 COST
ENGINEERING TERMINOLOGY |
(Rev. May 20, 2009)
AACE International Recommended Practice No. 10S-90 |
| TCM Framework: | General Reference |
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REQUIRED
SKILLS AND KNOWLEDGE OF COST ENGINEERING |
(Rev. January 2006)
AACE International Recommended Practice No. 11R-88 |
| TCM Framework: | General Reference |
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MODEL
MASTER'S DEGREE PROGRAM WITH EMPHASIS IN COST ENGINEERING |
(Rev. November 1990)
AACE International Recommended Practice No. 12R-89 |
| TCM Framework: | General Reference |
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RECOMMENDED
METHOD FOR DETERMINING BUILDING AREA |
(Rev. November 1990)
AACE International Recommended Practice No. 13S-90 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting |
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RESPONSIBILITY
AND REQUIRED SKILLS FOR A PROJECT PLANNING AND SCHEDULING
PROFESSIONAL |
(Rev. September 2006)
AACE International Recommended Practice No. 14R-90 |
| TCM Framework: | 7.2: Schedule
Planning and Development |
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PROFITABILITY
METHODS |
(Rev. July 2008)
AACE International Recommended Practice No. 15R-81 |
| TCM Framework: | 3.3: Investment
Decision Making
6.1: Asset Performance Assessment |
Scope
This Recommended Practice (RP) of AACE International defines
specific practices for determining the profitability of
investments. The methods offered are general, since not all
profitability techniques can or should be included in an RP. In
its broadest sense, profitability is a measure of value added.
Increased profitability thus reflects greater economic good for
society. There is no economic progress without profitability.
Purpose
This RP is intended to provide broad guidelines, not standards,
for profitability methods that most seasoned practitioners in
most industries would consider to be reliable and would
generally endorse. Profitability methods with less general
applicability, e.g., the revenue requirement technique used by
electrical utilities or the benefit-cost ratio used in the
public sector, are not included in this RP.
Background
Profitability methods are critical tools for assessing asset
performance and making effective investment decisions. These
processes are central to portfolio and program management in
that selecting the right capital or maintenance projects can be
as important to enterprise success as effectively executing any
particular project.
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CONDUCTING
TECHNICAL AND ECONOMIC EVALUATIONS: AS APPLIED FOR THE PROCESS AND
UTILITY INDUSTRIES |
(Rev. April 1991)
AACE International Recommended Practice No. 16R-90 |
| TCM Framework: | 3.2: Asset Planning
3.3: Investment
Decision Making |
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COST
ESTIMATE CLASSIFICATION SYSTEM |
(Rev. August 1997)
AACE International Recommended Practice No. 17R-97 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting |
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COST
ESTIMATE CLASSIFICATION SYSTEM: AS APPLIED IN ENGINEERING,
PROCUREMENT, AND CONSTRUCTION FOR THE PROCESS INDUSTRIES |
(Rev. February 2005)
AACE International Recommended Practice No. 18R-97 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting |
The Cost Estimate Classification System provides guidelines for applying the general
principles of estimate classification to asset project cost estimates. Asset project cost
estimates typically involve estimates for capital investment, and exclude operating and
life-cycle evaluations. The Cost Estimate Classification System maps the phases and stages
of asset cost estimating together with a generic maturity and quality matrix that can be
applied across a wide variety of industries.
17R-97 provides a generic methodology for the classification of project cost estimates in any
industry, while 18R-97 provides extensions and additional detail for applying the
principles of estimate classification specifically to project estimates for
engineering, procurement, and construction (EPC) work for the process industries.
