Ss 07 cost engineering management training- nov 2017 moustafa part ii ch 14 15

KSU- CCP/CCT Cost Engineering Training 1018 BTA - Dr. Moustafa Ismail 2018 LEC- III 1
Cost Engineering Management
CCT Training Course:
Association for the Advancement of Cost Engineering
King Saud University
March 2018
LECTURE 07
Certified Cost Technician
‫وبركاته‬ ‫هللا‬ ‫ورحمة‬ ‫عليكن‬ ‫السالم‬
2018

KSU- CCP/CCT Cost Engineering Training 1018 BTA - Dr. Moustafa Ismail 2018 LEC- II 2
Contact details
moustafa1_ismail@yahoo.com
00966508297971
0096598922125
https://www.linkedin.com/in/moustafa-ismail-abu-dief-93798a16/
https://twitter.com/moustafaabudief
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March 2018

DEC. 2017
AACE-AGS CCP Cost Engineering Training 1011 BTA - Dr. Moustafa Ismail 2017 LEC- 5
3
CCP Certificate Section 4 Progress and cost control Ch. 14
SECTION 4 – Progress and cost control
Chapter 14 – Earned Value Overview

DEC. 2017
4
Earned Value Overview
 Earned Value (EV) is a process for monitoring a project’s performance against a baseline.
Earned Value Management Systems
 (EVMS) are project progress control systems that integrate scope, schedule, and resources to
enable objective comparison of the earned value to the actual cost and the planned schedule.
 Required elements for establishing an Earned Value System:
1. Organization of Program
2. Work Breakdown Structure (WBS)
3. Organizational Breakdown Structure (OBS) Functional Organizational Structure, matrix,
4. Responsibility Assignment Matrix (RAM)
5. Work Authorization (WA)
6. Planning, Scheduling, and Budgeting

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5
Earned Value Overview
7.Performance Measurement Baseline (PMB)- PMB reflects the approved baseline of project
8. Control Accounts(CA)to decompose scope into work elements to be planned & managed
9. Risk Management
8.Work Package (WP) WP is the point at which work is planned, progress is measured, and earned value is computed.
9. Planning Package (PP) - package not detailed to date.
10. Management Reserve (MR) and Contingency U unknown- Known unknown
11. Earned Value Definitions- (BCWS/PV, BCWP/EV, ACWP/AC)
12. Variance Reporting
13. Change Management- maintain contract/ manage changes against contract.
14. Performance Review

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6
 Performance is measured by determining the budgeted cost of work performed (i.e.,
earned value) and comparing it to the actual cost of work performed (i.e., actual cost).
 Progress is measured by comparing the earned value to the planned value.
 Budget is maintained, hence, when quantity is changed, the unit price will be adjusted to
maintain the price fixed.
 Earned Value EV=Percent complete% x control account budget; Or EV=Units completed x
Unit Rate adjusted

DEC. 2017
7
 Earned Value formulas
o BCWS: Budgeted work hours or cost $
o BCWP: Earned work hours or cost $
o ACWP: Actual work hours or cost $
 Variance:
o SV=BCWP-BCWS -ve Behind Schedule
o CV=BCWP-ACWSP -ve Over budget
 Performance Indices:
o SPI = BCWP/BCWS (SPI>1, ahead of schedule) < 1 Behind schedule
o CPI= BCWP/ACWSP (CPI>1, under budget) < 1 over budget
o Cost - Schedule Index (CSI) = CPI X SPI
<1 Over budget and behind schedule >1 Under budget and ahead of Schedule
Productivity
Index (PI) =
(CWH to date) ÷
(actual WH to
date)

DEC. 2017
8
Chapter 15
Performance & Productivity Management

DEC. 2017
9
Success Index- SI (net profit)/ (total costs)
Numerical evaluation of total organizational performance is possible using (SI) which
my be referred to performance index. It is an expression of organizational
productivity, because it relates form of output (profit or value) to form of input (cost).
• SI. For profit-oriented business. = (net profit)/ (total costs)*
• SI. For service organization, such as a government =
Success Index = (value of services rendered) / (costs of providing services)*
Total cost or cost of providing the service= (essential costs + cost of waste)*
 Waste
 Inefficiencies inherent in the design and operation of the work place
 Individual inefficiencies- Non-contributing (wasted) time by individuals
 Waste of materials, equipment, supplies, and services (misuse, overuse, loss)
 Waste of equipment (abuse, misuse, loss)- Functions that no longer add value

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10
 Special category
 Personnel in some categories, include most support and professional staff—
secretaries, design engineers, managers, etc. Equipment types include word
processors, tower cranes, and administrative vehicles, their productivity are
not properly measured on the basis of output per unit of input.
 Applying productivity measurements in such category may cause quality
compromise and add stress to the resources.

