CCP®

Exam Review
2/22/2014

Student Study
Material
Training Supplementary Resource

3FOLD Education Centre

3FOLD Education Centre

CCP® Exam Review

[Student Study Material]
 CCP ® Exam Review

TABLE OF CONTENTS

Content Page Number

1. About us 1
2. What is a Certified Cost Professional (CCP)? 2
3. CCP® Certification Process Flowchart 3
4. Technical Paper Requirements 4
5. Technical Paper Template 6
6. CCP® Exam Review Course Objective 17
7. Teaching Methodology 18
8. Course Outline and Agenda 19
9. Module 1 – Economic Analysis 21
a. Learning Objective 22
b. Presentation Material 23
c. Practice Problems 63
10. Module 2 – Cost Estimation and Control 88
a. Learning Objective 89
b. Presentation Material 90
c. Practice Problems 123
11. Module 3 – Project Management 142
a. Learning Objective 143
b. Presentation Material 144
c. Practice Problems 189
12. Module 4 – General Skills and Knowledge of Cost Eng. 201
a. Learning Objective 202
b. Presentation Material 203
c. Practice Problems 264
13.CCP® Certification Final Checklist 277

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 CCP ® Exam Review

About 3FOLD

3FOLD Education Centre is an Executive Education Center located in Dubai, UAE and its educational

services permit is issued by KHDA and ACTVET, UAE. 3FOLD is a Global Registered Education Provider

of Project Management Institute, USA and Approved Education Provider of AACE International, USA.

We are specialized in the field of professional certifications. Since 2007, we have trained more than

2000 students who have appeared for various international professional certification exams.

Our mission is to foster a culture of Life Long Learning in working professionals using our world-class

blended learning model.

Corporate Office
Dubai, UAE

Branches
Abu Dhabi, UAE | Chennai, India | Doha, Qatar | Damman, KSA

www.3foldtraining.com | [email protected]

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 CCP ® Exam Review

What is a Certified Cost Professional (CCP)?

CCP* certification recognizes specialists who meet a demanding set of cost and management criteria
by a rigorous examination, experience, education and ethical qualifications. The examination
requirements reflects the sophistication of professionals in today’s cost and management industry
and fairly measures their knowledge, experience and an adherence to best management practices.

CCP Certification is independently accredited by the Council of Engineering & Scientific Specialty
Boards (CESB).

AACE Certification distinguishes cost and management professionals who have the knowledge and
skills to impact the bottom line.

*CCP certification was formerly known as Certified Cost Consultant (CCC)/Certified Cost Engineer
(CCE) certification

© 3FOLD Education Centre. All rights reserved. CCP® Exam Review Version 1.3. Contact – [email protected]
AACE International – CCP® Certification Process Flowchart

4 Years
Degree Yes
experience

No AACEI
Membership
(USD 160)
Submit Technical Paper,
36 Hrs of Exam Apply for CCP
8 Years Experience Letter, Education
Preparation Certification Exam
experience Certificate & Affidavit to
Program (Member - $500)
[email protected]

Prepare Technical
Paper (minimum
2500 Words)

Appear for AACEI CCP

Apply for Re-Sit Exam (Kryterion Testing
$250 Centre) Duration – 5 Hours
MCQ’s – 120

Fail

Submit 15 CEU
(Continuing Certification valid Passing Grade
Pass Exam Result
Education Unit) for 3 years 70%
To Renew $235

Educational Services permit issued by KHDA, Dubai and ACTVET, Abu Dhabi.
 CCP ® Exam Review

Technical Paper Requirement

The AACE Headquarters Certification Staff and the Certification Board are committed to offering a
quality exam product by improving the overall Certification process, as well as the ability to release
exam results faster.

In order to accomplish these goals, the Certification Board has changed the deadline for submitting
the Technical Paper required with the CCP™ certification.

The submittal of the Technical Paper is now considered an eligibility requirement. Candidates failing
to submit the Technical Paper within one month of applying for the CCP exam, will not be permitted
to sit for the CCP exam.

The Certification Board of AACE International has announced a change to the Affidavit for AACE
International Certification Paper.

Effective February 15, 2011, collaborative work will no longer be permitted for the required 2,500
minimum word technical paper. An acceptable technical paper must be authored solely by the
candidate, and be less than three years old.

It is still acceptable to submit a technical paper used for the purpose of a thesis or dissertation,
presentation or publication, as long as it is:

 authored solely by the candidate,

 less than three years old,
 meets the technical paper format as shown in the Technical Paper Template & Guide
document listed on the website, and
 disclosed as such on the affidavit.
 The new affidavit form is available for immediate use; all technical papers must include a
signed affidavit to be accepted.

It is also important to note, proprietary and confidential information is not permitted to be included
in technical papers as stated in the AACE International Canons of Ethics, Section II, Item F, numbers
1-4:

F. Members shall treat information coming to them in the course of their assignments as confidential
and shall not use such information as a means of making personal profit if such action is adverse to
the interests of their clients, their employers, or the public.

1. Members will not disclose confidential information concerning the business affairs or
technical processes of any present or former employer or client or bidder under evaluation,
without consent, unless required by law.

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 CCP ® Exam Review
2. Members shall not reveal confidential information or finding of any commission or board of
which they are members, unless required by law.
3. Members shall not duplicate for others, without express permission of the client(s), designs,
calculations, sketches, etc., supplied to them by clients.
4. Members shall not use confidential information coming to them in the course of their
assignments as a means of making personal profit if such action is adverse to the interests of
their clients, employers, or the public.

By signing the Affidavit, you are verifying you understand and agree to subscribe to the Canons of
Ethics and you are the sole author of the submitted technical paper. Any violations will result in
disciplinary action.

Retrieved from http://www.aacei.org/cert/CCP/techPaper.shtml on February 22, 2014

PLEASE VISIT THIS LINK TO WATCH A 1 HOUR WEBINAR ON HOW TO WRITE CCP®TECHNICAL PAPER

www.bit.ly/CCPtechpaper

© 3FOLD Education Centre. All rights reserved. CCP® Exam Review Version 1.3. Contact – [email protected]
The following template should be used as a guide in preparing your 2,500
word technical paper for the Certified Cost Professional (CCP) (formerly
known as CCC/CCE) exam.

While this template may be useful in ensuring your technical paper will
incorporate all structural areas to be evaluated by technical paper graders,
you will be responsible to demonstrate professional content, clarity, and
relevance through your topic and writing skills, which are also evaluated
by the graders.

For assistance in selecting a title, writing an abstract, addressing your

audience, and writing an effective body and other important factors, we
recommend that you read “How to Write a Technical Paper,” by James D.
Whiteside, II, PE listed on our website.

All technical papers must be submitted to

[email protected] by the final registration deadline of the
examination date you have selected.

If you have any questions, please contact the Certification Department at

304-296-8444.

Retried from http://www.aacei.org/cert/CCP/TechPaperTemplate.doc on

February 22, 2014

6
i
CCP Certification Technical Paper Template
(Rev. 2013-07-10)

The Title of the Paper

Date Written

AACE Membership Number

7
ii
 Table of Contents

List of Tables iii

List of Figures iv

Abstract v

Introduction Pg. #
Pg. #
The Problem
Pg. #
Topic 1
Pg. #
Topic 2
Pg. #

Pg. #

Pg. #

Pg. #

Pg. #
Resolution of Problem
Pg. #

Pg. #

Pg. #

Pg. #

Pg. #
Pg. #
Pg. #
Pg. #
Pg. #
Pg. #
Pg. #
Conclusion
Pg. #
Bibliography

8
iii
 List of Tables

Table 1, “Title 1” Pg. #

Pg. #
Table 2, “Title 2”
Pg. #
Table 3, “Title 3”

9
iv
 List of Figures

Figure 1 “Figure 1 Title” Pg.

#
Figure 2 “Figure 2 Title” Pg.
#

10
v
 List of Equations

Equation 1 “Equation 1 Title” Pg.

#
Equation 2 “Equation 2 Title” Pg.
#

11
vi
Abstract

The purpose of an abstract is to entice potential customers to purchase the material or attend the
presentation. Abstracts between 100 to 175 words are generally well received. Longer abstracts
tend to be short versions of the material.

This template is formatted to have the correct automated numbering: Roman numerals starting on
page two (Table of Contents) and Arabic numerals starting with the Introduction page.

12
vii
Introduction

The introduction should be designed to attract the reader’s attention and give an idea of the
paper’s focus.

The Problem or Introduction

Discuss the background of the problem to set the stage for the intent of the paper.

Topic 1

“This is how a reference is to be made throughout the paper.” [1] (content needs to be placed
within quotes and referenced by a corresponding number, just as illustrated.)

Term X^6 X^5 X^4 X^3 X^2 X^1 Constant

Display Plot 3E-09 -9E-07 0.0001 -0.0057 0.1715 -2.4906 13.776
Data Plot 2.95E-09 -3.5E-05 0.17007 -444.84 654440 -5.13E+08 1.68E+11

Table 1—Polynomial Coefficient Comparison

(source referenced)

13
1
Figure 1 — Average Percent Inflation vs Year
(source referenced)

This is an example of a figure. Figures and tables must be legible. Titles in graphs, figures, and table
should also be kept to 6-8 words (source must be referenced).

Equations

When using an equation such as the example that follows, show the equation and then explain
each of the variables from left to right. When text is read from left to right, the reader can easily
follow the variable explanation from top to bottom.

dS/S = exp (μ X (dT) + std X Є X (dT)1/2)) Eq 1

exp = the inverse of LN, the natural logarithm of number

dS = change in the variable’s value from one step to the next
S = previous value
μ = the annualized growth or average increase between steps

14
2
dT = change in time from one step to the next
std = annualized volatility, or standard deviation
Є = value from a probability distribution (Monte Carlo)

Conclusion

A conclusion should clearly demonstrate everything promised in the abstract has been
accomplished. Whatever was identified in the introduction or statement of the problem section of
the paper has been addressed. And using this template will greatly enhance the review process of
AACE.

15
3
 Bibliography

No. Description

1 Breyfogle, III, F
1999
Chapter 9, Six Sigma Measurements
Implementing Six Sigma: Smarter Solutions Using Statistical Methods
First Edition
Pages(s)144
John Wiley & Sons, Inc., New York

2 Whiteside, II, PE, J.

2009
DEV.01—How to Write a Technical Presentation
2009 AACE International Transactions
AACE International, Morgantown, WV

EXCEPTION: If the author has a legal paper and wishes to use legal in-line referencing, then the
author must request, in writing, a waiver and may be asked to submit an example. In-line
referencing that is not formatted in the way used in legal papers will be denied. In-line referencing
will not be allowed as an alternative to footnoting.

Examples:

MCI Constructors, Inc., DCCAB No. D-924, 1996 WL 331212 (D.C.C.A.B. 1996) (awarding contractor
loss of productivity damages for the interruption to its rhythm and sequence of contract work
resulting from owner-caused delays, changes and accelerations)

See also United States Indus., Inc. v. Blake Constr. Co., 671 F.2d 539 (D.C. Cir. 1982) (holding that a
subcontractor is entitled to recover damages where a contractor’s failure to properly schedule and
coordinate a subcontractor’s work activities led to lost productivity)

WEB REFERENCES ARE ONLY ALLOWED IF A PDF FILE OF THE DOCUMENT REFERENCED IS INCLUDED
WITH THE MANUSCRIPT.

16
4
 CCP ® Exam Review

Course Objective - CCP® Exam Review

CCP* certification recognizes specialists who meet a demanding set of cost and management criteria
by a rigorous examination, experience, education and ethical qualifications. The examination
requirements reflects the sophistication of professionals in today’s cost and management industry
and fairly measures their knowledge, experience and an adherence to best management practices.

While the primary objective of this course is help you to prepare for the CCP® certification exam, we
can’t discount the fact that it is not possible to pass the exam without adequate skills and knowledge
in cost engineering topics.

This course is designed to give you the skills and knowledge required to apply the learned theory in
workplace and thereby increase your proficiency in tools and techniques of cost engineering and
total cost management.

17

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 CCP ® Exam Review

Teaching Methodology

The teaching process should encourage variety of instructional methods appropriate for
enhancing students’ learning experiences in this course; promote an interactive,
investigative and collaborative learning experience, engage with the application of various
tools and techniques of cost engineering in a typical organization’s chain of value adding
activities, integrate technology in learning through the use of discipline-specific software
and e-learning platforms, and encourage exploration of the textbook and other resources
through robust signposting.

A combination of lectures, classroom discussions and scenario based multiple choice

questions will be used. Active learning will focus on the definitions of theory and their
application through computation. Appropriate skills will be assessed through tests designed
to provide a formative indication of progress in learning. A summative comprehensive
assessment at the end of the course will assess comprehension of the core concepts.

18

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 CCP ® Exam Review

Class Outline / Agenda / Syllabus

Total Duration – 40 Hours

Module 1 – Economic Analysis (10 Hours)

Relevant Resources
Unit Learning Topics Duration
Chapter No. Slide No.
1 Basic Concepts 2 Hour 7, 27 and 28 1-26

2 Annual Compounding 2 Hour 7, 27 and 28 27-49

3 Net Present Worth 1 Hour 7, 27 and 28 50-55

4 Investment Alternatives 1 Hour 7, 27 and 28 56-60

5 Depreciation and Taxes 1 Hour 7, 27 and 28 61-71

6 Break Even Analysis 1 Hour 2 72-79

7 Practice Problems 2 Hours 7, 27 and 28 1 -79

Module 2 – Cost Estimation and Control (9 Hours)

Relevant Resources
Unit Learning Topics Duration
Chapter No. Slide No.
1 Cost Estimation 3 Hour 9 and Appendix F 1-32
2 EVM Metrics 1 Hour 14, 15, 16 and 17 33-39
3 Progress Measurement 1 Hour 14, 15, 16 and 17 40-48
Performance
4 0.5 Hour 14, 15, 16 and 17 49-54
Measurement
5 Cost Forecasting 1 Hour 14, 15, 16 and 17 55-60

6 Variance Analysis 0.5 Hour 14, 15, 16 and 17 61-65

9, 14, 15, 16 and
7 Practice Problems 2 Hours 1 -65
17 & Appendix F
* Chapters numbers are referred to
 Skills and Knowledge of Cost Engineering, 5th Edition, AACE International

 CCC/CCE Certification Study Guide, 3rd Edition, AACE International

19

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 CCP ® Exam Review
Class Outline / Agenda / Syllabus

Module 3– Project Management (9 Hours)

Relevant Resources
Unit Learning Topics Duration
Chapter No. Slide No.
Leadership and
1 Management of Project 2 Hour 22 27-49
People
Contracting for Capital
2 2 Hour 25 50-55
Projects
3 Scheduling 3 Hour 13 56-60

4 Practice Problems 2 Hours 13, 22 and 25 1 -79

Module 4 – General Skills and Knowledge of Cost Engineering (12 Hours)

Relevant Resources
Unit Learning Topics Duration
Chapter No. Slide No.
1 Quality Management 1 Hour 23 1-16

2 Value Analysis 1 Hour 24 17-23

Strategic Asset
5 1 Hour 26 24-28
Management
6 Project Planning 1 Hour 20 29-38
Project Labor Cost
7 1 Hour 21 39-42
Control
8 Probability and Statistics 3 Hour 29 and 30 43-106

9 Risk Management 1 Hour 31 107-115

Appendix A
10 Communication 1 Hour 116-121
(Study Guide)
11 Practice Problems 2 Hour 1 to 31 1 - 121

* Class schedules are based on different permutation and combinations such as weekday evening classes for 12 days or 6
weekend classes or 5 full day classes. Irrespective of the schedule, the above unit duration will be maintained for each
learning topics.

20

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 CCP ® Exam Review

Module 1

Economics Analysis

21

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 CCP ® Exam Review

LEARNING OBJECTIVES / OUTCOMES

Module 1 - Economic Analysis

At the end of this module, students should able to

LO 1: calculate simple and compound interest rates and solve interest problems using
basic single payments, uniform series, and gradient formulas;

LO 2: calculate present value, future value, and equivalent uniform annual value of a cash
flow series;

LO 3: determine the discounted rate of return of a cash flow series;

LO 4: evaluate and select the best alternative using present value, future value, equivalent
uniform annual value, and discounted rate of return.

22

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 CCP® Exam Review

® CCP® Certification Preparation

Module 1: Economic Analysis

Alternative Title
Engineering Economics

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Module 1

Additional learning resources:

1. Chapter 7, 27, and 28

 Skills and Knowledge of Cost Engineering, 5th Edition, AACE International
 CCC/CCE Certification Study Guide, 3rd Edition, AACE International
2. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology

2
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 CCP® Exam Review

What is Economic Analysis ?

 Economic analysis (Engineering Economics) is the field of study which

applies the required tools to measure the economic viability of the project,
or

 To compare the outcomes of the alternative investment decisions.

3
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Module 1 - Units

1. Basic Concepts
2. Annual Compounding
3. Net Present Worth
4. Investment Alternatives
5. Depreciation and Taxes
6. Break Even Analysis

4
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 CCP® Exam Review

Module 1 - Unit 1

Basic Concepts

5
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Unit 1 – Basic Concepts

1.0 Symbols and Conventions

1.1 Interest
1.2 Interest Rate
1.3 Simple Interest
1.4 Compound Interest
1.5 The Time Value of Money
1.6 Cash Flows
1.7 Nominal and Effective Interest Rates
1.8 Equivalence

6
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 CCP® Exam Review

Unit 1.0 – Symbols and Conventions

SYMBOLS

Symbols Description Symbols Description

A Annuity or Uniform Payment Series MARR Minimum attractive rate of return

B Income or Benefits n Number of compounding period

C Costs or Expenses P Present value or Principle

EOY End-of-Year r Nominal annual interest rate

EUAW Equivalent Uniform Annual Worth or Value Sn Expected salvage value at end of year n

F Future Value Φ Effective interest rate

G Gradient

i Interest rate per period

These symbols are used throughout
K Number of compounding period
this module 7
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Unit 1.1 Interest

Friend, Bank
or Financial
Interest Institutions

Interest is a fee charged for using others money. The

‘fee’ is determined by the repayment period and
amount of money borrowed.

8
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 CCP® Exam Review

Unit 1.1 Interest

Example 1.1

Let’s say, you have borrowed $50000 from a bank to start your own business
and agreed to pay back $2300 per month for 2 years. How much interest is
charged?

Total amount to be paid is 24 x $2300 = $55200.

Original loan amount is $50000
The amount of interest is $55200-$50000 = $5200

9
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Unit 1.2 Interest Rate

Interest Rate

Interest is a fee charged for using others money.

The fee is usually calculated as a certain percentage

of the money. This percentage is called ‘interest
rate’.

10
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 CCP® Exam Review

Unit 1.2 Interest Rate

Example 1.2

If you deposit $3000 in a savings account that pays 5% interest rate per year,
how much money will you get after 1 year?

You will get back your original deposit + interest amount.

$3000 + ($3000 x 0.05) = $3150

11
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Unit 1.2 Interest Rate

Example 1.3

Let’s say, you have borrowed $30000 from a bank to start your own business
and agreed to pay back $32000 as one lump sum at the end of one year. What
is the annual interest rate?

Original loan amount is $30000

Loan repayment amount is $32000
Interest Amount is $32000 - $30000 = $2000

$2000
The annual interest is x100% = 6.67%
$3000
12
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 CCP® Exam Review

Unit 1.3 Simple Interest

Simple Interest

Simple interest is calculated only on the principal

amount as a fixed percentage, or on that portion of
the principal amount that remains multiplied by the
borrowing period. Formula

I = Pin
I = total amount of simple interest
n = life of the loan
i = interest rate (expressed as decimal)
P = principal
13
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Unit 1.3 Simple Interest

Example 1.4

If you borrow $3000 from your friend and agree to pay back after 2 years with
simple interest at the rate of 6% per year, how much you will have to repay ?

F=P+I

F = $3000 + (Pin) You have to pay

F = $3000 + ($3000 x .06 x 2) $3360
F = $3000 + $360
F = $3360
14
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 CCP® Exam Review

Unit 1.4 Compound Interest

Compound Interest

When interest is compounded, the total time period

is subdivided into several interest periods. Interest is
credited at the end of each interest period, and is
allowed to accumulate from one interest period to Formula
the next.
F = P (1+i)n
I = total amount of simple interest
n = life of the loan
i = interest rate (expressed as decimal)
P = present value, F = future value
15
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Unit 1.4 Compound Interest

Example 1.5

If you invest $10000 in a fixed deposit that pays an interest of 8%, compounded
annually, what will be the maturity value at the end of year 10?

F = P (1+i)n
What if it is simple interest?
F = $10000 (1+.08)10 F=P+I
F = $10000 (2.1589) F = P + Pin
F = $10000 + ($10000 x .08 x 10)
F = $21589 F = $10000 + 8000
F = $18000
16
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 CCP® Exam Review

Unit 1.5 – Time Value of Money

Money can have different values at different point in time. $1000 today is worth
more than $1000 a year from now because of two reasons - inflation and interest.

Inflation: An increase in the level of consumer prices or decline in purchasing power

of money.

Interest: Interest is a fee that is charged for the usage of money. We could deposit
the money in the bank and earn interest on it i.e., the bank can pay rent towards
using our money.

Interest rate is an accepted measure of the earning power of money.

17
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Unit 1.5 – Time Value of Money

Example 1.6 - Increase in value

What will be the future value of $100, 5 years from now if the interest rate is 10%

F = P (1+i)n | F = $100 (1.10)5 | F = $100 x 1.610 | F = $161

______________________________________________________________________
_

Example 1.7 - Decrease in value

What isFthe present value of $161 to be received after 5 years if the interest rate is 10%
161
P= P =
(1+i)
n
(1+.10)
5
P = $100
18
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 CCP® Exam Review

Unit 1.6 Cash Flow

Cash flow is the difference between total cash inflow and outflows for a
given period of time.

It is an important concept in evaluating investment opportunities,

projects, etc.,

Cash flow diagram is an excellent technique to visualize and solve

several cash flow problems.