An intent of the guidelines is to improve communication among all of the stakeholders
involved with preparing, evaluating, and using project cost estimates. |
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ESTIMATE
PREPARATION COSTS: AS APPLIED FOR THE PROCESS INDUSTRIES |
(Rev. June 1998)
AACE International Recommended Practice No. 19R-97 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting |
This recommended practice presents benchmark information on the costs to prepare cost
estimates (for engineering, procurement, and construction) in the process industries. It
includes qualitative and quantitative lessons that cost engineers and estimators can use
to benchmark their cost estimating experiences against. The data on preparation costs was
used to develop a parametric cost model that can be used to estimate the cost of preparing
estimates. The effort or cost to prepare a cost estimate is a secondary characteristic of
a cost estimate classification. This Recommended Practice supports AACE
International’s Recommended Practice 18R-97 Cost Estimate Classification System -
as Applied in Engineering, Procurement, and Construction for the Process Industries. |
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PROJECT
CODE OF ACCOUNTS |
(Rev. January 2003)
AACE International Recommended Practice No. 20R-98 |
| TCM Framework: | 7.1: Project Scope
and Execution Strategy Development
7.2: Schedule Planning and Development
7.3: Cost Estimating and Budgeting |
This guideline establishes the basic principles of codes of accounts (COA) for
projects in any industry. It examines key characteristics including usage, content,
structure and format and describes benefits of establishing standard COAs. Topics such as
activity-based costing and work breakdown structures as they relate to COAs are addressed.
The issues of properly defining a WBS and how it should be structured are outside the
scope of this guideline. COAs are applicable to all phases of the asset life cycle,
however, this guideline specifically addresses the project execution phases of asset
design development through to start of normal operation.
A project code of accounts is a coded index of project cost, resource and activity
categories. A complete COA includes definitions of the content of each account code and is
methodically structured to facilitate finding, sorting, compiling, summarizing, defining
and otherwise managing information the code is linked to. The information is used to
support total cost management practices such as cost estimating, cost accounting, cost
reporting, cost control, planning and scheduling. Other names used for COAs are coding
matrices, coding structures, charge accounts, asset or material classification accounts,
value categories, cost elements, work breakdown structures, resource breakdown structures
and activity breakdown structures. |
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PROJECT
CODE OF ACCOUNTS: AS APPLIED IN ENGINEERING, PROCUREMENT, AND
CONSTRUCTION FOR THE PROCESS INDUSTRIES |
(Rev. January 2003)
AACE International Recommended Practice No. 21R-98 |
| TCM Framework: | 7.1: Project Scope
and Execution Strategy Development
7.2: Schedule Planning and Development
7.3: Cost Estimating and Budgeting |
This guideline is an industry-specific addendum to AACE International's generic guideline
for project code of accounts (Recommended Practice No. 20R-98). This document describes
recommended practices for codes of accounts (COA) as applied to engineering, procurement,
and construction (EPC) projects in the process industries. "Process industries"
are those with facilities whose main function is to perform a process. This includes
chemical, petrochemical, hydrocarbon, pulp and paper, pharmaceutical, power generation,
thermal, metallurgical, assembly, fabrication, and other processing. The primary
characteristic of these industries, as it relates to codes of accounts, is that process or
manufacturing equipment is the core or primary physical component of the facility.
Equipment differentiates these projects from commercial construction and infrastructure
where the core component is a structure, from software development projects where the core
component is programming code, and so on.
COAs are applicable to all phases of the asset life cycle, but this guideline specifically
addresses the EPC for creation, modification, or termination of a process facility. This
guideline does not apply to code of accounts to support ongoing operations of process
facilities. Properly defining a work breakdown structure (WBS), and other project
structures, and deciding how they should be structured are outside the scope of this
document.
A project code of accounts is a coded index of project cost, resource, and activity
categories. A complete COA includes definitions of the content of each account code and is
methodically structured to facilitate finding, sorting, compiling, summarizing, defining
and otherwise managing the project information that is linked to the code. The information
is used to support total cost management practices such as cost estimating, cost
reporting, cost accounting, planning, and scheduling. Refer to 20R-98 for a more complete
description of the principles of COAs. |
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DIRECT
LABOR PRODUCTIVITY MEASUREMENT: AS APPLIED IN CONSTRUCTION AND
MAJOR MAINTENANCE PROJECTS |
(Rev. April 2004)
AACE International Recommended Practice No. 22R-01 |
| TCM Framework: | 9.2: Progress and
Performance Measurement |
This recommended practice of AACE International describes a direct method to measure,
monitor and optimize construction and maintenance project labor productivity. The method
described is statistical sampling of the work process, or: work sampling. The work process
is made up of steps and activities that take input resources, add value, and produce the
completed project. Understanding the capability of the process, or 'management system,' to
produce efficiently is important for project planning and control. Sampling is a
cost-effective way to provide information about the performance of the work process, i.e.,
about 'how' the work is done, and how to do it better. Work sampling complements
conventional project management methodology, which typically tracks 'what' work is done.