DEC. 2017
11
The Overall Performance Issue
The Performance Problem

DEC. 2017
12
The Overall Performance Issue- continue
• Losses Through Inefficiency
 Organizational: inconvenient positioning of office reproduction equipment,
shortages of equipment or materials, lack of procedures.
 Individual: failure to plan, refusing to use labor-saving equipment (such as a
word processor), and sloppy/poor filing are typical individual inefficiencies.
• Waste Through Interruptions
 series of interruptions :telephone calls & visitors reduces productivity. ( screen
visitors & use emails instead of calls).

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13
• Other Timewasters
 Interruptions are a form of time waste; there is a list of events or situations
that are accepted parts of life in most organizations, including:
o Official meetings and appointments, Telephone calls, Personal breaks and
lunch breaks, Official visitors, A need to interrupt current activity to make a
copy of something, send a fax, or coordinate with another worker, Fire drills,
hazard alarms, or other emergencies, Adverse weather, Power outages,
Equipment breakdowns, Holds for quality checks or coordination, Absentees
whose work must be absorbed by others, Turnover of key personnel—new
ones must be brought up to speed, Higher headquarters or outside agency
inspections, audits, and reviews, clerks delivering mail and messages, etc.

DEC. 2017
14
• Other Timewasters - continue
 Events and situations, all of them have significant potential for elimination or
reduction through better planning and management, those include:
o Unnecessary and unstructured meetings; People late for meetings; Social visits
or greetings from passing fellow employees; Sales calls without appointments;
 Waiting for engineering and vendor information; Errors or omissions on
engineering drawings; Lack of communication—somebody didn't ―get the
word;‖ Too many people or organizations involved in getting an answer,
approval, or decision; Excessive time taken to make decisions, or
approve/coordinate something; Too few support personnel available (e.g.,
clerical), so professional staff must perform own support; and, Inadequate
support equipment (e.g., copy machines ) causes waiting.

DEC. 2017
15
• Other Timewasters - continue
 Construction filed timewasters:
these are controllable time-wasters, including:
 Ill-defined scope forces constant reworking of schedule; Contractual disputes;
Labor disputes and adverse union activity; Arbitrary work rules; Personality
problems among key personnel on owner, engineer, and contractor staffs;
Late materials or installed equipment deliveries; Materials and equipment for
installation do not meet specifications or have fabrication errors; Materials
and equipment allowed to deteriorate in storage, so as to not be usable;
Materials and equipment listed on warehouse inventory cannot be found;
Failure to pick up all needed materials the first time; Excessive distances
between work areas and tool rooms, warehouses, and laydown areas; Wrong
or defective tools issued; Waiting for support equipment (e.g., crane), and etc.

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• Waste Through Rework
 Rework is a special form of waste, it is applied when W is flawed or changed
 Examples of rework in an organization; Management/Supervision Layering—
maintaining excessive levels of supervision—a higher level essentially
repeats the work of the lower level. Materials Management—Double (or
more) handling of materials before use. Reorganizations—Reconfiguring an
organization with no significant change in missions or workload. Physical
Relocations—Moving personnel and equipment to accommodate a new
organizational structure or otherwise. Lack of Electronic Data Links—
Receiving data in hard copy and reentering it into another computer system,
instead of electronically linking computer systems, Computer Illiteracy—A
manager or other professional staff member who is computer averse still does
everything longhand and turns it over to a clerk for entry into a computer.

DEC. 2017
17
• The Solution
 Plan! Plan! Plan!— This is universal guidance for any operation.
 Establish written policies and procedures—
 Involve users in design decisions.
 Control changes—Changes degrade performance because they delay & demoralize.
 Give priority emphasis to safety and quality.
 Control disturbances and interruptions
 Take advantage of modern technology

DEC. 2017
18
• The Solution
 Employ partnering and team building.
 Communicate—An essential element within a true team.
 Involve employees in planning—This establishes their commitment.
 Use employee group problem-solving techniques.
 Make your work place a good place to work—it promotes loyalty and stability.
 Promote first-level quality control—This is the best way to minimize rework.
 Train managers, supervisors, and workers to promote professionalism.
 Be selective in hiring—Quality control of personnel cannot be overemphasized.

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19
The Productivity issue:
• The productivity variations
 production is dependent upon some combination of machines and personnel, so
both must be examined when seeking productivity improvements.
 A major point to be made and emphasized is that productivity on the same type
of work varies significantly from location to location within a country and from
country to country. That variation is caused by many factors, which may be
grouped as follows.

