Cost Control of Project
Cost Control of Project
Cost Control of Project
A guide to engaging project controls staff for the next big project.
This paper aims to specifically address the skills and responsibilities for the various cost engineering
roles that are advertised in numerous online job boards by serving as a reference guide for recruiters,
hiring managers and engineering and construction managers looking to establish their next project.
In order that the different roles and responsibilities for a project controls team are clearly understood in
this paper we will identify the relevant:
• Resources
• Stakeholders
• Governance practices and (most importantly)
• Required Skills and Knowledge
The main objective is to assist hiring managers and recruitment agencies in developing more accurate
task related job descriptions and at the same time provide a guide to the selection of capable and
appropriately experienced personnel for the development and execution stages of projects.
Preamble
To understand the different roles and responsibilities necessary to deliver successful projects we
require an understanding of the definition of Cost Engineering and the ‘process’ of Total Cost
Management.
The AACE was founded in 1956 by 59 cost estimators and cost engineers during the organizational
meeting of the American Association of Cost Engineering at the University of New
Hampshire in Durham, New Hampshire.1 In Australia, the engineering and construction industry
adopted and have followed the AACE for several decades.
The AACE Constitution and Bylaws defines Cost Engineering and Total Cost Management as
follows:2
Section 2. Total Cost Management is the effective application of professional and technical expertise
to plan and control resources, costs, profitability and risk. Simply stated, it is a systematic approach to
managing cost through the life cycle of any enterprise, program, facility, project, product or service. This
is accomplished through the application of cost engineering and cost management principles, proven
methodologies and the latest technology in support of the management process.
Section 3. Total Cost Management is that area of engineering practice where engineering judgement
and experience are utilized in the application of scientific principles and techniques to problems of
business and program planning; cost estimating; economic and financial analysis; cost engineering;
program and project management; planning and scheduling; and cost and schedule performance
measurement and change control.
In summary, the list of practice area in Section 3 are collectively called cost engineering, while the
‘process’ through which these practices are applied is called total cost management or TCM.
1
https://en.wikipedia.org/wiki/AACE_International
2
AACE – 11R-88 Required Skills and Knowledge of Cost Engineering
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Total Cost Management (TCM) – Project Control Process Map
The figure below maps out the major steps or sub-processes of project control for a typical engineering
and construction project.3
The following provides insightful identification of the issues this paper is attempting to resolve.
Project controls as a discipline is well established in several countries around the world, some better
than others. In Australia, there is a multi-cultural mix of Project Controls staff from different countries.
Often as a result there can be difficulties in correctly identifying the difference between a Cost Engineer,
Cost Controller and Cost Accountant, Planner and Scheduler, Project Controls Manager and Project
Systems Manager, Estimator and Quantity Surveyor to name a few. The difficulties usually stem from
an inadequate understanding of the functions each role fulfills in the delivery of a project.
Over the past decade, owing to the boom-bust cycle several well qualified and experienced staff were
let go and internal promotions were made to fill the sudden gaps in staffing. In many instances these
internal staff were given leadership positions without having the diverse competencies required for the
role.
As a result, the job descriptions that were produced did not in most cases call for the necessary skills
and knowledge required for effectively managing a sophisticated project controls team.
In more recent times, with commodities beginning to lift again along with the compounding COVID-19
pandemic issues, there has been a renewed focus on containing the organisational head count and in
turn costs. This has possibly resulted in insufficient project controls resources being hired to manage
new projects. There also seems to be a tendency to employ one general resource to manage many
roles despite the need for targeted skill sets for different roles just to keep the head count down.
It is recognised that position and role descriptors vary from country to country and owing to our growing
multi-national makeup in Australia we refer to the term Project Controls which typically comprises of the
following:
3
AACE Total Cost Management Framework, An integrated Approach to Portfolio, Program and Project Management
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• Manager Project Controls • Estimating Manager
• Project Controls Manager • Chief Estimator
• Senior Cost Engineer • Senior Estimator
• Cost Engineer • Estimator
• Senior Cost Controller • Lead Planner
• Cost Controller • Planner
• Cost Accountant • Scheduler
Given the wide array of functions described above, a number of individuals with different skill sets for
each pathway are required to perform the cost engineering function.