Sampling provides project managers, supervisors, and the workforce with objective feedback
re: the efficiency of the work process (not of individual workers, which is part of the
foreman's job): and the ability to respond quickly to adjust. In addition, it provides a
measure of management's ability to effectively plan, coordinate, and control project
execution. Analysis of the sampling data allows for prompt removal or reduction of
roadblocks, optimizing the construction work process through redesign and innovation.
Streamlining the work process ensures that performing productive work is made more
convenient for the workforce, ensuring that, at all times, crafts and technicians have all
the necessary tools, materials, parts, supplies, information, supervisory support and
personal needs readily available. Work sampling, properly applied, recognizes that
productivity results from an optimal work process, i.e., from 'managing smarter,' not from
people working harder.
Construction labor productivity is a measure of work process efficiency. It can be defined
as the ratio of the value labor produces to the value invested in labor. Productivity
increases as needed labor resources are minimized and wasted efforts eliminated from the
work process. This definition and the practice covered here treats productivity as a
direct, absolute measure to be optimized. |
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IDENTIFICATION OF ACTIVITIES |
(Rev. May 2007)
AACE International Recommended Practice No. 23R-02 |
| TCM Framework: | 7.2: Schedule
Planning and Development |
This recommended practice is for use by the project team members
involved in the schedule planning process for any project type and
in any industry. Many individuals contribute in the identification
of activities, and having an experienced planner coordinate the
process improves final quality and adds value to the planning
process.
As a recommended practice of AACE International, identification of
activities in schedule planning and development provides guidelines
for the conversion of scope definition to specific activities and
tasks required to complete a program or project. Identification of
activities is a key planning step that takes place early in the
schedule planning and development process which also includes
estimating durations, determining and defining resources, and
identifying external project constraints.
The scope definition of a program or project is generally described
in various planning and technical documents, databases, or other
deliverables. To begin the planning process, information in the
scope documents must first be translated into manageable activities.
For
example, the scope may include the installation of a length of
pipeline. Installing that pipeline may require designing, procuring,
cutting, welding, erecting, and inspection activities. This process
of expanding the high level scope or functional definition into the
detailed work required for completion is the practice of
"identification of activities". |
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DEVELOPING ACTIVITY LOGIC
|
(Rev. March 2004)
AACE International Recommended Practice No. 24R-03 |
| TCM Framework: | 7.2 Schedule Planning
and Development |
As a recommended practice of AACE International, development of activity logic (also
called network logic) in planning and scheduling provides guidelines for the sequencing of
activities in a logical way generally before duration estimating can be performed. Logic
is generally determined before durations are considered. Logic development methods include
precedence diagramming, or arrow diagramming methods. Logic is the set of activities and
dependency relationships between them. Logic dictates the planned sequencing of
activities. A network diagram is often used to illustrate the logic.
Planning and scheduling are not the same. Planning is determining how the work will be
done, while scheduling is the analysis and calculation of start and finish dates.
Logic enables the combination of activities to be arranged in one of the aforementioned
formats so that a completion date can be established. Logic also enables backward passes
to arrive at optimal overall schedule duration.
This recommended practice is for use by project team members involved in planning process,
a continuation of activity identification process (reference TCM Framework section 8.2).
