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 CCP
Certification Study Guide
Second Edition

Companion Workbook to Skills & Knowledge of Cost Engineering, 6th Edition

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Dr. Makarand Hastak, PE CCP, Editor
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2016
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CCP Certification Study Guide

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Second Edition
Copyright © 2006-2016
by
AACE® International
1265 Suncrest Towne Centre Drive, Morgantown, WV 26505-1876, USA
Phone: +1.304.2968444 | Fax: +1.304.2915728 | E-mail: [email protected] | Web:
www.aacei.org

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 A Publication of

CCP Certification Study Guide

Second Edition

Dr. Makarand Hastak, PE CCP, Editor

A continuing project of the AACE International Education Board

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2015/2016 Education Board Members:
Peter W. Griesmyer, FAACE (Chair)
PL Dr. Nadia Al-Aubaidy
Dr. Baabak Ashuri, CCP DRMP
Michael Bensussen
Chris A. Boyd, CCP CEP
Dr. John O. Evans III, PSP
Dr. Makarand Hastak, PE CCP
Marina G. Sominsky, PSP
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James G. Zack Jr., CFCC, FAACE AACE Hon. Life, VP – Education Board

Contributing Members:
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Nelson E. Bonilla, CCP FAACE

Mark T. Chen, PE CCP FAACE AACE Hon. Life
Clive D. Francis, CCP FAACE AACE Hon. Life
John Jeffrey Hannon, CEP
Katherine Hull
Marlene M. Hyde, CCP EVP FAACE
Donald F. McDonald Jr., PE CCP PSP FAACE
Ekaterina Pujanova
Neil D. Opfer, CCP CEP PSP FAACE
Sunu M. Pillai, Esq. CCP EVP PSP
Stephen O. Revay, CCP CFCC FAACE

Ex-Officio Members:
John Hines, AACE Manager, Education and Staff Liaison to the Education Board

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 AACE International Publications Staff:
Formatting and Layout: Marvin Gelhausen, Managing Editor
Cover Design: Noah Kinderknecht, Art Director
Cassandra LoPiccolo, Social Media and Publications Intern

Editorial Team:

Editor:
Dr. Makarand Hastak, PE CCP

Associate Editors:
Chris A. Boyd, CCP CEP
Mark T. Chen, PE CCP FAACE AACE Hon. Life
Dr. John O. Evans III, PSP
Clive D. Francis, CCP FAACE AACE Hon. Life
Peter W. Griesmyer, FAACE
Sean T. Regan, CCP CEP FAACE
Rohit Singh, PE CCP

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James G. Zack, Jr., CFCC FAACE AACE Hon. Life

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Table of Contents
PREFACE................................................................................................................................................... 5
SECTION 1 – COST.................................................................................................................................... 8
Chapter 1 – Cost Elements ................................................................................................................... 9
Chapter 2 – Pricing and Costing ......................................................................................................... 15
Chapter 3 – Materials......................................................................................................................... 20
Chapter 4 – Labor ............................................................................................................................... 26
Chapter 5 – Engineering Role and Project Success ............................................................................ 33
Chapter 6 – Machinery, Equipment, and Tools.................................................................................. 38
Chapter 7 – Economic Cost ................................................................................................................ 44
Chapter 8 – Activity-Based Cost Management .................................................................................. 50
SECTION 2 – COST.................................................................................................................................. 56
Chapter 9 – Cost Estimating ............................................................................................................... 57
Chapter 10 – Process Product Manufacturing ................................................................................... 64
Chapter 11 – Discrete Part Manufacturing ........................................................................................ 73
SECTION 3 – PLANNING AND SCHEDULING .......................................................................................... 82
Chapter 12 – Project Planning............................................................................................................ 83
Chapter 13 – Scheduling .................................................................................................................... 90

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SECTION 4 – PROJECT AND COST CONTROL ......................................................................................... 98
Chapter 14 – Earned Value Overview ................................................................................................ 99
Chapter 15 – Performance and Productivity Management ............................................................. 104
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SECTION 5 – PROJECT MANAGEMENT ............................................................................................... 109
Chapter 16 – Project Management Fundamentals .......................................................................... 110
Chapter 17 – Project Organization Structure ................................................................................... 115
Chapter 18 – Project Communications ............................................................................................ 120
Chapter 19 – Project Labor Cost Control ......................................................................................... 127
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Chapter 20 – Leadership and Management of Project People ........................................................ 137
Chapter 21 – Quality Management.................................................................................................. 143
Chapter 22 – Value Engineering ....................................................................................................... 148
Chapter 23 – Contracting For Capital Projects ................................................................................. 153
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Chapter 24 – Strategic Asset Management ..................................................................................... 160