Each cash flow is assumed to occur at the

end of the respective time period.
19
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Unit 1.6 Cash flow diagram

Example 1.8 Income/Benefits/Receipts/Salvage

$40,000
$35,000
$33,000
Cash Flow Diagram

Year Income Expense

Cash Flow Table

0 $60,000 0 1 2 3
1 $33,00 $1000
0
$1000
2 $35,00 $1500 $1500
0 $2000
3 $40,00 $2000 Cost/Expenditure/Disbursements
0 $60,000
20
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 CCP® Exam Review

Unit 1.7 Nominal and Effective Interest Rates

Some times financial institutions requires interest rate to be compounded more often
than once a year (e.g., quarterly, monthly, semi-annually, etc.).

In such cases, there are two expressions to interest rate viz., ‘r’ and ‘i’.

r = nominal interest rate (expressed on an annual basis)

i = effective interest rate (corresponds to the actual interest period)

i = r/m

m = number of interest period per year.

21
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Unit 1.7 Nominal and Effective Interest Rates

Example 1.9 – Nominal Interest Rate

A bank pay quarterly interest at the rate of 6% per year. What are the nominal and
effective interest rate?

The nominal interest rate is 6%

Effective Interest rate is

i = r/m
i = 6%/4
i = 1.5% per quarter
22
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 CCP® Exam Review

Unit 1.7 Nominal and Effective Interest Rates

INTEREST PERIODS ARE SMALLER THAN PAYMENT PERIODS

When the interest period is smaller than the payment periods, then the interest may
be compounded several times between payment so in this case effective interest
formula will be different.

i = ( 1 + r/m)m - 1

23
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Unit 1.7 Nominal and Effective Interest Rates

Example 1.10 – Effective Annual Interest Rate

If r = 6%, m = 4, what is the effective annual interest rate ?

i = ( 1 + 0.06/4)4 – 1

i = 0.06136 or 6.136% which is slightly higher than 6%

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Unit 1.8 Equivalence

In economic analysis, “Equivalence” means “the

state of being equal in value”. This concept is
primarily applied in the comparison of different
cash flows.
Payment
Example 1.11 EOY Option Option Option
1 2 3
You borrowed $10000 from your friend for 10%
1 $3155 $1000 $0
interest rate and he has given you 3 option to
payback the loan. Which option would you 2 $3155 $1000 $0
choose? 3 $3155 $1000 $0
4 $3155 $10000 $14641
It doesn’t matter. Because each of these 3 options
pays back 10% interest rate, but in different point All three options are equivalent
of time. 25
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End of Unit 1

Basic Concepts

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Module 1 - Unit 2

Annual Compounding

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Unit 2 – Annual Compounding

2.1 Single Payment – Compound Amount Factor

2.2 Single Payment – Present Worth Factor
2.3 Uniform Series – Compound Amount Factor
2.4 Uniform Series – Sinking Fund Factor
2.5 Uniform Series – Capital Recovery Factor
2.6 Uniform Series – Present Worth Factor
2.7 Gradient Series Factor – Arithmetic
2.8 Geometric Gradient
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Unit 2.1 – Single Payment – Compound Amount Factor

The future worth of a sum invested (or loaned) at compound interest.[1]

F = P ( 1 + i )n

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Unit 2.1 – Single Payment – Compound Amount Factor

Example 2.1

If you invest $10000 in a fixed deposit that pays an interest of 8%, compounded
annually, what will be the maturity value at the end of year 10?
F= ?
Find Future Value, Given Present Value

i = 8%, n = 10
F = P (1+i)n

F = $10000 (1+.08)10
F = $10000 (2.1589) P = $10000
F = $21589 30
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Unit 2.2 – Single Payment – Present Worth Factor

The discount factor used to convert future values (benefits and costs) to
present values.[1]

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Unit 2.2 – Single Payment – Present Worth Factor

Example 2.2

A bank pays 6% interest rate per year for fixed deposit. If you want a maturity
value of $10000 in 5 years, how much you should initially deposit in the bank?
F=$10000
Find Present Value, Given Future Value.

i = 6%, n = 5

F 10000
P= P= P = 7474
(1+ i)n (1+.06)5 P=?
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Unit 2.3 – Uniform Series, Compound Amount Factor

Takes a uniform series and moves it to a single value at the time of the
last payment in the series.

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Unit 2.3 – Uniform Series, Compound Amount Factor

Example 2.3

If you plan to deposit $900 each year in a savings account for 5 years and if the
bank pays 6% per year, compounded annually, how much money will have
accumulated at EOY 5?
F=?
Find Future Value, Given Annuity.
i = 6%, n = 5
0 1 2 3 4 5

F = 900 * 5.637 F = $5073 A = $900 34

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Unit 2.4 – Uniform Series, Sinking Fund Factor

Takes a single payment and spreads into a uniform series over N earlier
periods. The last payment in the series occurs at the same time as F.

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Unit 2.4 – Uniform Series, Sinking Fund Factor

Example 2.4

How much you should deposit per year for 5 years to accumulate $80000 at the EOY 5 if
the bank pays 6% interest per year compounded annually?
F = $80000
Find Annuity, Given Future Value

i = 6%, n = 5
0 1 2 3 4 5

A = 80000*0.1774 A = $14192 A=?

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Unit 2.5 – Uniform Series, Capital Recovery Factor

Takes a single payment and spreads it into a uniform series over N later
periods. The first payment in the series occurs one period later than P.

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Unit 2.5 – Uniform Series, Capital Recovery Factor

Example 2.5

You have accumulated $100000 in a savings account that pays 7% per year, compounded
annually. Suppose you wish to withdraw a fixed sum of money at the end of each year for
5 years, what is the maximum amount that can be withdrawn?

A=?
Find Annuity, Given Present Value.

0 1 2 3 4 5

i = 7%, n = 5
A =100000*0.2439 A = $24389 P = $100000
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Unit 2.6 – Uniform Series, Present Worth Factor

Takes a single payment and spreads it into a uniform series over N later
periods. The first payment in the series occurs one period later than P.

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Unit 2.6 – Uniform Series, Present Worth Factor

Example 2.6

If you decide to withdraw $5000 from your savings account at the end of each year for 5
years, how much money you should have in the bank now, if the bank pays 8% interest
rate compounded annually.

A = $5000
Find Present Value, Given Annuity.

0 1 2 3 4 5

i = 8%, n = 5

P = 5000 *3.9927 A = $19964 P=?

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Unit 2.7 – Arithmetic Gradient – Present Worth Factor

Takes a arithmetic gradient series and moves it to a single payment two

periods earlier than the first nonzero payment of the series.

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Unit 2.7 – Arithmetic Gradient – Present Worth Factor

Example 2.7

How much money must initially be deposited in a savings account paying 6% per year, compounded annually, to
provide for 5 withdrawals that starts at $5000 and increase by $500 each year?

Find Present Value, Given Annuity and Gradient.

+ 0 1 2 3 4 5

i = 6%, n = 5
P = 21062 +3967 P = $25029 P=?
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Unit 2.7 – Arithmetic Gradient – Uniform Series Factor

Takes a arithmetic gradient series and converts it to a uniform series. The

two series cover the same interval, but the first payment of the gradient
series is 0.

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Unit 2.8 – Arithmetic Gradient – Present Worth Factor

Example 2.8

How much money must initially be deposited in a savings account paying 6% per year, compounded annually, to
provide for 5 withdrawals that starts at $5000 and increase by $500 each year?

Find Present Value, Given Annuity and Gradient.

0 1 2 3 4 5

A = 500*1.8836 A = $942 A = $942 + $5000 = $5942 i = 6%, n = 5

P=?

P = $25029
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Unit 2.8 – Geometric Gradient – Present Worth

Increasing/decreasing at a constant percentage, not a constant amount

Example every year Income will increase by 6%

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Unit 2.8 – Arithmetic Gradient – Present Worth Factor

Example 2.9

Airplane ticket price will increase 8% in each of the next four years. The cost at the end of the first year will be $180.
How much should be put away now to cover a students travel home at the end of each year for the next four years?
Assume 5%interest rate.

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Unit 2.8 – Geometric Gradient – Future Worth

Increasing/decreasing at a constant percentage, not a constant amount

Example every year Income will increase by 6%

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Unit 2.8 – Arithmetic Gradient – Future Worth Factor

Example 2.10
A graduating CE is going to make $35,000/yr with Shipbuilding Company . A total of 10% of the CE salary will be
placed in the mutual fund of their choice. The CE can count on a 3% salary increase with the standard of living
increases for the next 30 years of employment. If the CE is aggressive and places their retirement in a stock index
fund that will average 12% over the course of their career, what can the CE expect at retirement?

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End of Module 1 Unit 2

Annual Compounding

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Module 1 - Unit 3

Net Present Worth

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Unit 3.1 – Net Present Value / Worth

In finance, the net present value (NPV) or net present worth (NPW) of a
time series of cash flows, both incoming and outgoing, is defined as the
sum of the present values (PVs) of the individual cash flows of the same
entity.

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Unit 3.1 – NPV in Decision Making

NPV is an indicator of how much value an investment or project adds to

the firm. In financial theory, if there is a choice between two mutually
exclusive alternatives, the one yielding the higher NPV should be
selected.

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Unit 3.1 – NPV in Decision Making

If… Means… Then…

NPV > 0 the investment would add value to the project may be accepted
the firm
NPV < 0 the investment would subtract the project should be rejected
value from the firm
NPV = 0 the investment would neither gain We should be indifferent in the
nor lose value for the firm decision whether to accept or
reject the project.

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Unit 3.1 – Net Present Value / Worth

Example 3.1

The cash flows associated with a machine are CF0 = -$50,000. CFj=$15000 (j=1,…,5). Use NPV to determine the
economic acceptability of this machine at interest rates of (a) 10%, (b) 15%, and (c) 20% per year, all compounded
annually.

(a) NPV = -$50,000 + $15,000 (P/A, 10%, 5) = -$50,000 + $15,000 (3.791) = $6865

(a) NPV = -$50,000 + $15,000 (P/A, 15%, 5) = -$50,000 + $15,000 (3.352) = $280

(a) NPV = -$50,000 + $15,000 (P/A, 20%, 5) = -$50,000 + $15,000 (2.991) = -$5135

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End of Module 1 Unit 3

Net Present Value

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Module 1 - Unit 4

Investment Alternatives

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Unit 4.1 Setting the MARR

MARR – Minimum Attractive Rate of Return

The smallest yield rate at which a proposed investment would be

acceptable.

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Unit 4.1 – Investment Alternatives

Example 4.1

The XYZ manufacturing company is currently earning an average before-tax return of 25% on its total investment.
The board of directors of XYZ is considering three project as given in the below table.

Cash Flows
End of Year
Project A Project B Project C
Select a desirable project 0 -$50000 -$80000 -$60000
based on Net Present Value.
1 20000 30000 23000
2 20000 30000 23000
3 20000 30000 23000
4 20000 30000 23000
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Unit 4.1 – Investment Alternatives

Example 4.1

Cash Flows
NPVA = -$50000 + $20000(P/A, 25%, 4) = -$2760 EOY
NPVB = -$80000 + $25000(P/A, 25%, 4) = -$20950 Project A Project B Project C
NPVC = -$53000 + $23000(P/A, 25%, 4) = $1326 0 -$50000 -$80000 -$53000
1 20000 30000 23000
2 20000 30000 23000
Based on NPV, Project 3 20000 30000 23000
C is favorable. 4 20000 30000 23000

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End of Module 1 Unit 4

Investment Alternatives

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Module 1 - Unit 5

Depreciation and Taxes

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Unit 5.1 - Depreciation

DEPRECIATION [1]

(1) Decline in value of a capitalized asset.

(2) A form of capital recovery applicable to a property with a life span of

more than one year, in which an appropriate portion of the asset's value
is periodically charged to current operations.

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Unit 5.1 - Depreciation

DEPRECIATION [1]

(1) Decline in value of a capitalized asset.

(2) A form of capital recovery applicable to a property with a life span of

more than one year, in which an appropriate portion of the asset's value
is periodically charged to current operations.

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Unit 5.1 – Computation Methods

STRAIGHT LINE METHOD

For an asset with useful life n years, the annual depreciation in year j is

adjusted cost
SD = ( j = 1,2,3,…..,n )
n

Adjusted cost = Asset Value – Salvage Value

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Unit 5.1 – Straight Line Method

Example 5.1
A new machine costs $120,000, has a useful life of 10 years, and can be sold for $15,000 at the end of
its useful life. Determine the annual straight-line depreciation amount for this machine.

120000 -15000
SD = = $10500
10

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Unit 5.1 – Straight Line Method

Year Depreciation Charge Accumulated Book Value at End of
per year Depreciation, Year
Example 5.2
1 $10500 $10500 $109500
2 $10500 $21000 $99000
Determine the straight-line 3 $10500 $31500 $88500
depreciation schedule for
4 $10500 $42000 $78000
example 5.1
5 $10500 $52500 $67500
6 $10500 $63000 $57000
7 $10500 $73500 $46500
8 $10500 $84000 $36000
9 $10500 $94500 $25500
10 $10500 $105000 $15000 66
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Unit 5.1 – Depreciation Types

1. Straight Line Method

2. Declining Balance Method
3. Sum Of Years Digits Method
4. Sinking-Fund Method

In United States, IRS (Internal Revenue Services) publishes depreciation

scale for each class life known as ‘Modified Accelerated Cost Recovery
System’.

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Unit 5.1 – Before and After Tax Economic Analyses

Economic Analyses should generally be made on an after-tax basis, unless

it is clear that tax considerations are irrelevant.

Depreciation can cause the before-tax and after-tax to differ, as it is

considered as expense (non-cash).

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Unit 5.1 – The effect of Tax and Depreciation

Example 5.3
A computer system can be purchased for $18000. The operating costs will be $10000 per
year, and the useful life is expected to be 5 years, with $5000 salvage value that time. The
present annual sales volume should increase by $16000 as a result of acquiring the
computer system. The company’s tax rate is 50%. Using straight-line depreciation
technique with 10% MARR, calculate Net Present Worth of this investment.

Solution

Straight Line Depreciation per year = Asset Value – Salvage Value / n

Straight Line Depreciation per year = ($18,000 - $5000)/5 = $2600

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Unit 5.1 – The effect of Tax and Depreciation

Calculation Description Year 1 Year 2 Year 3 Year 4 Year 5

Income - Expense A. BTCF $6000 $6000 $6000 $6000 $6000
(AV-SV)/n B. Depreciation 2600 2600 2600 2600 2600
C=A-B C. Net Taxable Income 3400 3400 3400 3400 3400
D = C x .50 D. 50% Tax 1700 1700 1700 1700 1700
E=C-D E. Profit 1700 1700 1700 1700 1700
F=E+B F. ATCF 4300 4300 4300 4300 4300
*BTCF – Before Tax Cash Flow, *ATCF – After Tax Cash Flow

NPV = -$18000 + $4300 (P/A, 10%,5) + $5000 (P/F, 10%,5)

NPV = -$18000 + 16301 + 3104
NPV = $1405
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End of Module 1 Unit 5

Depreciation and Taxes

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Module 1 – Unit 6

Break Even Analysis

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Unit 6.1 Break Even Analysis

The break even point for a product is the point where total revenue
received equals total costs associated with the sale of the product.

Terms in use:

• Selling Price (SP) – Each unit price which it is sold for

• Variable Cost (VC) – Varies in proportionate with volume
• Contribution Margin (CM) – Selling Price – Variable cost
• Fixed Costs (FC) – Remains constant irrespective of the output/sales
• Units (U) – The number of items sold or produced

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Unit 6.1 Break Even Analysis – Formula

Break Even Unit = FC / (SP-VC)

Break Even Revenue = Break Even Units x SP/unit

Desirable Profit Units = (FC + Desirable Profit) / (SP-VC)

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Unit 6.1 Break Even Analysis – Example

Example 6.1
As the cost engineer, you have been requested to provide pertinent data for a new product project decision. The
company plans to produce widget and predicted sales forecast.

Widget Selling Price USD 12

Cost to the company to manufacture one widget USD 9

Monthly fixed costs are as follows:

Rent USD 3600
Wages USD 1200
Misc., USD 400

Based on the given situation, answer the following 7 questions:

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Unit 6.1 Break Even Analysis – Example

Q1. How many units are required per month to break even
BEP = FC / (SP – VC)
= 5,200 / ( 12 – 9) = 1734 Units

Q2. What sales are needed to break even?

Sales = BEP x SP
= AED 20,808

Q3. If AED 7800 is the target net profit, how much should be the total sales volume
N = (FC + DP)/(SP-VC)
= 4334 Units

Q4. If the company considers AED 2000 as the minimum acceptable income, the number units that will be sold is
N = ( FC + DP ) / ( SP – VC )
= ( 5200 + 2000 ) / ( 12 – 9 )
= 2400 Units
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Unit 6.1 Break Even Analysis – Example

Q5. If the rent increases to AED 4100, what will be the new break even revenue
New FC = ( 4100 + 1200 + 400 )
= USD 5700
New BEP units = FC / ( SP – VC )
= 5700 / ( 12 – 9 ) = 1900 units

Q6. The marketing department decided to increase the unit selling price to AED 18. The new break even amount for
sales (in units) will be
New BEP = FC / ( SP – VC
= 5200 / ( 18 – 9 ) = 578 Units

Q7. If the fixed rent remains unchanged, and there is an additional variable cost of AED 1, the monthly breakeven
point in number of units becomes
New BEP = 5200 / ( 12 – 10 )
= 2600 Units

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References

1. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology.

2. Skills and Knowledge of Cost Engineering, 5th Edition, AACE International.
3. CCC/CCE Certification Study Guide, 3rd Edition, AACE International

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End of Module 1 Unit 6

Break Even Analysis

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End of Module 1

Economic Analysis

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Module 1 – Economic Analysis

Learning Outcome 1

Calculate simple and compound interest rates and solve interest problems using basic
single payments, uniform series, and gradient formulas.

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Questions
1. A student deposits $1000 in a savings account that pays interest at the rate of 6% per year. How
much money will the student have after one year?
a. $1600
b. $1200
c. $1060
d. $1016

2. An investor makes a loan of $5000, to be repaid in one lump sum at the end of one year. What
annual interest rate corresponds to a lump-sum payment of $5425?
a. 7.5%
b. 8.5%
c. 9.3%
d. 4.25%

3. A student deposits $1000 in a savings account that pays interest at the rate of 6% per year,
compounded annually. If all of the money is allowed to accumulate, how much will the student
have after 12 years? What will be amount if simple interest had been paid?
a. Compound Interest $2012.20, Simple Interest $1720
b. Compound Interest $2112.20, Simple Interest $1720
c. Compound Interest $2322.20, Simple Interest $1720
d. Compound Interest $2412.20, Simple Interest $1720

4. Suppose that a man lends $1000 for four years at 12% per year simple interest. At the end of the
four years, he invests the entire amount which he then has for 10 years at 8% interest per year,
compounded annually. How much money will he have at the end of the 14-year period?
a. $2133
b. $3500
c. $3195
d. $2890

5. The ABC company is building a new plant, whose equipment maintenance costs are expected to
be $500 the first year, $150 the second year, $200 the third year, $250 the fourth year, etc.,
increasing by $50 per year through the 10th year. The plant is expected to have a 10-year life.
Assuming the interest rate is 8%, compounded annually, how much should the company plan to
set aside now in order to pay for the maintenance?
a. $2340
b. $4320
c. $4400
d. $12000

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Module 1 – Economic Analysis

Learning Outcome 2

Calculate present value, future value, and equivalent uniform annual value of a cash
flow series.

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Questions
6. A student who will inherit $5000 in three years has a savings account that pays 5 ½ % per year,
compounded annually. What is the present worth of the student’s inheritance?
a. $4777
b. $4258
c. $5688
d. $5550

7. Suppose that a person deposits $500 in a savings account at the end of each year, starting now,
for the next 12 years. If the bank pays 8% per year, compounded annually, how much money
will accumulate by the end of the 12-year period?
a. $9488
b. $8448
c. $8888
d. $6000

8. A man has deposited $50000 in a retirement income plan with a local bank. This bank pays 9%
per year, compounded annually, on such deposits. What is the maximum amount the man can
withdraw at the end of each year and still have the fund last for 12 years?
a. $4982
b. $6400
c. $6800
d. $6982

9. A machine costs $40000 to purchase and $10000 per year to operate. The machine has no
salvage value, and a 10-year life. If i=10% per year, compounded annually, what is the
equipment uniform annual cost of the machine?
a. $26150
b. $22000
c. $16510
d. $17890

10. A machine that cost $30000 new has an 8-year life and a salvage value equal to 10% of its
original cost. The annual maintenance cost of this machine is $1000 the first year, with an
increase of $200 each year hereafter; the annual operating cost is $800 per year. Determine the
EUAC of this machine if the interest rate is 10% per year, compounded annually.
a. $6791
b. $8920
c. $5980
d. $7761

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 CCP ® Exam Review

Module 1 – Economic Analysis

Learning Outcome 3
Determine the discounted rate of return of a cash flow series.

Learning Outcome 4
Evaluate and select the best alternative using present value, future value, equivalent
uniform annual value, and discounted rate of return.