As in identification of activities, many individuals contribute to the development of
activity logic. Having an experienced planner coordinate the process improves final
quality, and adds value to the planning process. |
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ESTIMATING
LOST LABOR PRODUCTIVITY IN CONSTRUCTION CLAIMS
|
(Rev. April 2004)
AACE International Recommended Practice No. 25R-03 |
| TCM Framework: | 6.4 Forensic
Performance Assessment |
This Recommended Practice focuses on identification of various methods for estimating lost
labor productivity in construction claims. Often the claim is the result of one or more
change order requests that cannot be fully resolved to capture their full and final effect
on the entire project cost and schedule. Specifically, this Recommended Practice examines
the issue in terms of claims for cost recovery of lost productivity. Therefore, the
purpose of the Recommended Practice is to
- Identify Lost Productivity Estimating Methodologies:
That is, survey as many of the various methodologies employed in
litigation throughout North America as can be identified;
- Rank Order the Methodologies: That is, based on reliability,
professional acceptance, case law and construction claims literature, rank the identified
methodologies from most to least reliable with respect to documenting estimating damages
in claim situations. While it may not be possible to state with certainty which methods
are absolutely most or least reliable, it can be stated that under certain sets of
circumstances some methods are generally considered more reliable than others. (CAUTION:
This Recommended Practice was prepared on the basis of the author's understanding of
Canadian and U.S. case law. It is recommended that anyone preparing a lost productivity
claim seek appropriate legal advice on the methodology to be used. This is especially true
if the claim is being pursued under national law other than Canada or the United States.)
- Define and Discuss Each Methodology: That is, discuss the method
and how it is employed. Also, when possible, discuss the strong and weak points of each
method;
- Identify Selected Studies Applicable to Each Methodology:
Herein, identify as many studies and professional or technical papers as possible which
will help the practitioner in learning more about and/or employing a particular method.
It needs to be noted that this Recommended Practice does not
define in detail how one should properly perform the various analytical methods identified
herein. The Recommended Practice gives a brief description of each method only in an
effort to help claimants properly identify the method. That is, different claimants may
have differing nomenclature for the same methodology. In this case, the brief description
of each method is intended to help overcome this situation. |
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DEVELOPING LOCATION FACTORS BY FACTORING: AS APPLIED IN
ARCHITECTURE & ENGINEERING, AND ENGINEERING, PROCUREMENT &
CONSTRUCTION |
(Rev. October 2006)
AACE International Recommended Practice No. 28R-03 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting
10.4: Project Historical Database Management |
This recommended practice provides a generic method of developing location factors in support of the
Total Cost Management (TCM) cost estimating and budgeting and database management processes for
construction related projects. The method applies to construction projects of all types including buildings,
infrastructure, utilities, process plants, and so on. This generic method provides a basis for users to tailor
their own detailed process around their own needs and computing capabilities. Location factors are used
during preliminary project evaluations (i.e., Class 5 or 4 estimates). They are not intended to be used
when preparing appropriation-quality estimates (i.e., Class 3 or better estimates). |
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FORENSIC SCHEDULE ANALYSIS |
(Rev. June 23, 2009)
AACE International Recommended Practice No. 29R-03 |
| TCM Framework: | 6.4: Forensic Performance Assessment |
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IMPLEMENTING PROJECT CONSTRUCTABILITY |
(Rev. May 20, 2009)
AACE International Recommended Practice No. 30R-03 |
| TCM Framework: | 11.5: Value
Management and Value Improving Practices (VIPs) |
Constructability is the integration of construction expertise into all phases of the project to benefit cost, schedule, quality, and overall project objectives. The successful use of construction knowledge and expertise improves for and probability of project success. Constructability reviews (CRs) should be conducted at key points in the project life cycle: in the planning phase, early in the design phase, prior to the procurement phase and again prior to the mobilization phase for construction. CRs should hold true to the designer's intent, and the design concept is easiest molded to good constructability early in the design phase.
Constructability, as addressed in this RP, is applicable to projects in any industry in any location (e.g., architectural, process plant, transportation, utilities, offshore, etc.) that include construction work of any scope. In total cost management (TCM), constructability is one of many value improving practices (VIPs) such as manufacturability analysis; reliability, availability and maintainability (RAM) analysis; and so on.[9] Constructability is also useful as a risk management practice that supports risk mitigation. However, these other VIPs and risk management practices are not directly included in this RP.
AACE is not the sole or even primary steward of recommended constructability practice; there are several leading organizations included in the reference section. However, constructability is a skill and knowledge area of cost engineering because, as a VIP, constructability practices require the assessment of cost, schedule, risks and other project attributes for which AACE is the leading organization. This RP highlights the role of cost engineering in the practice.