One way to help identify whether candidates have proficient skills and knowledge to perform a given
role is to ascertain their project controls credentials and/or qualifications. The AACE have several
internationally recognised qualifications namely the CCP, CEP, PSP, EVP and DRMP which strengthen
the candidate’s credentials for these roles and these certifications validate the individual’s skills and
knowledge in a chosen project controls pathway. It is to be noted there are several other similar
internationally recognised qualifications for project controls professionals however Australian
companies have generally adopted the AACE practices.
Whilst historically, engineers in project controls held university engineering degrees nowadays non-
engineers also form a valuable component of the Cost Engineering team.
Having skills and knowledge aligned to the role description is important but so too is determining the
competency level of the candidate.
For example, it would not be expected for a Lead Scheduler to take up the position of a Lead Planner
role.
The difference between a planner and a scheduler is that a planner defines the “WHAT” and “HOW” a
project is executed, while a scheduler defines the “WHO” and “WHEN” the project sequence is
performed. Additionally, a planner would focus on creating a schedule down to say Level 2 or where
required to possibly Level 3 as defined in Recommended Practise 37R-06 (AACEI – Schedule Level of
Details as Applied in Engineering, Procurement and Construction). A scheduler on the other hand would
detail the schedule from Level 4 downwards.
A seasoned planner is expected to have more general construction experience to prepare high-level
schedules in consultation with the management delivery team, whereas a scheduler is likely to have
stronger scheduling software knowledge and more discipline focused skills (civil, structural, mechanical,
piping etc.) to develop the schedule to a greater working level of detail.
A similar level of expected competency levels can be seen between a cost controller and a cost
engineer. Not only do each have separate career pathways but each require completely different levels
of competency as regards to the required skills and knowledge to perform their roles.
A cost engineer is concerned not only with the planning and setup phase of a project but also analysing
the project trends in an effort to determine the forecast at completion costs, whist a cost controller is
focused on the day-to-day number crunching exercise to facilitate regular progress report writing. A cost
accountant on the other hand is solely focused on the daily transactional level of invoices and keeping
track of timesheets and hours expended.
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Role Pathways vs Skills & Knowledge Competency Matrix
It is to be noted this paper has been written with a focus on the skills and knowledge those in project
controls should acquire in their career progression. This is not to be confused with Roles and
Responsibilities as determined by the hiring organisation or manager responsible for the delivery of the
project.
For those interested in exploring roles and responsibilities in project controls further, AACE have
published two recommended practices (RP) that describe in detail the Roles and Responsibilities of a
Cost Estimator and Project Planning & Schedule Professional.
The following few pages have been extracted from 11R-88 Required Skills and Knowledge of Cost
Engineering (RP) and have been selected to highlight those items every project controls professional
should have sound understanding.
It is intended the following be used as an interviewing and assessment guide by hiring managers, HR
practitioners and those with possible limited understanding of project controls principles.
1.1.2.Cost Dimensions
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AACE – 11R-88 Required Skills and Knowledge of Cost Engineering
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• Lifecycle – be able to describe and differentiate the life cycle of an asset and a
project.
• Process (product vs. project) – be able to describe and differentiate the cost
characteristics and type of costs that make up a product and project cost.
• Products – be able to distinguish among products, co-products, and by-products.
• Responsibility – be able to describe and differentiate the cost perspectives of an
owner and a contractor/supplier.
• Valuation – be able to describe and differentiate cost from cash versus
economic/opportunity costs perspectives.
• Influence – be able to explain the concept of the cost influence curve.
• Legal – be able to explain how cost and schedule practices might differ when
applied for forensic versus traditional planning and control purposes.