Chapter 25 – Change Management Practical Guide ........................................................................ 167
Chapter 26 – Overview of Construction Claims and Disputes ......................................................... 172
SECTION 6 – ECONOMIC ANALYSIS, STATISTICS, PROBABILITY AND RISK ........................................ 179
Chapter 27 – Financial and Cash Flow Analysis................................................................................ 180
Chapter 28 – Practical Corporate Investment Decision-Making Guide ........................................... 190
Chapter 29 – Statistics & Probability................................................................................................ 199
Chapter 30 – Optimization ............................................................................................................... 205
Chapter 31 – Risk Management Fundamentals ............................................................................... 211
Chapter 32 – Risk Management Practical Guide .............................................................................. 217
Chapter 33 – Total Cost Management Overview ............................................................................. 222
Chapter 34 – The International System of Units (SI)........................................................................ 228
APPENDICES ........................................................................................................................................ 232
APPENDIX A – Sample Exam Questions ........................................................................................... 233
APPENDIX B – Values of the Standard Normal Distribution Function ............................................. 253
APPENDIX C – Discrete Compound Interest Tables ......................................................................... 255

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PREFACE
The Certified Cost Professional (CCP) Certification Study Guide, 2nd Edition (CSG-2) is a companion
workbook to the Skills and Knowledge of Cost Engineering, 6th Edition (S&K-6). The design and layout
of this study guide is intended to assist readers in testing their knowledge of cost engineering by
offering practice problems and questions related to the subject matter addressed in S&K-6. First
published in 1996 as the CCC/CCE Certification Study Guide, the CCP Certification Study Guide has
gone through several revisions and changes. In 2013 the name of the study guide was changed to the
CCP Certification Study Guide to reflect the consolidation of CCC/CCE credentials by AACE
International. For the latest information on all of the AACE certifications, visit the AACE International
website at: www.aacei.org

How to Use this Book

The chapters and topics presented in this publication correspond to specific chapters in the Skills and
Knowledge of Cost Engineering (S&K-6). The reader should use this publication in conjunction with
S&K-6. Together, these publications provide readers with the knowledge base expected of a cost-
engineering professional as outlined in Recommended Practice 11R-88, Required Skills and
Knowledge of Cost Engineering and the TCM Framework, 2nd Edition. This publication has two specific

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objectives:

1. To provide a summary of specific knowledge areas and the associated key terms that a cost
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engineering professional should comprehend, at a minimum, when preparing for the
Certified Cost Professional (CCP) certification exam.
2. To provide sample problems and questions for each topic area, as well as the associated
answers, to exercise the reader’s understanding of the concepts and skills presented in S&K-
6.
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The S&K-6 and CCP CSG-2 are companion publications which serve as reference texts for individuals
preparing for the Certified Cost Professional (CCP) and other AACE International certification
examinations. To further assist in preparation, the reader should visit the AACE International website
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at www.aacei.org for updates to the CCP certification as well as Recommended Practice 10S-90, Cost
Engineering Terminology.

Readers should begin their examination preparation by first studying the material presented in S&K-6
and then working out the sample problems and questions in the CCP CSG-2. The summary and key
terms found in each chapter offer a checklist of the comprehensive knowledge needed to fully
prepare for the examination. Readers may have to go back and forth between the two publications
to gain a full understanding of the subject matter as they attempt the exercise problems and
questions. Please note that the actual certification examination questions are likely to address skills
and knowledge from multiple chapters; therefore, a thorough understanding of the material is vitally
important. In addition, the CCP CSG-2 includes several key appendices such as: (1) sample exam
questions, (2) values of the standard normal distribution, and (3) the discrete compound interest
tables.