This RP will discuss how to implement a constructability program in order to maximize the positive impact on the project. It also provides project examples illustrating the success of those properly implemented efforts. Integrating constructability into project plans can result in better safety, lower costs, better productivity, earlier completion and start-ups for ultimately better projects. |
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REVIEWING, VALIDATING, AND DOCUMENTING THE ESTIMATE |
(Rev. May 12, 2009)
AACE International Recommended Practice No. 31R-03 |
| TCM Framework: | 7.3: Cost Estimating and Budgeting |
Scope
This Recommended Practice (RP) of AACE International defines the basic elements of and provides broad guidelines for the cost estimate review, validation and documentation process. Estimate review and documentation is a step in the cost estimating and budgeting process of the Total Cost Management (TCM) Framework. This RP is applicable to all estimate types for any industry and is intended for those responsible for and/or participating in an estimate review. Expert knowledge is not required to understand or use this RP.
Purpose
This RP is intended to provide guidelines (i.e., not a standard) for reviewing, validating and documenting estimates. Most practitioners would consider these guidelines as good and reliable practices. It is recommended to consider using these guidelines where applicable.
Background
Cost estimates typically represent a complex compilation and analysis of input from many project stakeholders. To ensure the quality of an estimate, budget or bid, a review process is required to ensure that the estimate meets project and organization requirements. The project plan typically requires that the cost estimate:
- Reflect the project strategy, objectives, scope and risks
- Be suitable for a given purpose (e.g., cost analysis, decision making, control, bidding, etc.)
- Address the stakeholders’ financial and performance requirements
- Ensure that all parties agree on and understand the estimate’s basis, content and outcome, including the estimate’s probabilistic characteristics (e.g., range, cost distribution, etc.).
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BASIS OF ESTIMATE |
(Rev. May 2007)
AACE International Recommended Practice No. 34R-05 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting |
AACE International’s Total Cost Management (TCM) Framework identifies a basis of estimate (BOE) document as a required component of a cost estimate. As a Recommended Practice (RP) of AACE International, the template outlined in the following sections provides guidelines for the structure and content of a cost basis of estimate.
In the TCM Framework, the BOE is characterized as the one deliverable that defines the scope of the project, and ultimately becomes the basis for change management. When prepared correctly, any person with capital project experience can use the BOE to understand and assess the estimate, independent of any other supporting documentation. A well-written BOE achieves those goals by clearly and concisely stating the purpose of the estimate being prepared (i.e. cost study, project options, funding, etc.), the project scope, pricing basis, allowances, assumptions, exclusions, cost risks and opportunities, and any deviations from standard practices. In addition the BOE is a documented record of pertinent communications that have occurred and agreements that have been made between the estimator and other project stakeholders.
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DEVELOPMENT OF COST ESTIMATE PLANS – AS APPLIED IN ENGINEERING, PROCUREMENT, AND CONSTRUCTION FOR THE PROCESS INDUSTRIES |
(Rev. June 12, 2009)
AACE International Recommended Practice No. 36R-08 |
| TCM Framework: | 7.3: Cost Estimating
and Budgeting |
Purpose
This recommended practice (RP) of AACE International (AACE) is a guideline for development of cost estimate preparation plans for engineering, procurement and construction (EPC) projects in the process industries. The purpose of a cost estimate preparation plan (herein referred to as “estimate plan”) is to establish and communicate how the preparation, development, review and approval of the estimate will be completed.
Background
AACE International’s Total Cost Management (TCM) Framework section 7.3.2.1 “Plan for Cost Estimating and Budgeting” highlights the need to develop estimate plans. This RP delineates industry specific practices for development of an estimate plan as they are applied to EPC projects in the process industries. (A future AACE International RP will provide a guideline for development of a generic cost estimate plan.) Cost estimating in the hydrocarbon processing industries (e.g.; chemical, refining, petroleum production facilities, etc.) has evolved to a relatively advanced state over more than four decades of application. These industries have developed many common practices and identified industry-specific best practices through benchmarking and knowledge-sharing. The practices reflected in this document are a result of compiling notes made by industry practitioners, lessons learned and publicly available documents.
