® 1 the world ’ s first integrated process for portfolio, program, and project management! a...

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The worldThe world’’s first integrated process for portfolio, program, and s first integrated process for portfolio, program, and project management!project management!

A Process For Applying A Process For Applying the the

Skills and Knowledge Skills and Knowledge of of

Cost EngineeringCost Engineering

Copyright © 2006 by AACE International209 Prairie Avenue, Suite 100Morgantown, WV 26501 USA

®

TCM Is a Process For Applying theSkills and Knowledge of Cost Engineering

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“…“…the effective application of professional the effective application of professional and technical expertise to plan and control and technical expertise to plan and control resources, costs, profitability and risks. resources, costs, profitability and risks.

Simply stated, it isSimply stated, it is a systematic systematic approachapproach to managing cost to managing cost throughout the life cycle of any throughout the life cycle of any enterprise, program, facility, project, enterprise, program, facility, project, product, or serviceproduct, or service. This is accomplished This is accomplished through the application of cost through the application of cost engineering and cost management engineering and cost management principles, proven methodologies and the principles, proven methodologies and the latest technologylatest technology in support of the in support of the management processmanagement process.”

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CE I

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rnati

on

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s

Con

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Cost Is Everything

““It It costscosts time time””““It It costscosts resources resources””

““ It It costscosts money money””

EVERYTHING EVERYTHING invested in assets and projects is ainvested in assets and projects is a

COSTCOST

That is why it is calledThat is why it is calledTOTAL COST Management TOTAL COST Management

(TCM)(TCM)

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For Business, TCM is An Integrated Recipe for Managing Portfolios, Programs, and Projects in Alignment with

Business Strategy!

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Effective Portfolios,

Programs, Projects

Ass

ets

Better Decisions

Better IRR

CostEngineering

Skills &

Knowledge

Time

Risk Cost

Resources

Better Control

®

For AACE, TCM is a Framework For ItsTechnical, Education and Certification Products

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Recommended Practices (RPs) Professional Practice Guides (PPGs)

Cost Engineer’s Notebook

Skills and Knowledge (S&K)

CCC CCE PSP EVP…

T C

M

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Presentation Outline

Understanding TCM Understanding TCM

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Applying TCMApplying TCM

TCM BenefitsTCM Benefits

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Top-to-Bottom Business Benefits

• Profitable Asset PortfoliosProfitable Asset Portfolios– Makes sure your resources go where they’ll get the

best IRR/RONA/EVA

• Integrated/Aligned ProgramsIntegrated/Aligned Programs– Makes sure your projects are all integrated, aligned

and coordinated

• Controlled ProjectsControlled Projects– Makes sure each project gives business the results

that were planned for

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…and, makes sure everything is aligned with

Business Strategy!

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TCM Combines Asset and Project Life Cycle Management

• Return on AssetsReturn on Assets is largely driven by is largely driven by practices used before projects beginpractices used before projects begin– With TCM, owners understand and manage

the costs of their asset base over the entire asset life cycle

• Successful Projects Successful Projects are required if the are required if the planned return is to be achievedplanned return is to be achieved– With TCM, owners and contractors control

the costs of their projects over the entire project life cycle

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TCM Has Breadth and Depth

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StrategicStrategic

FunctionalFunctional

Builds on AACE’s Depth: Builds on AACE’s Depth:

We Know How Things Really WorkWe Know How Things Really Work

Builds on AACE’s Breadth: Builds on AACE’s Breadth:

We Cover More Than Just ProjectsWe Cover More Than Just Projects

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Understanding TCMUnderstanding TCM

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TCM Starts With a Simple Concept

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Plan-Do-Check-Assess (PDCA)Plan-Do-Check-Assess (PDCA)

Based on the time-tested Deming or Shewhart cycle. Based on the time-tested Deming or Shewhart cycle. In essence, TCM is a quality management process.In essence, TCM is a quality management process.

