detract from the material's otherwise excellent presentation. x Author Michael D. Dell'Isola, PE, is a member of AACE International. He is a Senior Vice President with Hanscomb Faithful & Gould in Alexandria, Va. Reviewer Sidney J. Hymes is a life member of AACE International and currently serves as President of the St. Louis Section. An adjunct professor of construction management in the graduate school of engineering at Washington University in St. Louis, he was formerly a full-time professor of construction management and is now the national risk mitigation and claims manager for Jacobs Civil, Inc. Hymes is certified both as a Certified Construction Manager and as a Certified Professional Constructor.
Available for Review Construction Cost Management: A Guide to Cost Engineering, by Adek Apfelbaum (ISBN: 1-4033-0328-2, 90pages, published in 2002) is billed as a guide that uses methods based on real world situations. The books 14 chapters has some practical methods and suggestions which all owners and their agents would do well to adopt, in whole or in part. This book is available for review on a first requested, first served basis. To be considered to do a review, please e-mail editor@aacei.org. Once the reviewer returns the book, it will be added to the AACE International library and will be available for inter-library loans.
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! " " AACE INTERNATIONALS NEWEST CERTIFICATION EXPLAINED PLANNING and SCHEDULING PROFESSIONAL CERTIFICATION
This certification program offers specialty credentials for the professional who wants to validate his/her skills and be designated as a PSP . While many professionals do planning and scheduling, until now there was no way to effectively measure their capabilities - except through real-life performance. AACE's new PSP certification provides an exam and experience validation that lets industry and users identify those who are competent professionals. Earn your mark of distinction by becoming a PSP . AACE is pleased to announce that the first PSP exam will be held on Saturday, June 12, 2004, at the 48th Annual Meeting at the Omni Shoreham Hotel in Washington, DC.
What is the PSP?

Developed by a distinguished task force of industry experts assembled by AACE International, the PSP designation recognizes specialists who meet a demanding set of planning and scheduling criteria - a rigorous examination, experience, education and ethical requirements. The task force established the PSP requirements to reflect the sophistication of individuals in today's planning and scheduling industry and to fairly measure their knowledge, experience and best management practices.
PSP certification will distinguish you as a Planning and Scheduling Professional who has the knowledge and skills that impact the bottom line. With AACE Certification, you can be Ethics sure that you have met a high quality standard. All PSP applicants must sign an agreement stating that they AACE has considerable experience in offering specialty understand and agree to adhere certification programs. AACE has been testing for Certified Cost to the AACE Canon of Ethics. Consultants (CCC) and Certified Cost Engineers (CCE) since This criterion that says you will 1976, and has other programs accredited by the Council of practice in a manner that meets Engineering Specialty Boards (CESB) and the International fundamental ethical standards. Cost Engineering Council (ICEC). The full AACE Canon of Ethics can be found at : Summary of PSP Certification Requirements www.aacei.org/certification/. Candidates for the Planning and Scheduling Professional (PSP) designation must meet these minimum requirements: Study materials 1. Eligibility Recommended reading lists are At least 8 full years of professional experience, of which available from AACE and are up to 4 years may be substituted by college/university posted on the AACE website. degree. Related degrees include: engineering, building Primary references include books construction, construction technology, business, from the fundamental body of economics, accounting, construction management, knowledge for professionals in architecture, computer science, mathematics, etc. James G. Zack, Jr. planning and scheduling. Visit 2. Application and payment of fees www.aacei.org/certification/ to AACEVice President-TEC AACE Members US$345.00 review or order reference Non-Members US$425.00 materials. Submit the application, work/education verification and fees, at least 40 days before the next exam date to be As your career advances, PSP goes with you scheduled at an exam site. Additionally, you must submit The PSP designation is versatile. It is a mark of distinction. As with a signed AACE Canon of Ethics with your application. any specialty certification, a primary concern is to ensure that all 3. Verification of experience/education credentials are always up to date. That is why the program requires Applications are reviewed and verified. Please submit a you to recertify every 3 years by either professional credit plan or recopy of college degree(s) with your application, plus any testing. The recertification program is designed to ensure that you letters that could expedite the verification process. have maintained continued expertise through work experience, 4. Passing the examination continuing education, professional development, and active To become PSP certified, a passing grade must be involvement in the profession. achieved on the 7-hour exam as determined by the Cancellation/Refund policy Certification Board. The PSP certification program application fee is non-refundable. An applicant scheduled to take an examination who fails to appear at the The examination process scheduled time and place is required to pay a no-show fee of $60.00 The PSP examination consists of four parts. Part I is Basic Knowledge. It consists of multiple-choice before rescheduling to take the examination a later date. Exceptions questions concerning the basics of planning and should be requested in writing to the AACE Certification Board. scheduling.
Part II is Planning and Scheduling Applications. It consists of multiple-choice questions involving planning and scheduling scenarios. Part III is a Practical Exercise. This part entails solving one to three problems and answering a series of multiple-choice questions concerning the problem(s). Part IV is a real-time Communications Exercise. It requires the candidate drafting a one page (maximum) memorandum to simulate reporting a planning and scheduling analysis to the project manager explaining the issues and proposing solution(s) regarding a given problem scenario.
The key to good, competent scheduling is not software, but people. AACE International has a plan for doing exactly this and has formed a task force of nationallyrecognized experts who are committed to having the first specialty certification program and exam available in 2004.
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"
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L A N N I N G & S C H E D U L I N G P R O F E S S I O N A L C E R T I F I C A T I O N A P P L I C A T I O N
( P S P )
Please type or print all responses.
This application is for certification as a Planning & Scheduling Professional (PSP)
Certification Office Use Only
I plan to attend the examination scheduled on June 12, 2004. I prefer to take the test at the Washington DC location. Note: See Cost Engineering magazine or our website at www.aacei.org for a list of locations or call the Certification Office.
GENERAL INFORMATION:
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Are you a member of AACE International? Are you a member of a local section? Membership Grade No Yes No Yes, the ___________________ section. Full Member Associate Member Fellow Former Member Currently applying for membership
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Please complete all applicable sections and provide appropriate verification so that your application can be quickly processed. If you are handicapped and require special access or other accommodations, please attach a separate sheet detailing your requirements. Thank you.
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L A N N I N G & S C H E D U L I N G P R O F E S S I O N A L C E R T I F I C A T I O N A P P L I C A T I O N
( P S P )
CERTIFICATION FEES:
Early Fee AACE International Members ............US$295 Nonmembers ........................................US$345 Regular Fee* US$345 US$425
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ALL FEES ARE NONREFUNDABLE.
AFFIRMATION:
Having read the criteria for certification, and believing myself to be fully qualified, I hereby apply for certification by examination. I declare that all the submitted information is correct to the best of my knowledge and belief. In making this application, I fully understand it is for enrollment purposes only.To complete the certification process, I will execute the necessary documents, submit to written examinations as required, be present for oral interviews if necessary, and supply further information as determined by the AACE International Certification Board. I further understand, and by my signature subscribe to, the AACE International Canon of Ethics, with the knowledge that any false statement or misrepresentation that I may make in the course of these certification proceedings may result in the revocation of this application and the issuance of a complaint of violation. Further, it is agreed that: a.
QUESTIONS???
b. c. d.
Address: 209 Prairie Avenue Suite 100 Morgantown, WV 26501 USA Phone: 800.858.COST 304.296.8444 Fax: 304.291.5728 E-mail: info@aacei.org
all information and data submitted with this application will be used by AACE International only to verify the expertise of the applicant, and such information will not be divulged to any other person. the applicant hereby authorizes AACE International to investigate and verify all information, references, and other data and attachments to this application. the applicant agrees to hold all information, interview contents, tests, and other certification matters in the strictest of confidence. Such information shall not be copied or divulged in any way. the AACE International, Inc. certification program is administrated by AACE International, Inc. for the benefit of applicants. As an applicant, I agree to hold AACE International harmless from any consequences of acceptance or rejection of this application and to hold AACE International, Inc. harmless from statutory violations or conflicts of this program.
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Return completed application to: Certification Office AACE International 209 Prairie Avenue, Suite 100 Morgantown, WV 26501 USA
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C ERTIFICATION PAPER