Acknowledgements
This work is an undertaking of the AACE Education Board. A work of this magnitude and quality
cannot be completed without dedicated contributions from (i) the Education Board
champions/associate editors who identified subject matter experts and diligently followed up with
them to write and/or revise the chapter summaries and the related questions, (ii) all the authors for
their contribution to this publication, (iii) the reviewers who methodically evaluated each chapter for
accuracy and depth of questions covered, as well as, (iv) my graduate students - Sayanti
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Mukhopadhyay and Saumyang Patel and all the AACE staff who worked with me and contributed
countless hours in making this project successful. My special thanks are due to Mark Chen and John
Hines for their support and dedication in getting this project completed. Mark Chen’s management
and diplomatic skills were particularly helpful in keeping the entire team on track toward the
successful completion of this publication. It has been an honor to have worked with all these
dedicated individuals and I sincerely appreciate their efforts and support throughout this project.

We hope you find this publication to be of value. The Education Board welcomes any comments and
suggestions you might have in improving the Certification Study Guide (CSG-2) as well as the Skills
and Knowledge of Cost Engineering (S&K-6).

Prof. Makarand Hastak, Ph.D., PE, CCP

Purdue University
October 2015

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 CONTRIBUTORS
Editor Scheduling Change Management Practical
Dr. Makarand Hastak, PE CCP Anthony J. Werderitsch, PE CCP Guide
CFCC FAACE AACE Hon. Life Sean T. Regan, CCP CEP FAACE
Cost Elements
Franklin D. Postula, PE CCP FAACE Earned Value Overview Overview of Construction Claims
AACE Hon. Life (Deceased) Sean T. Regan, CCP CEP FAACE and Disputes
Chris A. Boyd, CCP CEP John C. Livengood, Esq., AIA CCP
Performance and Productivity CFCC PSP FAACE
Pricing and Costing Management James G. Zack, Jr., CFCC FAACE
Rohit Singh, P. Eng. CCP Dr. James M. Neil, PE CCP AACE AACE Hon. Life
Hon. Life (Deceased)
Materials Rohit Singh, P. Eng. CCP Financial and Cash Flow Analysis
Neil D. Opfer, CCP CEP PSP FAACE Dr. Scott J. Amos, PE
Project Management
Labor Fundamentals Practical Corporate Investment
Morris E. Fleishman, PE CCP James A. Bent, CCP (Deceased) Decision-Making Guide
FAACE Madhu P. Pillai, CCP J. D. (Jim) Whiteside, II, PE FAACE
Sean T. Regan, CCP CEP FAACE

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Engineering Role and Project Neil D. Opfer, CCP CEP PSP FAACE Statistics and Probability
Success Dr. Elizabeth Y. Chen
Neil D. Opfer, CCP CEP PSP FAACE Project Organization Structure
PL Mark T. Chen, PE CCP FAACE
James A. Bent, CCP (Deceased) AACE Hon. Life
Machinery, Equipment, and Madhu P. Pillai, CCP
Tools Sean T. Regan, CCP CEP FAACE Optimization
Dr. Carl C. Chrappa Dr. Robert C. Creese, PE CCP
Project Communications
Economic Costs Joseph A. Lukas, PE CCP Risk Management Fundamentals
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Neil D. Opfer, CCP CEP PSP FAACE Allen C. Hamilton, CCP
Project Labor Cost Control
Activity-Based Cost Management Dr. Joseph J. Orczyk, PE CCP Risk Management Practical
Gary Cokins Sean T. Regan, CCP CEP FAACE Guide
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Allen C. Hamilton, CCP

Cost Estimating Leadership and Management of
Larry R. Dysert, CCP DRMP FAACE Project People Total Cost Management
AACE Hon. Life Dr. Ginger Levin Overview
Madhu P. Pillai, CCP Larry R. Dysert, CCP DRMP FAACE
Process Product Manufacturing AACE Hon. Life
Dr. Kenneth K. Humphreys, PE Quality Management
CCP FAACE Gary Cokins The International System of
Units (SI)
Discrete Part Manufacturing Value Engineering Kurt G. R. Heinze, P. Eng. CCP
Dr. Robert C. Creese, PE CCP Neil D. Opfer, CCP CEP PSP FAACE FAACE AACE Hon. Life

Project Planning Contracting for Capital Projects AACE Publications Staff

James A. Bent, CCP (Deceased) James G. Zack, Jr., CFCC FAACE Marvin Gelhausen
Jennifer Bates, CCP FAACE AACE AACE Hon. Life Noah Kinderknecht
Hon. Life
Peter W. Griesmyer, FAACE Strategic Asset Management Purdue Graduate Students
John K. Hollmann, PE CCP CEP Sayanti Mukhopadhyay
DRMP FAACE AACE Hon. Life Saumyang Patel