PLAN

(plan activities)

DO(performactivities)

CHECK(measure

performanceof activities)

ASSESS(evaluate

measures, actupon variances)

PDCACycle

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TCM Attributes

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PLAN

(plan activities)

DO(performactivities)

CHECK(measure

performanceof activities)

ASSESS(evaluate

measures, actupon variances)

PDCACycle

Continuous Improvement

Every TCM process employs feedback and

improvement!

Integrated

Every TCM process has P,D,C & A steps that are

All linked back to business strategy!

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TCM Covers the Entire Asset and Project Life Cycle

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TCM: Level 1 Process Map

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Portfolio of Enterprise Assets

STRATEGICASSET

PLANNING(3)

PROJECTSIMPLEMENTATION

(4)

STRATEGICASSET

PERFORMANCEMEASUREMENT

(5)

STRATEGICASSET

PERFORMANCEASSESSMENT

(6)

StrategicAsset

ManagementProcess

(2.3)

PROJECTPLANNING

(7)

PROJECTACTIVITY

IMPLEMENTATION(8)

PROJECTPERFORMANCEMEASUREMENT

(9)

PROJECTPERFORMANCEASSESSMENT

(10)

ProjectControlProcess

(2.4)

Portfolio of Projects

Plan

Do

Check

Assess

Plan

Do

Check

Assess

Project ControlProject Control is a Recursive Process Within the is a Recursive Process Within the Strategic Asset ManagementStrategic Asset Management Process Process

Portfolio of Assets Portfolio of Projects (Programs)

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The Framework Is Organized By Process

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Basic Processes ofTotal Cost Management

Functional Processes forStrategic Asset Management

Functional Processes forProject Control

Enabling ProcessesFor Total Cost Management

The TCM Framework

1 Introduction

2 The TCM Process Maps

2.1 Basis

2.2 Total Cost Management

2.3 Strategic Asset Management

2.4 Project Control

3 Strategic Asset Planning

4 Project Implementation

5 Strategic Asset PerformanceMeasurement

6 Strategic Asset PerformanceAssessment

7 Project Control Planning

8 Project Control Plan Implementation

9 Project Performance Measurement

10 Project Performance Assessment

11 Enabling Processes

11.1 The Enterprise in Society

11.2 People and PerformanceManagement

11.3 Information Management

11.4 Quality Management

11.5 Value Management

11.6 Environment, Health and Safety

The Framework includes the Basis, Functional Processes, and Enabling Processes

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The Framework Functional Process Sections

II. II. STRATEGIC ASSET MANAGEMENT STRATEGIC ASSET MANAGEMENT PROCESSPROCESS

CHAPTER 3—PLANNINGCHAPTER 3—PLANNING3.1 Requirements Elicitation and Analysis3.1 Requirements Elicitation and Analysis

3.2 Asset Planning3.2 Asset Planning 3.3 Investment Decision Making3.3 Investment Decision Making

CHAPTER 4—PROJECT IMPLEMENTATIONCHAPTER 4—PROJECT IMPLEMENTATION 4.1 Project Implementation4.1 Project Implementation

CHAPTER 5—MEASUREMENTCHAPTER 5—MEASUREMENT 5.1 Asset Cost Accounting5.1 Asset Cost Accounting 5.2 Asset Performance Measurement5.2 Asset Performance Measurement

CHAPTER 6—ASSESSMENTCHAPTER 6—ASSESSMENT 6.1 Asset Performance Assessment6.1 Asset Performance Assessment 6.2 Asset Change Management6.2 Asset Change Management 6.3 Asset Historical Database Management6.3 Asset Historical Database Management 6.4 Forensic Performance Assessment 6.4 Forensic Performance Assessment