1.1.3.Cost Classifications
• Be able to explain the general differences between the way costs are classified for
various cost management purposes
• Be able to calculate how the cost would be accounted for in a project or product
estimate for:
1. Operating vs Capital
2. Capital vs Expense
3. Depreciation
4. Amortization
5. Accrual
6. Fixed vs Variable
7. Direct vs Indirect
8. Activity Based Costing (ABC)
9. Job Costing
1.1.4.Cost Types
• Be able to apply the different cost types in a project or manufacturing estimate
application for:
1. Materials
a. Raw, Bulk, Fabricated, Engineered/Designed, Consumables
2. Purchase Costs
a. Market pricing, Order quantity, Taxes & Duties, Carrying
charges, Cancellation charges, Demurrage, Warranties,
Maintenance & Service
4. Capital Equipment
a. Rent vs Lease vs Purchase
b. Valuation (Fair Value, Market Value, Book Value)
5. Labour
a. Labour Wage Rate or Salary
b. Benefits and Burdens
i. Superannuation, Annual Leave, Sick Leave,
Public Holidays
ii. Workers Compensation, Insurance
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7. Subcontract
a. Reimbursable vs non-reimbursable costs
b. Overhead and profit
c. License, fees or royalties
d. Bonds (bid, payment or performance)
e. Performance guarantees, Liquidated damages
8. Cost of Money
a. Escalation, Inflation, Currency exchange rates
1.1.5.Pricing
• Cost vs Pricing (be able to explain the difference)
• Price Strategy
2. Process and Functional Skills & Knowledge Requirement for all Pathways5
2.1. Planning
2.1.1.Requirements Elicitation and Analysis; be able to describe the following concepts
• Stakeholders / Customers: be able to describe how to identify these in relation to
various business problems.
• Needs, wants or expectations of stakeholders: be able to describe challenges of
eliciting this information from various stakeholders.
• Requirements: be able to describe the characteristics of a good requirement for
use in asset or project control planning
• Cost requirements: be able to describe the following asset planning
methodologies for which cost may be a requirement: Target costing; Quality-
function deployment
• Other Concepts: Asset vs. Project - be able to explain how requirements for an
asset or product might differ from those for a project.
2.1.2.Scope and Execution Strategy Development: be able to describe the following concepts
• Asset scope: be able to describe this as the physical, functional and quality
characteristics or design basis of the selected asset investment (Functional
decomposition).
• Project scope: be able to describe this as the scope of work to deliver the asset
(Project scope breakdown (work decomposition)).
• Work Breakdown Structure (WBS): be able to diagram a WBS for a basic scope
provided in narrative form.
• Organization Breakdown Structure (OBS): be able to diagram an OBS for a basic
scope provided in narrative form.
• Work package
• Deliverables
• Execution strategy
5
AACE – 11R-88 Required Skills and Knowledge of Cost Engineering
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times for all activities to identify minimum project completion time (Precedence
Diagram Method (PDM), Bar Chart/Gantt chart); Historical Data.
• Schedule Development: describe difference from schedule planning – Milestones;
Resource Loading; Resource Levelling or Balancing (for a simple PDM network
with resource inputs, be able to resource level the network within early and late
start limits, and draw a histogram of worker-loading for early start, late start and
resource levelled configurations).
• Schedule Control Basis: Schedule Control Baseline; Planned Schedule; Schedule
Basis.
• Other concepts: Programs and Portfolios (schedule planning and development is
handled for groups of projects); Operations / Production (how production
scheduling differs from project scheduling); Schedule Strategy; Schedule
Development; Schedule Change Management; Critical Chain; Linear Scheduling;
Schedule Contingency
2.1.4.Cost Estimating Skills and Knowledge: be able to describe the following concepts:
• General Concepts (must also understand Elements of Cost and Analysis): Cost
Engineering Terminology; Cost Estimate Classification (be able to describe
AACE’s recommended practice and its basis on scope definition – also see project
implementation for discussion of scope development phases); Estimate Variability;
Uncertainty (Probability, Accuracy, Contingency); Algorithms and Cost Estimating
Relationships (CER); Chart or Code of Accounts; Historical Data.
• Processes and Practices: be able to describe the basic mechanics of these
estimating steps – Plan for Estimating and Budgeting; Estimate Methodologies;
Quantification and Take-off; Costing; Pricing; Estimate Conditioning (such as
Escalation); Risk Evaluation and Contingency Determination; Estimate
Documentation (Basis of Estimate); Estimate Reconciliation; Estimate Review and
Validation; Estimate Reporting; Estimate Closeout.
• Other Estimating Issues: Bidding, Budgeting (create a control budget from a cost
estimate); Costing and Lifecycle Costing; Cash Flow and Forecasting; Cost
Control baseline (how cost and schedule control baselines can be integrated).
• Other concepts: Product vs Project Costs – be able to explain how estimating
products (i.e. output of manufacturing) cost differ from project cost.