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SECTION 1 – COST
Chapter 1: Cost Elements
Chapter 2: Pricing and Costing
Chapter 3: Materials
Chapter 4: Labor
Chapter 5: Engineering Role and Project Success
Chapter 6: Machinery, Equipment, and Tools
Chapter 7: Economic Cost
Chapter 8: Activity-Based Cost Management

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Chapter 1 – Cost Elements
Frank D. Postula, PE CCP FAACE AACE Hon. Life

Introduction/Learning Objectives

Cost is one of the three fundamental attributes associated with performing an activity or the acquisition
of an asset. These are: price (cost), features (performance), and availability (schedule). The key learning
objectives are:

 Understand what makes up cost – i.e., the basic resources (material, labor, etc.) that are needed
to perform an activity or create an asset.
 Understand the distinction between cost elements that are directly applied to an asset and
those that are indirectly applied.
 Relate the cost elements to the life cycle of the asset: acquisition, use and disposal.

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 Use the understanding of cost elements to further understand how cost is measured, applied,
and recorded to arrive at the total activity and/or asset cost.
 Apply the knowledge gained to solve problems related to cost element source and definition.
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Terms to Know

 Activity
 Asset
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 Cost
 Cost categories
 Cost elements
 Cost objectives
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 Direct costs
 Fixed costs
 Indirect costs
 Project
 Resources
 Variable costs
 Work breakdown structure (WBS)

Key Points for Review

 Concepts
o Cost engineering is the application of scientific principles and techniques.
o What are the key activities that generate cost when they are performed or that define plans and
processes that cause (or influence) cost to be generated in other activities and/or assets?
o What are the elements that make up cost?
o How are these cost elements categorized and how do they relate to one another?
o Why is it important to collect and account for costs as they relate to specific activities and
assets?
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 o How to apply these cost elements and categories to the insight for managing activities and
assets?

 Cost Definition
o Cost is the value of an activity or asset.
o Resources used are categorized as material, labor, and “other.”
o The value of the asset may also include the cost elements of scrap material or manufacturing
spares, construction form-work and expendable safety items, as well as the cost of transporting
the material to the work site.

 Material
o Material is the physical composition of the asset. However, the value of the asset may also
include the cost elements of scrap material or manufacturing spares, construction form work
and expendable safety items, and the cost of transporting the material to the work site.

 Labor
o Labor as the value of the work needed to complete the activity or asset.

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 Other
o The “other” cost category is resources that are needed to support the activity and/or asset.
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 Cost Category and Value of Asset
o Another important aspect of cost relates to whether one is the producer or consumer of an
activity or asset.
o The value of an asset or activity may also be related to intangible costs.
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Category Cost Element Examples

Material Pen, desk, lumber, etc.

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Labor Draw plans, order materials, receive materials,

installation, etc.
Other Permit fees, gas, truck, etc.

 Cost Structure
o It is important to further structure the cost elements within the material, labor, and other
resource categories in order to understand how they influence the total cost of the activity or
asset and to get a better understanding of how they can be controlled.

 Grouping
The cost elements can be grouped into direct costs, indirect costs, fixed costs, and variable costs.

o Direct costs are those resources that are expended solely to complete the activity or an asset. In
other words, any cost that is specifically identified with a particular final cost objective, but not
necessarily limited to items that are incorporated in the end product as material or labor is
considered direct cost.
o Indirect costs are those resources that need to be expended to support the activity or asset, but
are also associated with other activities and assets. In other words, any cost not directly
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 identified with a single final cost objective, but identified with two or more final cost objectives.
Indirect costs may also be referred to as “overhead costs” or “burden costs.” Indirect costs are
general administrative activities associated with operating the business, costs for providing and
maintaining field equipment or a manufacturing facility, and expenses for utilities, taxes, legal
services, etc.
o Fixed costs are those cost elements that must be provided independent of the volume of work
activity or asset production that they support. These can be either direct or indirect costs.
o Variable costs are those cost elements that must be provided and are dependent on the volume
of work activity or asset production that they support. Again, these can be either direct or
indirect costs.
o Grouping examples can be found in Chapter 1, Skills and Knowledge of Cost Engineering, 6th
Edition, Tables 1.2 and 1.4.