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III. III. PROJECT CONTROL PROCESSPROJECT CONTROL PROCESSCHAPTER 7—PLANNINGCHAPTER 7—PLANNING 7.1 Scope & Execution Strategy Development7.1 Scope & Execution Strategy Development 7.2 Schedule Planning and Development7.2 Schedule Planning and Development 7.3 Cost Estimating and Budgeting7.3 Cost Estimating and Budgeting 7.4 Resource Planning7.4 Resource Planning 7.5 Value Analysis and Engineering7.5 Value Analysis and Engineering 7.6 Risk Management7.6 Risk Management 7.7 Procurement Planning7.7 Procurement Planning

CHAPTER 8—PROJ. CONTROL PLAN CHAPTER 8—PROJ. CONTROL PLAN IMPLEMENTATIONIMPLEMENTATION

8.1 Project Control Plan Implementation8.1 Project Control Plan ImplementationCHAPTER 9—MEASUREMENTCHAPTER 9—MEASUREMENT 9.1 Project Cost Accounting9.1 Project Cost Accounting 9.2 Progress and Performance Measurement9.2 Progress and Performance Measurement

CHAPTER 10—ASSESSMENTCHAPTER 10—ASSESSMENT10.1 Project Performance Assessment10.1 Project Performance Assessment

10.2 Forecasting10.2 Forecasting 10.3 Change Management10.3 Change Management 10.4 Project Historical Database Management10.4 Project Historical Database Management

Each section has a process map and Each section has a process map and narrative that describes the processnarrative that describes the process

PlanPlan

DoDo

AssessAssess

TCM Level 2 Process Map TCM Level 2 Process Map Strategic Asset ManagementStrategic Asset Management

CheckCheckAssetPerformanceAssessment

(6.1)

AssetPlanning

(3.2)

InvestmentDecision Making

(3.3)

Analysis Basis & Feedback

ProjectImplementation

(4.1)

Decision(ResourceAllocation

forProjects)

Asset CostAccounting

(5.1

AssetPerformanceMeasurement

(5.2)

ProjectControl

(2.4)

Improvement Opportunities(variance from baseline plans)

Require-ments

RequirementsElicitation and

Analysis(3.1)

Asset Performance andValuation Measures

BaselineAsset Management Plans

EnterpriseManagement

BusinessStrategies,

Goals,Objectives

ProjectImplement-

ationBasis

ProjectPerformance

AssetOperation or Use

AssetPerformance

Stakeholdersand Customers

Planning Processes:Scope and Execution Strategy Development

(7.1)Schedule Planning and Development (7.2)

Cost Estimating and Budgeting (7.3)Resource Planning (7.4)

Value Analysis and Engineering (7.5)Risk Management (7.6)

Needsand

Desires

AssetChange

Management(6.2)

Requirements Changes

Asset Historical Database Management(6.3)

All Strategic AssetManagement

Processes(3.1 to 6.4)

ActualData

HistoricalData

ActualData

HistoricalData

OtherEnterprises

Benchmarking Information


forOperations)

ForensicPerformanceAssessment

(6.4)PerformanceInformation

Strategic Asset Management Strategic Asset Management Deploys Business StrategyDeploys Business Strategy

AssetPerformanceAssessment

(6.1)

AssetPlanning

(3.2)


(3.3)



(4.1)


forProjects)


(5.1


(5.2)

ProjectControl

(2.4)


Require-ments


Analysis(3.1)




BusinessStrategies,

Goals,Objectives

ProjectImplement-

ationBasis

ProjectPerformance


AssetPerformance






Needsand

Desires

AssetChange

Management(6.2)





ActualData

HistoricalData

ActualData

HistoricalData

OtherEnterprises



forOperations)



Plan forInvestment

Decision Making

Develop theDecision Model

HistoricalInformation

(6.3)

Asset Life CycleForecast

(5.1, 5.2 and 6.1)

QuantifyValue and Risk

Make, Documentand

CommunicateDecision

Develop andMaintain

Decision MakingTools


(6.3)

RiskFactors

(7.6)

EnterpriseDecision

Policy

Issues requiring further analysis


(6.3)Historical

Information(6.3)

AlternativeInvestment

Scope(3.2)


Scope(3.2)

AlternativeInvestmentPlanning

Valuations(costs, etc.)