Lori A. Floyd, CCC
ABSTRACT: There are numerous types of contracts available to implement in the execution of capital projects. These various contract forms all have their advantages and disadvantages and are implemented based on evaluation of the individual project. Many factors can play a role in which contract type will be employed. These include, but are not limited to, schedule constraints, level of project definition, project size, local economic climate/conditions, resources available and company financial status. The key to contract selection is balancing potential risks with potential opportunities and managing these risks and opportunities so that the best possible outcome is achieved. To obtain these results, the proper project control systems must be applied. The project control needs will vary with contracting strategy and will vary between owner and contractor. The project control needs will be discussed as related to the major contract types. These major contract types include, reimbursable and lump sum. Variations of these contracting strategies include bonus/penalty clauses, incentives, and fixed fees. (Although unit rate is a version of lump sum, it will not be discussed in this article as reimbursable and lump sum as these are the two most common types of contracts in North America). The project control needs will be evaluated in reference to owner and contractor, as well as the resources required for performance. Although contracts can include engineering as well as construction, for the purposes of this article, the discussion will concentrate on the issues surrounding construction. Many organizations may deem that "one size fits all" for project controls. This may be especially true in owner organizations. Successful execution of capital projects can only be accomplished with properly implemented project controls functions. Failure to recognize which functions are necessary for a particular contracting strategy can contribute to frustration, dysfunction and possible economic failure of the project.
This delicate balance of schedule cost and quality will help determine the contracting strategy for the project. It is important for the Project Manager to understand how the accountability for the costs and schedule vary with the type of contract. Risks and responsibilities are shown in the following table from James Bent [5]:
Reimbursable Contracting An owner whose schedule requirement outweighs the cost requirement, will most likely chose a reimbursable contract. A reimbursable contract implies that the contractor is reimbursed for actual costs, as well as some type of mark up, fixed fee, or incentives. One of the main advantages of reimbursable contracts is it allows for a fast-track project. That is, the job contract for construction can be let, and construction begun, with a greater overlap of engineering completion allowing for a shorter schedule than would be expected with a lump sum contract. J. Cibinic and R. Nash also imply that reimbursable contracting leads to a less adversarial relationship between owner and contractor [1]. This leads to more attention being paid to the job and less attention being focused on profit/loss issues with the contractor. Inherently this should result in better quality. However, in a cost reimbursable contract, it becomes more difficult to predict the final cost. The responsibility and accountability for cost control and scheduling is placed with the owner. Although, the contractor has an KEY WORDS: Project controls, contracts, contracting, construction, capital projects, and risk obligation for reporting, the owner must have the resources to validate and control the contractor's expenditures and progress. A costs n the engineering and construction Background A successful performance of a construction engineers' task during construction includes industry there are several types of contracts available to facilitate project execution. A project can be measured and controlled with controlling field labor, bulk purchasing, contract is a legally binding agreement by which three qualities as shown in the following from J. subcontracts, field indirects, as well as commissioning and start up. one party agrees to provide a service for another Hackney [3]. party, for compensation. According to James Capital Costhow much the project is Estimating Bent, these contracts fall into two main At an appropriate stage of total engineering going to cost? categories [6]. These two separate strategies are TimeHow soon it will be earning completion, a construction estimate should be cost reimbursable (also called "time and done. The engineering contractor or an owner's money? material") and lump sum (often called "hard ValueHow much it is going to return, as cost engineer are the most likely candidates to money"). Variations of these are numerous and related to the investment and risk involved? accomplish this. At 25 to 30 percent of are dependent upon the risk and opportunities engineering, the appropriate controlling design assumed by either the owner or the contractor. These essential qualities are the basis for documents for the facility would be available. A The owner's selection of a contracting strategy will depend on many factors, but the three project controls plans implemented during budget estimate would be developed from these objectives of cost, schedule, and quality will be construction of a capital project. It is the documents. The estimate would be the responsibility of project management and beginning basis for construction cost control. balanced to influence the decision. Although P. Navarette implies that all project controls to monitor, report and control The owner should take an active role in It will depend on the validation of the estimate. contracts create an adversarial relationship, an these qualities. Since this estimate is developed before effectively managed contract rewards both the contracting strategy implemented as to which owner and the contractor [4]. The key to party, the owner or contractor, will have the cost engineering is complete, it is imperative that, achieving mutual satisfaction is to match accountability for these qualities and what the during the execution of the remainder of the accountability with the party most capable of financial impact to the owner will be. Table 1 engineering, the owner keeps track of cost of the design implications developed during this managing the risks [7]. Thus, defining and helps identify these accountabilities. During the initiation of a Capital Project, phase. A tracking estimate should be implementing the necessary project controls applications to support the contract strategy is all risks reside with the owner of the proposed maintained as scope changes and trends are facility. During development of the project the identified and priced. A rigorous change paramount to managing these risks. owner will analyze the objectives of the project procedure must be implemented during including the schedule requirements, the engineering as well as construction. financial limitations and the business drivers.
As engineering drawings are finalized, a quantity adjusted budget (or IFC budget) is developed. This budget is determined by actual material take-offs from the construction drawings. Construction contractors apply the appropriate work hour factors to the material take off in order to determine the labor budget. This quantity adjusted budget (QAB) becomes the basis for the construction budget and the tool for control of labor. During a reimbursable project where construction has started before all drawings are complete, this QAB is constantly updated until all the engineering drawings are completed. Planning and Scheduling The first step to controlling costs in the field is reliable planning and scheduling. Planning refers to the determination of objectives, identifying activities to be performed, the resources and methods to be used to perform the tasks. This also includes the assignment of responsibility and accountability and establishing an integrated plan to accomplish the objectives. Scheduling is applying timing, and determining order of the tasks [8]. A detail construction plan should establish a work breakdown structure and accounting codes. It should predict all resources required for completion of the work including temporary facilities, field supervision and management, labor requirements, as well as construction equipment needs for the life of the project. With thoughtful planning, the development of the detail construction schedule is initiated.
Table 1Contracting Risks and Responsibilities The detail construction schedule should be developed using a disciplined critical path method (CPM). The construction schedule should reflect the resources needed to accomplish the individual tasks, including labor requirements, the construction equipment requirements, as well as identifying materials to be installed. The labor and material resources can be determined from the QAB. A contractor on a reimbursable project should be contractually bound to supply a detailed, resource-loaded schedule, in a computer model, that supports the objectives of the owner in regards to completion. Updates and status to the schedule should be made on a regular basis and the owner should be able to verify the accuracy of the reports. Progress Measurement Once a detail construction schedule and a quantity adjusted budget are established, the basis for progress measurement can be established. Progress measurement is the quantifiable calculation of percent complete of a project. Initially, the scheduled percent complete is plotted against time. This typical progress curve is shown in Figure 1. This curve can be developed by allocation of work hours to tasks. The contribution of each activity toward total percent complete is proportional to the
Figure 1Progress Measurement Curve

percentage of work hours for that activity toward the total work hours. This methodology is called weighted work hour measurement. Progress is usually measured in percent complete and is calculated by dividing the amount of work performed by the total work budgeted. Percent complete = earned work hours /budgeted work hours In reimbursable contracting where the QAB is constantly changing until all construction drawings are available, the progress measurement curve and percent complete are always changing to reflect the current budget. For this reason, it may suit the contractor to use forecasted work hours until the final QAB is established. This makes the reporting less confusing, but care must be taken to ensure that the forecast is realistic and reflects the QAB, in order of magnitude and distribution of hours. In calculating percent complete for activities, the measurement criteria must be available to the owner and completely verifiable. Cost Control The objective of project controls is to forecast the cost and completion of the project during the course of construction. Cost control is the implementation of the functions described above, as well as making forecast of the total cost and, where necessary, determine and facilitate corrective measures when an undesirable trend is identified. In a reimbursable situation, the owner, with ultimate responsibility, must implement these measures. The owner must indicate the measures to be taken and exert pressure upon the contractor to execute them. Forecasting the total cost of the job is more difficult in a time and material contract. Although the owner has accountability, the contractor must be made responsible for accurate reporting of schedule, progress and expenditures. It then becomes the owner's responsibility to validate the results and ensure that the contractor is performing in a cost effective manner. Productivity results from the progress measurement will help foretell the ultimate cost of the job. Productivity index, or cost performance index, is measured by dividing the earned work hours or dollars (budgeted cost of work performed) by actual work hours or dollars (actual cost of work performed), or PI = BCWP/ACWP (In construction, work is often stated in work hours) A number less than one is indicative that more work hours are being expended than was budgeted. This would be a
Figure 2Cost Variance and Schedule Variance Progress Measurement gauge that the total work hours may exceed the Total Cost at Completion = PI * Budgeted at Completion or: budget at the end of the project. Cost variance can be calculated by the EAC = PI*BCAC budgeted cost of work performed - actual cost of This formula assumes that the productivity work performed. does not improve over time. Another way to calculate the estimated cost at completion CV=BCWP-ACWP would be to assume the productivity will Schedule performance index is a improve and return to planned rates from the measurement of the amount of progress current point forward. This calculation would achieved against the progress that was be: scheduled. Again, often this is measured in work hours. Schedule performance index can EAC = (ACWP) + (BAC-BCWP) be stated as budgeted cost of work Both of these methods make an performed/budgeted cost of work scheduled. assumption about the contractor's ability to perform. While there may be reasons to make SI = BCWP/BCWS these assumptions, a way to avoid these Again, a number less than one would assumptions is for the contractor to have indicate that the planned schedule is not being calibration curve indicating the planned productivity over time. A contractor will have achieved. The schedule variance is calculated by history of performance on previous contracts subtracting the budgeted work hours from the indicating the profile of productivity over time. This calibration curve may help alleviate the earned work hours. guess work of assuming the contractor will return to good productivity, or will get worse. SV = BCWP - BCWS Typically, in construction projects, work hours A positive variance indicates favorable per percent complete are high at the beginning of the project, decrease toward the peak of the performance. These indicators are most often used in project, and then slowly taper off again as the reimbursable contracting to measure and work comes to an end. Rarely does productivity forecast the total project costs against the remain constant. A calibration curve is shown in Figure 3. budget. Using the calibration curve along with the Graphically, the relationships between planned progress, the schedule index and the productivity index can help forecast the cost of cost performance index would look like what is the project at completion by taking into consideration the planned productivity. shown in figure 2. Since the greatest risk in reimbursable contracting is in forecasting the total cost of the Change Control/Scope Management In reimbursable contracting, Change project during execution, it is important to use the schedule index and productivity index to control and scope management are a mere help forecast the project. If the trend of either formality to the contractor, as he or she is of the indices is unfavorable, one can easily getting reimbursed for all work performed which can reasonably be considered part of the forecast the cost using the following formula: work.
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Formal or informal instructions taken from anyone on the owner's side can be interpreted as part of the work, whether originally planned or not. This issue becomes essential to the owner to control the scope of the work and bring the project in under budget. A formal process must be initiated by the owner to identify, quantify and verify changes to the work to be performed. The contractor must implement changes only after authorization by select personnel. Lump Sum Contracting Lump sum or hard money contracting lends itself most favorably to projects where cost is the most important aspect of the project. To successfully execute a lump sum project, engineering must be nearly complete before an invitation to bid can be developed. Contractors bid on a project using complete, or near complete design documents and return a proposal that specifies the proposed cost of the project, including the cost of all work to be performed and including the contractor's profit. With this method, the owner has forecast of the total project cost at the earliest opportunity. The contractor also has the most completely defined scope of work. Estimating In lump sum contracting, the contractor has all the risk of controlling the costs. Upon awarding of the contract, the contractor will reevaluate his bid and establish a budget, based on quantities taken off of the design documents. This budget will be used as a control budget for the contractor. This budget and the tasks associated with it will become the basis for progress measurement. Accurate estimating and bidding is essential to the contractor's success in lump sum projects. Planning and Scheduling The detailed budget along with the design documents from which the budgets were produced, will be the foundation for the detailed planning and scheduling that needs to be in place. Although a contractor's main concern is the cost of the project, they must consider the time value of money and pay close attention to completion of the project in a timely manner. As discussed earlier in this article, the detail construction schedule should be developed using a disciplined CPM and should consider the resources needed to accomplish the individual tasks including labor requirements, the construction equipment requirements, as well as identifying materials to be installed. Again, this should be a contractual obligation of the contractor, but when the risk is all on the contractor's side, more likely than not, the detail schedule will be one of the main focuses for the contractor to control his own work.
WORKHOURS PER PERCENTAGE COMPLETE
Figure 3Calibration Curve Productivity Calibration Progress Measurement As with the reimbursable contract, the resource loaded schedule with well-defined tasks, will become the basis for the progress measurement curves. In lump sum contracting, the contractor is less interested in producing documents for the owner to see, than in producing control tools to mitigate the risks he or she owns. Detail progress measurement curves will be generated by discipline, and if the size of the project dictates, areas, sub-areas, or other elements of the work breakdown structure. Progress measurement, along with the schedule, are the only tools the owner will have to judge whether the project is on schedule. The contractor usually will not share the details of the productivity, as that risk is his or hers to control, but the owner should look carefully at the schedule index, (SI = BCWP/BCWS) and the schedule variance. Indicators that the schedule is not in control are a signal for the owner to take command and insist the contractor take corrective measures to correct the slippage. It is not enough to validate that the progress is on schedule, but the owner needs to assure himself or herself that the progress is being earned in the right areas [2]. In order to control costs on the project and validate that the budget was correct, the contractor may apply quantity installation curves for main commodities such as piping spools, electrical cable and cable tray, yards of concrete poured, etc. These curves may look similar to progress curves, but are simply based on quantities as developed for the budget. An unfavorable trend may indicate that the material take offs were poor, or conversely, a positive trend may indicate over estimation. Either way, the contractor will get an indication of the cost of the job, in relation to his price. A commodity curve is shown in Figure 4. Cash Flow An important aspect of a lump sum contract is the manner and timing of payment to the contractor. Whereas, in reimbursable contracting, a contractor submits an invoice for time and materials expended, and gets paid the agreed rate, a lump sum contractor will get reimbursed for work accomplished, regardless of how much is expended. A contractor will usually want to maintain "cash neutrality." That
Figure 4Commodity Curve Spool Installation