DEC. 2017
20
 Productivity variation factors
 Variability—Sociological (Area) Factors
 differences in the sociological makeup of the local population, local work ethic,
level of mechanization, the education and training levels of workers, the
climate, the organized labor situation, and urban vs. rural factors,
 Major construction contractors and some owners maintain proprietary data on
area productivity differences to be considered in their cost estimation.
Typically, they will select one area as the base area and give it an index of 1.00.
Other areas are given indices that relate their general productivity to base area.

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21
• Variability—Location Factors
 As location varies, so do these factors: Weather patterns, Altitude, Access,
Availability of skills, Availability of logistical support, traffic-ability of site,
Attitude of communities, transportation network, local economy,
• Variability—Project and Contract Characteristics
 Every Project is unique, so differences impact productivity potential, for the
following: project size; single craft size. schedule constraints, adequacy of
scope definition, constructability of design, exposure to hazards, environmental
requirements, height or depth of work, form of contract, budget constraints,
Quality of engineering, degree of congestion or confinement, relationship to
existing facilities, and relationship to other construction.
• Variability—Human Factors
 Overall project performance is a function of the human factors; including;
Management competence, supervisor competence, individual worker skills,
work rules, personal pride, stability of employment, overtime, experience/point
on learning curve, worker attitudes, crew stability/key personnel turnover.

DEC. 2017
22
• Variability—Impact of Disturbance on Performance
Factors which are most completely in the hands of management to control:
 Site layout for construction, support equipment availability, project controls
system, quality management program, technology/methodology used,
subcontractor performance, degree of communication, crew balance, materials
availability and quality, tool availability & quality, safety program, adequacy of
support facilities, planning degree, vendor performance, interruptions control.
• Variability―Accounting and Estimates
 Ideally, a contractor will maintain historical data files containing actual
productivity data from past projects. For this on future , several criteria apply:
 A standard chart of accounts for crew tasks must be used for all projects so that
data from one project realistically can be compared to data from another.
 Breakdown of crew tasks for purposes of estimating must be same as that used
for reporting, so that estimated & actual performance can be truly compared.
 In addition to the numerical data collected on each project, the conditions under
which work was performed (e.g. weather, congestion, materials shortages).
 When preparing bids, estimators retrieve the data on similar work performed
under similar conditions. Judgment decisions must be made to adapt data on
hand to the new project, by using range estimates and checklist & work sheets.

DEC. 2017
23
• Variability―Accounting and Estimates
 Ideally, a contractor will maintain historical data files containing actual
productivity data from past projects. For this on future , several criteria apply:
 A standard chart of accounts for crew tasks must be used for all projects so that
data from one project realistically can be compared to data from another.
 Breakdown of crew tasks for purposes of estimating must be same as that used
for reporting, so that estimated & actual performance can be truly compared.
 In addition to the numerical data collected on each project, the conditions under
which work was performed (e.g. weather, congestion, materials shortages).
 When preparing bids, estimators retrieve the data on similar work performed
under similar conditions. Judgment decisions must be made to adapt data on
hand to the new project, by using range estimates and checklist & work sheets.

DEC. 2017
24
Productivity analysis- Determining percent complete.
1. Units Completed
 Suitable when the total scope of an activity consists of a number of equal or
nearly equal parts, such as; ideally, each unit is of relatively short duration, in
engineering, an application is in writing of a number of specifications of a
given type where all specifications are considered to have equal weight.
 In construction, useful in activities like earthwork, concrete, and wire pulling.
2. Incremental Milestone
 Appropriate for activities of significant duration that are composed of easily
recognized, sequential sub activities. Percentage completion values are
established based on the effort estimated to be required at each milestone point
relative to the total for the activity.
 This method is ideal for control of engineering drawings and procurement.
 Ex. for drawing control is:
 Construction Ex. Vessel installation.

DEC. 2017
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3. Start/Finish Percentages
 Applicable to activities that lack readily definable intermediate milestones, and/or
the effort/time required is very difficult to estimate.
 Start = controllers credit 20 to 50%
 Finish 100 %
 In engineering, for work such as planning, designing, manual writing, model
building, and studies. Also for specification writing.
 Construction in any situation if scheduling with detailed multiple short-term tasks.
4. Ratio
 Applicable to tasks as project M, constructability studies, project controls, and
comparable activity that involve a long period of time, no end product).
 used on tasks where start/finish method is appropriate.
 % complete at any time = dividing hours (or dollars) spent to date BY the
current estimate of hours (or dollars) at completion.
5. Supervisor Opinion
 Subjective evaluation of % complete (by the supervisors) and should be used
only absence discrete methods cannot be used.( for small tasks).
 There is tendency to over-estimate % completed for activity in its early stages.