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Questions
11. A plant is considering buying a second-hand machine to use as stand-by equipment. The
machine costs $3000 and has an economic life of 10 years, at which time its salvage value is
$600; expected annual operating costs are $100. Without a stand-by machine, the plant would
have to shut down an average of seven days a year at a cost of $50 per day. If the MARR is 10%
is it expedient to buy the stand-by machine?
a. The stand-by machine should not be purchased
b. The stand-by machine should be purchased
c. The stand-by machine can be leased
d. Need more information, to support the answer

12. Which of the following is not a depreciation technique?

a. Straight-line Method
b. Sum-Of-Years-Digit Method
c. Sinking-Fund Method
d. Double-line Method

13. Economic Analysis should generally made

a. After-tax basis
b. After-tax basis + add back depreciation (if any)
c. After-tax basis without adding back the depreciation
d. After-tax or Before-tax will give the same result

14. A bank pays interest at the rate of 6% per year, compounded monthly. If a person deposits
$2500 in a savings account at the bank, how much money will accumulate by the end of 2 years?
a. $2290
b. $2818
c. $2900
d. $2100

15. Is the receipt of $4000 annually for 10 years equivalent to the receipt of $5000 annually for 8
years, if the interest rate is 8% per year, compounded annually?
a. Yes
b. No
c. Not Enough Information
d. If 9% it is same

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Module 1 – Economic Analysis

Scenario Based Question

LO 1, 2, 3 and 4

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A computer system can be purchased for $18000. The operating costs will be $10000 per year, and
the useful life is expected to be 5 years, with $5000 salvage value that time. The present annual sales
volume should increase by $16000 as a result of acquiring the computer system. The company’s tax
rate is 50%. Using straight-line depreciation technique with 10% MARR, answer the following 7
questions:

16. What is the Net Present Worth of this investment?

a. $7405
b. $6405
c. $1405
d. $9120

17. What is the present worth of Benefit in this investment?

a. $19405
b. $18000
c. $21000
d. $19000

18. What is the taxable income in year 3?

a. $3200
b. $4000
c. $3400
d. $3600

19. How much tax would have been paid at the end of year 5? (Cumulative)
a. $8500
b. $8900
c. $9200
d. $9100

20. What is the applicable factor for P/A in this problem?

a. 0.909
b. 3.791
c. 6.105
d. 1.661

21. What is the correct factor for P/F in this problem?

a. 0.6209
b. 1.611
c. 0.1638
d. 3.791

22. What is the book value of the computer at the end of year 3?
a. $10200
b. $18000
c. $12400
d. $21000

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A house is advertised for sale by the owner. An investor estimates that the property could be rented
out for $600 per month (paid annually). Taxes and minor expenses are estimated at $1200 per year.
The house has been recently remodeled and the tenant should have to pay all utilities. The investor
thinks he could sell the house for $85000 after 5 years. MARR is 12%. Answer the following 7
questions based on this scenario:

21. What is the largest amount that the investor can offer for the property if his MARR is 12%,
compounded annually?
a. $49000
b. $23092
c. $69511
d. $59000

22. What are the two functional notations you will use in this problem?
a. P/F, F/A
b. P/F, P/A
c. P/F, A/F
d. P/F, F/P

23. What is the correct factor to find present worth of annuity in this problem?
a. 3.605
b. 4.233
c. 3.900
d. 0.344

24. What is the correct factor to find present worth of future worth in this problem?
a. 0.450
b. 0.567
c. 0.823
d. 0.233

25. Taxes and Maintenance expenses to be borne by the buyer, will

a. Increase the buying price
b. Decrease the buying price
c. Neither increase nor decrease
d. None of the above

26. The recommended buying price for this house is all of following EXCEPT:
a. $69000
b. $68000
c. $71000
d. $65000

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A leasing company is evaluating two alternative cranes to purchase and lease it.

Particulars Brand A Brand B

Purchase Cost USD 200000 USD 170000

Useful Life 6 Years 6 Years

Salvage Value USD 45000 USD 32000

Estimated Income / Year USD 82000 USD 67000

Estimated Expense / Year USD 12000 USD 8000

Income Tax / Year 22%

Depreciation Straight-Line

MARR 12%

Answer the following 7 questions based on the above data:

27. What is the book value for Brand A at the end of Year 3?

a. 162500

b. 122500

c. 182500

d. 0

28. Based on the given information, which brand you would choose?

a. Brand A

b. Brand B

c. Brand A or B

d. Not Enough Information

29. What is the NPW for Brand B?

a. $56200

b. $85695

c. $241275

d. $22506

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30. The tax payable at the end of year 5 for Brand A is?

a. $7012

b. $9717

c. $4000

d. $27500

31. What is the present worth of the salvage value for Brand B?

a. $21000

b. $16211

c. $18780

d. $12221

32. What is the annual taxable income for Brand A?

a. $32502

b. $46500

c. $44167

d. $41232

33. Which of the following statement is true as it relates to this case?

a. Select the brand which gives higher NPW

b. Select the brand which gives lower NPW

c. Select the brand which gives higher annual profit

d. Select the brand which gives higher salvage value

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A computer system can be purchased for $18000. The operating costs are $10000 and will increase
by 7% every year, and the useful life is expected to be 5 years, with $5000 salvage value that time.
The present annual sales volume is $16000 and would increase by 10% every year, as a result of
acquiring the computer system. The company’s tax rate is 50%. Using straight-line depreciation
technique with 10% MARR, answer the following 7 questions:

34. What is the Net Present Worth of this investment?

a. $7405
b. $4875
c. $1405
d. $9120

35. What is the present worth of Benefit in this investment?

a. $19405
b. $18000
c. $22,875
d. $19000

36. What is the taxable income in year 3?

a. $5311
b. $4000
c. $3400
d. $3600

37. How much tax would have been paid at the end of year 5? (Cumulative)
a. $8500
b. $8900
c. $13,589
d. $9100

38. What is the applicable factor for P/F in 5th year?

a. 0.909
b. 3.791
c. 0.6209
d. 1.661

39. What is the book value of the computer at the end of year 3?
a. $10200
b. $18000
c. $12400
d. $21000

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Module 1 – Economic Analysis

ADDITIONAL PRACTICE 1 MARKS QUESTIONS

LO 1, 2, 3 and 4

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40. Mr. Paul borrows $ 5000 from his neighbor to buy a Laptop. His neighbor agrees to
charge him simple interest at the rate of 7% per year. If Paul repays the loan after 4
years, how much he will have to pay?
A. $ 6,300
B. $ 5,500
C. $ 6,400
D. $ 6,000

41. If $ 500 is earned in five months on an investment of $ 10,000, what is the annual
rate of simple interest?
A. 11.5%
B. 12%
C. 10.5%
D. 11%

42. Mr. Roger deposits $ 15,000 in a savings account that pays interest at the rate of 6%
per year, compounded annually. What will be the maturity value of money in 10
years? Will he get higher maturity value, if interest is calculated using simple
interest?
A. $ 25,897 , yes
B. $ 27,882 , No
C. $ 24,890 , Yes
D. $ 26,862 , No

43. Mr. Sharma will receive $ 25000 after 10 years, what is the present worth of $25000.
Assume interest rate of 6.5% per year.
A. $ 26,564
B. $ 13,318
C. $ 15,264
D. $ 11,568

44. Cost of a particular item in USA is $ 80. What will be the cost of same item after two
years if the expected inflation will be 6% per year?
A. $ 89.88
B. $ 75.46
C. $ 95.66
D. $ 82.45

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45. Mr. Ashok Deposits $10,000 for five years. If the bank pays 10% for 1 st three years
and 12% for remaining two years. What will be the maturity amount at the end of
five years?
A. $ 13,310
B. $ 14,400
C. $ 18,564
D. $ 16,696

46. How long it will take to double the money if the bank gives interest rate of 10% per
year, compounded annually
A. 7.2 years
B. 6.5 years
C. 8 years
D. 6 years

47. Suppose you are planning to invest $ 50,000 in a particular bond. Returns on the
bond are as follows.

First Year = $ 20,000, Second Year = $ 30,000, Third Year = $ 30,000

You are looking for 10% MARR. Will it be profitable to buy the bond?
A. It will be loss
B. There will be profit only in first year
C. It will be profit
D. It will be neither profit nor loss

48. If a credit card company charges 3% interest rate per month. What will be the
effective interest rate per annum?
A. 42.57%
B. 30.56%
C. 36%
D. 46.88%

49. If the bank interest rate is 8% per year, how much an individual will have to deposit
for a 5 years in order to obtain a net of $ 50,000 after paying $ 50 as the early
withdrawal fees?
A. $ 28,567
B. $ 34,608
C. $ 31,077
D. $ 25,908

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50. Mr. Simon deposits $20000 in a savings account that pays interest at 10% per year,
compounded annually. How much money he will have at the end of 15 years.
A. $ 80,453
B. $ 85,902
C. $ 75,900
D. $ 83,540

51. If the bank offers 12% interest rate. How much money must be deposited in a fixed
deposit scheme so that the maturity value will be $ 30,000 at the end of 7 years?
A. $ 12,567
B. $ 13,569
C. $ 14,894
D. $ 13,988

52. Mr. Nasir deposits $ 1000 in a savings account at the end of each year, starting now,
for next 10 years. Bank pays 12% interest per year. How much money Nasir will get
at the end of 10 Year period.
A. $ 16,980
B. $ 15,235
C. $ 18,987
D. $ 17,549

53. Mr. Pranal wants to retire after 35 years. He wants to make sure that at the end of
35 years he has at least $ 1000,000. How much money he should invest per year, if
the bank offers him 10% fixed interest rate per year.
A. $ 3290
B. $ 4291
C. $ 3690
D. $ 2980

54. XYZ bank pays 10% per year for deposits above 10 years. If Mr. Sharma deposits
$50,000 in the retirement income plan for 12 years, what is the maximum amount of
money he can withdraw at the end of each year such that the funds will last for 12
years.
A. $ 7340
B. $ 7690
C. $ 8130
D. $ 8090

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55. Mr. John is planning his retirement. He is planning to invest in a bank scheme which
is offering 12% per year interest rate. How much money he should invest now, if he
plans to withdraw $ 12,000 per year for a period of 20 years.
A. $ 81,678
B. $ 84,561
C. $ 75,892
D. $ 89,628

56. XYZ Bank offers 12% interest rate. If you deposit $ 8000, how many years it will take
to accumulate $ 20000.
A. 9.50 years
B. 8.08 Years
C. 9.02 Years
D. 10.62 years

57. Mr. Ralph wants to take loan of $ 20,000, what will be the installment amount per
year if he wants settles the loan amount in 10 years? Bank is ready to lend money at
interest rate of 10% per year.
A. $ 2780
B. $ 1500
C. $ 3254
D. $ 3000

58. Ms. Kent invests $ 8000 in an account that pays 8.5% interest per year, compounded
quarterly. What is amount of money she will have after 4 years?
A. $ 10,800.20
B. $ 15,000.10
C. $ 16,178.90
D. $ 11,199.60

59. A bank offers 10% compound interest calculated on quarterly basis. A customer
deposits $ 2000 each on 1st January, 1st of April, 1st July, and 1st October. What will
be the amount available at the end of one year?
A. $ 8512.65
B. $ 8120.24
C. $ 8826.12
D. $ 7894.45

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60. A Lecturer is planning for 15 year retirement. In order to supplement his pension and
offset the anticipated effects of inflation, he intends to withdraw $5000 at the end of
the first year, and to increase the withdrawal by $1000 at the end of each successive
year. How much money must the lecturer have in his savings account at the start of
his retirement, if the money earns 10% per year, compounded annually?
A. $ 70,678
B. $ 82,145
C. $ 65,126
D. $ 78,182

61. How much money must initially be deposited in a savings account paying 12% per
year, compounded annually, to provide for ten annual withdrawals that start at
$6000 and decrease by $500 each year?
A. $ 24,980
B. $ 23,773
C. $ 28,127
D. $ 56,190

62. If g= 6%, i=12% and number of years is 15 years. The initial sum is $ 4000.
Calculate the Present worth
A. $ 37,890
B. $ 45,194
C. $ 24,041
D. $ 19,092

63. If the initial sum is $8,000 which increases at a rate of 3% per year. Calculate the
future worth at the end of 5 years if the interest rate is 10%
A. $34,789
B. $51,569
C. $78,246
D. $45,679

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Module 1 – Economic Analysis

ADDITIONAL PRACTICE 7 MARKS QUESTIONS

LO 1, 2, 3 and 4

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The purchase price of new CNC machine is $ 80,000 and its annual operating cost is $ 5000.
The machine has a life of 10 years with $ 30,000 salvage value. It is expected to generate $
20,000 in revenues in each year of its life. The company pays 30% tax. Calculate the Net
Present Value when MARR is 8%, 10% and 12%. Use straight line depreciation Method

64. What is the Net Present Worth when MARR is 12%

a. $ 11,500
b. $ 12,400
c. $ -2,540
d. $ -3,890

65. What is the Present Worth Benefit when MARR is 8%

a. $ 94,416
b. $ 75,520
c. $ 67,800
d. $ 88,000

66. Which are the most appropriate factors to be used in this problem?
a. F/P, F/A
b. F/A, P/A
c. A/G, P/G
d. P/A, P/F

67. How much tax would have been paid at the end of 10 years? (Cumulative)
a. $ 30,000
b. $ 45,000
c. $ 25,000
d. $ 35,000

68. What is the correct factor for P/A when MARR is 10%
a. 6.845
b. 6.346
c. 7.56
d. 6.145

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69. What will be the book value of the CNC Machine at the end of year 6
a. $ 60,000
b. $ 50,000
c. $ 40,000
d. $ 80,000

70. What is the present worth of salvage value when MARR is 8%

a. $ 13,896
b. $ 15,904
c. $ 14,560
d. $ 15,906

A new plant to produce copper wires requires an initial investment of $ 10 million. It is

expected that after 2 years of operation and additional investment of 5 million will be
required, and after 5 years of operation an additional investment of $ 3 million will be
required. Annual operating costs will be $ 4 million and annual revenues will be $ 8 million.
The life of the plant is expected 10 years. If the interest rate is 15% per year, compounded
annually, Calculate the Net positive Worth and answer the below give questions.

71. What is the net present worth of the New Plant?

A. $4,200,100
B. $4,803,900
C. $5,202,801
D. $3,500,120

72. What is the Present worth of total future investment?

A. $2,238,901
B. $3,445,678
C. $5,272,100
D. $6,123,100

73. Compound interest factor used to determine Present value of 5 th year

investment is..
A. 0.5623
B. 0.4972
C. 0.4226

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D. 0.4050

74. The most appropriate factors to be used in this problem are

A. A/F, F/P
B. A/P, F/P
C. A/P, A/G
D. P/A, P/F

75. Which factor will be used to determine the present worth of future annual
returns?
A. 5.019
B. 4.802
C. 0.9082
D. 3.0982

76. What is the present worth of 2nd year investment?

A. $3,120,900
B. $4,901,124
C. $2,989,000
D. $3,780,500

77. What is the compound interest factor used to determine Present value of 2 nd
year investment?
A. 0.6712
B. 0.7000
C. 0.7561
D. 0.7901

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The K.C Company currently earns an average rate of return of 28% on its total investment.
The board of directors of K.C Company is considering three Projects whose cash flows are
specified in the Table below. Calculate NPV for each Project and answer the following
questions. The target MARR set by the company is 25%

End of Year Project A Project B Project C

0 -$50,000 -$75,000 -$100,000

1 $15,000 $35,000 $35,000

2 $15,000 $35,000 $35,000

3 $15,000 $35,000 $35,000

4 $15,000 $35,000 $35,000

78. Company should invest in which project?

A. Project A
B. Project B
C. Project C
D. None of the projects.

79. Which factor will be used to determine the present worth of future annual
returns in case of project C?
A. 2.362
B. 2.300
C. 2.509
D. 3.902

80. What is the NPW of project A?

A. $ 15,000
B. $14,570
C. ($14,570)
D. $ 35,000

81. The most appropriate factors to be used in this problem is

A. F/A
B. A/P
C. A/F
D. P/A

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82. What is the NPW of project B?

A. $5,612
B. $6,780
C. $7,000
D. $7,670

83. What is the Present worth of annual returns of Project B?

A. $44,908
B. $82,670
C. $89,987
D. $12,904

84. What is the net NPW of project C?

A. $34,780
B. ($45,891)
C. $ 17,145
D. ($17,330)

A Computer hardware company wants to introduce a new line to produce Pen drives. The
Pen drive sales price will be $ 20 each. After initial study it is found that raw material cost
will be $ 8/unit and direct labor cost will be $ 6/unit. The company needs to allocate certain
portion of their workshop floor towards manufacture of Pen drives. The overhead will be $
200,000, and the insurance will be $ 50,000 to cover all the equipment.

85. What is the breakeven point?

A. 41,667
B. 18,782
C. 20,902
D. 56,145

86. If 60,000 units are produced what is the current profit or loss?
A. $ 123,901
B. $ 450,981
C. $ 110,000
D. $ 130,000

87. What is the shutdown point for the proposed new line?
A. Total sales equal the difference between variable and semi variable expenses
B. Total sales exceeds total costs
C. Total sales equal to total variable expense
D. Total sales are equal to breakeven point.

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88. What is the total variable costs
A. $240,890
B. $ 840,000
C. $ 240,880
D. $ 450,145

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Module 2

Cost Estimation and Control

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LEARNING OBJECTIVES / OUTCOMES

Module 2 - Cost Estimation and Control

At the end of this module, students should able to

1. understand the classification of cost estimates;

2. understand some of the common methodologies used in preparing cost estimates,
relate estimate accuracy to the level of scope information and methodologies used
in preparing cost estimates;
3. perform cost estimation process through different conceptual estimating
techniques;
4. identify the six methods used for measuring work progress;
5. understand the concept of earned value and how to use it in fixed budgets;
6. calculate and analyze project performance using cost control formula such as cost
variance, cost performance index, schedule variance, schedule performance index,
estimate at completion, estimate to completion, variance at completion and to
complete performance index.

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® CCP® Certification Preparation

Module 2

Cost Estimation and Control

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Module 2

Additional learning resources:

1. Chapter 9, 14, 15, 16 and 17

 Skills and Knowledge of Cost Engineering, 5th Edition, AACE International
 CCC/CCE Certification Study Guide, 3rd Edition, AACE International
2. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology

2
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Module 2 - Units

1. Cost Estimation
2. Earned Value Management Metrics
3. Progress Measurement
4. Performance Measurement
5. Cost Forecasting
6. Variance Analysis

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Module 2 – Unit 1

Cost Estimation

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Unit 1 – What is Cost Estimation ?

 Cost estimating is the predictive process used to quantify, cost, and price
the resources required by the scope of an investment option, activity, or
project.[1]

 Cost estimating is a process used to predict uncertain future costs. In that

regard, a goal of cost estimating is to minimize the uncertainty of the
estimate given the level and quality of scope definition.[1]

 Cost estimating, by providing the basis for budgets, also shares a goal with
cost control of maximizing the probability of the actual cost outcome being
the same as predicted. [1]

5
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Unit 1 – Estimation Classification

AACE identifies five classes of estimates. A Class 5 estimate associated with the
lowest level of project definition and a Class 1 estimate is associated with the
highest level of project definition.

The characteristics used to distinguish estimates from others are:

1. Degree of project definition
2. End usage of the estimates
3. Estimating methodology
4. Estimating accuracy, and
5. Effort required to produce the estimate

6
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Unit 1 – AACEI Estimation Classification Matrix - Sample

Skills and Knowledge of Cost Engineering, 5th Edition, AACE International, Page No 9.2, Table 9.1 7
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Unit 1 – AACEI vs ANSI Standard (Estimation Accuracy Range)

AACEI Class 5 Class 4 Class 3 Class 2 Class 1

Order of Magnitude
Budget Estimate Definitive Estimate
ANSI Estimate
-15% to +30% -5% to 15%
-30% to +50%

Skills and Knowledge of Cost Engineering, 5th Edition, AACE International, Page No F.7, Figure 3.A 8
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Unit 1 – Estimation Methodologies

Two broad Categories

• Conceptual
• Deterministic

1. Conceptual

The independent variables used are generally different than direct measure of
the units. It uses historical data to estimate project cost.

They usually involve simple or complex modeling based on inferred or

statistical relationship between cost and other designed indirect variables
9
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Unit 1 – Conceptual Methodology

• Conceptual estimating methods require significant effort in data gathering

and method development before estimate preparation ever begins

• There is a significant effort in historical cost analysis to develop accurate

factors and estimating algorithms to support conceptual estimate.

• Preparing a conceptual estimate itself takes relatively less time, some times
less than an hour.

10
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Unit 1 – Deterministic Methodology

• The independent variables used in estimating are more or less a direct

measure of the item being estimated, such as tons of steel required
multiplied by cost of steel per ton.

• Deterministic estimating require high degree of precision in determinations

of Quantities, pricing and completeness of scope definition.

• Any particular estimate may involve combination of deterministic and

conceptual methods.

11
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Unit 1 – Deterministic Methodology

• Deterministic estimate requires a large effort during actual preparation of

the estimate.

• The evaluation and quantification of the project can take a substantial

amount of time, sometimes weeks or even months for extremely large
projects.

• Type of Estimating method Depends on

• The end usage of the estimate
• The amount of time and money available
• Estimating tool and data
• The level of project definition
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Unit 1 – Conceptual Estimating Methodologies

• It is typically used for Class 5 and 4 (and sometimes Class 3 estimates). They
are often referred to as “order-of-magnitude”.

• This is relatively a quick method of estimating. This can be used for,

• Establishing an early screening estimate or a proposed project
• Evaluating the general feasibility of a project
• Screening project alternatives
• Evaluating the cost impacts of design alternatives
• Establishing preliminary budget

• Conceptual estimate can be very reliable, especially in estimating repeat

projects.
13
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Unit 1 – Conceptual Estimating Techniques

1. End-product units (Parking, Hospital bed)

2. Physical dimensions (length, area, volume, etc)
3. Capacity factors
4. Various ratio or factor methods (Equipment cost x factor (based on type of
plant))
5. Parametric modeling (Capacity factors and Factor methods are example of
parametric modeling)

14
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1 - End Product Units Method

• Used when the estimator has enough historical data available from similar
projects.
• This allows the estimate to be prepared relatively quickly.

Examples of End product unit are

• The construction cost of a hotel and the number of guest rooms.

• The construction cost of a hotel and the number of patient beds
• The construction cost of a parking place and number of parking places
available parking spaces.

15
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1 – End Product Units Method

Example 1.1

• Consider a investor who wants to build 1500 room luxury hotel in a resort area. Investor
wants to know approximate cost for the same. A similar luxury hotel have has be recently
completed at a nearby resort and the following information is available.

Number of rooms 1000

Total construction cost $67,500,000

Construction cost per room is 67,500,000/1000

=$67,500

Therefore the approximate cost of proposed hotel

=$67,500 X 1500
=$101,250,000 16
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2 – Physical Dimensions Method

• Similar to End of Product Units Method

• This method uses physical Dimensions like Length, Area, Volume etc

Examples

• Building estimate can be feet/meters or Cubic Volume of building

• Pipe Lines, Roadways and Railroads are based on linear units (Km, Miles)

17
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2 – Physical Dimensions Method

Example 1.2

• Estimate to construct new ware house of a 3600m2. Recently completed

ware house 2900m2 completed at a cost of $623,500 , thus costing
$215/m2.