Figure 5 Cash Flow Expenditure Projection September Update is, he or she does not want to be out cash too far in advance of being paid, but the owner does not want to front the contractor too far in advance, risking non-performance. Quite often the contractor will use his progress curve along with a schedule of indirect payments and other expenses to generate a cash flow curve. This curve will resemble the progress curve to some extent, but will consider non-progress items like equipment rental, temporary facilities, and other indirect costs as well. From this curve, the contractor can predict at intervals (monthly), his or her portion of the price, scheduled to be achieved, for the next interval. Ideally, the owner and contractor will agree on this cost, and a payment is made for half of the prediction, as well as the remainder of the payment for the last period's prediction. This basis gives the contractor some money up front, but reduces the risk for the owner of nonperformance. The owner must pay close attention to the schedule and progress curves and verify that the progress and schedule are being achieved as predicted. Cost Control The control of the cost is all the contractor's responsibility and risk in a lump sum contract. Therefore, the owner will not be privy to the details. It is imperative that the contractor uses the tools available, schedule, progress measurement, as well as payroll, and accounts payable, to predict how they are tracking against their price. The main function for the contractor's cost engineer is to see that the expenditures do not exceed the price of the contract and that the contractor is being reimbursed on a fair basis. The cost engineer must also be diligent in analyzing trends and identifying items that are out of scope. A rigorous change order procedure must be implemented and the cost engineer should take responsibility to see that work is not performed that has not been budgeted for. The cost engineer must keep project management informed of the status of the cost expenditures and the forecast. A forecast of gross margin, or profit should be calculated from the cost report each month to alert management to any unfavorable trends. remedial action can be facilitated, regardless of the contracting strategy. x REFERENCES 1. Cibinic, J. R. Nash. CostReimbursement Contracting, Second edition. Washington, D.C., (1993): 2. Hackney, J. Control and Management of Capital Projects, Second edition. New York, New York. McGraw-Hill, Inc. Heinze, K. Cost Management of Capital Projects. New York, NY. Marcel Dekker, (1996): 184. Larew, R,. (ed.) Skills and Knowledge of Cost Engineering. Fouth edition, Morgantown, West Virginia. AACE International. (1999): 18-3. Larew, R,. (ed.) Skills and Knowledge of Cost Engineering. Fourth edition, Morgantown, West Virginia. AACE International. (1999): 18-4. Larew, R,. (ed.) Skills and Knowledge of Cost Engineering. Fouth edition, Morgantown, West Virginia. AACE International. (1999): 18-5. Navarette, P. Planning, Estimating, and Control of Chemical Construction Projects. New York, NY: Marcel Dekker. (1995): 164. Navarette, P. Planning, Estimating, and Control of Chemical Construction Projects. New York, NY: Marcel Dekker. (1995): 179.
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any of the tools used in contracting are the same or similar between lump sum and reimbursable. The differences are in how they are used and by whom, the owner or the contractor. A reimbursable contracting strategy used to expedite project completion, places many of the cost risks with the owner. Although the contractor may have reporting responsibilities, the owner must have adequate and qualified personnel on board to analyze and validate contractor reporting. Forecasting total project costs accurately and consistently is the largest challenge for the owner and must be approached methodically. Using the project controls tools and methods through thorough application and examination must be a priority for the owner in reimbursable contracting. Lump sum contracting facilitates more accurate and earlier forecasting of total project costs, but the contractor must have the personnel and tools to manage its own cost risks. Accurate estimating and bidding are essential, as well as management productivity and schedule progress. The owner must control scope growth and be alert to preventable changes by the contractor. In the end, successful management of projects requires the ability for the party at risk to forecast costs in such a timely manner that
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RECOMMENDED READING 1. Cibinic, J. Nash, R. CostReimbursement Contracting, Second edition. Washington, D.C. (1993).
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Clark, F., and A. Lorenzoni. Applied Cost Engineering. Third edition. New York, New York. Marcel Dekker, Inc., (1997). 3. Construction Industry Institute. Contract Risk Allocation and Cost Effectiveness. Publication 5-3. Austin, Texas. Construction Industry Institute. (1988). 4. Hackney, J. Control and Management of Capital Projects, Second edition. New York, NY. McGraw-Hill, Inc. (1992). 5. Heinze, K. Cost Management of Capital Projects. New York, NY. Marcel Dekker. (1996). 6. Ibbs, C. D. Wall, M. Hassanein, W. Back, J. DeLaGarza, R. Twardock, J. Kim, and S. Schran. Determining the Impact of Various Construction Contract Types and Clauses on Project Performance. Volume I. Source Document 10. UrbanaChampaign, Illinois. Construction Industry Institute. (1986). 7. Ibbs, C. D. Wall, M. Hassanein, W. Back, J. DeLaGarza, R. Twardock, J. Kim, and S. Schran. Determining the Impact of Various Construction Contract Types and Clauses on Project Performance. Volume II. Source Document 11. UrbanaChampaign, Illinois. Construction Industry Institute. (1986). 8. Larew, R,. (ed.) Skills and Knowledge of Cost Engineering. Fouth edition, Morgantown, West Virginia. AACE International. (1999). 9. Navarette, P. Planning, Estimating, and Control of Chemical Construction Projects. New York, NY: Marcel Dekker. (1995). 10. Westney, R. (ed.) The Engineer's Cost Handbook. New York, NYk. Marcel Dekker. (1997). ABOUT THE AUTHOR Lori A. Floyd, CCC, is an associate with PMA Consultants, LLC, of Houston, Tx. She can be reached by e-mail at lfloyd@pmaa2.com.
Certification Papers - Each candidate seeking certification as a Certified Cost Consultant/ Certified Cost Engineer (CCC/CCE) is expected to write a professional paper of a minimum of 2,500 words on a cost engineering-related subject and it must be submitted before or at the time of the examination. Each month some of the top scoring entries are published as an example of what constitutes a good entry. Other members and readers will also gain insights on current industry trends and projects with the publication of these papers in the Cost Engineering journal.
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T ECHNICAL A RTICLE
PEER REVIEWED
Work and Resource Breakdown Structures for Formalized BottomUp Estimating

