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COST ENGINEERINGS ITAL ROLE IN STRATEGIC

MANAGEMENT

John K. Hollmann PE CCE1,2,3

1

Conlan/One, Validaion Eimaing LLC, USA2 AACE Inenaional Technical Boad (Edio: Toal Co Managemen Fameok)3 ICEC Region 1 Dieco

S A

In em of imac o coman ofiabili, he co engineeing ofeion mo ial ole

i o o effecie ae managemen aeg delomen, no ojec conol. AACE

Inenaional define ha ial aegic ole in i ne e

() (1). The define and ma a aegic ae managemen

oce ha inclde ae efomance meaemen and aemen, ae lanning, and

ojec iniiaion (if a ojec i he eleced oion) oe he life ccle of he eneie ae

and ojec ofolio. Thi ae decibe ha aegic oce (and he e of he

), and he ial ole of co engineeing acice in i ccefl alicaion.

K: Saegic Ae Managemen, Co Engineeing, Toal Co Managemen, TCM

P

I/B

An oeall objecie fo mo comanie i o imoe ofiabili; all meaed a

en on caial in ome flao (e.g., ROI, RONA, EVA, ec). Saegie and acice haeihe inceae eene o edce caial co, o efeabl boh, ae ha binee an.

Ind i alo ecogni ing ha ofiable ocome fom caial inemen ae imail

dien b aegie and acice deloed befoe caial ojec ae iniiaed.

In eone, ojec managemen ocieie ae deeloing ne aegic bine and

ofoliofoced model o adde he eojec hae . To eamle ae Jaan Pojec

and Pogam Managemen fo Eneie Innoaion (P2M) model 1, and he Pojec

Managemen Inie Oganiaional Pojec Managemen Mai Model (OPM3)2.

Technicall eaking , he co engineeing ofeion i heling lead hee aegicdeelomen. AACE Inenaional ha deeloed a aegic model called he

() 3. Thi model, hich ill be decibed in hi ae,

addee he alicaion of co engineeing acice in boh aegic ae managemen and

ojec conol ocee.

I i fiing ha co engineeing hel lead aegic deelomen becae co enginee

hold be in he bine game long befoe managemen menion he od ojec.

Pacicall eaking hoee , mo co enginee hae minimal aegic managemen

eeience. Mo ae emloed b E/P/C and A/E/C conacing and conling comanie

efoming oiniiaion ojec lanning and conol fncion. While he ofeion a

fonded in he 1950 lagel b oneemloed co enginee ih aegic concen 4,

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hei ooional eeena ion (a lea in leadehi ole) ha deceaed a one

ooced hei aegic ae co knoledge and co engineeing comeenc.

In 1983, Edad Meo, eoing on gond beaking ojec co eeach a he Rand

Cooaion [no One/CEO of Indeenden Pojec Anali, Inc. (IPA)] aid among he

30 o o one comanie ha I kno eaonabl ell,...no moe han a handfl of hoecomanie ae eiol illing o ine in inenal effo o fahion bee eimaing

ool.5Sadl, hee comanie inclded man of he oce ind leading comanie.

Unfonael, he iaion ha no imoed mch. In 2001, a an inied eake a

AACE annal meeing, M. Meo challenged he co enginee in aendance o ine in

bee eing he bine aeg ide of comanie o ik becoming ielean a a

ofeion.

Thee ae ign ha one hinking i changing. Fo eamle, ince 2001, he nmbe of

one comanie ha had moe han 5 AACE membe ha inceaed b abo 10 ecen.

The going li of oiion offeed b one in AACE ebie i anohe good ign.

We can n hee ign ino olid end if e acce and ac on he knoledge ha he co

engineeing ofeion geae oenial conibion o coman ofiabili i o imoe

coman caial ae managemen. Pojec conol i ill imoan, b conibe le fom

a bine ofiabili eecie. One bine managemen ill ecognie, ale and

hie co enginee (and mabe c omenae hem bee a ell) hen e fll embace,

commnicae and flfil hi ial, eojec aegic ole. The oide a

ma o hel ell he o and gide .

T C M

The AACE Inenaional Coniion and Bla define a he

effecie alicaion of ofeional and echnical eeie o lan and conol eoce,

co, ofiabili, and ik. Siml aed, i i a emaic aoach o managing co

hogho he life ccle of an eneie, ogam, facili, ojec, odc, o eice. Thi

i accomlihed hogh he alicaion of co engineeing and co managemen incile,

oen mehodologie and he lae echnolog in o of he managemen oce. P

anohe a, oal co managemen i he m of he acice and ocee ha an

eneie e o manage he oal life ccle co inemen in i ofolio of aegic ae.