 Cost Accounting Definition:

o Cost accounting is defined as the historical reporting of disbursements, costs and expenditures
on a project.
o Recording of cost information is nothing more than the mechanical gathering of data in a

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routine manner.
o Become familiar with the code of accounts structure.
o Activity based costing assigns resources to activities.
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o Work breakdown structure (WBS) can be used with code of accounts. Be familiar with the
structure.

 Cost Management
The four common methods for providing cost information as they apply to cost management are as
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follows:

o Cost Estimating: This is the prediction of the quantity and cost of resources needed to
accomplish an activity or create an asset.
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o Cost Trending: Cost trends are established from historical cost accounting information. Cost
management questions may focus on how expenditures are trending relative to physical
accomplishments.
o Cost Forecasting: Forecasts are much like estimates. Whereas an estimate is always for future
activities and assets, forecasts are prediction of the cost at completion for cost elements that
are in progress.
o Life-Cycle Costing: Life-cycle costs (LCC) are associated with an asset and extend the cost
management information beyond the acquisition (creation) of the asset to the use and disposal
of the asset.

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Check on Learning

1. ______________ are those cost elements that must be provided and dependent on the volume of
work activity or asset production that they support.

A. Direct Costs
B. Indirect Costs
C. Fixed Costs
D. Variable Costs

2. ______________ is a method of cost element classification where resources are assigned to

activities that are required to accomplish a cost objective.

A. Code of Accounts
B. Summary Level Accounts

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C. Activity Based Costing
D. Work Breakdown Structure
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3. _______________ are those cost elements that must be provided independent of the volume of
work activity or asset production that they support.

A. Direct Costs
B. Indirect Costs
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C. Fixed Costs
D. Variable Costs
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4. _______________ are those resources that are expended solely to complete the activity or asset.

A. Direct Costs
B. Indirect Costs
C. Fixed Costs
D. Variable Costs

5. _______________ are associated with an asset and extend the cost management information
beyond the acquisition (creation) of the asset to the use and disposal of the asset.

A. Life-Cycle Costs (LCC)

B. Indirect Costs
C. Fixed Costs
D. Variable Costs

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6. ______________ are those cost elements that must be provided and difficult to appropriate as a
direct cost on specific assets that they support.

A. Direct Costs
B. Indirect Costs
C. Fixed Costs
D. Variable Costs

7. The work breakdown structure (WBS) can be an effective aid for which type of communications?

A. Team
B. Company
C. Customer
D. All of the above

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8. Which of the following is a key reason to use a work breakdown structure (WBS)?

A. Organize the work

B.
C.
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Prevent work from slipping through the cracks
Provide a basis for estimating the project
D. All of the above
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9. Which of the following is not an example of a variable?

A. Size
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B. Shape
C. Stamping tool
D. Weight

10. Procurement planning involves:

A. A make or buy decision

B. Answering supplier’s questions
C. Creating the contract
D. Creating the RFP

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Solutions

1. D Variable Costs
Refer to Chapter 1, “Cost Structuring” topic

2. C Activity Based Costing

Refer to Chapter 1, “Cost Structuring” topic

3. C Fixed Cost
Refer to Chapter 1, “Cost Structuring” topic

4. A Direct Cost
Refer to Chapter 1, “Cost Structuring” topic

5. A Life-Cycle Costs (LCC)

Refer to Chapter 1, “Cost Management” topic

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6. B Indirect Cost
Refer to Chapter 1, “Cost Structuring” topic

7. D All of the above

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Refer to Chapter 1, “Cost Structuring” topic

8. D All the above

Refer to Chapter 1, “Cost Structuring” topic
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9. C Stamping tool
Refer to Chapter 1, “Cost Structuring” topic
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10. A A make or buy decision

Refer to Chapter 1, “Cost Management” topic

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Chapter 2 – Pricing and Costing
Rohit (Roy) Singh, P.Eng. M.Ed., CCP

Introduction/Learning Objectives

This chapter highlights the difference between pricing and costing. It is very important to distinguish
between the terms “price” and “cost.” There is a very fine difference between them, which is why
people often tend to use them interchangeably. This chapter discusses the concepts of pricing and
costing of a project, illustrates the differences and helps the reader to identify the inputs, transforming
mechanisms and outputs related to the costing and pricing process. The key learning objectives are:

 Differentiate between costing and pricing.