Dr. Parviz F. Rad, PE CCE and Dr. Denis F. Cioffi
ABSTRACT: This article introduces the concept of a resource breakdown structure (RBS). Analogous to the traditional work breakdown structure, the RBS lists in a methodical fashion, the resources with their specific cost rates that are available for the projects contemplated within an organization. Because proper use of the RBS requires precision and standardization in terms of units and dimensions, we review the basic nomenclature and present an example. When combined with a deliverable-oriented WBS, an up-to-date RBS greatly facilitates both initial project planning and the inevitable iterations on the original plans. In particular, the RBS enables simple, but accurate, calculations of the project's costs at the various levels of the WBS and as a function of essentially any variable that the project manager desires. It is a simple but valuable tool. KEY WORDS: Work breakdown structure (WBS), resource breakdown structure, and estimating Breakdown Structures his article is not so much a research article as a practice article. That is, based on a combination of practical experience and academic study, the authors recommend a best practice: the creation and use of a resource breakdown structure. The authors know of few organizations that follow this method, but in those that do, even to a limited extent, project managers can plan with greater assurance of resource reliability. By reliability, we mean that the project manager can depend on the reality of the existence of a resource at-hand and its estimated cost. This practice falls at the interface between general management and project management. The project manager will use the RBS prepared previously by those charged with accounting for the organization's resources. To use it well, the RBS must be kept up to date. Its resource contents and their costs must be accurate. As is explained in the remainder of this article, the RBS has its analog in the well-known work breakdown structure. Managers have a long history of dividing anticipated project work into smaller and smaller parcels and presenting the resulting schema graphically. This "breaking down" of the work facilitates better management in many ways. Similarly, in-house resources should be examined in a methodical manner, at the earliest opportunity, through the creation of the RBS. This structure will greatly facilitate the resource assignments and scheduling in projects that follow. At some point early in the planning stage, the project manager should be provided with a detailed listing of the resources available for the project, including whatever project-specific resources the manager might obtain from outside the organization. The term resources is used to mean everything that will cost money to obtain and is necessary for the completion of the project, (e.g., labor, equipment, licenses, taxes, and so forth). If this initial resource estimate is prepared correctly, the cost of each component can be easily understood. Equally important, the continual improvements that this estimate must undergo can proceed formally. The estimate will be easy to review and improve as more information becomes available. Then, as the almost inevitable changes of scope occur, further modifications to the estimate can be made formally and clearly. They can be justified and defended. Nomenclature, Dimensions, and Units To maintain a consistent nomenclature (and at the risk of being considered pedantic), lets pause briefly here to review the relevant concepts. The word "rate" carries its usual meaning of some quantity measured per unit time, e.g., a worker's cost rate could be measured in dollars per hour. If there is a need to discuss the expense of singular items, (e.g., cans of paint), the cost is not a rate but simply so many dollars per can; the unit may be called "each." "Effort" equals the product of workers and time, measured in worker-hours, worker-days, worker-months, or worker-years. At any given point in the project, the effort divided by the appropriate unit of time gives the number of workers, e.g., if a project requires an effort of 100 worker-years, completion over a year's duration would require 100 workers, but to be completed in six months (i.e., 0.5 years) 200 workers would be needed. This "instantaneous"
worker need is implied when a project task's "intensity" is discussed. Because workers are paid, effort can be viewed as equivalent to cost. Units must be retained in such arithmetic, whether explicitly or implicitly, so the translation from effort to cost occurs through the cost rate per worker, (e.g., worker-hours times dollars per hour per worker yields dollars) See Figures 1 and 2 for fanciful illustrations of these calculations). One makes "estimates" through this conversion. That is, if in shorthand notation one speaks of estimating an element of the WBS, ultimately the cost is desired, but in the first, sometimes hidden (or skipped!) step, one must estimate the effort. Clarity is needed about the terminology because this article explains how to use the RBS in conjunction with the work breakdown structure to determine the total project cost by estimating the costs of all elements at the lowest levels of the WBS; the work follows [2]. To begin, a proper work breakdown structure is described in detail. Work Breakdown Structure A good WBS simplifies the project by dividing the effort into manageable pieces. (Figure 3 shows the common format, and Figure 4 gives an example.) It encourages systematic planning and reduces the possibility of omitting key project elements. A good WBS provides a common framework for all project deliverables and for specific tasks within the project. It therefore smoothes communication among those implementing the project, which in turn improves the integration of project plans for time, resources, and quality; a good WBS ultimately produces better schedules and better cost estimates. In short, a good WBS anchors a project's plans and improves planning, estimating, monitoring, and controlling. The WBS provides a roadmap for all facets of the project, including the following. work definition; cost estimates and expenditures; time estimates and scheduling; resource allocation and budgeting; project plan changes; performance and productivity; To achieve the desired consistency in the WBS, in any branch of the hierarchy, the transition from one level to the next level must follow similar criteria. That is, the characteristics that differentiate "parents" at one level from their "children" at the next lower level should be similarif not identical throughout the structure. Ultimately one wishes to create a WBS that highlights a logical organization of products, parts, or modules (or whatever the various project components are termed at the different levels) associated with each element of the WBS. As project plans develop, not only can whole WBS summaries of resources be created,
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The so-called product basis refers to those electrical system, the mechanical system, or the cases where the project is divided into distinct skeleton of a building. The physical-area basis highlights the components that ultimately come together to create the project, such as hardware, software, a geographical or physical locations of the physical structure, a concrete foundation, a deliverable, (e.g., south side, north side, top floor, or entrance. steel roof. A task or activity basis refers to actions A functional basis references the functional systems that are usually interwoven taken by project team members in executing through the product and provide the the project, such as coding, excavating, pouring, infrastructure for the project deliverable. forming, polishing, programming, testing, and WBS Development The entire project sits at the top level of the Examples of functional systems include the so forth. A sequential basis reflects the order in which activities are performed, such as Phase I, WBS, which is referred to as level zero. Developing a WBS involves subdividing the project into three to nine deliverable elements at the next level, level one (the basis of the division is addressed below). Then each of the level one items will be divided into three to nine level two items, and each of the level two items will be divided into three to nine level three items, and so on. The WBS should emphasize real deliverablese.g., "approval" requires a signature on a deliverable piece of paperand as noted previously, at each juncture the basis of the division should be similar, if not identical, for all children at a given level. This process of dividing the deliverable items continues until the planners have divided the project into discrete, manageable items that Figure 1Worker CostA Schematic Representation of Estimating the Cost of Using require relatively simple tasks to complete. This Personnel Over Some Duration. Three George Washington Workers Used for Four Days Yields point may vary from company to company and 12 Worker Days of Effort. Multiplying by the Cost Rate Yields the Cost for That Effort among project managers within the same company. The company's operational philosophy and the size of the project also influence the degree of detail in the WBS, but the specific contents at each level are determined by the nature of the deliverables involved. Ideally, one would maintain a reasonable consistency in the details at the lowest-level elements. Not all branches need go to the same level, but the lowest-level items in the project should possess similar significance. Therefore, depending on the type of project, some branches may go to level two, some to level three, and some to level five or greater. but departmental and divisional summaries can also be made for each WBS item. These summaries use the relationship between the RBS and the WBS to make resource use explicit (what, where, and in what quantity), and so can improve resource forecasting, personnel projections, priority definitions, and good management in general. Figure 2Equipment CostBulldozers Have Replaced the Personnel of the Previous Figure, Division Bases Any given project can be subdivided from and Now the Effort is Measured in Equipment Days. Again the Cost-Rate Factor Yields Cost various perspectives that often reflect the different mind-sets of different managers. For example, the transition from each level in a WBS to the next level may be oriented around schedules or resources, but the most useful (and admittedly the most difficult) WBS will use deliverables as the breakdown basis. Nevertheless, in the interest of completeness, in the list below two other techniques are outlined. Deliverable BasisProduct, functional system, physical area; Schedule BasisTask or activity, sequential Resource BasisDiscipline, administrative unit, budget account.
Figure 3Work Breakdown StructureA Schematic Representation of the Familiar Work Breakdown Structure. The One Big Deliverable at the Top has Been Broken Into Many Smaller Deliverables
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Figure 4WBS ExampleAn Example of a Deliverable-Oriented WBS Phase II, Phase III. The sequence is often dictated by administrative constraints and can be arbitrary. Using these two latter bases is akin to importing the project schedule into the WBS. Managers should not use the schedule to develop the WBS, but instead should use the WBS to develop the schedule. A discipline basis follows job classification, degree classification, or classifications of the skills of employees. Examples of personnel subdivided on a discipline basis are chemists, programmers, test technicians, engineers, and so forth. An administrative-unit basis puts organizational elements into the WBS and indicates the administrative or organizational division lines. Examples of administrative-unit basis items are work done by employees of division A, division B, or the contract office. The budget-account basis infuses the RBS into the WBS and follows the organization's financial structure, with items such as activities paid by US federal funds, state funds, charge account A, or fiscal account B. Again, the authors contend that funding procedures should not influence the fundamental nature of project plans, and the WBS should be used to develop the costs and resource assignments, not the other way around. These orientations can certainly overlap in definition and usage. One person might divide a project on the basis of product, and depending on the type of project, another might view the division as having occurred on the basis of physical location. For example, a given wall inside some physical structure might be viewed as being at a particular place (location) or fulfilling a deliverable requirement (a product). Despite this different perspective, a deliverable basis presents much less opportunity for confusion because all understand the actual object being considered: in this case, a wall. This common understanding also encourages communication and forecasting in earned-value types of calculations. Consider the following hypothetical example. Tasks A1 (a subset of deliverable A1) have just been completed in 109 percent of their estimated time, using 82 percent of their estimated resources. The essentially identical tasks A2 are scheduled for later in the project. Assume that learning and experience curves do not apply and that cost expenditures vary uniformly and linearly with progress. The estimate for A2 must be modified to reflect an 18 percent decrease in resource use with a 9 percent increase in time, which combine to change (presumably) the cost estimate in some way. This calculation rests on the clear identification of the tasks as "essentially identical," with similar elemental representations on a consistent, well-defined WBS. With a deliverable basis, the tasks are tied to a particular object, allowing much less variation than when assigned independently of that object. Finally, consider a possible resource-related correction to the WBS. As a base of reference for scheduling the project, the duration of any element is the longest duration of the resources required for it. If some of the resources for a WBS element need to be applied serially, then it is generally more advisable to divide this element into several serial elements. The rule here is, then, that within a given element, resources may be used in parallel, but not serially. Resource Breakdown Structure An RBS classifies and catalogs the resources needed to accomplish project objectives. As the work breakdown structure does for the deliverable elements of a project, the resource breakdown structure provides a consistent framework for dividing the resources into small
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units for planning, estimating, and managing. (Again a fanciful representation is presented in Figure 5, and a numerical one in Figure 6. In fact, Figure 6 corresponds to the WBS of Figure 4.) Therefore, in many ways, the RBS is analogous to the WBS and claims similar advantages in improving communication, integration, planning, and estimating; monitoring and controlling will be addressed in a subsequent article. An RBS differs from other human resource or budgeting classification methods because it applies directly to project management, not to, for example, cost accounting or personnel evaluations. Rather than developing a new RBS for each project, the organization can develop various RBSs for families of projects. As managers plan each new project, they select only those portions of the common RBS that apply to the project. Here the WBS and the RBS work together: mapping a project's WBS onto the family RBS then links project activities with specific available resources. RBS Development One does not plan a project while developing the RBS. Instead, the RBS tabulates the resources available to projects of a certain type. Developing the RBS starts with dividing the pool of resources into entities specific enough so that one can use this structure as a shopping catalog for resources necessary to accomplish project activities developed in the WBS. As with the WBS, developing an RBS involves grouping all resources into between three and nine categories in level one. Then, each of the level one items is subdivided, and so forth, as described above for the WBS. Consistency in the division bases again remains a crucial component of the structure. Ideally, the rationale that divides one level from the next should be consistent across all children, but at a minimum the division basis at any juncture must be the same for all children of the same parent. One maintains a reasonable consistency in the degree of detail of the lowest-level elements. Here the nature of the resource pool and its administrative environment determine the depths of the levels. Again, as in the WBS, the division process continues until one has identified discrete, manageable resource items. A useful guide here is to keep dividing the project until the lowest level items reflect the resource details that interest the estimators and schedulers. Again, this level of detail varies among companies and project managers. The RBS contains both the unit of measurement for each resource explicitly (e.g., foot, pound, cubic-yard, equipment-hour, labor-hour) and the cost of a single unit of the resource (e.g., $10,000 per equipment-hour). Items that get used entirely in a project can be
Figure 5Resource Breakdown StructureA Schematic Representation of a Resource Breakdown Structure. The George Washington's Represent Generally Available Personnel, and the Bulldozers Represent Equipment Resources measured as "each," for example installed motors, doors, computers, hard disks, and so forth. The RBS may list either direct costs or total costs, (i.e., including overhead), but all resource costs should be measured identically, with or without overhead. To remind us of the importance of this consistency in the measurement units (and many other consistencies), look at the example of the Mars Climate Orbiter, which failed in September 1999, because one navigating group worked in English units and the other in Metric units [1]. Moreover, a tighter consistency is recommended than this minimum requirement of working in the same system. For example, the measurement for all timerelated elements can be one of hours, days, months, or years, but the chosen unit should appear in all appropriate quantities (unless the numbers become unreasonably large or small). The same statement can be made about all other dimensions and combinations of dimensions involved in the project, e.g., length (inches, feet, yards, centimeters, meters, kilometers) or volume (gallons, cubic yards, cubic centimeters, cubic meters). Limited resources may be indicated as part of the RBS. For example, one would mention that 14 civil engineers are available for a new project; or two cranes; or 35 brick layers; or four programmers; or three photographers; and so forth. On the other hand, for high-priority projects some resources may be limitless. The project environment may be such that it would allow, for example, as many CAD operators as demanded by the project; or contract officers; or safety engineers; and so forth. As with the WBS, the RBS can be presented graphically, in a tabular fashion, or using indented text. The Primary Division Basis The best (though not necessarily the only) lines of demarcation among the elements at the first level of the Resource Breakdown Structure are the following. people (labor); tools, machinery; materials and installed equipment; and fees, licenses
The labor category is often referred to as human resources. It includes, for example, skill categories, professional disciplines, and work functions. All possible human resources should be listed here, regardless of their physical location, administrative attachment, or contractual circumstances. Tools and machinery are those physical items needed by project team members to perform their duties successfully. When the
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Internet Caf Project (Costs include overhead) 1.1 Management 1.1.1 General Manager 1.1.2 Engineering/Design Manager 1.1.3 Construction Foreman 1.1.4 Analyst 1.1.5 Marketing Manager 1.1.6 Business Lawyer 1.2 Design 1.2.1 Mechanical Engineers 1.2.2 Computer Engineers 1.2.3 Computer Installer 1.2.4 Electricians 1.2.5 Carpenters 1.2.6 Painters 1.2.7 Architects 1.2.8 Survey Staff 1.2.9 Questionnaire writers 1.2.10 Workers 1.3 Front Staff 1.3.1 Asst. Manager 1.3.2 Waiters/Waitress 1.3.3 Bartenders 1.4 Kitchen Staff 1.4.1 Chef 1.4.2 Asst. Chefs 1.4.3 Dishwashers 2.0 Equipment 2.1 Computer 2.1.1 Internet Server 2.1.2 Workstations 2.1.3 Printers 2.1.4 Scanners 2.1.5 Computer Tables & Chairs 2.2 Kitchen 2.2.1 Chinaware 2.2.2 Silverware 2.2.3 Glasses 2.2.4 Coffee cups & Saucers 2.2.5 Pots & Pans 2.2.6 Stoves 2.2.7 Ovens 2.2.8 Coffee machine 2.2.9 Refrigerator 2.2.10 Dining Tables & Chairs 3.0 Tools 3.1 Hand Tools 3.2 Survey Equipment 3.3 Advertisements 3.3.1 Radio 3.3.2 Newspapers 4.0 Materials 4.1 Decoration 4.1.1 Paint 4.1.2 Wall Papers 4.1.3 Glue 4.1.4 Frames 4.1.5 Flowers 4.2 Electrical 4.2.1 Wire 4.2.2 Light Bulbs 4.2.3 Switches 4.2.4 Air Conditioner/Heater
Units of Measure Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr. Hr.
Cost/Price (Dollars) 15.00 50.00 15.00 60.00 10.00 80.00 40.00 40.00 12.00 12.00 12.00 7.00 40.00 5.00 10.00 7.00 11.00 2.13 5.75 12.00 7.50 5.25
18 payments, monthly 18 payments, monthly 6 payments, monthly 4 payments, monthly Each Each Each Each Each Each 10 payments, monthly Each Each 18 payments, monthly Each Hr. Hr. Each Each
115.00 35.00 50.00 25.00 50.00 4.00 10.00 1.00 1.50 15.00 50.00 200.00 50.00 80.00 100.00 5.00 2.00 50.00 200.00
Gallon Sq. Ft. Gallon Each Each Foot Each Each 10 payments, monthly
12.00 0.50 8.00 10.00 0.50 0.20 1.00 1.00 100.00
Figure 6Internet Caf Project (Costs Include Overhead)