Scope
With reference to the TCM Framework, this document addresses the steps before and after the “Plan for Estimating and Budgeting” step to the extent necessary for an effective estimate plan. This document is primarily focused on estimates prepared for project sanction purposes of land-based facilities. Typically, project sanction is based on a Class 3 estimate. Estimate plans for other classes of estimates may be adapted from this document. The basic principles are applicable to all contracting strategies and asset owner (herein referred to as “owner”) configurations. For example, contracting strategies may be in the form of reimbursable engineering with fixed price procurement and construction and/or EPC alliances, etc. Owner configurations may include self-perform, partnerships with a named “operating company” or consortiums responsible for managing the project/program and so on. Some key principles are:
- Preparation of an estimate plan helps to ensure successful estimate completion in an effective and timely manner.
- Engaging key stakeholders in the estimate planning process prior to the start of the estimate development process, improves the likelihood of meeting estimate objectives.
- The estimate plan defines what information is required from who and when.
- An approved estimate plan provides a duly authorized basis to proceed with the estimating effort, clarifies requirements and responsibilities.
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DOCUMENTING THE SCHEDULE BASIS |
(Rev. June 18, 2009)
AACE International Recommended Practice No. 38R-06 |
| TCM Framework: | 7.2: Schedule Planning and Development |
Scope
This recommended practice (RP) provides an outline and describes a format for the various elements of information that may be included in the schedule basis document. This RP describes the important elements of schedule information that may be included to document the basis and assumptions of this project management tool. This recommended practice includes a checklist in the appendix that can be used to confirm that all elements of the basis document have been considered. The schedule basis is a document that defines the basis for the development of the project schedule and assists the project team and stakeholders in identifying any key elements, issues and special considerations (assumptions, exclusions, risks/ opportunities, etc.). The project schedule represents the complete logical time-phased representation of the project plan. The schedule basis document may accompany the submittal of the project baseline schedule.
The schedule basis further substantiates the confidence and degree of completeness of the project schedule in order to support change management, reconciliation, and analysis. This document also doubles as a tool for assisting any personnel who are transitioning into the project and may be used in claims situations to illustrate a change of scope.
Purpose
This AACE International recommended practice is intended to provide a guideline, not to establish a standard for documenting the schedule basis for the planning of projects. This recommended practice is written and intended primarily for use on construction projects by the project team members and stakeholders involved in the planning and scheduling of the project work activities. These RP guidelines may be applicable to many other types of projects. The focus of this recommended practice is on documenting the necessary elements of the schedule basis. Many project individuals and groups contribute to the planning and development of the project schedule. By documenting the schedule basis, the project team captures the coordinated project schedule development process, which is by nature unique for most construction projects. This improves the final quality and adds value to the project baseline schedule, which serves as the time management navigation tool to guide the project team toward successful project completion. The schedule basis also is an important document used to identify changes during the schedule change management process.
Background
The requirement to document the basis of the schedule has been an established procedure for several years with many large corporations, and some federal agencies. This recommended practice describes the important elements of schedule information that may be included to document the basis and assumptions of this project management tool. |
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CONTINGENCY ESTIMATING: GENERAL PRINCIPLES |
(Rev. June 25, 2008)
AACE International Recommended Practice No. 40R-08 |
| TCM Framework: | 7.6: Risk Management |
Scope
This Recommended Practice (RP) of AACE
International defines the expectations, requirements, and general principles of practice for estimating contingency, reserves and similar risk funds (as defined in RP 10S-90) and time allowances for project cost and schedule as part of the overall risk management process (as defined in TCM Framework Section 7.6). The RP provides a categorization framework and provides a foundation for, but does not define specific contingency estimating methods that will be covered by other RPs.
This RP does not address the general risk management "quantification" steps as might be used for screening or ranking risks in terms of their probability or impact. While the quantification methods of contingency estimating may be similar to those used for screening, the application often differs.
Purpose
This RP is intended to provide guidelines (i.e., not a standard) for contingency estimating that most practitioners would consider to be good practices that can be relied on and that they would recommend be considered for use where applicable. There is a broad range of contingency estimating methodologies; this RP will help guide practitioners in developing or selecting appropriate methods for their situation.
Background
This RP is new. It is based on discussions of the AACE Decision and Risk Management committee.