(3.2)

BusinessValuations(revenues,

etc.)

Evaluate Modelsand Recommend

Action

StakeholderInput

Decision Making Criteria

ProjectBusinessDecision

Basis(4.1)

Requirements(3.1)

DomainKnowledge

StakeholderInput

AssetPerformanceAssessment

(6.1)

AssetPlanning

(3.2)


(3.3)



(4.1)


forProjects)


(5.1


(5.2)

ProjectControl

(2.4)


Require-ments


Analysis(3.1)




BusinessStrategies,

Goals,Objectives

ProjectImplement-

ationBasis

ProjectPerformance


AssetPerformance






Needsand

Desires

AssetChange

Management(6.2)





ActualData

HistoricalData

ActualData

HistoricalData

OtherEnterprises



forOperations)



Each Block is a Each Block is a Working Level Process MapWorking Level Process Map

Plan forInvestment

Decision Making

Develop theDecision Model


(6.3)

Asset Life CycleForecast

(5.1, 5.2 and 6.1)

QuantifyValue and Risk

Make, Documentand

CommunicateDecision

Develop andMaintain

Decision MakingTools


(6.3)

RiskFactors

(7.6)

EnterpriseDecision

Policy

Issues requiring further analysis


(6.3)Historical

Information(6.3)


Scope(3.2)


Scope(3.2)

AlternativeInvestmentPlanning

Valuations(costs, etc.)

(3.2)

BusinessValuations(revenues,

etc.)

Evaluate Modelsand Recommend

Action

StakeholderInput

Decision Making Criteria

ProjectBusinessDecision

Basis(4.1)

Requirements(3.1)

DomainKnowledge

StakeholderInput

Example: Investment Decision MakingExample: Investment Decision Making

TCM Level 2 Process Map: TCM Level 2 Process Map: Project ControlProject Control

PlanPlan

DoDo

AssessAssess CheckCheck

ProjectPerformanceAssessment

(10.1)

Project Scopeand Execution

StrategyDevelopment

(7.1)

SchedulePlanning andDevelopment

(7.2)

WBS &ExecutionStrategy

Cost Estimatingand Budgeting

(7.3)

ResourcePlanning

(7.4)

Value Analysisand Engineering

(7.5)

Risk Management(7.6)

AnalysisBasis &

Feedback


Project ControlPlan

Implementation(8.1)

ScheduleBaseline

(Activities)

CostBaseline(Budget)

ResourceBaseline

(Quantities)

Iterative, concurrent processes

Project CostAccounting

(9.1)

Performance andPerformanceMeasurement

(9.2)

BaselinePlans

Strategic AssetManagement

Process(2.3)


ScopeChange &Forecasts

ChangeManagement

(10.3)

Project Implementation Basis(Asset Scope, Project SystemRequirements, Budget, etc.)

Cost, Progress and Performance Measures

BaselinePlans

Forecasting(10.2)

ProcurementPlanning

(7.7)

Project Historical Database Management(10.4)

All Project ControlProcesses

(7.1 to 10.3)

ActualData

HistoricalData

ActualData

HistoricalData

ContractRequirements

Status Checks& Feedback

An Example An Example Project Control Project Control Working Level ProcessWorking Level Process

ProjectPerformanceAssessment

(10.1)

Project Scopeand Execution

StrategyDevelopment

(7.1)

SchedulePlanning andDevelopment

(7.2)

WBS &ExecutionStrategy

Cost Estimatingand Budgeting

(7.3)

ResourcePlanning

(7.4)

Value Analysisand Engineering

(7.5)

Risk Management(7.6)

AnalysisBasis &

Feedback


Project ControlPlan

Implementation(8.1)

ScheduleBaseline

(Activities)

CostBaseline(Budget)

ResourceBaseline

(Quantities)

Iterative, concurrent processes

Project CostAccounting

(9.1)

Performance andPerformanceMeasurement

(9.2)

BaselinePlans

Strategic AssetManagement

Process(2.3)


ScopeChange &Forecasts

ChangeManagement

(10.3)

Project Implementation Basis(Asset Scope, Project SystemRequirements, Budget, etc.)