project ends, the project team will remove the tools and machinery from the project environment. Examples of items in this category are testing equipment, hand tools, equipment to install project deliverables, and computers to monitor and evaluate the installation process. These items are usually leased or rented. Purchasing this type of item can be more cost effective for lengthy projects, but these items will still be removed from the project site. When tools and machinery are rented or leased, the leasing agency sometimes rolls the wages of the operator into the rental fee of the equipment. This practice blurs the line between the human and physical resources. For planning and cost estimating, however, some organizations treat the operators as an integral part of the physical equipment. Installed equipment and materials are purchased for the project and ultimately installed, integrated, and embedded in the project deliverables. Examples include fiberoptic cables, furniture, tape drives, monitoring equipment, pumps, ducts, and computers. Fees and licenses refer to those cost items that do not involve any implementation or installation but are required for the execution of the project. Examples include insurance policies, bond agreements, permit fees, license charges, and taxes. Complications arise when the client provides some combination of equipment, funding, and personnel. Although in such cases the detailed solution varies depending on the nature of the project and the priorities of the organizations involved, the most general approach still lists all of necessary project resources in the RBS regardless of how they will be funded. Once the total project cost estimate is prepared, the client-furnished equipment and labor costs can be subtracted from the resources requested by the project manager or the contractor. From our perspective, money is not a resource in this breakdown structure. Money represents the primary means by which resources are provided. To illustrate the validity of this concept, consider that for internal projects, money is often not the exchange medium. Although resources such as worker hours or equipment may then be granted directly, the project manager should still perceive them as resources to be husbanded. After the mapping of the WBS onto the RBS, which is represented schematically in Figure 7, the money necessary for the project can be estimated through the sum of the products of two numbers, the resource quantities demanded by the WBS and the corresponding RBS unit costs. That is, for each element at the lowest level of the WBS, one multiplies the desired quantity of the resource by its cost per unit of appropriate measure to yield cost. Because one often considers the multiplication implicitly,
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the sum of the resource estimates from the WBS is equivalent to the total cost estimate. Lower-Level Division Bases, With a Concentration on Human Resources One can categorize equipment, supplies, tools, and material by size, function, cost, or technical area. Fees can be divided by type or by cost. Aside from the above general guidelines, equipment, materials, and fees are highly discipline dependent and must be dealt with on a project-by-project basis. The categorization of people deserves a bit of amplification, however, because it is common to all projects, and because people are the most important resource in any project. Ideally, the project manager plans, estimates, and manages all tasks and resources independent of where the resources reside, administratively or physically. But if a human resource item is part of an outside organization that the project manager intends to hire for a individual task, then that task and its associated resources should not be regarded as part of the project at hand. If the project manager does not manage a certain resource, he has no major influence in the use of the resource; aptly named, the resource and the resulting product are "outsourced." The level of detail with which a human resource is defined in an RBS naturally depends on the organization, the project, and to some extent on the individual project manager. But with that obvious caveat stated, now its time to consider further the transition from one human-resource RBS level to the
next, which should occur on one of the following bases. 1. 2. 3. 4. 5. 6. administrative unit physical location credential (in a particular discipline) work function position title skill level
Managers sometimes divide human resources on the basis of their administrative affiliations, such as company A, Contractor X, or Organization D. In other cases, one might prefer to catalog the resources into groups based on physical location, especially as it relates to proximity to the project site, (e.g., human resources from Los Angeles, Boston, Southern Plants, or Western Contractors. The credential-discipline basis is used when people need to be identified with their degree specializations, their certifications, or by other recognized credentials. Examples of these divisions are: those with a degree in chemistry, those who hold a professional engineer's license, those who hold a CPA certification, or those with master's degrees. A work function basis is used when, independent of the credentials people hold, managers must know workers' functions. Examples of such divisions are programmers, test technicians, supervisors, team leaders, equipment operators, designers, estimators, project control specialists, and so forth. Position title basis is required when, independent of credentials or job functions,
people's places in the organizational hierarchy determine their duties in the project. Examples of such divisions are contract officers, program directors, department chiefs, divisional VPs, and so forth. When it is appropriate to classify project personnel by their degree of effectiveness and skill, project managers can use the skill basis, e.g., expert, skilled, and semi-skilled. Again, it is suggested that one maintain a reasonable level of consistency in grouping the resources. For example, whether labor items are categorized by degree, job title, or job function, the categorization should be consistent across all labor items at that level of the RBS. Estimating Costs To demonstrate the power of these tools, working in tandem; the diagram shown as Figure 7 captures the essentials of the process and can be used as a guide. Begin at the lowest level of the WBS, which is denoted as Level N. Calculate the cost of each element by multiplying the quantity of resources required by its unit cost, which is obtained from the RBS (Figures 5 and 6) . But, do not hide the details: the category of the resource, its intensity, and its duration. For example, if a project needs three brick layers for four days to build a wall, then the category is brick-layer, the intensity is three workers, the duration is four days, and the effort is 12 worker-days. At a unit cost of $300 per worker per day, the cost is $3600. One could find the total cost of the project by adding all these costs together, but so many numbers are somewhat unwieldy, and such a calculation hides the additional
Figure 7A Schematic Representation of Using Particular Portions of the Resource Breakdown Structure With the Work Breakdown Structure to Estimate the Total Effort Needed for a Specific Lowest-Level Element. The Cost Then Comes Directly From Multiplying the Effort by the Cost Rate. This Calculation is Performed Only at the Lowest Levels of the WBS. Any Number at a Higher Level is the Sum of its Branch at the Lower Levels.
information that will subsequently be easily obtained. In the next step, one moves up a level to determine--- by simple additionthe total quantity of resources necessary for all elements at level N-1, grouped by resource-category. The process repeats, proceeding from bottom to top, until each element of the WBS shows the total resources it requires, grouped by resource category. Ending at level zero, you have now estimated the project's total resource expenditure, as well the costs of all subunits defined in the WBS. As in any method of estimating, one must check the estimate against experiential data and the subjective knowledge of management professionals. The first key question to ask at this point is: Is the estimate for the total cost of the project reasonable? Poor overall estimates often result from inadvertent omissions in the WBS and the RBS. Therefore, correction primarily comprises filling the holes of the WBS. Correction may also include improving elemental estimates at the lowest levels, but one should not change an elemental estimate arbitrarily from what one believes is the best estimate. Further, one should not change the estimate values for those items above Level N, (i.e., those items that are parents of lower-level items). Remember that all parents' estimates are derived from sums of lower-level estimates, not from direct input. Project planning should evolve continually. As more information becomes available, the WBS, the estimates, and the schedule must be updated and (one hopes) refined. Ideally, these enhancements should be conducted frequently rather than only for specific administrative milestones and budget deadlines. At every update opportunity, the enhanced WBS (and if necessary, an enhanced RBS) should be used to refine the elemental estimates. Using a good WBS with an accurate RBS, one can ask detailed cost and resource questions about the project, such as: What is the total number of worker-hours needed for module A? How many worker-hours of chemists are needed for modules A, B, and C? When these tools are combined with good temporal estimates to produce a valid schedule, one can then ask questions that involve detailed time and resource issues together, such as: How many programmers are needed across the entire project in July? How many engineers are needed for module C during July? Would the demand for client-side programmers be reduced next July if module B is postponed by three months? How many more analysts would be needed next February if the scope of module D is doubled?
How would doubling the scope of module G affect project cost, schedule, and resource requirements? If module F were to be delayed six months, what would the resulting cost and schedule look like?
4.
5.
mong other factors, project success depends on clear planning, good communication, and regular updating. In this article the focus has been on the importance of well-defined, accurate, consistent, and complete work and resource breakdown structures. With these two planning tools, a manager can make a systematic and accurate estimate of the project's required resourcesand therefore its cost. Once deliverable-oriented WBS elements have been developed for a project, producing a cost estimate becomes a simple matter of mapping the WBS onto the RBS and assigning the appropriate resources to individual WBS elements. This methodical approach may initially require some extra effort, but if an organization regularly produces and maintains its RBS families, the process becomes second nature. The project manager's anxiety about cost estimating will decrease, and the organization will achieve significant efficiencies in planning, scheduling, and monitoring. x
International Transactions, (June 23-26 1991): I.6.1-I.6.7 Rad, P.F., Considerations in Computerizing a Project Control System, Clinical Research Practices and Drug Regulatory Affairs, 1986. Rad, P.F., Elements of an Effective Project Management System, CRP&RA, 1986.
ABOUT THE AUTHORS Dr. Parviz F. Rad, PE CCE, is a current member of the AACE International Education Board and holds a masters of science degree from Ohio State University and a Ph.D. from the Massachusetts Institute of Technology. He has served in governmental, industrial, and academic capacities in software development, construction, and pharmaceutical environments. Dr. Rad has been involved with the implementation of graduate degree programs in construction management, engineering management, and systems engineering. He has been recognized as a Professional Civil Engineer, a Certified Cost Engineer, and as a Project Management Professional. The author can be contacted by e-mail at: project.management@comcast.net. Dr. Denis F. Cioffi, earned his doctorate in astrophysics from the University of Colorado in Boulder, Colorado. After astrophysics research at the University of California at Berkeley, the Goddard Space Flight Center, and North Carolina State University in Raleigh, his science background led directly to project and program management experience at various US federal agencies. The transition to management comprised positions at the National Science Foundation, NASA Headquarters, and the Office of Science and Technology Policy in the Executive Office of the President. He came to George Washington University from the Center for Science, Trade, and Technology Policy at George Mason University. Dr. Cioffi became Director of the Project Management Program in the summer of 2001. For more information (resume, publications, recent papers) visit his homepage at www.cioffi.us or contact him by email at Professor@Cioffi.us. Editors note: This article is an adapted excerpt from a book by Dr. Parviz F. Rad, PE CCE, titled, Project Estimating and Cost Management, which was published by Management Concepts of Vienna, Virginia, in 2002.