The hi all ogehe in a oce ma o model foma. The oce i

no inended o be a e of le o ok ocede. I i be ed a a comlee, inegaed

gob oce model o gide fom hich e can bild o ae hei on ocee.

T B MP, D, C, A (PDCA)

The TCM oce model i baed on he PDCA managemen model knon a he Deming

o Sheha ccle. The PDCA ccle i he fameok fo TCM becae:

i i imeoen and idel acceed a a alid managemen model;

i i ali dien; and

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i i highl alicable o co managemen ocee ha ae cclical b nae.

Ineeingl, he Pojec Managemen Inie alo choe o e PDCA a he bai of i

oce ma in he PMBOK Gide 3d ediion afe AACE inodced he conce in 1996. 8

Fige 1 illae he PDCA oce e.

A

( )

D

(

)

CHEC

(

)

AE

(

,

)

DCA

C

F 1: T P, D, C, A C

T C M P M

Fige 2 ho he mile high TCM oce ma. The fige ho ho he PDCA model i

alied eciel (i.e., in a need manne)he baic oce i alied fo each ae and

go o ofolio of ae, and hen again fo each ojec being efomed o ceae,modif, mainain, o eie hoe ae.

AEGIC

AE

AIG

(3)

JEC

IEEAI

(4)

AEGIC

AE

EFACE

EAEE(5)

AEGIC

AE

EFACE

AEE

(6)

A

(2.3)

JEC

AIG

(7)

JEC

ACII

IEEAI

(8)

JEC

EFACE

EAEE(9)

JEC

EFACE

AEE

(10)

C

(2.4)

P

D

C

A

P

D

C

A

F 2: T C M P M

The o ide of he TCM oce in Fige 2 ae efeed o eeciel a he

and ocee. Pojec conol i a ecie oce need

ihin he Do o ojec imlemenaion e of he aegic ae managemen oce.

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S A M P M

Saegic ae managemen i no concened ih daoda ojec ak; i foce inead

on monioing and aeing ae efomance, and iniiaing and managing he oeall

ofolio of ojec in a a ha addee he aegic objecie of he eneie. To i

an old aing, i i concened ih making he igh inemen (ojec o oheie) ahehan ih doing ojec igh (i.e., no all inemen ae a ojec).

Fige 3 ho an eanded eion of he aegic ae oce model inclded in TCM.

The nmbe in each e efe o he ecion of he ha inclde he oce

ma fo each e.

The aegic ae managemen oce a in he e lef of he fige ih aeing

eneie aegie and objecie, akeholde need and deie, and eoce conain,

and fom hoe, eablihing ae efomance eiemen. Fom hee, i ccle hogh

he ae lanning and deciion making, meaemen, and aemen e o bocee.

A

P

A

(6.1)

A

P

(3.2)

I

D M

(3.3)

A B & F

P

I

(4.1)

D

(R

A

P)

A C

A

(5.1

A

P

M

(5.2)

P

C

(2.4)

IO( )

R

R

E

A

(3.1)

A P

V M

B

A M P

E

M

BS,

G,

O

P

I

B

P

P

A

O U

A

P

S

C

S E S D (7.1)

S P D ( 7.2)

C E B (7.3)

R P (7.4)

V A E (7.5)

R M (7.6)

N

D

A

C

M

(6.2)

RC

A H D M

(6.3)

A S A

M

P

(3.1 6.4)

A

D

H

D

AD

HD

O

E

BI

D

(R

A

O)

F

P

A

(6.4)PI

F 3: TCM S A M P M

The ae managemen oce eie ha co enginee hae kill and knoledge in

aiic, modeling, economic anali, em engineeing, ali and ale managemen,

finance and acconing, and deciion anali. Thee ae aegic lanning and deciion

making comeencie.

Logicall, co enginee, ho hae boh a oking ndeanding of ae and co

managemen comeenc, hold lead hi oce. Hoee, indial enginee [e.g.,

Aociaion fo Oeaion Managemen (APICS)] and managemen acconan [e.g.,Inie of Managemen Acconan (IMA)] hae hioicall filled hee aegic ole.

