(TCM-3049) Sensitivity Analysis of Discount Rates for Life-Cycle Costing of Pavements
Author(s)/Presenters(s): Dr. Robert L. Schmitt, PE; Dr. Samuel Owusu-Ababio, PE
Time/Room: SUN 1:00-2:00/Room 2
Life-cycle cost analysis (LCCA) is an important tool for determining the total cost anticipated for the life of a facility. Total costs may be converted to present values or future values, but a single time vantage point must be chosen for a meaningful analysis. Net present value is a well-known technique for normalizing future cost and benefit streams in constant dollars and discounted to the present using a real discount rate. Although nominal dollars can be used with nominal discount rates, use of real/constant dollars and real discount rates eliminates the need to estimate and include an inflation premium. The purpose of this paper is to perform a sensitivity analysis for a range of discount rates to understand their effect on NPV outcomes for pavement alternatives. Current discount rates used in professional practice are reviewed, then a range of discount rates are applied to an LCCA for two concrete pavement alternatives. The analysis finds the discount rate has a minor impact on the LCCA outcome for selecting concrete pavement alternatives. First construction cost, as opposed to future maintenance and rehabilitation costs, was the primary determinant in total life costs ranging from about 80% to 95% of total project cost. Each 1% change in the discount rate can change future rehabilitation cost by 4%.
(TCM-3063) Strategic Portfolio Management: Supply Chain Methodologies
Author(s)/Presenters(s): H. Lance Stephenson, CCP FAACE; Bryan Payne, PE CCP CFCC
Time/Room: TUE 4:00-5:00/Room 3
Almost all aspects of a portfolio of projects are procured or contracted to third party entities. While in some circumstances, organizations may develop a project-by-project supply chain management plan that supports the delivery of their single project(s), not many organizations take into consideration the requirements of a portfolio or program strategic supply chain approach. With this said, the authors of this paper provides some recommendations for the purpose of defining and implementing a methodology supporting, and therefore improving, portfolio supply chain development and implementation.
Specifically, this article will provide readers with:
• An understanding of the approaches to supply chain management requirements for the different type of project delivery models, master service agreements and task order for expedience, and bulk purchasing agreements for price reduction strategies, and finally, standardization that support the effective and efficient delivery of the portfolio.
• Real-time results of implementing a supply chain methodology that demonstrates a reduction in time to market as well as price reductions to overall portfolios.
• A review of the similarities and differences of the needs and methodologies of private sector projects and public works.
(TCM-3106) Accurate Quantity Update: A Key for Project Management Success
Author(s)/Presenters(s): Huimin Shi, CCP PSP
Time/Room: SUN 2:15-3:15/Room 2
Accurate cost reports reflecting the true project status are critical to project success. Why do contractors and owners continue to struggle with report accuracy despite so many tracking systems, software, applications readily available at their fingertips? One of the key factors strongly hinges on the ability to provide a timely, effective and accurate quantity update.
This paper addresses quantity types, relationships to labor productivity, earned value, commitment and forecast. The paper recommends proven solutions to combat common mistakes when updating quantities. Practical guidelines to quantity update strategy, frequency and review process will also be presented.
(TCM-3180) (Presentation Only) How to Create Predictable Cost and Schedule Estimates?
Author(s)/Presenters(s): Dr. Nick J. Lavingia, PE
Time/Room: WED 8:00-9:00/Room 3
In spite of extensive use of sophisticated computer programs for cost estimating and planning/scheduling, industry benchmarking has shown major cost and schedule overruns on many projects. This practical presentation will discuss how decision & risk analysis, economic analysis, cost estimating and planning/scheduling concepts are used to come up with probabilistic outcomes for cost and schedule. Topics such as tornado diagram, decision tree, net present value, rate of return, payout, allowance, contingency, accuracy, etc. will be presented to illustrate how they are used on real projects in the industry to give confidence to management on the numbers to make informed decision.
(TCM-3189) An Integer Programming Model for Capital Project Portfolio Planning
Author(s)/Presenters(s): Michael Matosin
Time/Room: TUE 5:15-6:15/Room 3
AACE International defines a portfolio as a set of assets – including projects, programs, and other revenue-generating items – that are grouped together for a specific purpose, whether it be management convenience, asset diversification, or some other strategic objective. Portfolio planning is the process of identifying assets and determining the extent to which one should invest in them. A good portfolio plan will maximally leverage organizational resources to generate the greatest possible return. A portfolio plan for capital projects involves a series of decisions that determine if, when, and where each potential project will be executed over some pre-defined time horizon. The two key tasks in capital project portfolio planning – project selection and scheduling – are highly related and interdependent; given scarce resources – availability of funding, labor capacity, physical space, and time, among others – the selection and scheduling of any single project affects the feasibility of all others. The precise nature and consequences of this relationship will be outlined in this paper. The present work argues that the capital project portfolio planning problem can be modelled using a standard integer programming formulation to return the optimal portfolio plan.
(TCM-3245) Cost Engineering as a Driver of Capital Efficiency
Author(s)/Presenters(s): Anthony M. Bazzini; Robert F. Addotta
Time/Room: MON 10:15-11:15/Room 3
The roots of cost engineering and AACE® International were in Chemical Engineering . At one integrated oil firm, represented at the founding of AACE International, those engineering roots remain strong. This paper describes how cost engineering is viewed there as being similar to other engineering disciplines where competency is developed by a combination of formal engineering training and on-the-job experiences working along with engineering. While this company’s cost engineers may not apply all the skills and knowledge of cost engineering as described by AACE International, the engineering link is seen as essential . When properly applied with this engineering perspective over the project lifecycle, it enables improved competitive outcomes by identifying specific return on investment facility and execution optimizations to improve venture economics and overall competitiveness.