ACKNOWLEDGMENT We thank Arisara Ongthongkum for providing the original versions of the "Internet Caf" Resource and Work Breakdown Structures. REFERENCES 1. Kerr, Richard A. "A System Fails at Mars, A Spacecraft is Lost," Science, (November 1999): 19; 286: 1457-1459. 2. Rad, P.F. "Deliverable-Oriented Work Breakdown Structure," 1999 AACE International Transactions, CSC 02. Worker Cost (1999).
RECOMMENDED READING 1. Bergseth, Robert R., Insuring Quality in Government Systems Acquisition Through the Use of Work Breakdown Structure, PMI Seminar (Sept. 1991): 696-701. Hauser, Michael A., WBS Development for a Billion Dollar Transportation Project, Proceedings of the 38th Annual Meeting of AACE International, (June 19-22, 1994): TR.4. Postula, Frank D., WBS Criteria for Effective Project Control, AACE
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Technical Articles - Each month, Cost Engineering journal publishes one or more peerreviewed technical articles. These articles go through a blind peer review evaluation prior to publication. Experts in the subject area judge the technical accuracy of the articles. They advise the authors on the strengths and weaknesses of their submissions and what changes can be made to improve the article.
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T AACE I The he AACE International Bulletin
Submitted photo
Submitted photo
On Saturday, Dec. 13, 2003, AACE International Atlanta Section members and their spouses/guests gathered for a holiday social. Some of those attending are shown above.
Cascade Section President, Ted Downen, above left, presents December 2003 guest speaker, Chester Machnieweki of Building Envelope Engineering, a certification of appreciation for his topic on Water Intrusion and Mold in Buildings.
Atlanta Section The month of December found the Atlanta Section enjoying both business and pleasure. For business, on Saturday, Dec. 6, Albert Kwong, CCE, and Gene Reed, CCE, proctored the Fourth Quarter 2003 Certification Exam at the Atlanta offices of Hanscomb, Faithful and Gould. The importance of certification for the individual, as well as the employers, continues to grow and is reflected in the number of candidates at each Atlanta Section certification exam date. On the following weekend Saturday, AACE International members and their spouses/guests gathered for a holiday social. With cold, wet, winter weather outside and a warm fire in the living room fireplace, conversations were on family, friends, and holiday plans leaving total cost management thoughts for the January membership meeting. Cascade Section The December meeting of the Cascade Section (western Oregon and southwestern Washington) featured a program titled "Water Intrusion and Mold in Buildings." Guest speaker Chester Machniewski, P.Eng., of Building Envelope Engineering, gave a demonstration and presentation on the effects of water intrusion caused by improper building techniques. Mr. Machniewski, a structural engineer, has been involved in fixing buildings for over 20 years with increasing concentration on preventing the failures that are now referred to as the "leaky condo syndrome." Mr. Machniewski showed slides of a building with severe water leakage that was less than five-years-old. Not only was there the deterioration of the building envelope, but also damage to the structural supports as well. He showed how this situation was corrected with proper membrane and flashing techniques, plus the use of a system known as rainscreen. For the Section Vendor Showcase, Joe Guzman and Paul Spadoni of Constructware, gave a presentation on this internet desktop project management tool for construction. The meeting, at the Downtown Doubletree Hotel in Portland, had 30 members and guests in attendance.
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Constructware representatives, Paul Spadini, at left, and Joe Guzman, above center, gave an overview of their products for the Vendor Showcase portion of the Cascade Sections December 2003 meeting. The two are shown with Cascade Section Treasurer, David Larson.
Chinook-Calgary Section The Chinook-Calgary Section had a very interesting technical dinner meeting in November 2003 with another record breaker of 72 attendees. This is because of the exceptional topics that the board has been organizing over the past few years. The November topic was, Oilsands: Alberta's Opportunity to Become a Significant Oil Exporter. Key drivers for this opportunity are: growth in US market demand for international imports of crude, significant improvements in bitumen production and technology, robust project economics, and improved risk management. Some facts of bitumen resources are: Alberta holds the world's largest deposits of oilsands with an estimated 2,500 billion barrels of bitumen in-place, the AEUB estimates that 309 billion barrels are recoverable, and that Alberta accounts for 75 percent of the worlds oilsand resources. Alberta will continue to overcome the industry perception on recent mega projects, push to reduce operating costs, continue tax and royalty incentives,
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The Chinook-Calgary Sections November 2003 meeting featured Adbulla Harji, as speaker. His topic was, Oilsands: Albertas Opportunity to Become a Significant Oil Explorer.
Submitted photo
actual project data, as well as the basic rules for the proper alignment of crafts to one another. Mr. Whiteside has over 25 years of design engineering and project controls experience in chemical and petroleum facilities and holds six US patents in the refining industry. He has made several of these presentations at recent AACE International and Aspentech conferences. He is involved in the pacesetting project performance analysis for ConocoPhillips and is known for his broad innovative talents. Mr. Whiteside is also the recipient of the Award For Excellence for successful development and implementation of Phillips' project management process. Southern California Section The November section meeting had two presenters, Philip Kirby and Tony Grissim. Mr. Kirby, from Hanscomb-FaithfulGould, gave a technical presentation concerning the essential differences between quantity surveying and cost engineering. Among other things, the presentation discussed the history of quantity surveying and process of cost control compared to cost engineering. Later in the evening, Mr. Grissim, from Cyra Technologies, Inc., a Leica Systems company, discussed 3-D laser scanning methods and benefits associated with using this new technology on construction projects. The portable survey instrument sits atop a tripod and the scanner remotely captures the surrounding scene. He demonstrated the use of 3-D laser scanning by scanning the meeting room and demonstrating the quickness and accuracy of the survey results. He also discussed several case studies of construction projects where 3-D laser scanning was used and the resulting cost and schedule benefits. Mr. Grissim illustrated the benefits of 3-D laser scanning on construction projects including: reduced capital costs, improved project schedules, better project management and control, higher quality construction using accurate piping as-builts for retrofits in existing plants and improved safety. In January, there was a joint meeting of the Southern California Section and PMI Los Angeles. The meeting was on a trophy that was awarded to the Alameda Corridor Engineering Team (ACET). The meeting talk was presented by Duane Kenagy. He discussed the reasons why the Alameda Corridor project was so successful. The Alameda Corridor consisted of more than 20 separate construction contracts passing through eight government jurisdictions. The project was innovative in the formation of the Alameda Corridor Transportation Authority
absorb the Kyoto impact, and continue diligent risk management. Connecticut Section The January presentation at the Connecticut Section described the implementation of a facilities management data base at eight Pfizer facilities in the US and the UK. The program is used to manage both space (all buildings occupied by Pfizer research) and maintenance functions for all major equipment in these facilities. Dave Goodrick, from Pfizer's Research and Development Facilities Management and Engineering Department, spoke about the effort to standardize these functions throughout the Pfizer research enterprise. Mr. Goodrick also discussed the change management aspects of this project, which were at least as challenging as the system implementation itself. Houston Gulf-Coast Section The Houston Gulf-Coast Section had another great turnout at the December 2003 meeting. Over 50 people attended the meeting for a Two for One Buddy Night (members plus spouses/significant others and/or non-member project controls professionals). The speaker was a representative from a local placement firm who has worked with several of Houston's section members. They spoke about project controls opportunities in the Houston area, how to stand out above other candidates, resume and interview do's and do not's and the job market outlook for the up-coming year. Also, the speaker stressed the importance of networking through organizations such as ours. January's section meeting featured Jim Whiteside presenting "Craft Curves for Estimating." Mr. Whiteside gave a demonstration of a quick method of assembling a resource loaded construction schedule. He discussed how to make templates from
Submitted photo
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Allen Hamilton, CCE, above left, of the New Jersey Section, presents a certificate of appreciation to the Sections December 2003 meeting speaker, Harvey Welker, an AACE International member.
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Members of the New Orleans Section are shown at a 2003 meeting when the Section hosted the Vice President-Regions as its guest speaker.
(ACTA), a joint powers authority board that included representatives from cities affected, ports of Los Angeles and Los Angeles County Metropolitan Transportation Authority. The project increased the surface rail transportation to accommodate cargo passage from the port, while lessening commercial rail impact on surrounding communities. This enhanced port cargo efficiency by consolidating rail lines that serve the port and increased public safety through elimination of more than 200 at-grade railroad crossings. The Alameda Corridor project is an essential component of the South Coast Air Quality Management District cleanair attainment program. St. Louis Section The St. Louis Section gathered in December for a holiday gathering, dinner, shopping in December at the new St. Louis Mills Mall. The mall opened in November 2003 and is a new concept in shopping with over 200 specialty shops and a dozen anchors, a variety of dining options, and interactive entertainment with an ice skating rink (Ice ZONE - the new practice facility for the St. Louis Blues), NASCAR SpeedPark, ESPN X Games Skatepark, 18-screen Regal Cinemas, and indoor miniature golf course. The meeting and dinner were conducted at Tony Roma's Ribs Restaurant. Twenty-five AACE International members and their families attended. In the spirit of Christmas, several donated gifts were given away. Promotions were made for the new PSP exam and the Annual Meeting in Washington DC in June, 2004. Shopping time was allowed after the dinner meeting. x
Each Section of AACE International is encouraged each month to send bulletin items, photos of program presentations, section activities, and tours. Please also send news of individual section members who have excelled at work or have been honored or recognized for special accomplishments. How to submit to the Cost Engineering journal: All submissions should be e-mailed to the Administrator of Membership and Section Services, MaChal Stacher at mstacher@aacei.org. Information may be included in the body of the e-mail or as an attachment. Microsoft Word files are the preferred format. All photos should be sent as PC tiff or jpg files at 300 dpi. If submitting at only 72 dpi, please send the photo as large as possible as conversion will reduce its size. Include the names and titles of each person shown in any photos. Note on Section identification in submissions: In the write ups submitted to AACE International for the Bulletin section of Cost Engineering journal, as well as in Section newsletters and website articles, many times AACE International Sections are referred to as chapters. The correct reference should always be to a Section. AACE International does not have chapters. Please do not refer to Sections as chapters. Note on the listing of dates: If an event is during the month of publication, it will be listed as an upcoming event even if members will not receive their journal in the mail until after the listed event. The journal goes to press about a month in advance of delivery, the issue date is always the first of each month, and the electronic version should be posted by that date. AACE International reserves the right to edit all submissions and to refuse to publish any submissions determined by the editor or executive director to not meet the standards of the journal. Anyone with questions on submitting copy or photos may contact Managing Editor Marvin Gelhausen at mgelhausen@aacei.org, Graphic Designer/Editor Noah Kinderknecht at nkinderknecht@aacei.org, or the Administrator of membership and Section Services, MaChal Stacher at mstacher@aacei.org
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A r ticle
Reprints and Per missions
Cost Engineering Journal, Volume 46/Number 2, February 2004
Pages 18-20
The Keys to Forecasting #1 Scope