The new ware house will cost approximately

= 3600 X $215
= $ 774,000
• Method ignores any Economy of Scale that will reduce cost because of
larger ware house

18
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3 – Capacity Factor Method

• Cost of a new facility is derived from the cost of a similar facility of a known
capacity.
• Capacity factor is based on Non-linear relationship between capacity and
cost
$B = $A ( CapB/ CapA) e

 $B is the cost of the facility being estimated

 $A is the known cost of a similar facility
 CapB is the capacity of the facility being estimated
 CapA is the capacity of the similar facility
 “e” is the exponent or proration factor
 Exponent “e” typically lies between 0.5 & 0.85
19
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3 – Capacity Factor Method

• This method of using capacity factors is sometimes referred to as the “Scale of

operations” method or the sixth tenth factors due to common reliance on an exponent
value of 0.6

Example 1.3

A recently completed 200MW power project cost was $ 150 Million. What will be the
approximate cost of similar power plant if

1) The capacity is doubled

2) The capacity is tripled
Take “e” as 0.6
1. $B = $A (CapB/CapA) ^e
= 150 (2)^0.6

= 150 X (1.5157) = $227M 20

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% increase in Cost Estimate = ( 227-150)/150

= 51.33% 99

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3 – Capacity Factor Method

• This method of using capacity factors is sometimes referred to as the “Scale of

operations” method or the sixth tenth factors due to common reliance on an exponent
value of 0.6

Example 1.3

A recently completed 200MW power project cost was $ 150 Million. What will be the
approximate cost of similar power plant if

1) The capacity is doubled

2) The capacity is tripled

Take “e” as 0.6

21
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3 - Capacity Factor Method

Example 1.3

1. $B = $A (CapB/CapA) e
= 150 (2)^0.6

= 150 X (1.5157) = $227M

% increase in Cost Estimate = ( 227-150)/150 Capacity Doubled

= 51.33%
2. $B = $A (CapB/CapA)e
$B = 150(3)^0.6
= $290M
% increase in Cost Estimate = (290 -150)/150 Capacity Tripled
= 93.33% 22
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3 - Capacity Factor Method – Adjustment for scope, location & time

Example 1.4
• Estimate the cost of new Coal Power plant of 500Mw capacity at location A.
A similar power plant of 300Mw was constructed 2 years ago with a final
cost of $250M at location Y.

• Construction in A will cost 1.25 times more than the construction in Y.

Escalation during the previous two years was 8%

• Project in Y required Railroad to be built at a cost of 10M which is not

required at A. Also additional pollution control facility will be required in A
at a cost of 20M

• Take e=0.75 23
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3 – Capacity Factor Method – Adjustment for scope, location & time

Example 1.4

Adjusted
Steps Calculation
Amount
Cost of old plant - $250 M
(-) Reduce Scope (Railroad not required) $250-$10 $10 M
Adjusted Scope - $240 M
Increased Construction Cost @ 1.25 $240 x 1.25 $300 M
Escalation 8% $300 x 1.08 $324 M
Apply formula $B=$A(CapB/CapA)^0.75 $346M
(+) Pollution requirement $346 + $20 M $366 M

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4 – Ratio or Factor Method

• Ratio or factored methods are used in situations where the total cost of an
item or facility can be reliably estimated from the cost of a primary
component.
• Commonly used in estimating the cost of plant where cost of a specialized
equipment takes up a significant portion of the total project cost.
• Also know as equipment factor.
• Estimation is based on the principle that a ratio or a factor exists between
the cost of an main equipment and costs for the associated no equipment
items (like piping, foundation, electrical setup etc)
• Factored estimate can typically be generated when project definition is
approximately 1 to 15%

25
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4 – Ratio or Factor Method

Example 1.5

• Total plant cost = Total equipment cost x Equipment factor

• Lang proposed three separate factors based on the type of process plant
• The following is an example of Lang factor estimate for fluid process plant

Type of Plant Factor

Solid Process Plant 3.10 Lang Factors (Pg. No. 9.8)

Solid-Fluid Process Plant 3.63 Skills and Knowledge of Cost
Fluid Process Plant 4.74 Engineering

Total estimated equipment =$1.5M

Total Plant cost =$1.5M x4.74
=$7.11M
26
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5 – Parametric Method

• A parametric estimate comprises cost estimating relationships that provide

logical relationships between independent variables, such as design
parameters and dependent variable cost
• Capacity factor and Equipment factor are simple example of parametric
estimate
• Parametric estimate includes several independent variables or cost drivers

Cost Estimating relationships (CER’S)

• The relationship between cost and independent variables is reliant on
collection and analysis of previous project Cost Data

27
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Unit 1 – Steps in Preparing deterministic estimate

1. Prepare project estimate basis and schedule

2. Prepare direct field cost estimate
3. Prepare indirect field cost estimate
4. Prepare home office cost estimate
5. Prepare sales tax / duty estimates
6. Prepare escalation estimates
7. Prepare project fees estimates (for contractors)
8. Prepare cost risk analysis / contingency determination
9. Review / validate estimate
28
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Unit 1 – Take off

• Estimating take-off is the process of quantifying the material and labor

quantities associated with the project.
• The term take-off is also used to refer to the quantities themselves (often
known as a bill of quantities)
• Once the take off is complete, and the total quantities of like items are
summarized, then each items can be priced.
• The result of take-off is the direct field cost for the project.

29
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Unit 1 – Costing vs. Pricing

• Costing: is the process of applying unit costs to the individuals quantities

of items associated with the estimate.
• Example : Wage rates, materials costs
• This information normally comes from sources such as in-house or
commercial database, vendor quotes, the procurement department,
estimating experience etc.
• Pricing: Adjusting the costs that have been applied for specific project
conditions, and commercial terms
• Pricing is usually done to allow for overhead and profit, to improve cash
flow, etc

30
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Unit 1 – Estimate Allowances

• Allowances are often included in an estimate to account for the

predictable but un-definable costs associated with project scope.
• Level of project information available may not be sufficient to enable
certain cost to be estimated definitively
• In some cases it is not cost effective to quantify and cost every small item
included with the project.
• Allowances are often included in the estimates as a percentage of some
detailed cost component.
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End of

Module 2 – Unit 1

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Module 2 Unit 2

Earned Value Management Metrics

33
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Unit 2 – EVM Metrics

• EVM develops and monitors three key dimensions for each

work package and control account:
– Budgeted Cost of Work Scheduled

– Actual Cost of Work Performed

– Budgeted Cost of Work Performed (Earned Value)

34
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Unit 2 – EVM Metrics

• BCWS is the authorized budget assigned to scheduled work.

• It is the authorized budget planned for the work to be accomplished for an
activity or work breakdown structure component, not including
management reserve.
• This budget is allocated by phase over the life of the project, but at a given
moment, planned value defines the physical work that should have been
accomplished.
• The total of the PV is sometimes referred to as the performance
measurement baseline (PMB). The total planned value for the project is
also known as budget at completion (BAC).

35
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Unit 2 – EVM Metrics

• ACWP is the realized cost incurred for the work performed on an activity
during a specific time period.
• It is the total cost incurred in accomplishing the work that the EV
measured.
• The ACWP needs to correspond in definition to what was budgeted in the
BCWS and measured in the BCWP (e.g., direct hours only, direct costs only,
or all costs including indirect costs).
• The ACWP will have no upper limit; whatever is spent to achieve the
BCWP will be measured.

36
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Unit 2 – EVM Metrics

• BCWP is a measure of work performed expressed in terms of the budget

authorized for that work. It is the budget associated with the authorized
work that has been completed.
• The BCWP being measured needs to be related to the PMB, and the BCWP
measured cannot be greater than the authorized BCWS budget for a
component.
• The BCWP is often used to calculate the percent complete of a project.
• Progress measurement criteria should be established for each WBS
component to measure work in progress.
• Project managers monitor BCWP, both incrementally to determine current
status and cumulatively to determine the long-term performance trends.
37
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Unit 2 – EVM Metrics

Earned Value = % completed x Budget

 Progress measurement technique measures the percent complete which

will assist in calculating the earned value. The budget is the budgeted cost
of the measured component which could be a work package, control
account, or the project.

38
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End of

Module 2 – Unit 2

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Module 2 Unit 3

Progress Measurement

40
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Unit 3 – Progress Measurement

Units Completion

𝑰𝒏𝒔𝒕𝒂𝒍𝒍𝒆𝒅 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚
x 100
𝑻𝒐𝒕𝒂𝒍 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚

41
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Unit 3 – Progress Measurement

Start/Finish (Fixed Formula)

30% 70%

Start Finish

This method is applicable to tasks that lack readily definable intermediate

milestones or those for which the effort/time required is very difficult to
estimate.

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Unit 3 – Progress Measurement

Incremental Milestone

30% 60% 80% 100%

Start Finish

This method is applicable

to any control account that includes subtasks
that must be handled in sequence.

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Unit 3 – Progress Measurement

Supervisor Opinion

In this method, the supervisor

simply makes a judgment of
percent complete.

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Unit 3 – Progress Measurement

Cost Ratio
• This method is applicable to tasks that involve a long period of time or
that are continuous during the life of a project, and which are estimated
and budgeted on bulk allocations of dollars and work hours rather than on
the basis of production.

𝑨𝒄𝒕𝒖𝒂𝒍 𝒄𝒐𝒔𝒕 𝒐𝒓 𝑾𝒐𝒓𝒌𝒉𝒐𝒖𝒓𝒔 𝒕𝒐 𝒅𝒂𝒕𝒆

x 100
𝑭𝒐𝒓𝒆𝒄𝒂𝒔𝒕 𝒂𝒕 𝑪𝒐𝒎𝒑𝒍𝒆𝒕𝒊𝒐𝒏

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Unit 3 – Progress Measurement

Weighted or Equivalent Units

 This method is applicable when the task being controlled
involves a long period of time and is composed of two or
more overlapping subtasks, each with a different unit of work
measurement.

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Example 1.6 – Equivalent Units Method

Allowed Earned Tons Columns
Subtask Total U/M Total Qty To-Date Qty Earned Tons
Credit
=
0.02 run foundation bolts each 120 120 12.00 70
0.03 shim % 100 100 18.00 .04 x 600 x
80
0.06 shakeout % 100 100 36.00
0.04 columns each 80 70 21.00 21 Tons
0.12 beams each 987 230 16.78
0.12 cross braces each 780 0 0.00 Percent Complete
0.17 girts and sag roads bay 40 0 0.00 =
0.08 plumb and align % 100 0 0.00 109.36
0.31 connection each 3000 90 5.58 600
0.05 punch list % 100 0 0.00
1 Steel Totals Ton 600 109.36 18.23%
𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑡𝑜 𝑑𝑎𝑡𝑒
Earned Quantity = (allowed credit)*(summary quantity)*
𝑡𝑜𝑡𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 Equivalent Units
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End of

Module 2 – Unit 3

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Module 2 Unit 4

Performance Measurement

49
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Unit 4 – Performance Measurement

Earned Value Calculation Calculate BAC, BCWS, ACWP

and EV (BCWP)
Schedule Plan Wall 1
Schedule: To complete the work in 4
weeks – work is equally distributed
Wall 4

Wall 2

Budgeted Cost
USD 10000 / wall

Status at the end of week 3

Wall 1 – 100% - $ 12000
Wall 2 – 100% - $ 13000
Wall 3 – 50% - $ 7000
Wall 3
Wall 4 – 0% - $ 0
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Example 1.7 Performance Measurement

Solution
Work Planned Actual Cost Progress Earned
Package Value Value
Wall 1 10000 12000 100 % 10000
Wall 2 10000 13000 100 % 10000
Wall 3 10000 7000 50 % 5000
Wall 4 10000 0 0% 0
Total 40000 32000 25000

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Unit 4 – Performance Measurement

Cost Performance
Performance Measurement

Cost Variance Cost Performance Index

𝑩𝑪𝑾𝑷
BCWP-ACWP
𝑨𝑪𝑾𝑷
Positive = Under planned cost Greater than 1.0 = Under planned cost
Neutral = On planned cost Exactly 1.0 = On planned cost
Negative = Over planned cost Less than 1.0 = Over planned cost
Schedule Performance
Schedule Variance Schedule Performance Index
BCWP-BCWS 𝑩𝑪𝑾𝑷
𝑩𝑪𝑾𝑺
Positive = Ahead of Schedule Greater than 1.0 = Ahead of schedule
Neutral = On schedule Exactly 1.0 = On schedule
Negative = Behind Schedule Less than 1.0 = Behind schedule
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Example 1.8

BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000

Cost Performance
Cost Variance Cost Performance Index

-7000 0.738

Schedule Performance
Schedule Variance Schedule Performance Index

-5000 0.833

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End of

Module 2 – Unit 4

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Module 2 Unit 5

Cost Forecasting

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Unit 5 – Cost Forecasting

Estimate At Completion
EAC EAC
𝑩𝑨𝑪
AC + (BAC – EV)
𝑪𝑷𝑰
CPI is expected to be the same for the remainder of Future work will be accomplished at the planned rate
the project

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Example 1.9

BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000 CPI = 0.781 SPI = 0.833

Estimate At Completion
EAC EAC
𝑩𝑨𝑪
= 51216 AC + (BAC – EV) = 47000
𝑪𝑷𝑰
CPI is expected to be the same for the remainder of Future work will be accomplished at the planned rate
the project

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Unit 5 – Cost Forecasting

Estimate To Complete
ETC ETC
EAC – AC Re-Estimate
Assumes work is proceeding on plan. Re-estimate the remaining work from the bottom up.

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Example 1.10

BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000 CPI = 0.781 SPI = 0.833

Estimate To Complete
ETC ETC
51216 – 32000 = 19216
Or Re-Estimate
47000 – 32000 = 15000
Assumes work is proceeding on plan. Re-estimate the remaining work from the bottom up.

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End of

Module 2 – Unit 5

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Module 2 Unit 6

Variance Analysis

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Unit 6 - Variance Analysis

Variance At Completion
VAC

BAC – EAC

The estimated difference in cost at the completion of the project.

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Example 1.11

BAC = $ 40,000 BCWS = $ 30,000 ACWP = $32,000 BCWP = $ 25,000 CPI = 0.781 SPI = 0.833 EAC = $ 51216 ETC = $ 19216

Variance At Completion
VAC

40000 – 51216 = (11216)

The estimated difference in cost at the completion of the project.

63
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End of

Module 2 – Unit 6

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References

1. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology.

2. Skills and Knowledge of Cost Engineering, 5th Edition, AACE International.
3. CCC/CCE Certification Study Guide, 3rd Edition, AACE International

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End of Module 2

Cost Estimation and Control

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Module 2 – Cost Estimation and Control

Learning Outcome 1, 2 and 3

1. understand the classification of cost estimates;

2. understand some of the common methodologies used in preparing cost estimates,
relate estimate accuracy to the level of scope information and methodologies used
in preparing cost estimates;
3. perform cost estimation

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Questions
Q1.The estimated current price for a unit of machine is USD 1.5 Million. The machine has the
following commodities and it share of total cost is:

Commodity Share

Iron 30 %

Copper 30%

Zinc 20%

Labor 20%

The following are the escalation rate for the above commodity for the next 5 years:

Escalation Rate

Commodity Index Year 1 Year 2 Year 3 Year 4 Year 5

Iron 3.7 13% 11% 10% 8% 14%

Copper 2.4 11% 10% 8% 11% 10%

Zinc 1.8 5% 9% 4% 11% 10%

Labor 8.9 3% 10% 8% 4% 12%

Answer the following questions, based on the above scenario:

1. What will be the cost of this machine at the end of year 4?

a) 2.1 Million
b) 1.9 Million
c) 2.0 Million
d) 2.2 Million
2. After 5 Years which commodity pose the highest cost increase (in percentage) over today’s
commodity price?

a) Iron
b) Copper
c) Zinc
d) Labor

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3. What is the cost of Zinc for the machine today?

a) 450000
b) 300000
c) 320000
d) 400000

4. At the end of year 3, what is the projected cost of the machine?

a) 1.9 Million
b) 2.0 Million
c) 1.8 Million
d) 1.7 Million

5. If the iron cost USD 12000 per ton at the end of year 4, what is the price of iron at the end of year
5?

a) 13680
b) 12680
c) 14680
d) 11680

6. At the end of 40 months, what will be escalated price of Labor?

a) 382000
b) 367000
c) 427000
d) 339900

7. What is the index value of copper at the end of year 1?

a) 2.664
b) 2.554
c) 2.332
d) 2.412

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Q2. Answer the following 7 questions, based on the AACEI Estimation Classification.

8. If the level of project definition is only 8%, what class of estimation you can prepare?

a) Class 5
b) Class 4
c) Class 3
d) Class 2

9. The probable cost of a new project to be estimated is AED 150 Million, what will be approximate
cost of preparing estimate for this project, if you want a ball park figure?

a) 6500
b) 7500
c) 8000
d) 1000

10. An accuracy range of -15% to + 30% for a process industry falls under which class of estimate?

a) Class 1 – Definitive Estimate

b) Class 2 – Definitive Estimate
c) Class 3 - Budget Estimate
d) Class 4 – ROM Estimate

11. If you want to prepare estimation for bidding purpose, what class of estimate would you
suggest?

a) Class 3 – Budget Estimate

b) Class 5 – ROM
c) Class 2 – Definitive Estimate
d) Class 4 – Budget Estimate

12. As per AACEI standard, ANSI’s Budget Estimate falls under what class of estimate?

a) Class 5 & 4
b) Class 4 & 3
c) Class 3 & 2
d) Class 2 & 1

13. Which of the following is not necessary to classify the estimate as per AACEI Standard?

a) Degree of project definition

b) End use of the estimate
c) Estimating Accuracy

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d) Government Mandated accuracy

14. Which estimate requires least amount of effort to prepare?

a) ROM
b) Definitive Estimate
c) Budget Estimate
d) Control Estimate

Q3. You have recently completed a 750 MW power plant with the total cost of AED 270 Million.
You have been assigned to prepare a ball park estimate for new 870 MW power plant. Historical
information suggests you to use 0.60 Exponent.

Based on this scenario, answer the following questions:

15. What is the most relevant technique to use for this scenario?

a) Physical Dimension Method

b) Ratio or Factor Methods

c) Parametric Method

d) Capacity Factor Method

16. What is the equation for Capacity Factor Method?

a) $B = ($A) (CapB / CapA)e

b) $A = ($B) (CapB / CapA)e

c) $A = ($B) (CapB / CapA)e

d) $B = ($A) (CapA / CapB)e

17. What is the exponent range typically used for Capacity Factor Method?

a) 0.4 to 0.89

b) 0.5 to 0.85

c) 0.6 to 0.78

d) 0.1 to 1.0

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18. As per AACE International classification, this estimation will provide you with what class of
accuracy?

a) Class 5

b) Class 4

c) Class 3

d) Class 2

19. What will be new plant cost based on e=.70?

a) 300 Million

b) 290 Million

c) 301 Million

d) 333 Million

20. If the new project doesn’t have some scope worth 50 Million, which you have completed in the
last project, what will be new project cost?

a) 240 Million

b) 244 Million

c) 248 Million

d) 241 Million

21. If the exponent / proration factor increases, what will be the effect on new project cost?

a) There will be a further increase in new project cost

b) There will be a further decrease in new project cost

c) There will be no effect on new project cost

d) None of the above

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Q4. With respect to AACEI and ANSI estimating classification, answer the following seven
questions (22 to 28).

22. AACEI Class 5 falls under which ANSI estimating classification?

a) Order of Magnitude

b) Budget Estimate

c) Definitive Estimate

d) None of the above

23. Which of the following statement is not true?

a) Order of Magnitude has an accuracy range of -30% to +50%

b) Definitive Estimate has an accuracy range of -10% to +15%

c) Budget Estimate has an accuracy range of -15% to +30%

d) Order of Magnitude estimate is also called as ball park estimate

24. An accuracy range of -15% to + 30% for a process industry falls under which class of estimate?

a) Class 1 – Definitive Estimate

b) Class 2 – Definitive Estimate

c) Class 3 - Budget Estimate

d) Class 4 – ROM Estimate

25. If you want to prepare estimation for bidding purpose, what class of estimate would you
suggest?

a) Class 3 – Budget Estimate

b) Class 5 – ROM

c) Class 2 – Definitive Estimate

d) Class 4 – Budget Estimate

26. As a contractor what class of estimation you would prepare for lump sum contract?

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a) Class 3

b) Class 4

c) Class 5

d) Class 1

27. Of the following, comparatively, which estimate requires least amount of effort to prepare?

a) Forced Detail

b) Definitive Estimate

c) Budget Estimate

d) Detailed Control Estimate

28. An estimate prepared using Capacity factor method falls under what AACEI Estimation class?

a) Class 5

b) Class 4

c) Class 3

d) Order of Magnitude / Ball Park

29. As a contractor what class of estimation you would prefer for lump sum contract?
a) Class 3
b) Class 4
c) Class 5
d) Class 1

30. The hotel just completed included 200 guest rooms, as well as restaurants, meeting rooms,
parking garage, and night club. The total construction cost for the 200 room was USD 240 Million.
Using End-Product Units Method, what will be the estimated cost of new hotel with the 240 guest
rooms with more or less similar facilities?

a. 298 Million
b. 288 Million
c. 308 Million
d. 312 Million

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31. The Lagoon Park Project was to grade and pave a sidewalk around a pond in the community
park. The sidewalk of Lagoon Park was 1,048 feet by 6 feet, used a textured surface, had some
curves around trees, and cost USD 75,287 to complete.
The current project, King Park, will have a similar surface and will cover 4,500 feet by 6 feet. What
will be cost of King Park, based on physical dimension estimation technique?

a. USD 323,190
b. USD 310,233
c. USD 295,000
d. USD 398,000

32. You have recently completed (Year 2007) a 150,000 BBL / Day LPG plant with the cost 500 Million
in Abu Dhabi, UAE. Prepare an estimated cost for 90,000 BBL / Day LPG to be built in Ajman, UAE for
a period of 2 years.

Adjustment factor:

a) Plant in Ajman doesn’t require some specification worth 50 Million which was complete in Abu
Dhabi Plant.
b) Construction in Ajman cost 1.1 times more than construction in Abu Dhabi, due to soil condition.
c) Escalation for 2 years will be 5% for the first year and 4% for the second year.
d) Recent history shows a capacity factor of 0.75 is appropriate for this facility.

What will be the cost of new plant in Ajman?

a) 369 Million
b) 388 Million
c) 791 Million
d) I give up!!!