DEC. 2017
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6. Weighted or Equivalent Units
 Applicable where the task is a major effort involving a long period of time and
composed of two or more overlapping subtasks, with different unit of
measurement (e.g., each, yd3, LM).
 Subtasks are listed along with their respective units of measure and quantities,
weighted, using relative work hours
 Total of all weights equals 1.00 or 100 %.
 Subtask % is reported using one of the 5 measure. techniques above mentioned.
 S.task Progress% x S.task weighting factor = its contribution to overall task
 Those for all subtasks are summed = overall percent completion of the activity.
Ex1. concrete placement ( yrd3),; broken up into base preparation, forming, re-
steel installation, concrete placement, curing, form stripping, and patching.

DEC. 2017
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6. Weighted or Equivalent Units- continue
 Ex2. steel erection(Tons)The process is illustrated in Table 15.1.(SK6- p230)

DEC. 2017
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Productivity Measurement of Individual Work Tasks
• Owners & contractors compare actual productivity to estimated/budgeted.
 For single work activity:
Productivity = (number of units completed) ÷ (work-hours consumed)
Productivity Analysis at a Summary Level
Productivity = EV/ Actual WH
Valid at a summary level, if actual Q of work are equal to those budgeted.
• Credit work hours – CWH.
CWH = (budgeted unit rate*) x (units completed to date)
*Budgeted Unit Rate = budgeted hours per unit of work( e.g. h/m3)

DEC. 2017
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Productivity Analysis at a Summary Level- continue
For progressing w. package:
CWH = (percent complete) x (budgeted unit rate) e.g. = 50%x 4h/me= 2h/m3…. And,
The Productivity Index (PI) = (CWH to date) ÷ (actual WH to date)
(PI) for a combination of work packages or for a total project:
Productivity Index = (CWH ÷ a c t u a l work hours).
PI< 1 unfavorable
PI ≥ 1 favorable

DEC. 2017
30
Incentives
1. The incentives increase the productivity & reduce the waste, reduce absenteeism.
2. Improve employee morale and promote teamwork, and identify more cost-effective
work procedures
3. Improve equipment design, Improve quality
4. Share business risks with employees.

DEC. 2017
31
The stimuli
a. Possibility of winning that personal satisfaction in achieving a goal, financial gain,
career enhancement, pride as part of the winners, chance to do something different.
b. Fear of losing that potential loss of job, potential loss of promotion, .. etc.
c. Rewards within the winning scenario
d. Intrinsic value such as cash rewards
e. Extrinsic value such as medals, badges (esteem value).
f. A chance to do something different
g. Fear of losing:
 Potential embarrassment
 Potential loss of status, job, potential for promotion, etc.
Best incentive programs are based on the concept of win-win; (i.e., both the employer
and employee are potential winners). Capitalizers on the employee's fear of losing are
more fragile and can be counterproductive.

DEC. 2017
32
Q.
Possibility of winning that personal satisfaction in achieving a goal,
financial gain, career enhancement, pride as part of the winners, chance
to do something different.
1- High productivity
2-Stimuli
Q: Potential embarrassment and Potential loss of status, job, potential
for promotion, etc. are consequences o.
1- fear of loose
2- delay in work
3- low KPI’s
4- improper quality metrics.

DEC. 2017
33
PRODUCTIVITY INDEX EVALUATION WORKSHEET
Purpose: The table shown below, is intended to facilitate a comparison
of the productivity
 potential of a proposed project with respect to a completed project. For
this purpose, a productivity index of 1.0 is average, a
 productivity index less than 1.0 is less than average (unfavorable), and
a productivity index greater than 1.0 is better than average (favorable).

DEC. 2017
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PRODUCTIVITY INDEX EVALUATION WORKSHEET

DEC. 2017
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PRODUCTIVITY INDEX EVALUATION WORKSHEET continue

DEC. 2017
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Use of Worksheet
• For a reference project, complete evaluation of the 7 categories.
• each category is made up of 2 or more subcategories, evaluation to be
made at the subcategory level to yield the category score. For example,
note that the first category, general area economy, has three sub-elements.
• Assume that the group makes the following analysis of a completed
project:
o Construction volume in the area at the time of the project was somewhat
low compared to previous years when
several major plants were built. Now, most construction activity involves
homes and small commercial projects. This subcategory is given an index of
110.

DEC. 2017
37
The unemployment rate was about average for the state, but better than the
national average. There were jobs available, but most were of the minimum
wage category. This subcategory is given an index of 100.
o The local business situation was basically healthy, neither robust nor
depressed. This subcategory is given
an index of 100.
o The resultant score for Category 1, general area economy, is calculated
from the above three index totals.
110 x 4 = 440
100 x 4 = 400
100 x 2 = 200
1,040 ÷ 10 = 104

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