Cost, Progress and Performance Measures

BaselinePlans

Forecasting(10.2)

ProcurementPlanning

(7.7)

Project Historical Database Management(10.4)

All Project ControlProcesses

(7.1 to 10.3)

ActualData

HistoricalData

ActualData

HistoricalData

ContractRequirements

Status Checks& Feedback

Develop andMaintain

Methods andTools

CostScope Content

Simulate andOptimize the

Costs

Pricethe CostEstimate

Review andDocument theCost Estimate

Quantifythe Scope

Content (take-off)

AnalyzeCash Flow

BudgetCosts

Chart ofAccounts

(9.1)


(10.4)

Historical CostInformation

(10.4)

Requirementsand Objectives

(4.1)

WBS(7.1)

Schedule(7.2)

EstimateBasisand

Cost ControlBaseline

(3.2, 3.3, 8.1)

Informationfor Analysis(7.5,7.6,7.7)

ScheduleReview

(7.2)

Bidthe CostEstimate

(Bid is a cost input for the recipient)

WBS,Work Packages,and Execution

Strategy(7.1)

Technical(including

Contractual)Deliverables

Plan forEstimating and

Budgeting

AssetAlternative

Scope(3.2)

ProjectPlanning

Basis(4.1)

Schedule Durations(7.2)

Resource Quantities(7.4)

Contingencyfrom RiskAnalysis

(7.6)

Chart ofAccounts

(9.1)

Chart ofAccounts

(9.1)

Example: Estimating

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The Framework Also Covers “Enabling” Processes

• 11.1 The Enterprise in Society11.1 The Enterprise in Society• 11.2 People and Performance Management11.2 People and Performance Management• 11.3 Information Management11.3 Information Management• 11.4 Quality and Quality Management11.4 Quality and Quality Management• 11.5 Value Management and Value Improving 11.5 Value Management and Value Improving

Practices (VIPs) Practices (VIPs)• 11.6 Environment, Health, & Safety 11.6 Environment, Health, & Safety

ManagementManagement

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Understanding TCMUnderstanding TCM

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How Business Can Usethe TCM Framework

• Use it as a guide for process development Use it as a guide for process development or re-engineeringor re-engineering– A “go-by” that can be modified to suit each

company's’ processes, phasing, org., lexicon, etc.

– Can be applied in parts, but take care that the resulting process is integrated

• Use it as a business referenceUse it as a business reference

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How Educators/Trainers Can Usethe TCM Framework

• Use it to structure your programsUse it to structure your programs– A “go-by” that can be modified to suit your

institutions’ programs, lexicon, etc.– Can be used in parts, but its main value is in

the integration of practice areas– Uniquely covers cost engineering as an

integrated professional discipline

• Use it as a course text or referenceUse it as a course text or reference

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How Individuals Can Usethe TCM Framework

• Use it to broaden your perspectiveUse it to broaden your perspective– Examples:

• Contractors will better appreciate their owner client’s point of view

• Specialists will gain understanding of how their field fits in the bigger scheme

• Study it in piecesStudy it in pieces– Read Chapters 1 & 2 through– Then tackle other sections of interest

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Let Us Know What You Think!

• To comment:To comment:

[email protected]@aacei.org• To contact the editor: To contact the editor:

[email protected]@validest.com• To contact key contributors: To contact key contributors:

see text see text “Acknowledgments”“Acknowledgments”

• To obtain copies:To obtain copies:

www.aacei.org/bookstore//• To read online:To read online:

www.aacei.org/tcm/

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