Framework: An Integrated Approach to Portfolio, Program and Project
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What Is the Total Cost Management (TCM) Framework?
Total Cost Management (TCM) is the effective application of professional and technical expertise to plan and control resources, costs, profitability and risk. Simply stated, TCM is a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product or service. The TCM Framework is a representation of that systematic approach".
The TCM Framework is a structured, annotated process map that for the first time explains each practice area of the cost engineering field in the context of its relationship to the other practice areas including allied professions. As the book subtitle says, it is a process for applying the skills and knowledge of cost engineering. A key feature of the TCM Framework is that it highlights and differentiates the main cost management application areas: project control and strategic asset management.
The TCM Framework is a significant, original contribution to the cost management profession applicable to all industries. It is an AACE cornerstone technical document that joins the current body of knowledge literature for related fields such as project management, operations management, and management accounting. It is also consistent with the latest organizational and portfolio thinking which ties all practices and processes back to overall business strategies and objectives.
As a "framework", this document is not a "how-to" instructional guide, but a conceptual representation that provides a structured, integrated overview of cost engineering. As such, it will guide AACE Internationals development of more detailed technical products including the following:
Recommended Practices (RPs): original, peer-reviewed documents that define the specifics of particular methods or procedures outlined in the TCM Framework,
Professional Practice Guides (PPGs): a set of structured, edited compilations of selected AACE publications on specific areas of cost engineering,
Cost Engineers Notebook (CEN): a single structured, edited compilation of selected AACE publications that provides an overview of all the key fundamental areas of cost engineering.
The TCM Frameworks structure will provide consistency and support development of AACE Education Board (e.g., Skills and Knowledge of Cost Engineering and Certification Study Guide) and Certification Board (e.g., certification examinations) products.
Those working in the project management field will find similarities with the Project Management Institutes (PMI) A Guide to the Project Management Body of Knowledge (PMBOK Guide) as project control is a subset of the field of project management. With a greater focus on project control, the TCM Framework adds richness in many of the processes. More importantly, the TCM Framework addresses strategic asset cost management practices in business and capital planning, operations and maintenance, and product cost management, both upstream and downstream of the project processes. Asset owner companies will particularly appreciate the enhanced coverage of areas such as historical data management, cost modeling, economic and decision analysis, and value analysis.
The intent is that the TCM Framework will be studied, applied, and continuously improved by a worldwide audience from all industries, thereby advancing the profession of cost engineering and cost management.
The Value of the TCM Framework for AACE International
In 1994, AACE added total cost management to its constitution. The AACE Technical Board was charged with defining TCM as a systematic approach. Without such an approach, it has been difficult to effectively describe the scope and purpose of the cost engineering profession. One study described the challenges this way: " for the advancement of the field, more emphasis should be put on the creation of novel mental images and the development of a generalized syntactical and conceptual structure." It added that we must have a "clear methodology of what it does and how its data are collected and interpreted," and "a full, structured set of ideas that is dynamic, developmental, yet consistent." These are the challenges addressed by the TCM process. The TCM process is a systematic approach designed to promote a unified, structured vision of the common purpose for the many cost engineering practices. It is also designed to be industry and asset generic in that it applies to any enterprise, program, facility, project, product or service.
The Value of the TCM Framework for Industry
Companies are continually looking for ways to tie everything they do to their strategic missions and objectives. As they strive for better strategic performance, they are frequently re-engineering their organizations. To find efficiencies and improve quality, they are documenting, benchmarking, analyzing and improving business and work processes. For the many enterprises seeking ISO certification a process focus is required. TCM provides a strategic model that can help an organization design its own processes related to cost management.
Likewise, re-engineering increases the challenges for individual professionals as employers break down functional silos and increasingly expect staff and leaders to be competent in many different practices, while also being more knowledgeable of business processes. For individuals, the TCM Framework provides a "map" to help them understand all the practice areas while also helping guide their career planning.
In the academic arena, the TCM Framework provides a model for developing cost engineering education and training products and curricula that will serve those individuals and enterprises in need of a broader, more integrated perspective.
How to Use the TCM Framework
Because the TCM Framework process is based on broadly accepted "first principles" (i.e., the Deming/Shewhart cycle), it applies to all industries. It can be used by all levels of practitioners and in all business, academic, and institutional environments (customers, subcontractors, government, prime contractors, construction managers, design-build, etc.) worldwide. It also applies to the entire life cycle of asset and project portfolios.
It is a generic reference process model or guideline. It is not intended to be used directly "out-of-the-box" in any specific application. Managers, practitioners, educators, and others will need to build their own processes and improve practices in the context of their business, assets, organization, culture, project systems, and so on. As a generic reference model, the TCM Framework has already been successfully tested in reengineering consulting and training.