 Identify the inputs, transforming mechanisms and outputs related to the cost and pricing
process.
 Understand the budgeting process.

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 Calculate financial ratios related to the costing and pricing of projects.
 Understand the reasoning behind the costing and pricing process outputs.
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Terms to Know

 Cash flow
 Competitive advantage
 Cost
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 Financial management
 Inputs
 Opportunity cost
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 Outputs
 Price
 Profit
 Return on assets (ROA)
 Return on investment (ROI)
 Transforming mechanism

Key Points for Review

 Costing and Pricing

o Costing follows scope determination and quantification and precedes pricing and budgeting.
o Cost can be categorized into direct or indirect cost.
o Direct costs are those that are specific and tangible to the project, and include the costs of
materials, labor, equipment, etc.
o Indirect costs are those costs not directly accountable or tangible to the project, such as
business taxes, home office overhead, or transportation fleet distributed cost.
o Pricing can be defined as the determination of the amount to be charged to the client including:
 Direct cost
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  Indirect cost
 Contingency
 Profit
o Seller vs buyer perspective determines price vs cost – e.g. $100,000 transaction
 $100,000 is the price including profit from seller’s perspective
 $100,000 is the cost from the buyer’s perspective
o Cost-Pricing Process Inputs
 WBS/Scope
 Historical records
 Vendor quotations
o Transforming mechanism (Tools and techniques)
 Cost and pricing strategies
 Financial management
o Outputs
 Project estimate
 Project acquisition
 Business decision

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 Budgeting process
o Activity cost estimates PL
o Scope baseline
o Project schedule
o Contracts

 Forecasting
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o Applying earned value method
o Using Cost Performance Index (CPI) to calculate Estimate at Complete (EAC)
o Early prediction of overrun when EAC is higher than Budget at Completion (BAC)
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 Financial management
o Return on investment (ROI)
o Return on assets (ROA)
o Net profit margin

 Project Acquisition and Business Decision

o Review financial ratios (e.g. ROI, ROA, net profit margin) to determine the validity of acquisitions
and support business decisions.

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Check on Learning

1. Which of the following is not a major step in the Cost-Pricing process?

A. Inputs
B. Transforming mechanisms (Tools & Techniques)
C. Outputs
D. Bid award

2. Which item is not a major output to the Cost-Pricing process?

A. Project Estimate
B. Project acquisition
C. Business decision
D. Resource loaded CPM schedule

3. Which item is not considered a direct cost?

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A. Labor
B. Material PL
C. Site overhead
D. Equipment

4. Historical records for costing and pricing a project does not include:
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A. Quantity take-offs
B. Cost reports
C. Competitor pricing
D. Bid breakdowns
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5. Inputs to the costing- pricing process do not include:

A. Scope of work
B. Historical records
C. Vendor quotations
D. Sales forecasts

6. Inputs to the budget development process include:

A. Activity cost estimates

B. Scope baseline
C. Project schedule
D. All of the above

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7. Which financial management tool is best for comparing projects in the same industry?

A. Net profit margin

B. Return on assets
C. Gross profit margin
D. Break-even analysis

8. In regards to the difference between price and cost, which statement is incorrect?

A. The vendor’s price is the cost to the contractor

B. The vendor’s price plus the contractor’s markup is the cost to the client
C. The bid price to the owner is the contractor’s cost
D. The subcontractor quote is the contractor’s cost

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Solutions

1. D Bid Award
Refer to Chapter 2, “Cost-Pricing Process” topic & Figure 2.2

2. D Resource Loaded Schedule

Refer to Chapter 2, “Cost-Pricing Process” topic & Figure 2.2

3. C Site Overhead is not considered a direct cost

Refer to Chapter 2, Figure 2.1

4. C Competitor pricing
Refer to Chapter 2, “Historical Records” topic

5. D Sales Forecasts
Refer to Chapter 2, “Inputs” topic & Figure 2.2

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6. D All of the above
Refer to Chapter 2, “Budgeting” topic

7. B Return on Assets
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Refer to Chapter 2, “Financial Management” topic

8. C The bid price to the owner is the contractor’s cost

Refer to Chapter 2, “Conclusion” topic
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