Readers of the Cost Engineering journal can purchase copies of selected articles that are published with an AACE International reference number at the end of the article. Articles can be delivered in print form or in Adobe Acrobat (PDF) format. Please refer to the AACE International reference number when contacting our Publications Sales department. To Order Contact: Nancy Merrifield, Administrator, Publications Sales at nmerrifield@aacei.org Reprint Prices: Quantity Member/Non-Member 1-9 copies $5.00/$7.50 10-49 $4.50/$7.00 50-79 $4.00/$6.50 80-99 $3.50/$6.00 100-499 $3.00/$5.50 To Contact Us AACE International 209 Prairie Avenue, Suite 100 Morgantown, WV 26501 USA Phone: 304.296.8444 Fax: 304.291.5728 For Information On Other Reuse Requests If you are seeking permission to copy, quote, or translate into another language any material from any issue of the Cost Engineering journal, please contact our Managing Editor, Marvin Gelhausen at mgelhausen@aacei.org
This is the second in a series that will look at forecasting. They presented in a non peer-reviewed James E. Baar and Stephen M. CCC.
of articles are being format by Jacobson,
Reprint 20800 Pages 25-30

Lori A. Floyd, CCC
There are numerous types of contracts available to implement in the execution of capital projects. These various contract forms all have their advantages and disadvantages and are implemented based on evaluation of the individual project. Many factors can play a role in which contract type will be employed. These include, but are not limited to, schedule constraints, level of project definition, project size, local economic climate/conditions, resources available and company financial status. The project control needs will be discussed as related to the major contract types. These major contract types include, reimbursable and lump sum. Variations of these contracting strategies include bonus/penalty clauses, incentives, and fixed fees. (Although unit rate is a version of lump sum, it will not be discussed in this article as reimbursable and lump sum as these are the two most common types of contracts in North America).
This article introduces the concept of a resource breakdown structure (RBS). Analogous to the traditional work breakdown structure, the RBS lists in a methodical fashion, the resources with their specific cost rates that are available for the projects contemplated within an organization. Because proper use of the RBS requires precision and standardization in terms of units and dimensions, we review the basic nomenclature and present an example. When combined with a deliverable-oriented WBS, an up-to-date RBS greatly facilitates both initial project planning and the inevitable iterations on the original plans. In particular, the RBS enables simple, but accurate, calculations of the project's costs at the various levels of the WBS and as a function of essentially any variable that the project manager desires. It is a simple but valuable tool.
Reprint 20802
Cost Engineering Submission Guidelines

Cost Engineering is a peer-reviewed technical journal. All technical articles undergo a blind peer-review evaluation. Certification articles are forwarded from the Certification Committee and reflect selections from among the top 10 percent of graded submittals. Feature articles are not peer reviewed and are selected by an AACE International Headquarters committee. All submittals for possible publication should be e-mailed to editor@aacei.org All technical paper submissions for peer-review should be between 1,500 and 4,000 words in length. An electronic file is required and can either be an e-mail (with the text included within the e-mail or as an attachment) or on an IBM-compatible disk that is mailed. Authors should remember that all figures, graphs, and tables will be printed black and white and should therefore avoid using color coded bar charts, etc., as the differentiating color distinctions will be lost in the printed version. Figures, graphs, and tables can be included where they should fall within the text, or reference tagged with instructions to insert here. Individual electronic copies of all figures should be included as a separate file or files. No more than 12 small graphic items should be used with any submission. This is a combined total for figures, graphs, and tables. No item larger than 8.5 x 11 should be used and full page or multiple page figures, graphs, and tables should be avoided. A notarized Publication Agreement, signed by each author, is required for all submittals and should be included when the submission is first sent. If you have any questions or need additional assistance, please send an e-mail to editor@aacei.org or visit our website at www.info@aacei.org
Reprint 20801 Pages 31-37
Work and Resource Breakdown Structures for Formalized Bottom-Up Estimating

Dr. Parviz F. Rad, PE CCE, and Dr. Denis F. Cioffi
42
C Calendar alendar of Events

February 2004 2-4 2004 Six Sigma Conference, The
American Society for Quality (ASQ), Point Hilton Squaw Peak Resort, Phoenix, AZ Contact: http://sixsigma.asq.org/index.html
March 2004 4 Outlook 2004: The Construction

Conference Exposition, Western Council of Construction Consumers (WCCC), The Radisson at LAX, Los Angeles, CA
Contact: 818-735-4733 fax 818-735-4738 marilyn@wccc.org www.wccc.org
17-21 ICEC 4th World Congress 2004, International Cost Engineering Council (ICEC), Cape Town, South Africa
Contact: www.icec.com
20 7th Annual Spring Conference,