There is no one best way to quantify risks or to estimate contingency; each method has its advocates. However, there is general agreement that any recommended practice should be in accordance with first principles of decision and risk management as described here.
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RISK ANALYSIS AND CONTINGENCY DETERMINATION USING RANGE ESTIMATING |
(Rev. October 27, 2008)
AACE International Recommended Practice No. 41R-08 |
| TCM Framework: | 7.6: Risk Management |
Scope
This Recommended Practice (RP) of AACE International describes the process known as range estimating, a methodology to determine the probability of a cost overrun (or profit underrun) for any level of estimate and determine the required contingency needed in the estimate to achieve any desired level of confidence. The process uses range estimating and Monte Carlo analysis techniques (as defined in RP 10S-90). The RP provides the necessary guidelines for properly applying range estimating and Monte Carlo analysis to determine probabilities and contingency in a reliable manner using any of a number of commercially available risk analysis software packages.
The RP does not recommend any particular software. Rather it describes the factors that the analyst must consider when using risk analysis software for probability and contingency determination.
Purpose
This RP is intended to provide guidelines (i.e., not a standard) for risk analysis using range estimating that most practitioners would consider to be a good practice that can be relied on and that they would recommend be considered for use where applicable.
This RP is also intended to improve communication as to what the practice called "range estimating" is. Many of the methods found in industry that are being called this are not in accordance with this RP. Practitioners should always make sure that when someone uses the term "range estimating", that they are talking about the same practice recommended here.
Background
This RP is new. It is based upon the successful efforts of many companies to evaluate project risk and contingency using the range estimating techniques originally developed by Michael W.
Curran[1,2,3]. Users should be aware that the principles outlined in this RP must be rigorously followed in order to achieve the desired results. Failure to follow the RP's recommendations will likely lead to significant misstatements of risk and opportunities and of the amount of required contingency. In the great majority of cases, contingency and bottom line uncertainty are understated when the RP's recommendations are not followed.
It is AACE's recommended practice that whenever the term "risk" is used, that the term's meaning be clearly defined for the purposes at hand. In range estimating practice as described in this RP, risk means "an undesirable potential outcome and/or its probability of occurrence", i.e. "downside uncertainty (a.k.a. threats)." Opportunity, on the other hand is "a desirable potential outcome and/or its probability of occurrence", i.e, "upside uncertainty." The range estimating process for risk analysis quantifies the impact of uncertainty, i.e. "risks + opportunities".
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RISK ANALYSIS AND CONTINGENCY DETERMINATION USING PARAMETRIC ESTIMATING |
(January 2009)
AACE International Recommended Practice No. 42R-08 |
| TCM Framework: | 7.6 – Risk Management |
This recommended practice (RP) of AACE International (AACE) defines general practices and considerations for risk analysis and estimating cost contingency using parametric methods. Parametric methods are commonly associated with estimating cost based on design parameters (e.g., capacity, weight, etc.); in this case, the method is used to estimate contingency based on risk parameters (e.g. level of scope definition, process complexity, etc.). This RP includes practices for developing the parametric methods and models (generally empirically-based). Recommended practice 43R-08 provides example process industry parametric models (including software) [12]. For scheduling applications, there is less research and reference material available; therefore schedule duration risk and contingency will be covered in future revisions of the RP. |
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RISK ANALYSIS AND CONTINGENCY DETERMINATION USING PARAMETRIC ESTIMATING – EXAMPLE MODELS AS APPLIED FOR THE PROCESS INDUSTRIES |
(January 2009)
AACE International Recommended Practice No. 43R-08 |
| TCM Framework: | 7.6 – Risk Management |
Click here for Microsoft Excel®
Example Models for 43R-08
This recommended practice (RP) is an addendum to the RP 42R-08 titled Risk Analysis and Contingency Determination Using Parametric Estimating. It provides two working (Microsoft Excel®) examples of established, empirically-based process industry models of the type covered by the base RP. The example models are intended as educational and developmental resources; prior to their use for actual risk analysis and contingency estimating, users must study the reference source documentation and calibrate and validate the models against their own experience.
