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About Ko des Bouvrie

The Key Role of the Cost Engineer Achieving an Integrated Work Process through a Holistic Mindset by Ko des Bouvrie Technical Director – Cost Engineering Consultancy. About Ko des Bouvrie. Degree: Mechanical Engineering Experience: Technical Director, Cost Engineering Consultancy B.V.

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About Ko des Bouvrie

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  1. The Key Role of the Cost EngineerAchieving an Integrated Work Process through a Holistic MindsetbyKo des BouvrieTechnical Director – Cost Engineering Consultancy

  2. About Ko des Bouvrie Degree: Mechanical Engineering Experience: Technical Director, Cost Engineering Consultancy B.V. More than 40 years of industrial experience in consulting various industries such as oil & gas, petrochemical, power, mining & minerals, chemicals, construction and pharmaceutical. Professional Field: Co-founder of Cost Engineering Consultancy Member of NAP/DACE, AACEI, ICEC and AcostE Teacher of cost engineering courses Cost Engineering Consultancy: Cost Engineering LinkedIn Group (> 6000 members) Facebook Twitter kdesbouvrie@costengineering.eu

  3. Agenda • What is Cost Engineering? • Cost Estimating • Cost Control • Planning • Challenges of the Modern Cost Engineer • Achieving an Integrated Work Process through a Holistic Mindset

  4. What is Cost Engineering? AACEI defines Cost Engineering as: “That area of engineering practice where engineering judgment and experience are utilized in the application of scientific principles and techniques to the problems of cost estimating, cost control and profitability”.

  5. What is Cost Engineering? The Profession of Cost Engineering: Applying methods and techniques for: • Cost Estimating • Cost control • Planning • Contracting / Tendering • Quantity survey • Risk Assessment • Value Engineering

  6. Is Cost Engineering a Science?

  7. Is Cost Engineering a Science? Some advise: Keep it simple, Cost Engineering is not “Rocket Science” In science 1 + 1 = 2, in cost engineering 1 + 1 = 3 Keep in mind thatcost engineering is a profession!

  8. Cost is Everything “It costs time” “It costsresources” “ It costs money” Everything invested in assets and projects is a Cost

  9. Challenges of the Modern Cost Engineer Challenges of the Modern Cost Engineer

  10. Cost Estimating

  11. What is Cost Estimating?

  12. Can We Predict the FutureBased on the Past? Past performance is no guarantee for future results

  13. What is Cost Estimating? • “An evaluation of all the costs of the elements of a project or effort as defined by an agreed-upon scope.” (AACE 10S-90) • Cost Estimate • Involves assumptions and unknowns • Involves probabilities (and therefore ranges of costs) • Involves a given scope • Contingency covers variability within the defined scope - not changes in scope

  14. Operational Abandon Identification phase Definition phase Execution phase phase phase Project Commission. Feasibility Development Basis for Project Detailed Materials Construction start-up initiation study plan design specification design procurement note handover ± 25% ± 40% ± 25% Budget Study Screening ± 10% estimate estimate estimate Control Step 7 Step 6 estimate Commit. & Operations Economics Economics Economics cost control reference commit. Step 3 Identical Identical plan Step 1 Step 2 plan ± 5% Change to to Counter Initial control Economics Execution Execution estimate commit. phase phase plan Step 4 Step 5 Close out Project Approval Approval initial execution execution plan Abandon plan project Contract Operations Project control reference debrief plan Purchase order control Review Reporting Review Approval Approval Project Life Cycle

  15. What is Accuracy? • An estimate should not be regarded as a single point number (or cost) • An estimate is a range of potential cost outcomes, and associated probabilities of occurrence • Thus – the accuracy range of an estimate is a probabilistic assessment of how far a project’s final actual cost can be expected to vary from the estimate • The range is driven by risks

  16. Cost EstimateClassification (AACEI) Cost Estimate Classification System Primary Characteristics Secondary Characteristics Estimate Level Level of Project definition End Usage Methodology Expected Accuracy Range Preparation Effort Capacity factored Parametric Models, Judgment or analogy Concept Screening L: -20% to -50% H: +30% to +100% 5 0% to 2% 1 Equipment factored or Parametric Models Study or Feasibility L: -15% to -30% H: +20% to +50% 4 1% to 15% 2 to 4 Budget, Authorization or Control Semi-detailed unit cost with assembly level line items L: -10% to -20% H: +10% to +30% 3 10% to 40% 3 to 10 Detailed Unit Cost with Forced Detailed take-off Control or Bid / Tender L: -5% to -15% H: +5% to +20% 2 30% to 70% 4 to 20 Check Estimate or Bid / Tender Detailed Unit Cost with Detailed take-off L: -3% to -10% H: +3% to +15% 1 50% to 100% 5 to 100