Genesee Valley Section of AACE International, Monroe Country Club, Rochester, NY Contact: Douglas W. Leo, CCC phone 585-722-6466 Douglas.leo@kodak.com
4-6 Fundamentals of Indoor Air Quality

- Core Skills for the Building Professional, The Association of Energy Engineers (AEE) and The Environmental Engineers & Managers Institute of AEE (EEMI), Radisson Deauville Miami Beach, Miami, FL
Contact: 770-925-9633, fax 770-381-9865, www.aee.center.org
12-14 Western Winter Workshop,

San Francisco Bay Area and Southern California Sections of AACE International, Doubletree Hotel, Monterey, CA Contact: Tom Clarkin, CCE phone 415-768-3113 fax 415-768-4909 trclarki@bechtel.com
21-23 The TFM ShowTM Building

Automation Pavilion, The Continental Automated Buildings Association (CABA), co-located with the CSI ShowTM, McCormick Place, Chicago, IL
Contact: caba@caba.org www.caba.org
5-6 Leadership Development for the

Engineer, American Society of Civil Engineers (ASCE), Alexis Park Resort, Las Vegas, NV
Contact: www.asce.org/conted/
16-19 Pipeline Automation + Control Conference, Munich, Germany

Contact: info@pipeline-automation.de www.pipeline-automation.de
May 2004 14 Early Registration Deadline for

AACE Internationals 48th Annual Meeting, AACE International, Washington DC
Contact: info@aacei.org www.aacei.org
18-19 A/E/C Systems Annual

Tradeshow and Conference, A/E/C Systems- Technology for Design and Construction, Orange County Convention Center, Orlando, FL
Contact: Hanley-Woods Exhibitions phone 972-536-6380, fax 972-536-636, www.aecsystems.com
22-26 TUgis Annual Geographic Information Sciences Conference, Planning, Prevention, and Response: GIS and Homeland Security, Center for Geographic Information Sciences, Towson University, Towson University Campus, Towson, MD
Contact: Susan Wooden phone 410-704-5297 swooden@towson.edu
June 2004 13-16 AACE Internationals 48th

Annual Meeting, AACE International, Washington DC
Contact: info@aacei.org www.aacei.org
24 Specifying with PVC

Geomembranes, PVC Geomembrane Institute (PGI), Radisson South, Bloomington, MN
Contact: Chris Smith phone 217-333-3929, www.pvcgeomembrane.com
April 2004 6-8 ASME/IEEE Joint Rail Conference,

American Society of Mechanical Engineers (ASME) and the Institute of Electrical and Electronics Engineers (IEEE), Baltimore, MD Contact: John Varrasi phone 212-591-8158, varrasij@asme.org, www.asme.org Editors Note: Please submit items for future calendar listings at lease 60 days in advance of desired publication.
31 Deadline to Submit Abstracts for

Italian Society for Total Cost Managements 2004 Forum
Contact: info@aice-it.org
AACE International, 209 Prairie Avenue, Suite 100, Morgantown, WV 26501 USA phone: 304-296-8444 fax: 304-291-5728 e-mail: mgelhausen@aacei.org or nkinderknecht@aacei.org website: www.aacei.org
AACE I nternational B ookstore

o r d e r o n l i n e a t w w w . a a c e i . o r g
Cost Engineers Notebook This CD-ROM is an important reference for any project or cost professional. It includes data and procedures related to basic skills and knowledge that all cost engineers should possess, extensive material on capital and operating cost estimation, and papers in four subject areas: cost control, planning and scheduling, project management, and economic analysis and business planning. 4060-01CD-ROM US$75.00 member/US$115.00 nonmember AACE International Recommended Practices Standard Cost Engineering Terminology; Cost Estimate Classification System; Estimate Preparation Costs in the Process Industries; Project Code of Accounts; Required Skills and Knowledge of a Cost Engineer; Roles and Duties of a Planning and Scheduling Engineer; Profitability Methods; plus many more. 4060-03 3-ring binder version US$65.00 member/US$155.00 nonmember 4060-05 CD-ROM US$65.00 member/US$105.00 nonmember Skills and Knowledge of Cost Engineering, 4th Ed (available in paper or CD-ROM format) Richard E. Larew, Editor, 2002 This updated and expanded guide for fundamentals is an excellent choice for anyone interested in a concise reference to all aspects of the profession. The 4th edition includes 27 chapters on estimating, manufacturing and operating costs, scheduling, planning progress and cost control, and much more. This is a very useful book for those studying for the certification exam. 282 pages 1542-05 paper version US$28.50 member/US$42.50 nonmember 1542-06 CD-ROM US$28.50 member/US$42.50 nonmember AACE Internationals Certification Study Guide, 2nd Ed-Revised (also available in CD-ROM format) The AACE International Certification Study Guide provides an allencompassing reference text to prepare for the exam. The Certification Study Guide provides background information on how to become certified; gives those studying for the certification exam a single reference text that includes theory, worked problems with answers, references, and a full discussion of key topics; allows students to maximize their study time; and provides a concise overview of the fundamentals of cost and project management. 1820-32 paper version US$49.50 member/US$64.50 nonmember 1820-33 CD-ROM US$49.50 member/US$64.50 nonmember Advanced Skills and Knowledge of Cost Engineering 1541-07 CD-ROM US$22.50 member/US$32.50 nonmember Control and Management of Capital Projects, 2nd Ed John W. Hackney; Kenneth K. Humphreys, Editor, 1997 AACE is pleased to sponsor this special soft-cover edition of this classic reference for capital project management by the late John Hackney, as edited by K.K. Humphreys. This second edition has 56 chapters that range from applied theory such as Labor Productivity Analysis to practical concerns such as Selection and Management of Contracts and Contractor. 533 pages 5185-01 paper version US$35.00 member/US$50.00 nonmember 5185-02 CD-ROM US$35.00 member/US$50.00 nonmember AACE Salary and Demographic Survey of Project and Cost Professionals 1085-01 US$12.00 member/ US$18.00 nonmember 1998 (Hard Copy), 1999, or 2000 (CD-ROM) JCMS Proceedings Technical presentations from the Joint Cost Management Societies Symposia. 4145-01 US$30 member/ US$35 nonmember
AACE International Transactions
2003 Transactions
5220-03 CD-ROM US$74.95 member US$99.95 nonmember 3-ring binder version US$165 member US$190 nonmember
This must-have reference contains presentations featured at the 2003 Annual Meeting in Orlando, FL. The CD-ROM is fully searchable. 2002 Transactions CD-ROM 5220-02 US$74.95 member/US$99.95 nonmember 3-ring binder version US$165 member US$190 nonmember 2001 Transactions CD-ROM 5220-01 US$74.95 member/US$99.95 nonmember 3-ring binder version US$165 member US$190 nonmember 2000 Transactions (paper or CD-ROM) 5220-00 US$64.95 member/US$89.95 nonmember 1999 Transactions (paper or CD-ROM) 5220-99 US$64.95 member/US$89.95 nonmember 1998 Transactions 5220-98 US$59.95 member/US$84.95 nonmember 1993-1997 Transactions - special price! US$19.95 member/US$19.95 nonmember - each
Cost Engineering The international journal of cost estimation, cost/schedule control, project management, and total cost management. Issued on a monthly basis, Cost Engineering has been published since 1958. Subscriptions are accepted on an annual basis. An automatic benefit of AACE International membership, also available to nonmembers. 5060-07 US$60.00 (US)/US$76.00 (other countries) Please add US$99.00 for airmail US$50 electronic subscription - see website for details Cost Engineering CD-ROMs (One CD-ROM per year , 1996 through 2003) Each CD has a years worth of Cost Engineering and is fully searchable. 5060-02 US$38.50 member/US$48.50 nonmember - each

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February February 2004 2004

The AACE International Journal of

AACE AACE INTERNATIONAL INTERNATIONAL SPECIALTY SPECIALTY CERTIFICATIONS CERTIFICATIONS

Executive Article BestBiz Ways are Your Ways

Certification Spotlight The Web Vision for Certification

FIRST PSP EXAM SET FOR JUNE 12, 2004!

Special Series The Keys to Forecasting - #1 Scope

AACE International Board of Directors

The AACE International Journal of

Featured Ar ticles The Keys to Forecasting - #1 Scope

Application of Appropriate Project Controls Tools for Contract Type

Work and Resource Breakdown Structures for Formalized Bottom-Up Estimating

AACE International Headquarters

Managing Editor - Marvin Gelhausen e-mail: mgelhausen@aacei.org

P residents P residents Message

Key Data Points for a Global Economy

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

Mark Your Calendar

48th Annual Meeting

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

II n Our Estim n Our Estimation

The New Professional Planning & Scheduling Certification is Coming

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

LLetters to the etters to the Editor

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

E Executive xecutive Article

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

CALL FOR VOLUNTEERS!

You simply need to contact the Certification Administrator at:

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

E Education ducation Board News

Distance Learning Opportunities

PLANNING & SCHEDULING PROFESSIONAL CERTIFICATION SUGGESTED STUDY REFERENCE BIBLIOGRAPHY*

E ducation E ducation Spotlight

Preparing Cost Engineers for Todays Construction Industry Challenges

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

C tificatio Cer ertification Spotlight

The Web Vision for Certification

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

Piloting the Web-based Examination

San Francisco Bay Area and Southern California Sections

Western Winter Workshop

Sunday, March 14th

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

C tificatio Cer ertification Corner

Mentoring, A True Win-Win

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

T he E thics C T he E thics Corner

Ethics and the Law

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

S Seri Special pecial Series

The Keys to Forecasting#1 Scope

Figure 1 Single Scope Cost Variation

Figure 2 Multiple Scope Cost Variation

Figure 3 Reduced Forecast Variability with Increased Project Definition

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

Figure 4 Scope Perspective

FOR 2004, NATIONAL ENGINEERS WEEK TAKES ON THE WORLD

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

F the Boo For or the Bookshelf

Architects Essentials of Cost Management

Cost Engineering Vol. 46/No. 2 FEBRUARY 2004

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