2.1.5.Resource Management: be able to describe how this process is tied closely to cost
estimating (e.g. quantification) and schedule development (e.g. resource allocation).
Also see performance / productivity management considerations
• Resource availability: be able to discuss ways to assess availability and potential
consequences of not doing so.
• Resource limits and constraints: be able to describe the mechanics of this step in
schedule development.
• Resource allocation: be able to describe the mechanics of this step in schedule
development.
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• General Concepts: Risk and Uncertainty (be able to define risk in terms of
opportunities and threats); Risk Factors (or drivers) and Risk Factor Properties;
Risk Management Plan; Contingency; Contingency Action Plans.
• Practices: Risk Assessment; Risk Analysis; Risk Factor Screening; Risk Mitigation
or Acceptance; Risk Control.
2.2. Implementation
2.2.1.Project Implementation: be able to explain the following concepts:
• Phases and Gates Process: describe the typical stages in respect to project
planning and funding authorization and benefits of an established process. Front-
end loading (FEL).
• Project Implementation Basis or Scope Statement: be able to describe the typical
information in this deliverable at project initiation and the importance of business
and project team agreement and communicating this information to all
stakeholders.
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• Control Accounts: describe this concept and its content in relation to WBS and
earned value application.
• Project Control Plan and Basis: describe the typical information in this deliverable
at the start of project execution and the importance of integrating, agreeing on and
communicating this information to the project team.
2.2.3.Validation:
• Validation: Be able to describe how the quality and competitiveness of plans might
be assessed before implementation and why the process is important. Also
explain the value of historical, empirical information.
2.3.3.Asset Performance Measurement: be able to explain how earned value methods do not
apply for operations and performance is measured against metrics established by the
requirements
• Functional Performance: be able to explain how measures capture what an asset
does and how it does it including quality control attributes, cycle time, and so on.
• Utility measures: be able to discuss ways to capture user or customer perceptions
of how well the asset meets their wants and needs.
• Measure Activity Factors: be able to explain how if ABC/M methods are used, cost
assignment network tracing ties expense to activities whose performance must be
measured.
• Track Resources: be able to explain how ERP systems increasingly handle these
measures in operation facilities.
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• Practices for work process and productivity improvement: Productivity assessment
(labour productivity factor: be able to calculate this using earned value and explain
its significance); Work process improvement (work sampling)
2.4.2.Asset Performance Assessment: be able to explain how for operations, earned value
methods do not apply and performance is measured against metrics established by the
requirements
• Measurement Basis: Balanced Scorecard; Key Performance Indicators (KPI).
• Practices: Profitability; Cost of Quality.
• Benchmarking
• Lessons Learned
2.4.3.Forecasting
• Forecast and Forecasting: Be able to describe the concepts of forecasts and
forecasting; Be able to describe how the project control planning concepts (e.g.,
estimating, scheduling etc.) are applied in the context of work in progress
performance assessment findings, change management and corrective actions.
• Earned Value Methods: Be able to explain and calculate the basic earned value
concepts related to forecasting (BAC, EAC, labour productivity factor); Be able to
explain why earned value measures alone may not be an appropriate basis for a
forecast, explain what else must be considered.
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• Be able to discuss role of these costs (see Elements of Cost) in context of
disputes and claims (bonds, retainage, performance guarantees, liquidated
damages, demurrage, legal costs, etc.)
• Be able to discuss means and methods of resolving disputes and claims through
negotiation, mediation, arbitration, and/or litigation (or other forms of alternative
dispute resolution) including being able to discuss potential good points and bad
points of each forum.
• Be able to describe the terms discovery process, depositions and interrogatory.
• Be able to describe why is it important to distinguish between supposition and fact.
Conclusion
In Australia project controls as a function requires significant over-haul in the way it is understood and
utilised by project stakeholders including project managers, engineers, and construction personnel. This
also extends to hiring managers and recruitment agencies.
This paper has been drafted to provide a vehicle from which changes can be made to improve the
current status and guide industry towards a more positive outlook where capable and appropriately
experienced personnel are selected for projects. There needs to be continuous governance and
monitoring by all stakeholders involved to ensure the AACE guidelines are adhered, and the right project
controls staff are being recruited for the projects.
Contributing authors
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