This RP summarizes two landmark empirically-based models; the "Hackney" model, first presented in John Hackney's 1965 text Control and Management of Capital Projects (later expanded on in 1992, and now an AACE publication-reprinted 2002), and the later "RAND" model from 1981 research by Edward Merrow et al. for which Mr. Hackney was a consultant. These models posit plausible causal relationships between cost growth (i.e., contingency usage) and various risk systemic drivers such as the levels of development of process and project scope information and the level of process technology. They present similar empirical and quantitative analysis of the reasons for inaccurate estimates of capital costs and provide tools to improve assessment of the commercial prospects of projects at early stages of scope development and/or using advancing technologies. Prior to these models, the literature on the causes of cost growth for process plants provided little consensus about the relative contribution of various risk factors. Therefore, the authors of the source documents measured the factors and statistically assessed their relative influence on cost growth for process plant projects undertaken in North America. The results of their work had a significant impact on the practice of Cost Engineering and the evolution of project management phase-gate scope development systems (i.e., these studies are a basis of AACE's RP on classification of cost estimates; RP 18R-98).
While this document attempts to summarize the basis of the models, it is highly recommended that users review the source documents before using the tools as a basis for their own study or development. Instructions for using the tools themselves are included in worksheets. |
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RISK ANALYSIS AND CONTINGENCY DETERMINATION USING EXPECTED VALUE |
(January 2009)
AACE International Recommended Practice No. 44R-08 |
| TCM Framework: | 7.6 – Risk Management |
This recommended practice (RP) of AACE International (AACE) defines general practices and considerations for risk analysis and estimating cost contingency using expected value methods. This RP applies specifically to using the expected value method for contingency estimating in the risk management "control" step (i.e., after the risk mitigation step), not in the earlier risk assessment step where it is used in a somewhat different manner for risk screening. |
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SCHEDULING CLAIMS PROTECTION METHODS |
(Rev. June 1, 2009)
AACE International Recommended Practice No. 45R-08 |
| TCM Framework: | 6.4: Forensic Performance Assessment
7.2: Schedule Planning and Development
8.1: Project Control Plan Implementation |
Purpose
This recommended practice (RP) is intended to serve as a guideline, not establish a standard for schedule claims protection. The RP is intended to provide the scheduling practitioner with an overview of topics related to schedule delays as well as the various schedule practices and procedures that should be considered when developing and managing the project schedule. This RP will explain items to consider when creating and maintaining a critical path method (CPM) schedule in order to be prepared for potential delay claims. This RP begins by describing schedule delay terminology and outlining potential causes and required actions related to schedule delays. The sections following are related to some of the planning considerations recommended when developing a project schedule, plus good practices related to the management and control of the schedule throughout the project. |
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TIME IMPACT ANALYSIS: AS APPLIED IN CONSTRUCTION
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(Rev. October 2006)
AACE International Recommended Practice No. 52R-06 |
| TCM Framework: | 6.4: Forensic
Performance Assessment
7.2: Schedule Planning and Development
10.2: Forecasting
10.3: Change Management |
This Recommended Practice for Time Impact Analysis (TIA) is intended to provide a guideline, not to
establish a standard. This recommended practice of AACE International on TIA provides guidelines for
the project scheduler to assess and quantify the effects of an unplanned event or events on current
project completion. While TIAs are usually performed by a project scheduler and can be applied on a
variety of project types, the practice is generally used as part of the Total Cost Management (TCM)
change management and forecasting processes on construction projects.
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SCHEDULE UPDATE REVIEW: AS APPLIED IN ENGINEERING, PROCUREMENT, AND CONSTRUCTION
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(Rev. August 2008)
AACE International Recommended Practice No. 53R-06 |
| TCM Framework: | 9.2: Progress and
Performance Measurement
10.3: Change Management |
This Recommended Practice for Schedule Update Review is intended
to provide a guideline, not to establish a standard. As a
recommended practice of AACE International, this document provides
guidelines for the project scheduler to create a professional
schedule update or assess the reasonableness of changes to be made
in a schedule due to a change of project status and progress. This
recommended practice is associated with the Total Cost Management
(TCM) progress and performance measurement, and change management
processes on construction projects. |
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