  17. 90/10 90/10 90/10 +40% 90/10 +10% 50/50 Base 50/50 Base ~1-5% ~2-8% Base -10% Base Control Estimate Class1 -25% Base Budget Type B Class3/2 Study Type C Class4 Base 10/90 Order of magnitude D Class5 Zero baseline Accuracy Level of the Estimate

  18. WhatDefines the Accuracy? Influences on the estimate • Scope definition • Tools • Database • Risk • Systemic Risk • Project Specific Risk • Market influences • Knowledge of the cost engineer

  19. Budgets Are Always Under Pressure What happens with too much pressure?

  20. Baseline of Cost Control “Measurements are the key. If you cannot measure it, you cannot control it. If you cannot control it, you cannot manage it. If you cannot manage it, you cannot improve it.” - James H. Harrington

  21. Cost Control

  22. Cost Control

  23. What Is Cost Control? There are two processes used for controlling the costs of the project. • Change Management – a formal process that identifies any requested (or un-requested) changes to the contract. • Forecasting – predictions of the costs at completion for any cost elements in progress or not yet started.

  24. Change Management Don’t run and hide !!! All changes shall be documented, regardless if no net change in schedule or cost has happened.

  25. What Is Forecasting? Forecasts are much like estimates. Whereas an estimate is always for future activities and assets, forecasts are predictions of the costs at completion for cost elements in progress.

  26. Earned Value, Budget & Schedule Forecasting Budget plan BCWS (Budgeted cost of work scheduled) ACWP (Actual cost of work performed) BCWP (Budgeted cost of work performed

  27. Challenges of the Modern Cost Engineer

  28. InvolvementProcess for Technical Projects Feedback/Learning/Knowledge Engineering Operations /Commissioning Business Project Director Construction Process Engineering Detailed Engineering /Procurement Project Control Estimating

  29. Involvement Process for Technical Projects Government Engineering Regulation Process Flow Project Lead Permits Money Contractors Process Engineers Risk Assessment Business Case Data sheets Safety Discipline Engineers Quality Sub Contractors Environment Cost Engineers Time / Schedule Health

  30. Current Approach to Deal with Complexity (over the wall syndrome)

  31. Common ProblemwithCurrent Approach Potential of Decisions to Influence Value Potential of Changes to Destroy Value Project Life Cycle (Better Scope Definition/Time) More involvementresults in better scope definition

  32. BEST GOOD FAIR POOR SCREENING Better Scope Definition Drives Better Absolute, Bottom-Line Cost Performance Front End Loading (FEL) From: Hollmann, John K., Best Owner Practices For Project Control, 2002 AACE Transactions Percentage Above or Below Industry Average Cost 5% Lower Cost = 1% Better ROE FEL Index

  33. Less than 30% of Projects Achieve All Business Objectives Percent That Achieve Objective As Reported by IPA, Inc.

  34. Achieving an Integrated Work Process through a Holistic Mindset

  35. From only calculating to…

  36. …What-if Analysis

  37. Regression Analysis

  38. KeyMetrics Analysis

  39. FromJust Estimating, to…

  40. ...Solutionsin 4D or 5D Interfacing (BIM)

  41. Counter Estimate “Close-out” Report Cost Control Study Estimate Budget Estimate Control Estimate Screening Estimate Estimating Cycle: The Ideal Scenario INITIATION THROUGH CLOSE-OUT PHASE Close-outphase Executionphase

  42. From Specialist toAll-Round Cost Engineer Mixing all different ideas together

  43. ContinuousImprovementCycle A process for collecting, maintaining, and analyzing project historical information so that it is ready for use in an effective form by each functional process Empirical information is the most fundamental project planning resource available It is manifested in the form of quantified and documented historical data and information The purpose is not to repeat history, but to learn from it (continuous improvement)

  44. Scoping & Work Planning Project Controls Estimating Cycle: The Ideal Scenario Tendering Execution Estimating Scheduling Purchasing & Warehousing

  45. ContinuousImprovementCycle

  46. Suddenly, a heated exchange took place between the King and the project manager What was objective? “dig a ditch next to the castle wall” or “defend the castle from attack” Good Scope and Communication is ESSENTIAL!

  47. Questions? Cost Engineering Consultancy HQ - PO box 25, 3330 AA Zwijndrecht, IJsselmeer 32e, 3332 EX Zwijndrecht T: +31 78 620 09 10 F: +31 78 620 91 42 E-mail: info@costengineering.eu www.costengineering.eu

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