The maximum value of cost engineering is realized when it is seamlessly integrated with different, but equally important skills, such as process design, facilities planning and execution planning. These should be coordinated via a set of clear venture objectives during the development and execution phases. Resulting outcomes from this integration include improved venture economics, balanced cost/benefit assessments on facilities and execution decisions as well as more predictable cost/schedule projections.
Examples will be referenced in which significant cost savings were achieved as a result of this highly integrated approach but with an engineering focus.
(TCM-3291) The Case for a Recommended Practice for Project Procurement in Public Construction
Author(s)/Presenters(s): Bryan Payne, PE CCP CFCC Esq.; H. Lance Stephenson, CCP FAACE
Time/Room: TUE 10:15-11:15/Room 3
Project procurement is a major cost factor in construction. The method by which a project is procured and the strategy behind the selection of project delivery significantly impact project costs throughout the project lifecycle. This is especially true in public construction, which is generally subject to more onerous statutory, regulatory, and audit requirements than private-sector construction.
Almost all projects are procured or contracted; however, AACE International addresses procurement of construction only obliquely in the TCM Framework and in recommended practices 61R-10, Schedule Design – As Applied in Engineering, Procurement, and Construction and 88R-15, Tracking the Procurement Process using a CPM Schedule – As Applied in Construction. A recommended practice for the procurement process, describing the cost and schedule impacts of its component activities and providing methods to mitigate such impact, would enhance AACE International’s technical body of knowledge. A recommended practice for procurement would also help bridge the endemic disconnect between project management, project controls, and procurement.
Specifically, this paper will provide:
• An understanding of the cost and schedule impacts of the procurement process on the project.
• A discussion of the need for a recommended practice to address these cost and schedule impacts by managing the procurement process.
• An outline of a potential recommended practice to manage procurement coordinated with the TCM Framework.
(TCM-3301) (Workshop) A Practical Guide to Project Controls Development
Author(s)/Presenters(s): Dave Kyle, CCP CEP
Time/Room: SUN 4:00-5:00 (Part 1), MON 4:00-5:00 (Part 2), TUE 5:15-6:15 (Part 3)/Room 2
The project controls process often has a consistent lack of quality that hinders the owner’s ability to properly manage a project. One key to improving a department is using a structured staged approach where the department is assessed against industry best practices, and gradually improved over time.
This interactive workshop consists of three sessions providing the attendee with an opportunity to be guided through the development of a first draft of a plan to improve their department guided by industry experts.
The attendees will be guided through the completion of templates that when finished will form the first draft of a plan including: creating an identified vision and objective for the department; a prioritized 5 year development plan to close gaps in the quality of project control processes and tools; preliminary plans for each significant area of development; and a draft of a corporate presentation. Topics will include: understanding senior managements perspective, presenting at the correct level of detail; setting realistic goals based on business objectives, establishing a sense of urgency, short term wins, and overcoming typical implementation challenges.
This is a series of three one-hour interactive sessions over three days walking the participants through the development of a plan to develop an estimating, planning/scheduling, or cost control department. At the end of the final session, the participants will have a first draft of a complete plan, and a management presentation. Each session will consist of an introduction to the topic, then breakout groups by discipline guided by the subject matter expert (SME) in each area, and completion of each section by the next day.
(TCM-3305) (Panel Discussion) Project Controls in an OS 2.0 Environment
Author(s)/Presenters(s): Stephen L. Cabano; Stephen Mulva; Larry R. Dysert, CCP CEP DRMP FAACE Hon. Life; Martin R. Darley, CCP
Time/Room: MON 11:30-12:30/Room 2
The Construction Industry Institute (CII) and the Construction Users roundtable (CURT) are evaluating different delivery methodologies designed for capital projects. These delivery methods are focused around business value versus capital cost efficiency. This initiative is entitled Operating System 2.0. (OS 2.0) which is a standalone initiative sponsored by a number of organization including CII and CURT. Several of these methodologies address effective control of projects. Does the earned value system work? What are the best owner/contractor management techniques? This session will be a highly interactive panel discussion addressing the possible future of project control, with senior management from CII and other visionary leaders participating.
(TCM-3307) (Presentation Only) International Construction Measurement Standards (ICMS) for Cost Comparison and Benchmarking in the Construction Sector
Author(s)/Presenters(s): Alan Muse; Anil Sawhney
Time/Room: TUE 2:15-3:15/Room 2
The globalization of the construction business has increased the need to make a meaningful comparative analysis between projects, assets, and sectors in different countries, not least by international organizations such as the World Bank Group, the International Monetary Fund, various regional development banks, non-governmental organizations and the United Nations. Consistent practice in presenting construction costs will bring benefits to benchmarking and comparison to the construction sector that is deemed to be a comparison resistant sector by economists. International Construction Measurement Standards (ICMS) are a consistent method for presenting costs with one universal framework for defining, classifying, presenting, and analyzing construction costs. The first edition of ICMS standardizes reporting of construction costs and soon to be launched the second edition brings the same consistency to reporting life-cycle costs. ICMS applies to a project, regional, state, national or international level. It enables better comparisons of costs that eventually increase investor confidence. The standard harmonizes cost, classification and benchmarking definitions to enhance comparability and consistency of capital projects. The second edition of ICMS that is under preparation expands this consistent framework to the reporting of life cycle costing for built assets. ICMS, a process and practice standards, is complemented with a data standard that allows the use of data technologies and analytics in storing, retrieving, reporting, and mining of cost data.