33. Based on the data in question 4, if the Ajman plant has a pollution requirement which will cost 7
Million, what is the new estimated cost?

a) 376 Million
b) 395 Million
c) 373 Million
d) 439 Million

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Module 2 – Cost Estimation and Control

Learning Outcome 4, 5, and 6

4. identify the six methods used for measuring work progress;

5. understand the concept of earned value and how to use it in fixed budgets;
6. calculate and analyze project performance using cost control formula such as cost
variance, cost performance index, schedule variance, schedule performance index,
estimate at completion, estimate to completion, variance at completion and to
complete performance index.

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Answer the following questions using the table below.

As per the plan Work Package 1 to 6 should have been 100% completed.

Work Package ACWP Progress BCWP

1 17 100% 14

2 14 60% 16

3 5 55% 14

4 20 100% 18

5 7 50% 12

6 12 80% 18

7 - - 12

8 - - 18

9 - - 15

10 - - 10

34. Find BAC

35. Find BCWS
36. Find ACWP
37. Find BCWP
38. Find SV
39. Find CV
40. Find SPI
41. Find CPI
42. Find ETC (Past performance continues)
43. Find EAC (Past performance continues)
44. Find ETC (Past performance will not continue)
45. Find EAC (Past performance will not continue)
46. VAC

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An engineering company was awarded a project with an original budget of 160,000 hours, valued at
$15,000,000. The Client has asked the project to prepare an in-depth analysis of the project
performance and make a formal presentation.

Use the following data to prepare the reports and presentation as requested by the Client.

Planned hours 65,000

Actual hours spent to date 73,000

% complete 40%

47. What many hours have the project earned?

A. 64,000

B. 73,000

C. 6,400

D. 5,900

48. What is the cost variance (CV)?

A. - 9,000

B. + 8,000

C. - 12,000

D. +7,000

49. What is the schedule variance (SV)?

A. - 1,000

B. +1,000

C. - 9,000

D. + 10,000

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50. What is the cost performance index (CPI)?

A. .88

B. 1.14

C. .98

D. .89

51. What is the schedule performance index (SPI)?

A. .98

B. 1.01

C. .89

D. 1.25

52. What are the forecast work hours to complete (EAC)?

A. 181,818

B. 169,000

C. 160,000

D. 183,890

53. What the status of the project?

A. Cost favorable, Schedule unfavorable

B. Cost favorable, Schedule favorable

C. Schedule unfavorable, Cost unfavorable

D. Schedule unfavorable, Cost favorable

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Calculate EVM metrics for the following test problems:

Plan at End of 2nd Quarter: Tasks 1, 3, 5 and 6 should be completed, Tasks 2 and 4 should be 96
percent complete, and Task 7 should be 51 percent complete.

Results at End of 2nd Quarter: Tasks 1, 3, 5, and 6 have been completed, Task 2 is 50 percent
complete, Task 4 has not been started, and Task 7 is 10 percent complete. $137,500 has been
charged to the project.

Calculate the following values (assume that all tasks incur costs uniformly over time):

54. At project initiation, what was the total projected cost of this project (BAC)?

a) $289000

b) $390000

c) $280000

d) $309000

55. On the status date, what is the budgeted cost of work scheduled (PV)?

a) $168570

b) $178540

c) $165000

d) $187000

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56. What is the actual cost (AC) on the status date?

a) $147800

b) $137500

c) $157500

d) $190000

57. What is the earned value (EV) of this project on the status date?

a) $118900

b) $190000

c) $129000

d) $129800

58. What is the project cost performance?

a) Over Budget

b) Under Budget

c) On Target

d) Cost on Target but Schedule Delay

59. What is the project schedule performance?

a) Behind the Schedule

b) Ahead of the Schedule

c) On Time

d) Schedule on target but Cost overrun

60. Calculate EAC assuming the same performance continues.

a) $306144

b) $300500

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c) $290000

d) $189000

61. Given:

BAC =200

ACWP =120

BCWP =80

CPI =0.666

Assuming that current variances are atypical, and that similar variances will not occur in the future,
the estimate at completion (EAC) is:

a) 120.

b) 160.

c) 200.

d) 240.

62. Given:

BAC =200

ACWP =120

BCWP =80

CPI =0.666

Assuming that current variances are typical of future variances, the estimate at completion (EACWP)
is:

a) 220.

b) 260.

c) 300.

d) 320.

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63. The cost baseline has all of the following characteristics EXCEPT:

a) It is a time-phased budget that will be used to measure and monitor cost performance on
the project.

b) It shows the actual cost expenditures throughout the life of the project.

c) It is developed by summing estimated costs by period.

d) It is usually displayed in the form of an S-curve.

64. The estimate at completion (EAC) is the projected or anticipated total final value for a schedule
activity, WBS component, or project when the defined work of the project is completed. To
determine the EAC, assuming no management intervention, which of the following information is
needed?

a) The Earned Value (BCWP) and the actual Cost to date (ACWPC).

b) The Cost Performance Index (CPI) and the Cost Variance (CV).

c) The Actual Cost to date (ACWP) and the Cost Performance Index (CPI).

d) The Actual Cost to date (ACWP) and the Estimate To Complete (ETC).

65. Your schedule analysis has shown that your project has a high likelihood of experiencing a
schedule overrun. You know this because the cumulative BCWP is much:

a) Higher than the cumulative ACWP.

b) Higher than the cumulative BCWS.

c) Lower than the cumulative BCWS.

d) Lower than the cumulative CPI.

66. Which of the following choices indicates that your project is 9% under budget?

a) The cumulative ACWP was 100, and the cumulative BCWP was 110.

b) The cumulative BCWS was 100, and the cumulative ACWP was 110.

c) The cumulative ACWP was 110, and the cumulative BCWP was 100.

d) The cumulative BCWP was 100, and the cumulative BCWS was 110.

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67. During the sixth monthly update on a ten-month, $30,000 project, the analysis shows that the
cumulative BCWS is $20,000, the cumulative ACWP is $10,000, and the cumulative BCWP is $15,000.
In planning its action, management can conclude all of the following from these figures EXCEPT:

a) Less has been accomplished than was planned.

b) Less has been spent than planned.

c) Continuing performance at the same efficiency with no management intervention, the

project will probably be completed ahead of schedule and over budget.

d) Continuing performance at the same efficiency with no management intervention, the

project will probably be completed behind schedule and under budget.

68. In the earned value technique, cost variance is computed as:

a) BCWP minus BCWS.

b) BCWP minus ACWP.

c) ACWP minus BCWP.

d) BCWS minus BCWP.

69. Earned value (BCWP) involves all of the following EXCEPT:

a) The originally allocated budget amount.

b) Actual cost.

c) Value of the budgeted cost of work performed.

d) Budgeted amount for the work actually completed.

70. If cumulative BCWS = 100, cumulative BCWP = 98, and cumulative ACWP = 104, the project is:

a) Ahead of schedule.

b) Headed for a cost overrun.

c) Operating at project cost projections.

d) Likely to come in under budget at completion.

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Cumulative data for questions 71-72:

Item BCWS ACWP BCWP

1 10,000 11,000 10,000

2 9,000 8,000 7,000

3 8,000 8,000 8,000

4 7,000 7,000 5,000

71. Which item is MOST over budget?

a) Item 1

b) Item 2

c) Item 3

d) Item 4

72. Which item has the LOWEST SPI?

a) Item 1

b) Item 2

c) Item 3

d) Item 4

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Module 3

Project Management

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LEARNING OBJECTIVES / OUTCOMES

Module 3 - Project Management

At the end of this module, students should able to

1. understand the roles and responsibilities of project management;

2. be familiar with project organization;
3. recognize some of the key contributions to the field of leadership and management;
4. understand the basic requirements of a contract;
5. understand the types of contracts typically employed in capital projects;
6. understand typical project delivery methods and how contracts are employed in
each method;
7. develop project schedule using critical path method;
8. create work breakdown structure.

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® CCP® Certification Preparation

Module 3 - Project Management

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Module 2

Additional learning resources:

1. Chapter 13, 20, 22, 25

 Skills and Knowledge of Cost Engineering, 5th Edition, AACE International
 CCC/CCE Certification Study Guide, 3rd Edition, AACE International
2. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology

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Module 3 - Units

1. Leadership and Management of Project People

2. Contracting for Capital Projects
3. Scheduling

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Module 3 - Unit 1

Leadership and Management of Project People

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Unit 2 - Leadership and Management of Project People

• Management Theories
1. Maslow’s Hierarchy of Needs
2. Douglas McGregor
3. Frederick Herzberg
4. Resins Likert
5. Robert Blake and Jane Mouton
6. Fielder’s Contingency Model
7. David McClelland “Needs Theory”

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1. Maslow’s Hierarchy of Needs

• Maslow's hierarchy of needs is often portrayed in the shape of a pyramid

with the largest, most fundamental levels of needs at the bottom and the
need for self-actualization at the top.

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2. Douglas McGregor

• Theory X
• The average person has an inherent dislike of work and will avoid if it
is possible
• The average person prefers to be directed, wishes to avoid
responsibilities, have little ambition
• Control should be externally imposed
• Theory Y
• People are self-motivated and will exercise self-direction and self-
control toward achieving objectives to which they are committed.
• Within a environment of trust and respect, the employee is capable of
putting willing effort.

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3. Frederick Herzberg

• He studied the relationship between the role of work and working conditions.
• Motivation-Hygiene theory is based on satisfiers and dissatisfiers
• The real motivation resulted from the worker’s involvement in accomplishing an
interesting tasks, not from the working conditions or environmental factors
that are peripheral to the job.
• Providing basic facility to manage the work effectively is a hygiene factor.
• Believes in giving employees challenging content, which will allow him to grow
skills and a feeling of accomplishment
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4. Rensis Likert

• Four basic type of leadership

• Exploitive-authoritative
• Management uses fear and threats
• Communication is top down with most decisions taken at the top
• Superiors and subordinates are distant.
• Benevolent-authoritative
• Management uses rewards, information flowing upward is restricted to what
management wants to hear and whilst policy decisions come from the top
some prescribed decisions may be delegated to lower levels, superiors except
subservience lower down. 9
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4. Rensis Likert

• Consultative and
• Management offers rewards, occasional punishments; big decisions come from the top
whilst there is some wider decision making involvement in details and communication
is cautious.
• Participative group
• Management encourage group participation and involvement in setting high
performance goals with some economic rewards;
• Communication flows in all directions and is open and frank with decision making
through group processes with each group linked to others by persons who are
members of more than one group called linking pins; and subordinates and superiors
are close. 10
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5. Robert Blake and Jane Mouton

• The impoverished style (1,1)

• 1. Does only enough to preserve job and job seniority.
2. Gives little and enjoys little
3. Protects himself by not being noticed by others.
• Implications 1. Tries to stay in the same post for a long time
• The country club style (1,9)
• This style has a high concern for people and a low concern for production.
Managers using this style pay much attention to the security and comfort of the
employees, in hopes that this would increase performance. The resulting
atmosphere is usually friendly, but not necessarily that productive.
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6. Robert Blake and Jane Mouton

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5.Robert Blake and Jane Mouton

• The produce or perish style (9,1)

• With a high concern for production, and a low concern for people, managers
using this style find employee needs unimportant; they provide their
employees with money and expect performance back.
• Managers using this style also pressure their employees through rules and
punishments to achieve the company goals. This dictatorial style is based on
Theory X of Douglas McGregor, and is commonly applied by companies on the
edge of real or perceived failure.
• This is used in case of crisis management.
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5. Robert Blake and Jane Mouton

• The middle-of-the-road style (5,5)

• Managers using this style try to balance between company goals and workers
needs. By giving some concern to both people and production, managers who
use this style hope to achieve acceptable performance.
• The team style (9,9)
• In this style, high concern is paid both to people and production. As suggested
by the propositions of Theory Y, managers choosing to use this style encourage
teamwork and commitment among employees. This method relies heavily on
making employees feel as a constructive part of the company.
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6. Fred Fielder’s Contingency Model

Fred Fiedler's contingency model focused on a contingency model of leadership in

organizations.

Step 1: Identify your leadership style

Step 2: Identify your situation
Step 3: Determine the most effective leadership style

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7. David McClelland “Needs Theory”

1. the need for achievement (n-ach)

The n-ach person is 'achievement motivated' and therefore seeks achievement, attainment of realistic but
challenging goals, and advancement in the job. There is a strong need for feedback as to achievement and
progress, and a need for a sense of accomplishment.

2. the need for authority and power (n-pow)

The n-pow person is 'authority motivated'. This driver produces a need to be influential, effective and to make an impact. There is a
strong need to lead and for their ideas to prevail. There is also motivation and need towards increasing personal status and prestige.

3. the need for affiliation (n-affil)

The n-affil person is 'affiliation motivated', and has a need for friendly relationships and is motivated towards interaction with other
people. The affiliation driver produces motivation and need to be liked and held in popular regard. These people are team players.
16
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End of Module 3 - Unit 1

Leadership and Management of Project People

17
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Module 3 – Unit 2

Contracting for Capital projects

18
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Unit 3 - Contracting for Capital Projects

• Contract is an agreement between 2 or more persons that is enforceable

by law. Generally one party undertakes to do the work (or provide service)
to another party for a consideration.
• Contracts can be written or oral, depending upon the nature of the
business.
• The contract must be written to be enforceable by the law
• When two parties agree and intend to be legally obligated to perform to
the terms and conditions of an agreement, does a contract arise
19
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Contract requirement – To be enforceable

• Offer : There must be clear offer to perform the work or services by one

party

• Acceptance : Once an offer has been communicated to other party and

accepted, a contract can be formed

• Legality of purpose : To be enforceable contract, the work or service to be

perform must involve legal activities.

20
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Contract requirement – To be enforceable

• Competent parties: All the parties to the contract must be competent,

which means they possess the legal and mental capacity to form a

contract.

• Consideration: Consideration, under law, is whatever one party demands

and receives in exchange for the work or service performed

21
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Types of Contracts

• Four basic types of contracts used on capital projects

• Fixed Price/Lump Sum Contracts
• Fixed price with economic adjustment
• Fixed price with incentives
• Fixed Price/Unit price contracts
• Cost reimbursable contracts
• Cost plus fixed fee (CPFF)
• Cost plus incentive fee (CPIF)
• Target Contracts
22
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Fixed Price/Lump sum Contracts

• Under this type of contractual arrangement, the scope of work is well

defined, the contracting risk are clearly identified, the price is fixed, and
the time of performance is typically fixed
• The contractor is generally free to select means and methods to perform
work
• Final results should conform to the technical, quality and cost requirement.
• If the price fixed is too low, it is the contractor who suffers the penalty

23
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Variations of Lump sum Contracts

• To avoid penalty there are some variations of lump sum contracts

• Fixed Price with Economic adjustment: under this form some portions of
the fixed price may be adjustable.
• Example if the cost of the copper tubing increases or decreases more than
15% from the bid price , payment for the specified items will be adjusted.

24
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Variations of Lump sum Contracts

• Fixed price with incentives: Base price of the contract remains fixed.
• Certain incentive clauses are inserted into the contract, related to the time,
cost saving and project performance.
• Example: Contractor can be entitled for additional payment for each day
contract is completed prior to the project completion date.
• Contractor can be entitled to keep 50% of the saved cost on a completed
project

25
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Fixed price/Unit price contracts

• Another form of Fixed price Contract.

• In unit price contract, price is fixed for each unit of work.
• The total value of the contract is a function of number of units fabricated,
delivered, installed, etc.
• Also contains a quantity variation clause.
• Example if any of the unit estimated quantities varies by +/-15% then the
unit price is subjected to adjustment

26
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Cost reimbursable contracts

• The amount is not fixed in cost reimbursable contract.

• The contractor is paid for their legitimate actual cost incurred in
performing the work plus a stipulated amount of profit.
• Such a contract is referred to as Cost Plus Fixed Fee (CPFF)
• Owner offering to pay additional money to the contractor in event of early
delivery of project, under runs on budget, such type of contracts are known
as Cost Plus Incentive Fee (CPIF) contracts

27
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Target contracts (GMP)

• Contractor will perform the early part of the work (i.e. Planning and design)
on a cost reimbursable basis.

• At some point, the contractor will prepare and negotiate with the owner, a
detailed estimate with not to exceed cost and time performance.

• Once agreement on time and cost is reached , these become contractors

targets.
28
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Target contracts (GMP)

• Such contracts are also known as Guaranteed Maximum Price (GMP)

contracts

• Cost under runs if any are shared between contractor and Owner based on
the contract

29
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Contracting Arrangements

• Single prime contractor

• Multiple Prime or Independent Prime
• Design Build
• Agency Construction Management
• Construction Manager at risk

30
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Single prime contractor

Project
Owner

Design
Contractor
Professional

Sub consultants Sub- contractors

Vendors

• Often used for Design – Bid - build projects

• Owner first contracts with the Design professional to perform requisite planning
• Once design is complete than owner contracts with a single contractor to deliver project
• This type of contract insulates the owner from procurement and subcontracts
• Owner has single relationship for project design team and separate for construction team 31
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Multiple Prime or Independent Prime

Project
Owner

Design Contractor A Contractor B Contractor C

Professional

Sub- contractors Sub- contractors Sub- contractors

Sub consultants Vendors Vendors Vendors

• Owner retains a design professional as a single point of responsibility

• The owner then issues a series of contracts to several prime contractors
• Multiple prime contractors may be organized by craft or trade ( i.e. civil, mechanical,
electrical contracts )
32
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Multiple Prime or Independent Prime

• Project construction can be started prior to the completion of full design

• This arrangement puts owner at a risk for coordination problems arising

between the independent prime contractors.

• There is no contractual relationship between independent prime

contractors

33
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Design Build

Project
Owner

Design/Build Team

Sub Contractors, Vendors, suppliers

• Shortens the project delivery time

• Creates a single point of responsibility for both design and project
execution
34
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Agency Construction Management

Project
Owner

Design Agency
Professional Construction Contractor
Manager

Sub- contractors
Sub consultants
Vendors

• Also known as project management or program management contracting

• Owner still maintains a direct contractual relationship with both design and
contractor, but retains the services of the independent construction manager
35
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Agency Construction Management

• The construction manager coordinates between design and Construction

• Agency construction manager are vested with contractual authority to take

certain actions in the name of the owner

36
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Construction Manager at risk

Project
Owner

Design At – Risk CM
Professional

Sub consultants Contractor A

Contractor B Contractor C

Sub- contractors Sub- contractors Sub- contractors

Vendors Vendors Vendors
37
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Construction Manager at risk

• Owner employs a construction manager, program manager or project

manager in place of a general contractor

• Thus owner maintains a direct relationship with construction manager and

a design professional

• The construction manager holds all trade contracts and liability for the

same
38
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Claims

• Claim or extra occurs because an item of cost was not covered in the
contractor’s estimate, and the item can be demonstrated to be outside of
the contractor’s work scope and/or terms and conditions

• The process for successful claims are

• Liability/entitlement analysis
• Causation/documentation/proof/
• Damages (time and money)

39
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Disputes resolving

• Typically most contracts provide a disputes clause. The four basic methods
of resolving disputes on projects are
• Negotiation ( Only two parties)
• Mediation (Two parties + Mediator )
• Arbitration (Legal mediator** and outcome binding on both parties)
• Litigation ( Formal lawsuit is filed)

**AAA American Arbitration Association

**ICC International Chamber of commerce 40
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End of Module 3 – Unit 2

Contracting for Capital projects

41
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Module 3 – Unit 3

Scheduling

42
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Unit 4 - Scheduling

Work Breakdown Structure

* A hierarchical decomposition of the total scope of work to be carried
out by the project team to accomplish the project objectives and
create the required deliverables.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure3-1, Page 50.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Key terms
• Work Breakdown Structure Component. An entry in the
work breakdown structure that can be at any level.
• Work Package. The work defined at the lowest level of
the work breakdown structure for which cost and
duration can be estimated and managed.
• WBS Dictionary. A document that provides detailed
deliverable, activity, and scheduling information about
each component in the work breakdown structure.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

100%
25% 40% 35%

The 100% Rule

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Unit 4 - Scheduling

To define the project’s scope of

work in terms of deliverables

A framework on which to base To facilitate

project status and progress reports. communication

WBS articulates
As a key input As a basis for
the project
to PM Processes estimation
scope.
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Unit 4 - Scheduling

• A technique used for

dividing and subdividing
Decomposition
the project scope and
project deliverables into
smaller, more
manageable parts.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Bicycle WBS

1
Bicycle

1.1 Project 1.2 1.3 1.4 1.5 1.6

Management Frame Saddle Area Front Set Wheel Crank set

1.5.1
1.3.1 1.3.2 1.4.1 1.4.2 1.4.3 1.5.2 1.6.1 1.6.2
Spoke and
Saddle Seat Post Handle Bar Front Brakes Fork Rim Pedal Crank Arm
Hub

1.4.3.1
1.5.2.1 1.5.2.2
Shock
Tire Valve
Absorber

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Unit 4 - Scheduling

Activity List

* A documented tabulation of schedule activities that shows

the activity description, activity identifier, and a sufficiently
detailed scope of work description so project team members
understand what work is to be
performed.
Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure3-1, Page 50.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Project Schedule Network Diagram

* A graphical representation of the logical relationships

among the project schedule activities.

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure3-1, Page 50.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

• A logical relationship in which a successor activity

Finish-to-start (FS) cannot start until a predecessor activity has finished.
Logical Relationship

• A logical relationship in which a successor activity

Finish-to-finish (FF) cannot finish until a predecessor activity has finished.

• A logical relationship in which a successor activity

Start-to-start (SS) cannot start until a predecessor activity has started.

• A logical relationship in which a successor activity

Start-to-finish (SF) cannot finish until a predecessor activity has started.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 6-9, page 157.
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Unit 4 - Scheduling

Dependency Determination

Mandatory Discretionary Internal External

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Unit 4 - Scheduling

Project Schedule Network Diagram

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure 6-11, page 160.
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Unit 4 - Scheduling

Estimate Activity Resources

* The process of estimating the type and quantities of
material, human resources, equipment, or supplies required
to perform each activity.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Alternative Analysis
* A technique used to evaluate identified options in order to
select which options or approaches to use to execute and
perform the work of the project.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Bottom-Up Estimating
* A method of estimating project duration or cost by aggregating
the estimates of the lower-level components of the work
breakdown structure (WBS).