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Pojec conol canno make a bad inemen ofiable; he objecie of conol i o make

ojec ocome edicable. Saegic ae managemen i hee bine ofiabili i

lagel deemined. Fonael fo co enginee, aegic ae managemen and ojec

conol inclde man of he ame comeencie. In aicla, co eimaing, ik

managemen, and ale engineeing al o boh ocee.Rening o he backgond dicion in he inodcion, i ha been nfonae ha

ojec conol acice ha no imoed in ecen decade an moe han aegic ae

managemen. Se b Pahfinde Inc.6 and emiical eeach b IPA Inc.7 fond oo

acice and ocome. A Loi Cabano, Peiden of Pahfinde Inc. aid in 2002, hee

i ideead diillionmen and lo of confidence in he one commni egading

ojec conol el and aleadded conibion.6Hoheied cae inclde one

oocing of he comeenc and oeeliance on inceaingl oefl ofae and

ocee ahe han he eeience and comeence of ofeional . We need o deelo

comeenc in o oganiaion, no j oce ma.

S C

A hon in Fige 5, AACE ha aken he addiional e of aligning i comeenc

eecaion (11R 88, Reied Skill and Knoledge of Co Engineeing) ih he

.9 Thi comeenc model, daed in 2005, inclde enhanced coeage of he

kill and knoledge eied fo aegic ae managemen ch a eiemen anali,

aiic, modeling, and deciion anali.

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D C E

T C M

C E

1. E C

I.

2. E A

3. E K

II. F

1. T C M (TCM) P

2. P

3. P I

4. P M

5. P A

. C

. C D

. C C

. C T

. P

. S P

. E F A

. O M

. P M

. E S

. P O E

. I M

. Q M

. V M

. E, H, S (EHS)

. O TCM P T

. S A M P

. R E A

. S E S D

. S P D

. C E B

. R M

. V A E

. R M

. P C M

. I D M

. P I

. P C P I

. P V

. C A

. P P M

. A P M

. P P A

. A P A

. F

. P C M

. A C (C) M

. H D M

. P C P

. F P A

F 5: AACE RS K C E

C

Undeanding ojec co eimaing, chedling, and conol i no enogh fo man co

enginee a one comanie; he m alo ndeand ae life ccle co managemen.

The m be able o o bine managemen and hei inemen deciion (ojec o

oheie), no j ojec managemen. Co enginee a conaco comanie m alo beeaed o o hei one clien. AACE Inenaional elicil ecognie hi fac in

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he ne e and i daed ecommended acice 11R88

decibed in hi ae.

We m no cede life ccle ae co managemen acice o he lanning enginee and

managemen acconan ho hae aked ha claim. We kno ha co engineeing

niel combine echnical, oking ndeanding of ae and ojec ih comanagemen kill and knoledge. We kno o comanie ae inide and o; e kno

ho o coman ojec ok; no, e need o le managemen kno ha e kno and

ge o ok. Le make e eeone ecognie co engineeing nie and ial ole in

aegic managemen.

REFERENCES

1. Pojec Managemen Inie (PMI), An Eecie Gide o OPM3: A Gide o SaegicScce, Bine Imoemen and Comeiie Adanage, PMI, Ue Dab, PA, 2004.

2. Pojec Managemen Pofeional Ceificaion Cene (PMCC), A Gidebook fo Pojec and

Pogam Managemen fo Eneie Innoaion (P2M). PMCC, 2004.3. Hollmann, John K, edio, The Toal Co Managemen Fameok: A Poce fo Aling he

Skill and Knoledge of Co Engineeing, AACE Inenaional, Moganon WV, 2006.

4. Moi, Robe R., AACE Inenaional; 50 Yea of Seice 19562006, AACE Inenaional,Moganon WV, 2006.

5. Meo, Edad W., Co Goh in Ne Poce Faciliie, P6869, The Rand Cooaion, Sana

Monica, CA, 1983.6. Cabano, Loi, Pojec Conol To Be o No To Be, Conine To Be The Qeion!, PM

Panoama, h://.ahfindeinc.com, Pahfinde Inc, Smme 2002.

7. Hollmann, John K., Be One Pacice fo Pojec Conol, Co Engineeing, Vol. 45, No. 09,AACE Inenaional, Moganon, WV, 2003.

8. Pojec Managemen Inie (PMI), A Gide o he P6jec Managemen Bod of Knoledge(PMBOK Gide), 3d ed. Ue Dab, PA: PMI, 2004.

9. AACE Inenaional, Reied Skill and Knoledge of Co Engineeing, Recommended Pacice11R88, AACE Inenaional, Moganon WV, 2005.