The TCM Framework can be read and applied section-by-section at a sub-process or functional level. However, optimal effectiveness of a sub-process requires that it be developed in the context of and relationship to associated sub-processes that share common strategies and objectives. In that respect, all readers with limited interest or time should understand the Part 1 overview sections before focusing on the sections and sub-processes of interest.
AACE International and the TCM Process
AACE International assumes responsibility for the advancement and promotion of scientific principles and techniques in the practice areas of business and program planning; cost estimating; economic and financial analysis; cost engineering; program and project management; planning and scheduling; and cost and schedule performance measurement and change control. However, an effective process must also ensure that the skills and knowledge of cost engineering are advanced in a way that promotes and is consistent with best business and program cost management practices. Therefore, the TCM Framework includes practice areas for which AACE International is not the primary caretaker, but which interact extensively with cost engineering practices and cost management (e.g., cost accounting). For these areas, the intent is to demonstrate their integration with cost engineering, not take technical ownership of them. AACE will monitor advancements in allied fields to ensure that each supports an effective business and cost management process. Likewise, AACE International educational and certification products will focus on the core skill and knowledge areas while ensuring that professional cost engineers have a solid grounding in the business and program planning context in which these skills and knowledge are applied.
The Development of and Contributors to the Publication
The TCM Framework had its beginnings in 1994 as an effort to develop a professional handbook to be called AACE Internationals Total Cost Management Guide for the 21st Century with Wes Querns as the editor. A significant and successful effort was made to enlist recognized leading professionals in their respective fields as contributing authors and a publisher was lined up. However, as the Guides scope was defined, it became apparent that a book with independent experts covering the traditional cost engineering topics in their own ways would not provide the required systematic approach. Therefore, in 1995, the Guide project was re-scoped as the Framework project.
1996, the high level TCM process was published in an article in Cost Engineering journal entitled "A New Look at Total Cost Management." The Technical Board solicited member comment via a special survey and we drafted the introductory chapters (now Part I). These overview chapters were subjected to considerable review and consensus building (during what may be called phase one) until 2002 when the introductory chapters were formally published.
Completing the remaining 30 sections was not so much a traditional writing process as a process reengineering project for the editor and contributors. The effort consisted of taking common practice knowledge about cost engineering and allied fields, breaking it down into steps, connecting the steps based on a time honored management process model, and finishing it with consistent narrative using a single voice. Once again, the support of leading professionals was sought to assist in the development. The novelty and value of the resulting product is in integration and structure, not new practices, "how-tos," or narrative. The detailed parts and pieces of the technical content are generally well-trodden material covered by many sources. Every reasonable effort was made to appropriately reference material from other sources per AACE publication guidelines.
The product was then reviewed by AACEs Technical subcommittees, the main and associate AACE Boards, and other subject matter experts. Comment was sought from related associations as well. All these contributors are acknowledged in the next section. The review and approval process used was the same stringent approach that AACE uses for its Recommended Practices. This multi-stage process requires formal requests for comment, documented comment disposition, and Technical Board approval to help ensure that general consensus is achieved.
The Next Edition
The TCM Framework will be a living document and AACE International plans to update it periodically. As a living document, readers are encouraged to send their comments on the text to firstname.lastname@example.org. These will be considered by AACE in future revisions of the Framework. AACE encourages those that apply the concepts presented in this document to share their experiences through articles, papers, and presentations.
The editors would like to thank our past employers, Eastman Kodak and Independent Project Analysis Inc. (particularly Mr. Edward W. Merrow, IPAs founder and owner) for their support of the editors time and effort on this project and for support of employee professional development in general.
Several AACE International members, officers, and Fellows were particularly supportive of this products development. Richard E. Westney PE, Past President and Fellow, first coined the term Total Cost Management in 1991 as part of the Board of Directors "Vision 21" initiative. Subsequently, Larry G. Medley Sr. ECCC, Past President and Fellow, provided early and continuing support including helping define the TCM concept for inclusion in AACEs Constitution and Bylaws in 1994. Dorothy J. Burton, VP Technical and Fellow helped get the Framework off the ground and through its sometimes rocky inception. The late Franklin D. Postula PE CCE, Past President and Fellow, provided much welcome encouragement along the way. Also, the following Technical Board Vice Presidents and Directors since 1995 each had a hand in helping the Framework find its way into your hands: these include Dorothy J. Burton (Fellow), Dr. James E. Rowings Jr. PE CCE (Fellow), James G. Zack Jr., Edward D. Hamm PE CCE (Fellow), Jennifer Bates CCE (Fellow), Joseph W. Wallwork PE CCE PSP, and Larry R. Dysert CCC.
Finally, we would like to thank our wonderful wives Cindy Hollmann and Susan Querns for their support and forbearance during this decade long project.
John K. Hollmann, PE CCE
Wesley R. Querns, CCE
Editor Editor-Phase 1
2008 By AACE® International www.aacei.org