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Estimate Duration
* The process of estimating the number of work periods
needed to complete individual activities with estimated
resources.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Three-Point Estimating – 1 Activity

(O+4M+P)/6 (P-O)/6

Activity Optimistic Most Likely Pessimistic Range SD

Average SD Normal
Distribution
12.66
A 8 12 20 12.66 2 68% 1 SD
± 2 Days

12.66
95% 2 SD
± 4 Days

12.66
99.7% 3 SD
± 6 Days

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Unit 4 - Scheduling

(O+4M+P)/6 (P-O)/6 SD2

Activity Optimistic Most Likely Pessimistic
Average SD Variance
A 7 11 16 11.17 1.50 2.25
Probability
B 9 11 17 11.67 1.33 1.78
C 10 10 16 11.00 1.00 1.00
D 10 10 16 11.00 1.00 1.00 1 SD – 68%
E 10 12 20 13.00 1.67 2.78 126.5 ± 4.67 days
F 8 11 19 11.83 1.83 3.36
G 9 11 16 11.50 1.17 1.36 2 SD – 95%
H 10 11 16 11.67 1.00 1.00 126.5 ± 9.34 days
I 7 10 17 10.67 1.67 2.78
J 7 11 16 11.17 1.50 2.25 3 SD – 99.7%
K 9 11 18 11.83 1.50 2.25 126.5 ± 14.01 days
SUM 126.50 21.81

Three-Point Estimating – Project Sq.rt of Sum of Variance 4.67

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Unit 4 - Scheduling

What are the chances to finish the project with in 135 days?
Average = 126.50 days
SD = 4.67 days

𝑋−𝑋
Z=
𝑆

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Unit 4 - Scheduling

What are the chances to finish this project with in 135 days?
Average = 126.50 days
SD = 4.67 days

𝑋−𝑋
Z=
𝑆

135 − 126.5
Z=
4.67

.96562 or 96.56% Z = 1.82

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Unit 4 - Scheduling

Estimate Costs
* The process of developing an approximation of the
monetary resources needed to complete project activities.

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) - Fifth Edition, Project Management Institute, Inc., 2013, figure3-1, Page 50.
* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Estimation Accuracy
• Rough Order of Magnitude ( -25% to -75% )
• Definitive Estimate ( -5% to 10% )

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Unit 4 - Scheduling

Develop Schedule

* Develop schedule is the process of analyzing activity

sequences, durations, resource requirements, and schedule
constraints to create the project schedule model.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Project Schedule

* An output of a schedule model that presents linked activities

with planned dates, durations, milestones, and resources.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Schedule Model

* A representation of the plan for executing the project’s

activities including durations, dependencies, and other planning
information, used to produce a project schedule along with
other scheduling artifacts.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Critical Path Method

* A method used to estimate the minimum project duration

and determine the amount of scheduling flexibility on the
logical network paths within the schedule model.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

Critical Path

* The sequence of activities that represents the longest path

through a project, which determines the shortest possible
duration.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

6 9 14 15 10 24

B E

6 0 14 16 1 25

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F
1 0 5 15 0 25
26 0 30 31 0 38

6 2 7 8 7 14 Critical Path Link

C G

13 7 14 19 11 25
Non-Critical Path Link

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Unit 4 - Scheduling

Forward Pass

Early Early
Duration
Start Finish
Activity Node

Activity Name

Late Total Late

Start Float Finish

Backward Pass

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5 8

S A B F

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Unit 4 - Scheduling

5 8

A B

S F
3 5

C D

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5 8

A D

S C F
3 5

B E

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Unit 4 - Scheduling

9 10

B E

5 11
5 8

S A D
F H F

2 7

C G

Forward Pass
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Unit 4 - Scheduling

6 9 14 15 10 24

B E

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F

6 2 7 8 7 14

C G

Forward Pass
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Unit 4 - Scheduling

6 9 14 15 10 24

B E

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F

6 2 7 8 7 14

C G

Backward Pass
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Unit 4 - Scheduling

6 9 14 15 10 24

B E

6 14 16 25

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F
1 5 15 25
26 30 31 38

6 2 7 8 7 14

C G

13 14 19 25

Backward Pass
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Unit 4 - Scheduling

6 9 14 15 10 24

B E

6 14 16 25

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F
1 5 15 25
26 30 31 38

6 2 7 8 7 14

C G

13 14 19 25

Total Float = Late Finish – Early Finish

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Unit 4 - Scheduling

6 9 14 15 10 24

B E

6 0 14 16 1 25

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F
1 0 5 15 0 25
26 0 30 31 0 38

6 2 7 8 7 14 Critical Path Link

C G

13 7 14 19 11 25
Non-Critical Path Link

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Unit 4 - Scheduling

Schedule Compression

* Techniques used to shorten the schedule duration

without reducing the project scope.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

• A technique used to shorten the schedule

Crashing duration for the least incremental cost by
adding resources.

• A schedule compression technique in which

activities or phases normally done in
Fast tracking sequence are performed in parallel for at least
a portion of their duration.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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Unit 4 - Scheduling

6 9 14 15 10 24
Crashing
B E

6 0 14 16 1 25

1 5 5 15 11 25
26 5 30 31 8 38

S A D
F H F
1 0 5 15 0 25
26 0 30 31 0 38

6 2 7 8 7 14 Critical Path Link

C G

13 7 14 19 11 25
Non-Critical Path Link

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Unit 4 - Scheduling

6 9 14 15 10 24 25 5 29

B E F

6 0 14 29 4 28 29 4 33

1 5 5 15 11 25 26 8 33

S A D H
F
1 0 5 15 0 25 26 0 33

6 2 7 8 7 14

C G

14 8 15 20 12 26

Fast tracking

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Unit 4 - Scheduling

Resource Leveling

* A technique in which start and finish dates are adjusted based

on resource constraints with the goal of balancing demand for
resources with the available supply.

* These definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK ® Guide) - Fifth Edition, Project Management Institute, Inc., 2013.
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End of Module 3 – Unit 3

Scheduling

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References

1. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology.

2. Skills and Knowledge of Cost Engineering, 5th Edition, AACE International.
3. CCC/CCE Certification Study Guide, 3rd Edition, AACE International

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End of Module 3

Project Management

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Module 3 – Project Management

Learning Outcome 1 to 8
1. understand the roles and responsibilities of project management;
2. be familiar with project organization;
3. recognize some of the key contributions to the field of leadership and management;
4. understand the basic requirements of a contract;
5. understand the types of contracts typically employed in capital projects;
6. understand typical project delivery methods and how contracts are employed in
each method;
7. develop project schedule using critical path method;
8. create work breakdown structure.

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Questions

Based on the following four metrics, answer the following 7 questions:

BAC : 240000

BCWS : 100000

ACWP : 120000

BCWP : 48% progress

1. What is the Budgeted Cost of Work performed?

a. 115200
b. 124800
c. 123000
d. 123999

2. If the same performance continues throughout the project, what will be Estimate At Completion?

a. 260000
b. 250000
c. 245000
d. 130000

3. If the same performance continues for the remaining project work, what will be the Estimate to
Completion?

a. 130000
b. 133000
c. 113000
d. 131300

4. Your cost variance is:

a. Over Budget
b. Under Budget
c. As per Budget
d. Not enough data to decide

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5. Which of the following statement is correct regarding this scenario?

a. Behind Schedule, Over Budget

b. Ahead of Schedule, Over Budget
c. Ahead of schedule, Under Budget,
d. Behind Schedule, Under Budget

6. Calculate the Schedule Performance Index:

a. 1.15
b. 1.18
c. 0.86
d. 1.86

7. Calculate Variance at Completion assuming same performance continues:

a. (10000)
b. 9990
c. 100000
d. 9000

Answer the following 7 questions in Leadership and Management of Project People.

8. Which motivational theory uses the concept of Theory X?

a. Maslow
b. Deming
c. McGregor
d. Herzberg

9. Which motivational theory says that working conditions, salary, and relationships at work do NOT
improve motivation?

a. Maslow
b. Deming
c. McGregor
d. Herzberg

10. Which motivational theorist said that people cannot ascend to the next level until the levels
below are fulfilled?

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a. Maslow
b. Deming
c. McGregor
D. Herzberg

11. All of the following are Rensis Likert Leadership styles EXCEPT:

a. Exploitative – Authoritative
b. Benevolent – Authoritative
c. Consultative
d. Hygiene Factor

12. You have received the best employee of the month award; this would most likely satisfy which
level of your need?

a. Esteem Need
b. Physiological Need
c. Self Actualization Need
d. Social Need

13. Who said “Organization may be the source and cause of human problem”?

a. Douglas McGregor
b. Frederick Herzberg
c. Chris Argyris
d. Abraham Maslow

14. Who developed Managerial Grid on People and Production Problem?

a. Fred Fielder
b. David McClelland
c. Robert Blake and Jane Mouton
d. None of the above

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Answer the following 7 questions using the table below:

Activity Duration Preceding Activity

A 4 Start

B 5 Start

C 9 A, B

D 6 A

E 2 D, C

F 3 B

G 5 E, F

H 4 D

End - H, G

15. What is the duration of the project?

a. 21 Days
b. 20 Days
c. 19 Days
d. 38 Days

16. What is the duration of the Critical Path?

a. 21 Days
b. 20 Days
c. 19 Days
d. 38 Days

17. What is the slack for activity H?

a. 6 Days
b. 7 Days
c. 8 Days
d. 9 Days

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18. If the activity D delays by 2 Days, what will the duration of the project?

a. 40 Days
b. 23 Days
c. 21 Days
d. 22 Days

19. If the activity E is delayed by 5 Days, what will the duration of the project?

a. 26 Days
b. 25 Days
c. 33 Days
d. 43 Days

21. After much consideration, activity “E” is being removed from the project making “G” successor
for D and C. What is the project duration now?

a. 19 Days
b. 21 Days
c. 36 Days
d. 20 Days

22. You just finished Activity “E” and it is delayed by 2 days, what will be total float now?

a. – 2 Days
b. 0 Days
c. + 2 Days
d. Critical Path will change

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Consider the following data and answer the following 7 questions:

Activity Preceding Activity Estimate in Months

Start 0

D Start 4

A Start 6

F D, A 7

E D 8

G F, E 5

B F 5

H G 7

C H 8

End C, B 0

23. What is the duration of the critical path?

a) 32 Months
b) 33 Months
c) 31 Months
d) 30 Months

24. To shorten the length of the project, the sponsor has offered to remove the work of activity E
from the project, making activity D the predecessor to activities G and F. what will be the effect?

a) No effect on the critical path

b) The project will delay by 2 days
c) The project will complete early
d) The project will be delayed

25. What is the float of activity B?

a) 10
b) 12
c) 13
d) 15

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26. The late start and late finish dates for each activity is calculated by:

a) Forward Pass
b) Backward Pass
c) Critical Path
d) PERT

27. The float for each activity is calculated by:

a) LF – EF
b) EF – LF
c) ES – EF
d) LS – LF

28. Which of the following are called schedule compression techniques?

a) Crashing
b) Fast Tracking
c) Speeding
d) A and B

29. If the optimistic estimate for an activity is 12 days, and the pessimistic estimate is 18 days, what
is the standard deviation of this activity?

a) 1
b) 1.3
c) 6
d) 3

Answer question 30 to 36 based on the below scenario.

A project manager for a large manufacturing concern is working on a project that calls for a new
building to be constructed to house a new clean system manufacturing process that is critical to the
success of the project. Construction is not a core competency of his company. His team has the
ability to create a detailed contract statement of work with penalties if specific statements of work
deliverables are not met.

30. Which of the following is best type of contract for this situation?

a. Lump sum
b. Cost plus fixed fee
c. Cost plus incentive fee
d. Unit price contract

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31. Which of the following contract type in which the owner assumes major performance risk?

a. Lump sum
b. Cost plus fixed fee
c. Cost plus percentage of cost fee
d. Unit price

32. In which contract type the owner will have lease amount of performance risk?

a. Lump sum
b. Cost plus fixed fee
c. Cost plus percentage of cost fee
d. Unit price

33. In a fixed price contract, the fee or profit is:

a. Set by the contractor, and it is unknown to the project owner/client

b. Part of the negotiation involved in paying every invoice
c. Applied as a line item to every invoice
d. Determined with the other party at the end of the project

34. Due to inexperience in construction, the construction managers were introduced for this project.
What is the role of construction managers?

a. Coordinate with contractors

b. Coordination between contractor and sub contractor
c. Coordinate with consultants
d. Coordinate between contractor and consultants

35. The design & built contracting arrangement will:

a. Help expedite the project

b. Delay the project
c. Make construction managers job tedious
d. All of the above

36. In a cost plus fixed fee contract, how can the fee change?

a. It cannot change
b. It can change if change orders are issued
c. It can only be increased by 10 percent if there is an unexpected cost overrun
d. It can be decreased under certain circumstances

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37. Constructability analysis is different from construction Pre-Planning in that Constructability
analysis focuses on all the following EXCEPT:

a. Technology options
b. Installation methods
c. Field operation
d. Site access

38. To make the contract valid, all of the following are requirements EXCEPT:

a. Offer
b. Acceptance
c. Legality of Purpose
d. Bond Paper

39. What are the basic types of contracts typically used in contracting for capital projects?

a. Fixed price, cost reimbursable, cost-plus, fixed price with incentive

b. Fixed price, unit price, cost reimbursable, target contracts
c. Time and materials, cost-plus fixed fee, unit price, award fee
d. Unit price, time and materials, fixed price with economic adjustment, lump sum

40. Typically, most contracts provide a disputes clause. The four basic methods of resolving disputes
on projects are:

a. Mediation, arbitration, litigation, and court appeal

b. Negotiation, mediation, arbitration, and litigation
c. Arbitration, dispute review board, negotiation and litigation
d. Mediation, step negotiations, non-binding mediation and litigation

41. The following are some disadvantages of cost reimbursement contracts are EXCEPT:

a. Final cost is unknown

b. Contractor has little incentive for early completion
c. Owner can control all aspects of the work
d. Contracts are flexible in dealing changes

42. All of the following are true of a “dummy activity” EXCEPT:

a. It is unique to ADM networks

b. It has no time duration
c. It ensures an activity has a unique “i-j” designator
d. It cannot be used to show relationships between activities with more than one predecessor

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43. Start dates in the following network logic diagram are defined as early morning, finish dates are
evening.

If tasks are scheduled to begin at early start date, what is true?

a. Activity B has a free float of 10 d.

b. Activity B has a total float of 10 d.
c. Activity A has a free float of 10 d.
d. Activity A has a total float of 10 d.

44. Which of the following becomes increasingly important in a virtual team environment?

a. Requirements engineering
b. Communication planning
c. Formal procurements closure
d. Network diagramming

45. What kind of a relationship is implied when completion of a successor is dependent on initiation
of its predecessor?

a. FS
b. FF
c. SS
d. SF

46. The following three tasks form the entire critical path of the project network. The three
estimates of each of these tasks are tabulated below. How long would the project take to complete
expressed with an accuracy of one standard deviation?

Task Optimistic Most likely Pessimistic

A 15 25 47

B 12 22 35

C 16 27 32

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a. 75.5
b. 75.5 +/- 7.09
c. 75.5 +/- 8.5
d. 75.5 +/- 2.83

47. A project has the following Earned value data assessed: AC: $ 4,000,000 CV: $ -500,000 SPI: 1.12
BAC: $ 9,650,000. What is the Earned value of the project?

a. $3,000,000
b. $3,500,000
c. $4,480,000
d. $5,650,000

48. An example of a ‘‘soft logic’’ dependency, as opposed to ‘‘hard logic’’ dependency, is:

a) Project A, the company’s participation in a Pump Industry trade show, depends on the
successful completion of Project B, which is building the prototype pump that is going to be
displayed.
b) To install the plumbing and electrical work at the same time on a single-family dwelling.
c) For the shrink-wrapping on the finished box of software to depend on enclosing the manual
and software first.
d) To schedule the final testing activity of a computer to start seventy-two hours after the start
of the mandatory seventy-two hour ‘‘burn-in’’ period.

49. A schedule compression technique to determine how to obtain the greatest amount of
compression for the least incremental cost is called:

a) Crashing.
b) PERT.
c) ADM or PDM forward and backward pass to determine the critical path.
d) Fast tracking.

50. The critical path is established by calculating the following dates:

a) Start-to-start, start-to-finish, finish-to-finish, finish-to-start.

b) Early start, early finish, late start, late finish.
c) Predecessor-to-successor, predecessor-to-predecessor, successor-to-successor.
d) Primary-to-secondary, primary-to-finish, secondary-to-secondary, finish-to-finish.

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Module 4

General Skills and Knowledge of Cost

Engineering

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LEARNING OBJECTIVES / OUTCOME

Module 4 - General Skills and Knowledge of Cost Engineering

At the end of this module, students should able to

1. understand basic definitions and terminologies in probability and statistics;

2. gain a general understanding of risk management;
3. understand the importance quality management;
4. understand the meaning and application of value analysis;
5. under the total cost management framework;

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® CCP® Certification Preparation

Module 4

General Skills and Knowledge of Cost Engineering

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Module 4

Additional learning resources:

1. Chapter 1 to 31
 Skills and Knowledge of Cost Engineering, 5th Edition, AACE International
 CCC/CCE Certification Study Guide, 3rd Edition, AACE International
2. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology

2
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Module 4 - Units

1. Quality Management
2. Value Analysis
3. Strategic Asset Management
4. Project Planning
5. Project Labor Cost Control
6. Probability and Statistics
7. Risk Management
8. Communication
3
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Module 4 – Unit 1

Quality Management

4
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Unit 1 - Quality Management

Definition

“ the degree which a set of inherent characteristics fulfill requirements”

Stakeholders’ Requirements

Needs, Wants &

Expectations

Stated and Implied

Stakeholders’ Analysis
5
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Why Quality Matters

• The fundamental reason for focusing on quality issues is the potential for
an increased profitability of the project.

• Customer Satisfaction (Understanding, Evaluating, Defining &

Managing)
• Conformance to requirement
• The project must produce what it said it would produce
• Fitness for use
• The product or service must satisfy real needs
• Prevention over inspection
• Less Rework
• Increased Productivity
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Key Concepts

Quality vs. Grade (degree of functionality)

• Grade is a category assigned to products or services having the same

functional use but different technical characteristics.

• Low Quality is always a problem; low grade may not be.

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Key Concepts

• Gold Platting
• Gold platting refers to giving the customer extras.
• Prevention Over Inspection
• Quality must be planned in, not inspected in!
• Continuous Improvement (or Kaizen)
• Small improvements in products or processes to reduce costs and
ensure consistency of performance of products or services.

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Key Concepts

• Just in Time (JIT)

• A JIT system forces attention on quality.
• TQM
• A philosophy that encourages companies and their employees to focus on
finding ways to continuously improve the quality of their business practices
and products.
• Impact of poor quality
• Increased Cost
• Low Morale
• Low Customer Satisfaction
• Increased Risk
• Rework
• Schedule delays 9
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Discussion

• Cost of Conformance & Cost of Non Conformance.

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Cost of Conformance

• (COC) A component of the *Cost Of Quality* for a work product.

• Cost of conformance is the total cost of ensuring that a product is of good

*Quality*. It includes costs of *Quality Assurance* activities such as
standards, training, and processes; and costs of *Quality Control* activities
such as reviews, audits, inspections, and testing.

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Cost of Non - Conformance

• Cost Of Non-Conformance
(CONC.) The element of the *Cost Of Quality* representing the total cost to
the organization of failure to achieve a good *Quality* product.

CONC includes both in-process costs generated by quality failures,

particularly the cost of *Rework*; and post-delivery costs including further
*Rework*, re-performance of lost work (for products used internally),
possible loss of business, possible legal redress, and other potential costs.
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Cost of Poor Quality - COPQ

• Cost of Poor Quality – COPQ

COPQ consists of those costs which are generated as a result of producing

defective material.

This cost includes the cost involved in fulfilling the gap between the desired
and actual product/service quality. It also includes the cost of lost
opportunity due to the loss of resources used in rectifying the defect. This
cost includes all the labor cost, rework cost, disposition costs, and material
costs that have been added to the unit up to the point of rejection. COPQ
does not include detection and prevention cost.

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Cost of Quality

• The cost associated with the quality of a work product.

As defined by Crosby ("Quality Is Free"), Cost Of Quality (COQ) has two

main components: *Cost Of Conformance* and *Cost Of Non-
Conformance* (see respective definitions).

Cost of quality is the amount of money a business loses because its product
or service was not done right in the first place. From fixing a warped piece
on the assembly line to having to deal with a lawsuit because of a
malfunctioning machine or a badly performed service, businesses lose
money every day due to poor quality. For most businesses, this can run
from 15 to 30 percent of their total costs.
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Quality Theorists

• Joseph Juran: Developed the 80/20 principle, advocated top management

involvement, defined quality as "fitness for use.“

• W. Edward Deming: Developed 14 Steps of Total Quality Management,

advocated the Plan-Do-Check-Act cycle as the basis for quality
improvement.

• Philip Crosby: Popularized the concept of the cost of poor quality,

advocated prevention over inspection and "Zero Defects". He believed that
quality is "Conformance to requirements."

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Quality Tools

1. Cause and effect diagram

2. Control Charts
3. Flowcharting
4. Histogram The first seven of these
5. Pareto chart are known as the Seven Basic
6. Run Chart Tools of Quality
7. Scatter Diagram
8. Statistical Sampling
9. Inspection
10. Detect Repair Review

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Module 4 – Unit 2

Value Analysis

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Unit 2 - Value Analysis

• The objective of the value analysis (VA) study is to improve the value for the
intended project objectives.
• Guidelines
• Estimate the costs for each alternative
• Provide the user/owner with specific, technically accurate alternatives,
appropriate to the stage of project development, which can be
implemented
• The user/owner then selects the alternative's that best satisfies the needs
and requirements. 18
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Value Analysis significance and use

• VA should be performed early in the design phase of a project.

• Changes or redirection in the design can be accommodated without
extensive redesign at this point, there by saving the user/owner time and
money.
• VA should be performed in
• Schematic Design -> up to 15 percent design completion
• Design Development -> up to 45 percent design completion
• Completion Document -> up to 100 percent design completion
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Value methodology standard

• Value Management
• Value analysis
• Value engineering
• Value Management
• Alternatively
• Value control
• Value improvement
• Value assurance
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Value methodology Applicability

• VM can be applied wherever cost and/or performance improvement is

desired.
• Those improvement can be measured in terms of monetary aspects and/or
other critical factors such as productivity, quality, time, energy,
environmental impact, and durability.

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Value methodology Job Plan

Skills and Knowledge of Cost Engineering, AACE International, Table 24.1, Page No. 24.3 22
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Module 4 – Unit 3

Strategic Asset Management

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Unit 3 - Strategic Asset Management

• Strategic asset management concerns asset owner perspective and is the process where
he measures
• a) the asset operating performance
• b) assesses improvement ideas
• c) Conceives, evaluates and initiates asset investment projects.
• d) Implements projects
• This is important in the context of business divisions or business lines being measured as
part of portfolio and each business line is measured independently on its own. In the
current business environment of mergers & acquisitions, this is a key factor in decision
making. 24
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Unit 3 - Strategic Asset Management

• AACE International’s Total Cost Management framework defines TCM as the

sum of practices and processes that an enterprise uses to manage the total
life cycle cost investment in its portfolio of strategic assets
• The practices are called Cost engineering.
• The process through which the practices are applied is called TCM.
• The bridge of link between the owners strategic asset management and
project control process is called its “project system”

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Unit 3 - Strategic Asset Management

• For the asset owner, the concept, tools and resources of cost engineering are applied in
an integrated way through the strategic asset management sub-process of total cost
management (TCM)
• In the ‘stages-and-gates’ or gated project system, the performance of planning tasks is
done in successively more definitive stages. If the project is meeting the stated objectives
at the review, the asset owner approves sufficient funds to complete the next stage of
plan development or to complete the project. If the project is not meeting the
objectives, it can be cancelled, re-scoped or redirected.
• TCM requires that ERP implementations measure both asset costs (for profitability) and
project costs (to support earned value assessment).
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Definitions

• Benchmarking – is an assessment technique used to compare the enterprise’s

assets and project performance measures to external peer enterprises.

• Front–end Loading or FEL is the project definition phase and enables removing
significant uncertainties about the project scope and execution plan.

• Influence curve - the potential to influence the value of an asset diminishes as

asset planning and implementation progresses.
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Definitions

• Capital or fixed assets include such items as manufacturing plants and

equipments, buildings, roads, and similar items that are not easily moved and

have significant useful life spans.

Commercial airplanes are capital but not fixed assets.
• Products include such items as manufactured goods and similar things that
have a useful life span and are not fixed in place.

• Software is difficult to classify as either fixed asset or a product

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Module 4 – Unit 4

Project Planning

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Unit 4 - Project Planning

• Establishing Objectives
• Setting objectives through team work will build team commitment and
understanding of the project.
• Common set of objectives should guide the owner, engineer, and
constructor.
• A key to successful acceptance, by all, is a set of well-defined
objectives.

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Project Organization Structure

• Owner Team (Reimbursable Contract)

• In a cost reimbursable contract, the owner should have direct control over
the contractor, since chances of contractor shooting up the project cost is
high.
• Pre-contract activities for contractor evaluation
• Effective Proposal Evaluation Criteria
• Interview of key Project Personnel
• Clear contract clause to avoid litigation
• Evaluate contractor project management plan 31
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Establishing Objectives

• Client Satisfaction
• Criteria and a measurement program (metrics), acceptable to the
client, should be developed to produce a periodic and timely report.
• Client satisfaction is the most important objective of all and clients
dissatisfaction should be intervened by the top management.
• Scope Objective
• Technical and Project scope should be developed through scope
definition and should be issued to all.
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Establishing Objectives

• Cost and Schedule Baselines

• One considering all the factors and competing demands, a project schedule
and budget will be fixed and it should be changed unless for an authorized
changes.
• These are the baseline by which the progress measurement will be performed.
• A risk analysis should be performed to identify the potential risk that may
upset the baseline.
• Scheduling techniques like CPM, PERT, etc., will help in establishing Schedule
Baseline.
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Establishing Objectives

• Quality
• The objectives of the project should cover the quality of project operations, as
well as quality of the project product.
• The criteria for quality should be measurable so that progress report can be
issued on periodic basis.
• Others
• Training, technology transfer, change control system, etc., must be fully defined
and documented.

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Communicating objectives to stakeholder

• Project objectives should be developed and communicated to the project

team and stakeholders.

• Failing to do so will lead to chaos and lack of commitment to the objectives.

• Project objectives should be prioritized based on the relative weightage.

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Effective Project Team Building

• Often project team members will come from different culture, society,
personality, etc., it the is the single most of important area for project
manager to keep them work for the project objective as a cohesive whole.
• A team development stages:
• Forming
• Storming
• Norming
• Performing
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Effective Community Relations

• Social Responsibility is a buzz word in multi-national corporation.

• Company often talks about give-back to society.
• The community where the project is build can be a positive stakeholder as well
as negative stakeholders.
• It is very important to understand the requirement of negative stakeholders and
satisfy their requirements.
• For e.g., A new chemical plant construction might have a negative stakeholder
of local environmental agencies, environmental protection groups etc.,
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Constructability Planning

• Constructability
• It is largely concerned with the technology, methods of installation, and
the associated cost.
• The purpose of constructability is to reduce costs by considering
alternative design and/or installation methods.
• Construction Pre-Planning
• It is largely to do with the scheduling of resources, organization, site
access, and infrastructure.
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Module 4 – Unit 5

Project Labor Cost Control

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Chapter 21 Project Labor Cost Control

• Construction labor costs are the most variable element of the budget.

• Effective planning and control on project labor cost leads to high

profitability.

• Labor cost is a function of workers hourly wage rate and worker

productivity, but although hourly rates are relatively easy to predict,

productivity is the real variable.

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Unit 5 - Project Labor Cost Control

• Construction labor costs are the most variable element of the budget.

• Effective planning and control on project labor cost leads to high

profitability.

• Labor cost is a function of workers hourly wage rate and worker

productivity, but although hourly rates are relatively easy to predict,

productivity is the real variable.

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Factors affecting productivity

• Crew sizes and craft composition

• Craft density (area per worker)
• Interference with other crews
• Scheduling
• Material availability
• Equipment and tool availability
• Information availability
• Rework due to design, fabrication, and field errors
• Site layout
• Weather, and
• Constructability

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Module 4 – Unit 6

Statistics & Probability

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Unit 6 – Statistics – Data Types

• Qualitative Data take on values that are names or labels. The color of a car
(e.g., red, green, blue) would be examples of categorical variables.

• Quantitative variables are numerical. They represent a measurable

quantity. For example, when we speak of the population of a city, we are
talking about the number of people in the city - a measurable attribute of
the city.

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Qualitative Data vs. Quantitative Data

• Qualitative Data take on values that are names or labels. The color of a car
(e.g., red, green, blue) would be examples of categorical variables.

• Quantitative variables are numerical. They represent a measurable

quantity. For example, when we speak of the population of a city, we are
talking about the number of people in the city - a measurable attribute of
the city.

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Qualitative Data

• Quantitative Data can be described graphically or numerically.

• Graphic methods

• Stem and leaf plots

• Histogram, and

• Frequency distribution and relative frequency (f/n)

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Quantitative Data

• Numerical methods
• Measures of location (central tendency),
• Mean (average),
• Median, and
• Mode;
• Measures of dispersion,
• Range,
• Variance, and
• Standard deviation;
• Relative standing
• Percentile, and
• Z - score
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Example

50 54 55 92 61 45 70 65 60 55
Example – Let us take one example and 55 70 44 91 60 60 75 60 64 63
explain it all 65 75 55 92 62 65 45 50 55 60
• An estimator has given the task of 65 80 95 94 64 62 60 65 63 70
estimating total hours required to 70 82 90 95 65 63 95 45 60 65
complete 111200 m3 of excavation for 64 84 86 80 67 64 70 85 75 74
the next project. He referred 100 66 80 66 82 69 65 72 72 70 70
previous project files to study the time 67 82 67 83 50 60 74 94 80 72
taken to complete 100 m3. 60 67 55 81 55 70 56 90 90 73

• The company has the given data. 65 66 48 80 45 75 78 84 60 62

*In Minutes
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Organizing Data : Steam and Leaf Plot

• A stem and leaf plot looks something like a bar graph. Each number in the data
is broken down into a stem and a leaf, thus the name. The stem of the number
is the first common number. The leaf of the number will always be a single digit.
• Example – Making a stem and leaf plot
• A teacher asked 10 of her students how many books they had read in the
last 12 months. Their answers were as follows:
• 12, 23, 19, 6, 10, 7, 15, 25, 21, 12
• Prepare a stem and leaf plot for these data.
Stem Leaf
0 6, 7
1 2, 9, 0, 5, 2
2 3, 5, 1 49
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Now Prepare Stem and Leaf Plot for our example

50 54 55 92 61 45 70 65 60 55

55 70 44 91 60 60 75 60 64 63

65 75 55 92 62 65 45 50 55 60

65 80 95 94 64 62 60 65 63 70

70 82 90 95 65 63 95 45 60 65

64 84 86 80 67 64 70 85 75 74

66 80 66 82 69 65 72 72 70 70

67 82 67 83 50 60 74 94 80 72

60 67 55 81 55 70 56 90 90 73

65 66 48 80 45 75 78 84 60 62

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Steam and Leaf

Stem Leaf
4 455558

5 000455555556

6 000000000012223334444555555555666
77779
7 0000000022234455558

8 00000122234456

9 00012244555

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Histogram

Frequency Distribution per 100 Cubic Meter

40
36
32
28
Frequency

24
20
16
12
8
4
0 40 50 60 70 80 90 100
Minutes

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Frequency Distribution and Relative Frequency

Minutes Frequenc Relative Percentage Cumulative

X y Frequency Frequency Percentage
F
40 - 49 6 6/100 = 0.06 6 6
50 - 59 12 12/100 = 0.12 12 18
60 - 69 38 38/100 = 0.38 38 56
70 - 79 19 19/100 = 0.19 19 75
80 - 89 14 14/100 = 0.14 14 89
90 - 99 11 11/100 = 0.11 11 100
Total 100 1.0 100
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Numerical methods – Measures of Central Tendency

• The best way to reduce a set of data and still retain part of the information,
is to summarize the set with a single value. But how can you calculate a
number that is representative of an entire list of numbers?
• Measures of central tendency—mean, median, and mode—can help you
capture, with a single number, what is typical of the data.

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Measures of Central Tendency

• The mean is the average value of all the data in the set.

• The median is the value that has exactly half the data above it and half

below it.

• The mode is the value that occurs most frequently in the set.

• In a normal distribution, mean, median and mode are identical in value.

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Mean

• The mean of a numeric variable is calculated by adding the values of all

observations in a data set and then dividing that sum by the number of
observations in the set. This provides the average value of all the data.
• Mean = sum of all the observation values ÷ number of observations
• X = ∑x / n
where x stands for an observed value,
n stands for the number of observations in the data set,
x stands for the sum of all observed x values,
And X stands for the mean value of x.

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Mean - Example

• Example 1 – Soccer tournament at Dubai Football Stadium

• UAE hosts a soccer tournament each year. This season, in 10 games,
the lead scorer for the home team scored 7, 5, 0, 7, 8, 5, 5, 4, 1 and 5
goals. What was the mean score?
• Mean = sum of all the observed values ÷ number of observations
= (7 + 5 + 0 + 7 + 8 + 5 + 5 + 4 + 5 + 1) ÷ 10
= 47 ÷ 10
= 4.7
• The average of 4.7 is not a whole number so it only has meaning in a
statistical sense. In reality, it is impossible to score 4.7 goals, even if you
are a top scorer.

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Mean for our example

Minutes Midpoint Frequency Total amount

X F of Mid point
XF
40 - 49 45 6 270
50 - 59 55 12 660
60 - 69 65 38 2470 Mean

70 - 79 75 19 1425 7060/100 = 70.60

80 - 89 85 14 1190
90 - 99 95 11 1045
100 7060
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Median

• If observations of a variable are ordered by value, the median value

corresponds to the middle observation in that ordered list.
• The median value corresponds to a cumulative percentage of 50% (i.e., 50% of
the values are below the median and 50% of the values are above the median).
• The position of the median is n+1 / 2 th value, where n is the number of values
in a set of data.
• In order to calculate the median, the data must be ranked (sorted in ascending
order) first. The median is the number in the middle.
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Median – Example 1 – Raw data (discrete variables)

• Imagine that a top running athlete in a typical 200-metre training session runs
in the following times: 26.1, 25.6, 25.7, 25.2 and 25.0 seconds.
• How would you calculate his median time?
• First, the values are put in ascending order: 25.0, 25.2, 25.6, 25.7, 26.1.
Then, using the following formula, figure out which value is the middle
value. Remember that n represents the number of values in the data set.
• Median = (n + 1) ÷ 2th value
= (5 + 1) ÷ 2
=6÷2
=3
• The third value in the data set will be the median. Since 25.6 is the third value,
25.6 seconds would be the median time.
• = 25.6 seconds 60
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Median – Example 2 – Raw data (discrete variables)

• Now, if the runner sprints the sixth 200-metre race in 24.7 seconds, what is the median value now?
• Again, you first put the data in ascending order: 24.7, 25.0, 25.2, 25.6, 25.7, 26.1. Then, you use the
same formula to calculate the median time.
• Median = (n + 1) ÷ 2th value
= (6 + 1) ÷ 2
=7÷2
= 3.5
• The median is the 3.5th value in the data set meaning that it lies between the third and fourth
values. Thus, the median is calculated by averaging the two middle values of 25.2 and 25.6. Use the
formula below to get the average value.
• Average = (value below median + value above median) ÷ 2
= (third value + fourth value) ÷ 2
= (25.2 + 25.6) ÷ 2 Same for the grouped distribution
= 50.8 ÷ 2
= 25.4
• The value 25.4 falls directly between the third and fourth values in this data set, so 25.4 seconds
would be the median time. 61
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Median for grouped frequency distribution

Minutes Frequenc End Point Cumulative Percentage Cumulative

y X Frequency Percentage
F
40 –< 50 6 50 6 6 6

50 –<60 12 60 12 12 18

60 –< 70 38 70 38 38 56

70 –< 80 19 80 19 19 75

80 –< 90 14 90 14 14 89

90 –< 11 100 11 11 100

100
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Median for our example

• According to the information provided in the previous slide:

• Median = (n + 1) ÷ 2th value
= (100 + 1) ÷ 2
= 101 ÷ 2
= 50.5
• By adding up the frequencies, we find that the median (50.5) lies in the median
group of the 60 –< 70 minutes interval.
• The cumulative percentage of the preceding interval (A) is 56.
• The percentage needed in order to get 50% of the total cumulative percentage
(B) is 44.
• B = 50 - A
= 100 – 56
= 44 63
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Median for our example

• The range of the median interval (C) is 10 and the percentage for the median
interval (D) is 38.
• The number of values to count down within the interval in order to get to 50%
of the total data set is 11.58.
• E = (B ÷ D) x C
= (44 ÷ 38) x 10 = 11.58
• Since the lower interval value of the median group is 60, when you add the
value of E to that you get a median of 71.58 Minutes.
• Median = lower value + (B ÷ D) x C
= 60 + (44 ÷ 38) x 10
= 60 + 11.58
= 71.58 Minutes
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Mode

• In a set of data, the mode is the most frequently observed data value.
• There may be no mode if no value appears more than any other.
• There may also be two modes (bimodal), three modes (trimodal), or four or
more modes (multimodal).
• In the case of grouped frequency distributions, the modal class is the class
with the largest frequency.
• Mode = the most frequently observed data value

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Measure of dispersion (spread)

• Measures of central tendency attempt to identify the most representative

value in a set of data.
• Mean, median and mode give different perspectives of a data set's centre,
but a data description is not complete until the spread variability is also
known.
• In fact, the basic numerical description of a data set requires measures of
both centre and spread. Some methods of measure of spread include
range, quartiles, variance and standard deviation.
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Range

• The range is very easy to calculate because it is simply the difference

between the largest and the smallest observed values in a data set. Thus,
range, including any outliers, is the actual spread of data.
• Range = difference between highest and lowest observed values
• The range can be expressed as an interval such as 4–10, where 4 is the
lowest value and 10 is highest. Often, it is expressed as interval width. For
example, the range of 4–10 can also be expressed as a range of 6.

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Quartiles

• The median divides the data into two equal sets.

• The lower quartile is the value of the middle of the first set, where 25% of
the values are smaller than Q1 and 75% are larger. This first quartile takes
the notation Q1.
• The upper quartile is the value of the middle of the second set, where 75%
of the values are smaller than Q3 and 25% are larger. This third quartile
takes the notation Q3.
• It should be noted that the median takes the notation Q2, the second quartile.
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Interquartile

• The interquartile range is another range used as a measure of the spread.

The difference between upper and lower quartiles (Q3–Q1), which is called
the interquartile range, also indicates the dispersion of a data set.
• The interquartile range spans 50% of a data set, and eliminates the
influence of outliers because, in effect, the highest and lowest quarters are
removed.
• Interquartile range =difference between upper quartile (Q3) and lower
quartile (Q1)
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Quartile

Data 6, 47, 49, 15, 43, 41, 7, 39, 43, 41, 36

Ordered Data 6, 7, 15, 36, 39, 41, 41, 43, 43, 47, 49

Median 41

Upper Quartile 43

Lower Quartile 15

Interquartile 28
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Excercise

• A year ago, Angela began working at a computer store. Her supervisor asked
her to keep a record of the number of sales she made each month.
• The following data set is a list of her sales for the last 12 months:
• 34, 47, 1, 15, 57, 24, 20, 11, 19, 50, 28, 37
• Use Angela's sales records to find:
• a) the median
b) the range
c) the upper and lower quartiles
d) the interquartile range 71
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Answer

• a) The values in ascending order are:

1, 11, 15, 19, 20, 24, 28, 34, 37, 47, 50, 57.

Median = (12 + 1) ÷ 2
= 6.5th value
= (6th + 7th observations) ÷ 2
= (24 + 28) ÷ 2
= 26
• b) Range = difference between the highest and lowest values
= 57 - 1
= 56

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Answer

• c) Lower quartile = value of middle of first half of data Q1

= the median of 1, 11, 15, 19, 20, 24
= (3rd + 4th observations) ÷ 2
= (15 + 19) ÷ 2
= 17

Upper quartile = value of middle of second half of data Q3

= the median of 28, 34, 37, 47, 50, 57
= (3rd + 4th observations) ÷ 2
= (37 + 47) ÷ 2
= 42
• d) Interquartile range = Q3–Q1
= 42 - 17
= 25 73
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Graphic Display

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Semi-quartile range

• The semi-quartile range is another measure of spread. It is calculated as

one half the difference between the 75th percentile (often called Q3) and
the 25th percentile (Q1). The formula for semi-quartile range is:
• (Q3–Q1) ÷ 2.

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Variance and Standard Deviation

• Unlike range and quartiles, the variance combines all the values in a data
set to produce a measure of spread.
• The variance (symbolized by S2) and standard deviation (the square root of
the variance, symbolized by S) are the most commonly used measures of
spread.

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Variance Calculation

• Variance is a measure of how spread out a data set is. It is calculated as the
average squared deviation of each number from the mean of a data set. For
example, for the numbers 1, 2, and 3 the mean is 2 and the variance is
0.667.
• [(1 - 2)2 + (2 - 2)2 + (3 - 2)2] ÷ 3 = 0.667
• [squaring deviation from the mean] ÷ number of observations = variance
• Variance (S2) = average squared deviation of values from mean

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Standard Deviation

• Taking the square root of the variance gives us the units used in the original

scale and this is the standard deviation.

• Standard deviation (S) = square root of the variance

• Standard deviation is the measure of spread most commonly used in

statistical practice when the mean is used to calculate central tendency.

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Standard Deviation (Sigma Level)

• If X = mean, S = standard deviation and x = a value in the data set, then

• about 68% of the data lie in the interval: X- S < x < X+ S.

• about 95% of the data lie in the interval: X- 2S < x < X+ 2S.

• about 99% of the data lie in the interval: X- 3S < x < X+ 3S.

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Example

• Standard deviation

• A hen lays eight eggs. Each egg was weighed and recorded as follows:

• 60 g, 56 g, 61 g, 68 g, 51 g, 53 g, 69 g, 54 g

• a) First, calculate the mean:

• Mean = 472/8

• =59
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Example

Weight (X) ( X – X ) ( X – X )2

60 1 1
56 -3 9
61 2 4
68 9 81
51 -8 64
53 -6 36
69 10 100
54 -5 25
472 320
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Excavation Example – Grouped frequency

Midpoint Frequency (X-X

Hours (X) (F) XF ) (X - X)2 (X-X)2F
40 - 50 45 6 270 -25.6 655.36 3932.16
50 - 60 55 12 660 -15.6 243.36 2920.32
60 - 70 65 38 2470 -5.6 31.36 1191.68
70 - 80 75 19 1425 4.4 19.36 367.84
80 - 90 85 14 1190 14.4 207.36 2903.04
90 - 100 95 11 1045 24.4 595.36 6548.96
Total 100 7060 17864

X 70.6 S.D 13.37

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Accuracy Level

• Assuming the frequency distribution is approximately normal, calculate the

interval within which 99% of the previous example's observations would be
expected to occur.
• X- 3S < x < X+ 3S.
• 70.6 – (3x13.37) < X < 70.6 + (3x13.37)
• 30.49 < X < 110.71
• This means there is a 99% certainty that excavation of 100 M3 will take
some where between 30.49 to 110.71 minutes.
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Measures of relative standing

• Measures of relative standing are numbers which indicate where a particular

value lies in relation to the rest of the values in a set of data or a population.
We'll review just two types of such measures here.
• The first type, standard (Z) scores, are not only useful as descriptive numbers,
but are of fundamental importance in working with the normal distribution.
• The second, percentiles, and related quantities, are primarily used only as
descriptive numbers, but see very wide use in many fields. The notion of a
"percentile" makes the term convenient to use in a variety of technical contexts
as well. 84
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Standard Z Scores

• The standard score = z = x - μ / σ

• Where x is a raw score to be standardized
• σ is the standard deviation of the population
• μ is the mean of the population
• The quantity z represents the distance between the raw score and the
population mean in units of the standard deviation. z is negative when the
raw score is below the mean, positive when above.

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Excavation Example

• Suppose I want to find where 86 Minutes stands in my normal distribution

curve.
• Z = 86 – 70.7 / 13.37
• Z = 1.14

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Bell Curve

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Random Variable and Probability Distribution

• To understand probability distributions, it is important to understand

variables. random variables, and some notation.
• A variable is a symbol (A, B, x, y, etc.) that can take on any of a specified set
of values.
• When the value of a variable is the outcome of a statistical experiment, that
variable is a random variable.

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Probability Distribution

• An example will make clear the relationship between random variables and
probability distributions.
• Suppose you flip a coin two times. This simple statistical experiment can have
four possible outcomes: HH, HT, TH, and TT.
• Now, let the variable X represent the number of Heads that result from this
experiment.
• The variable X can take on the values 0, 1, or 2. In this example, X is a random
variable; because its value is determined by the outcome of a statistical
experiment. 89
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Probability Distribution

• A probability distribution is a Number of Probability

table or an equation that links Heads
each outcome of a statistical
experiment with its probability 0 0.25
of occurrence.

• Consider the coin flip 1 0.50

experiment described in last
slide. The table, which
associates each outcome with
its probability, is an example of
2 0.25
a probability distribution.
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Cumulative Probability Distribution

• A cumulative probability refers to the probability that the value of a random

variable falls within a specified range.
• Let us return to the coin flip experiment. If we flip a coin two times, we might
ask: What is the probability that the coin flips would result in one or fewer
heads?
• The answer would be a cumulative probability. It would be the probability that
the coin flip experiment results in zero heads plus the probability that the
experiment results in one head.
• P(X < 1) = P(X = 0) + P(X = 1) = 0.25 + 0.50 = 0.75 91
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Cumulative Probability Distribution Table

• Like a probability distribution, a cumulative probability distribution can be

represented by a table or an equation. In the table below, the cumulative
probability refers to the probability than the random variable X is less than or
equal to x

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Uniform Probability Distribution Table

• The simplest probability distribution occurs when all of the values of a random
variable occur with equal probability. This probability distribution is called the
uniform distribution.
• Example: Suppose a die is tossed. What is the probability that the die will land
on 6 ?
• Solution: When a die is tossed, there are 6 possible outcomes represented by: S
= { 1, 2, 3, 4, 5, 6 }. Each possible outcome is a random variable (X), and each
outcome is equally likely to occur. Thus, we have a uniform distribution.
Therefore, the P(X = 6) = 1/6. 93
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Discrete and Continuous Probability Distributions

• If a variable can take on any value between two specified values, it is called a
continuous variable; otherwise, it is called a discrete variable.
• Some examples will clarify the difference between discrete and continuous
variables.
• Suppose the fire department mandates that all fire fighters must weigh
between 150 and 250 pounds. The weight of a fire fighter would be an
example of a continuous variable; since a fire fighter's weight could take on any
value between 150 and 250 pounds.
• Suppose we flip a coin and count the number of heads. The number of heads
could be any integer value between 0 and plus infinity. However, it could not
be any number between 0 and plus infinity. We could not, for example, get 2.5
heads. Therefore, the number of heads must be a discrete variable.
• Just like variables, probability distributions can be classified as discrete or
continuous. 94
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Discrete Probability Distributions

• If a random variable is a discrete variable, its probability distribution is called a discrete

probability distribution.
• Suppose you flip a coin two times. This simple statistical experiment can have four possible
outcomes: HH, HT, TH, and TT.
• Now, let the random variable X represent the number of Heads that result from this
experiment. The random variable X can only take on the values 0, 1, or 2, so it is a discrete
random variable.
• The probability distribution for this statistical experiment appears below.

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Binominal Distribution

• A binomial experiment (also known as a Bernoulli trial) is a statistical experiment

that has the following properties:
• The experiment consists of n repeated trials.
• Each trial can result in just two possible outcomes. We call one of these
outcomes a success and the other, a failure.
• The probability of success, denoted by P, is the same on every trial.
• The trials are independent; that is, the outcome on one trial does not affect
the outcome on other trials.

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Example

• Consider the following statistical experiment. You flip a coin 2 times and count
the number of times the coin lands on heads. This is a binomial experiment
because:
• The experiment consists of repeated trials. We flip a coin 2 times.
• Each trial can result in just two possible outcomes - heads or tails.
• The probability of success is constant - 0.5 on every trial.
• The trials are independent; that is, getting heads on one trial does not
affect whether we get heads on other trials.
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Example

• The following notation is helpful, when we talk about binomial probability.

• x: The number of successes that result from the binomial experiment.
• n: The number of trials in the binomial experiment.
• P: The probability of success on an individual trial.
• Q: The probability of failure on an individual trial. (This is equal to 1 - P.)
• B (x; n, P): Binomial probability - the probability that an n-trial binomial
experiment results in exactly x successes, when the probability of success on an
individual trial is P.
• nCr: The number of combinations of n things, taken r at a time. 98
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Binominal Formula

• Binomial Formula. Suppose a binomial experiment consists of n trials and

results in x successes. If the probability of success on an individual trial is P,
then the binomial probability is: b(x; n, P) = nCx * Px * (1 - P)n - x

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Example

• Suppose a die is tossed 5 times. What is the probability of getting exactly 2

fours?
• Solution: This is a binomial experiment in which the number of trials is
equal to 5, the number of successes is equal to 2, and the probability of
success on a single trial is 1/6 or about 0.167. Therefore, the binomial
probability is:
• b(2; 5, 0.167) = 5C2 * (0.167)2 * (0.833)3
b(2; 5, 0.167) = 0.161
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Continuous Probability Distribution

• If a random variable is a continuous variable, its probability distribution is

called a continuous probability distribution.
• For example, consider the probability density function shown in the graph
below. Suppose we wanted to know the probability that the random
variable X was less than or equal to a. The probability that X is less than or
equal to a is equal to the area under the curve bounded by a and minus
infinity - as indicated by the shaded area.

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Normal Distribution

• The normal distribution refers to a family of continuous probability

distributions described by the normal equation.

• Normal equation. The value of the random variable Y is:

• Y = * 1/σ * sqrt(2π) + * e(x - μ)2/2σ2

• where X is a normal random variable, μ is the mean, σ is the standard

deviation, π is approximately 3.14159, and e is approximately 2.71828.

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Standard Normal Distribution

• The standard normal distribution is a special case of the normal distribution. It is the
distribution that occurs when a normal random variable has a mean of zero and a
standard deviation of one.
• The normal random variable of a standard normal distribution is called a standard
score or a z-score. Every normal random variable X can be transformed into a z
score via the following equation:
• z = (X - μ) / σ
• where X is a normal random variable, μ is the mean mean of X, and σ is the
standard deviation of X.
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Standard Normal Distribution Table

• A standard normal distribution table shows a cumulative probability associated with a

particular z-score.
• Table rows show the whole number and tenths place of the z-score. Table columns show
the hundredths place.
• The cumulative probability (often from minus infinity to the z-score) appears in the cell of
the table.
• To find the cumulative probability of a z-score equal to -1.31, cross-reference the row of
the table containing -1.3 with the column containing 0.01. The table shows that the
probability that a standard normal random variable will be less than -1.31 is 0.0951; that
is, P(Z < -1.31) = 0.0951. 104
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Example

• Molly earned a score of 940 on a national achievement test. The mean test score was
850 with a standard deviation of 100. What proportion of students had a higher score
than Molly? (Assume that test scores are normally distributed.)
• (A) 0.10
(B) 0.18
(C) 0.50
(D) 0.82
(E) 0.90

• Solution
• The correct answer is B. As part of the solution to this problem, we assume that test
scores are normally distributed. In this way, we use the normal distribution as a
model for measurement. Given an assumption of normality, the solution involves
three steps.
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Solution

• First, we transform Molly's test score into a z-score, using the z-score transformation
equation.

z = (X - μ) / σ = (940 - 850) / 100 = 0.90

• Then, using the standard normal distribution table, we find the cumulative
probability associated with the z-score. In this case, we find P(Z < 0.90) = 0.8159.
• Therefore, the P(Z > 0.90) = 1 - P(Z < 0.90) = 1 - 0.8159 = 0.1841.
• Thus, we estimate that 18.41 percent of the students tested had a higher score than
Molly.
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Module 4 – Unit 7

Risk Management

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What is Risk?

• Risk is an unexpected event.

• Generally, risk is related to the expected losses which can be caused by a
risky event and to the probability of this event.
Risk = (probability of an accident) x (losses per accident)
• While almost all risk as seen as threats, risk gives you opportunities also.
• While we manage risk, we try to increase the likelihood of opportunity and
decrease the likelihood of threat.

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Which category you are in?

• Risk Aversion
• Risk aversion is the reluctance of a person to accept a decision with an
uncertain payoff rather than another decision with a more certain but
possibly lower expected payoff.

• Risk Prone/Loving/Seeking
• A person willingness to take decision with higher expected pay with
lower possibility.
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Risk Neutral

• The term risk neutral is used to describe an individual who cares only about

the expected return of an investment, and not the risk (variance of

outcomes or the potential gains or losses). A risk-neutral person will neither

pay to avoid risk nor actively take risks.

• Risk neutral is in between risk aversion and risk seeking

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Risk Tolerance [Utility Function]

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Risk Premium

• A risk premium is the minimum difference between the expected value of

an uncertain decision that a person is willing to take and the certain value

that he is indifferent to.

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Why understand Risk Management?

• Risk management is the act or practice of dealing with risk. Since project

seldom to perform activities as per the plan, we need to focus on

unexpected event, which may affect our project objective.

• Understanding Risk and How to manage it through structured systematic

risk management will help us to finish with project with in its competing

demand.
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Benefits of Risk Management

• Risk management will help the project from initiating to completion

through structured risk management activities that anticipates, plans,
qualifies, quantifies and monitor and control risks.
• Proper risk response planning helps the project management team to
expect the unexpected and have proper strategies to deal with risk which
may arise.
• Increase the probability of positive risk
• Reduce the probability of negative risk
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Approach Risk Management

• Risk management can be accomplished through:

Planning -> Identification -> Assessment -> Analysis -> Mitigation

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Module 4 – Unit 8

Communication

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Unit 8 - Communication

• Communication is very important in every business and it is an important

skill of a leader.
• There are different communication models such as:
• Interpersonal Communication
• Electronic Communication
• Group Communications

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Unit 8 - Communication

• Communication plays a major role in meetings. For a meeting to be

successful, it requires;[2]
• Goals
• An agenda
• Preparation
• Conclusions
• Control
• Conversations that are relevant to the meeting subjects.
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Unit 8 - Communication

• Types of listening
1. Non-listening
2. Passive listening
3. Judgmental listening The goal of listening is to improve
4. Attentive listening communication.
5. Visual listening
6. Reflective listening
7. Active/creative listening
8. Directing listening
9. Facilitative listening 119
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Unit 8 - Communication

• Writing – According to H.J Tichy (1996), writing requires four steps:

1. Plan
2. Write
3. Cool – allow sometime to elapse before revising the writing.
4. Revise

Tichy, H.J. 1996. Effective Writing for Engineers, Managers, and Scientists. New York: John Wiley & Sons
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References

1. AACE International Recommended Practice 10S – 90: Cost Engineering Terminology.

2. Skills and Knowledge of Cost Engineering, 5th Edition, AACE International.
3. CCC/CCE Certification Study Guide, 3rd Edition, AACE International

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End of Module

General Skills and Knowledge of Cost Engineering

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Module 4
General Skills and Knowledge of Cost Engineering

Learning Outcome 1 to 5
1. understand basic definitions and terminologies in probability and statistics;
2. gain a general understanding of risk management;
3. understand the importance quality management;
4. understand the meaning and application of value analysis;
5. under the total cost management framework;

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Questions

1. Value methodology can be best practiced in:

a. Large Scale Projects

b. Only Construction Projects
c. Oil and Gas Project
d. Any types of project

2. What is the WBS typically used for?

a) To organize and define the total scope of the project.

b) To identify the logical person to be project sponsor.
c) To define the level of reporting the seller provides the buyer.
d) As a record of when work elements are assigned to individuals.

3. The following is true about the WBS:

a) The WBS is another term for the Gantt chart.

b) Each descending level of the WBS represents an increasingly detailed definition of the
project work.
c) Work not in the WBS is usually defined in the scope statement of the project.
d) The WBS shows only the critical path activities.

4. Crashing in time management is:

a) A schedule compression technique that typically includes reducing schedule activity

durations and increasing the assignment of resources to schedule activities.
b) A schedule compression technique in which phases or activities that normally would be done
in sequence are performed in parallel.
c) The timely input of data to calculate the critical path.
d) Equivalent to minimizing float.

5. Earned value technique (EVT) can best be defined as:

a) Analysis of the value of the equipment that has been installed as of the data date.
b) Analysis of the sum of the labor costs, which have been incurred on the project to date.
c) A method of project performance measurement.
d) A method of measuring the amount of money that has been spent to date.

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6. One of the fundamental tenets of modern quality management is:

a) Quality is planned and inspected in.

b) Quality does not cost.
c) Quality is planned, designed, and built in—not inspected in.
d) Quality requires constant inspection.

7. A ___________ is a specific type of histogram, ordered by frequency of occurrence, which shows

how many defects were generated by type or category of identified cause.

a) Pareto chart
b) Bar chart
c) Network diagram
d) Critical path

8. Quality costs include all of the following EXCEPT:

a) Appraisal.
b) Prevention.
c) External failure.
d) Computer operations.

9. A control chart has all of the following characteristics EXCEPT:

a) It illustrates how a process behaves over time.

b) It is used to determine whether or not a process is stable or has predictable performance.
c) It illustrates how various factors might be linked to potential problems or effects.
d) It can be used to monitor any type of output variable.

10. To be successful, the organization should be committed to addressing the management of risk:

a) Just before a meeting with a client.

b) Proactively and consistently throughout the project.
c) As soon as time and cost estimates are ready.
d) Early in the execution phase.

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11. Which of these terms is one of the three used to describe contested changes and constructive
changes where the buyer and seller cannot agree on compensation for the change, or cannot agree
that a change has even occurred?

a) Forcing.
b) Mediation.
c) Complaints.
d) Disputes.

12. In what way does free float differ from total float?

a) Free float is the amount of total float that does not affect the end date, whereas total float is
the accumulated amount of free float.
b) There is no difference—the two terms are functionally equivalent.
c) Free float is the amount of time that a schedule activity can be delayed without delaying the
early start of any immediately following schedule activities, whereas total float is concerned
with delays that do not affect the project finish date.
d) An activity’s free float is calculated by subtracting its total float from the critical path’s total
float.

13. What does cost of quality mean?

a) The sacrifice of unessential project objectives to meet essential quality standards.

b) The life cycle cost of the project.
c) Determining the costs incurred to ensure quality.
d) The cost of meeting project objectives.

14. Class 4 and Class 3 estimate of AACE falls under which ANSI Standard estimate

a. Definitive Estimate

b. Order of Magnitude

c. Order of Magnitude

d. Budget Estimate

15. Which of the following is not a characteristic of Arrow Diagramming Method (ADM)?

a. Early Start

b. Late Start

c. Claims

d. Dummy activity

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16. What is breakeven point total revenue is equal to

a. fixed cost

b. Variable cost

c. Expenditures minus fixed cost

d. Variable cost plus Fixed cost

17. Which of the following method is capable of approximating economy of scale?

a. Physical Dimension Method

b. Work Breakdown structure

c. Capacity Factor method

d. End-Product Units methods

18. The flow of Money in and out of project i known as __________

a. Project Cash

b. Cash Finance

c. Project budget

d. Cash Flow

19. AACE international Class 1 & Class 2 falls under which ANSI estimating classification?

a. Order of Magnitude

b. None of the above

c. Budget estimate

d. Definitive estimate

20. Class 5 estimates can used for the following except

a. Early screening of estimate

b. Tender or Bidding

c. Evaluating the cost impacts design

d. General feasibility of a project

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21. Which type of the Contracting arrangement is also known as Program management contracting?

a. Construction manager at risk

b. Design Build

c. Single Prime contractor

d. Agency construction management

22. CPI for a project is 0.92. What is the project status?

a. Project work is stopped

b. Cost incurred till date is less than what was planned

c. Project has overrun its budget

d. Project has under run its budget

23. Float for critical activity is

a. 2 days

b. 0 days

c. 1 day

d. Not enough information

24. Which of the following is not true about depreciation?

a. Depreciation is calculated based on Asset Value

b. Depreciation reduces taxable income

c. Depreciation is a non-cash expense

d. Depreciation allows owner to reduce expenses

25. Which of the following is not a depreciation technique?

a. Incremental Milestone Depreciation

b. Modified Accelerated Cost Recovery system Depreciation

c. Double Declining Balance Depreciation

d. Straight-Line Depreciation

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26. If a credit card company charges 1% interest rate per month. What is the effective interest rate?

a. 12.68%

b. 13%

c. 11.43%

d. 12%

27. How much money must be deposited at the end of each year in a savings account that pays 8%
per year, compounded annually, in order to have 20,000 at the end of 5 years?

a. 4452

b. 8952

c. 8536

d. 7985

28. Current CPI = 0.95, Budgeted cost for work performed is 26424 and the project budget is 86,000.
What is Estimate to Complete if the remaining work will be performed at budget rate?

a. 59576

b. 78524

c. 89542

d. 45813

29. Which AACE Class of estimate requires highest level of project definition?

a. Class 5

b. Class 2

c. Class 3

d. Class 1

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 CCP ® Exam Review
30. Which type of estimate is preferred for bidding purpose?

a. Class 5

b. Class 1

c. Class 3

d. Class 2

31. What is the accuracy range of Definitive Estimate?

a. -2% to 5%

b. -5% to 15%

c. -8% to 15%

d. -10% to 15%

32. Which type of estimate requires least amount of effort to prepare?

a. Order of Magnitude

b. Budget estimate

c. Definitive estimate

d. Class 2

33. What is estimate at completion if the project budget is 40000 and CPI is 0.96?

a. 42238

b. 42625

c. 52658

d. 41667

34. Which estimating methodologies are used to develop Class 5 and Class 4 estimates?

a. Optimistic

b. Deterministic

c. Conceptual

d. Design based estimate

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35. If the construction cost of 200 room hotel was $1Million. what will be the approximate cost to
build 400 room hotel?

a. $ 3 Million

b. $ 1.2 Million

c. $ 1.8 Million

d. $ 2 Million

36. Which estimating methodology is used to prepare Class 1 and Class 2 estimates

a. Conceptual

b. Optimistic

c. Design based estimate

d. Deterministic

37. Adjustment to cost to allow for overhead and profit, to improve cash flow is known as

a. Costing

b. Take off

c. Pricing

d. Correcting

38. The process of quantifying the material and labor associated with the project is known as

a. Adjusting

b. Take off

c. Costing

d. Quantification

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 CCP ® Exam Review
39. Which of the following is not a conceptual estimating Method?

a. Work Breakdown structure

b. Capacity Factor method

c. End-Product Units methods

d. Physical Dimension Method

40. What is the cost of 80MW power plant if the cost of similar power plant with 62MW capacity
was 1.2Million? Take exponent factor as 0.64

a. 2.6

b. 1.42

c. 2.2

d. 1.6

41. Which of the following is not a characteristic used to distinguish AACE classes of Estimates

a. End usage

b. Degree of Project Definition

c. Estimating Methodology

d. Project Size

42. CV is determined using ______

a. BCWP-ACWP

b. ACWP-BCWP

c. BCWP-BCWS

d. (AC+PWP)/8

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 CCP ® Exam Review

43. Project budget is $ 80000 and work progress is 62%. What is the Budgeted Cost for Work
Performed?

a. 43,000

b. 49,600

c. 62,600

d. 64,340

44. If the cumulative BCWS = 95, Cumulative BCWP = 88, ACWP = 90, the project is

a. Project is ahead of schedule and cost over run

b. Project is ahead of schedule and cost under run

c. Ahead of schedule

d. Project is behind the Schedule & cost over run

45. Float for each activity is calculated by using

a. LS-EF

b. EF-LS

c. LS-ES

d. EF-LF

46. “Incremental Milestone” method is suitable for measuring work progress for which type of tasks

a. Task which involves subtasks which are usually carried out in sequential manner

b. Tasks which are performed very quickly

c. Task consist on number of repeated units involving almost same level of effort

d. Tasks which may take long time

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47. What is the mean for data 4,2,5,9,5,8,7,3,5,6,4 ______

a. 9

b. 5

c. 5.27

d. 4.65

48. What is Minimum Attractive Rate of Return?

a. Interest rate set by Government

b. The rate at which the profit is minimum

c. It represents the minimum rate of return at which the owner is willing to invest

d. The rate at which the profit is maximum

49. If the optimistic estimate for an activity is 24 days, and the pessimistic estimate is 36 days, what
is the standard deviation of this activity?

a. 1

b. 3

c. 2

d. 4

50. For Capacity Factor method the proration factor typically lies between

a. 0.5 and 0.85

b. 0.1 and 0.4

c. 1 and 2

d. 1.2 and 1.8

51.The range for the data 4,2,5,9,5,8,7,3,5,6,4 is ______

a. 8

b. 5

c. 7

d. 8

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52. If the variance for a data is 8, what is the standard deviation?

a. 26.28

b. 8.12

c. 6.15

d. 2.83

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 Certified Cost Professional (CCP)
Examination Process Checklist

Eligibility Criteria
 8 years industry related experience or
 4 years industry related experience + 4-year industry related college degree

Eligibility Criteria Paper Requirement

 Technical paper - minimum of 2,500 word technical paper and signed affidavit must be submitted within
30 days of registration. The technical paper must be submitted to [email protected].
NOTE: A technical paper is part of the CCP exam and you will receive the result with your multiple choice examination result.

Canons of Ethics
 All exam candidates must accept AACE’s Canons of Ethics.

Study Materials
 AACE International CCC/CCE Certification Study Guide, 3rd Edition
 AACE’s Recommended Practices (specifically RP 11R-88 and RP 10S-90) (FREE!)
 AACE’s Skills & Knowledge of Cost Engineering, 5th Edition
 AACE’s Total Cost Management Framework (FREE!)

Fees
 Member fee: US$500; Non-Member fee: US$625; Resit fee: US$250

Registration
 Application submitted
 Payment made
 Eligibility documentation, technical paper and signed affidavit submitted to
[email protected].
 Clearance from AACE Headquarters

Scheduling
 Clearance letter and access voucher code received
 Kryterion test taker profile created
 Examination scheduled

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