SAMPLE - Skills & Knowledge of Cost Engineering, 6th Edition

1 SA. M. PL. E. AACE International Skills and Knowledge of cost engineering Skills and Knowledge of cost engineering Sixth Edition Dr. Makarand Hastak, PE CCP, Editor 2015. Skills and Knowledge of cost engineering E. Sixth Edition Copyright 1987-2015. by PL AACE International 1265 Suncrest Towne Centre Drive, Morgantown, WV 26505-1876, USA. Phone: + | Fax: + | E-mail: | Web: M. SA. 1. AACE International Skills and Knowledge of cost engineering A Publication of Skills and Knowledge of cost engineering Sixth Edition Dr. Makarand Hastak, PE CCP, Editor A continuing project of the AACE International Education Board E. 2015/2016 Education Board Members: Peter W. Griesmyer, FAACE (Chair). Dr. Nadia Al-Aubaidy Dr. Baabak Ashuri, CCP DRMP. PL Michael Bensussen Chris A. Boyd, CCP CEP. Dr. John O. Evans III, PSP. Dr. Makarand Hastak, PE CCP. Marina G. Sominsky, PSP. James G. Zack Jr., CFCC, FAACE AACE Hon.

2 Life, VP Education Board M. Contributing Members: Nelson E. Bonilla, CCP FAACE. Mark T. Chen, PE CCP FAACE AACE Hon. Life Clive D. Francis, CCP FAACE AACE Hon. Life SA. John Jeffrey Hannon, CEP. Katherine Hull Marlene M. Hyde, CCP EVP FAACE. Donald F. McDonald Jr., PE CCP PSP FAACE. Ekaterina Pujanova Neil D. Opfer, CCP CEP PSP FAACE. Sunu M. Pillai, Esq. CCP EVP PSP. Stephen O. Revay, CCP CFCC FAACE. Ex-Officio Members: John Hines, AACE Manager, Education and Staff Liaison to the Education Board 2. AACE International Skills and Knowledge of cost engineering AACE International Publications Staff: Formatting and Layout: Marvin Gelhausen, Managing Editor Cover Design: Noah Kinderknecht, Art Director Cassandra LoPiccolo, Social Media and Publications Intern Editorial Team: Editor: Dr. Makarand Hastak, PE CCP. Associate Editors: Chris A. Boyd, CCP CEP. Mark T. Chen, PE CCP FAACE AACE Hon. Life Dr.

3 John O. Evans III, PSP. Clive D. Francis, CCP FAACE AACE Hon. Life Peter W. Griesmyer, FAACE. Sean T. Regan, CCP CEP FAACE. Rohit Singh, PE CCP. James G. Zack, Jr., CFCC FAACE AACE Hon. Life E. PL. M. SA. 3. AACE International Skills and Knowledge of cost engineering Table of Contents 5. The History of This Publication .. 5. This Edition .. 6. How to Use This Publication .. 6. 8. SECTION 1 - cost .. 9. Chapter 1 cost Elements .. 10. Chapter 2 Pricing & 19. Chapter 3 Materials .. 25. Chapter 4 Labor .. 33. Chapter 5 engineering Role & Project Success .. 49. Chapter 6 Machinery, Equipment, & 57. Chapter 7 Economic Costs .. 72. Chapter 8 Activity Based cost Management .. 81. SECTION 2 cost ESTIMATING .. 91. Chapter 9 cost Estimating .. 93. Chapter 10 Process Product Manufacturing .. 135. Chapter 11 Discrete Part Manufacturing .. 159. SECTION 3 PLANNING AND SCHEDULING .. 175. E. Chapter 12 Project 177.

4 Chapter 13 Scheduling .. 193. SECTION 4 PROGRESS AND cost CONTROL .. 217. PL. Chapter 14 Earned Value Overview .. 219. Chapter 15 Performance & Productivity Management .. 227. SECTION 5 PROJECT MANAGEMENT .. 246. Chapter 16 Project Management Fundamentals .. 248. Chapter 17 Project Organization Structure .. 256. Chapter 18 Project Communications .. 260. Chapter 19 Project Labor cost Control .. 269. M. Chapter 20 Leadership & Management of Project People .. 281. Chapter 21 Quality Management .. 291. Chapter 22 Value engineering .. 305. Chapter 23 Contracting for Capital 313. Chapter 24 Strategic Asset Management .. 329. SA. Chapter 25 Change Management Practical Guide .. 339. Chapter 26 Overview of Construction Claims & Disputes .. 345. SECTION 6 ECONOMIC ANALYSIS, STATISTICS, PROBABLILITY AND RISK .. 359. Chapter 27 Financial & Cash Flow Analysis .. 361. Chapter 28 Practical Corporate Investment Decision-Making Guide.

5 375. Chapter 29 Statistics & Probability .. 399. Chapter 30 413. Chapter 31 Risk Management Fundamentals .. 423. Chapter 32 Risk Management Practical Guide .. 435. Chapter 33 Total cost Management Overview .. 449. Chapter 34 The International System of Units (SI) .. 457. 4. AACE International Skills and Knowledge of cost engineering PREFACE. This 6th Edition of Skills and Knowledge of cost engineering (S&K6) has revised and updated chapters from the previous Edition . Also, several new chapters have been included to bring the latest Knowledge in cost engineering to the readers. The S&K6 is well aligned with the basic processes of Total cost Management (TCM) and includes Knowledge in areas that are essential for an individual to function effectively as a cost professional. AACE International defines TCM as: the effective application of professional and technical expertise to plan and control resources, costs, profitability and risks.

6 Simply stated, it is a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product, or service. This is accomplished through the application of cost engineering and cost management principles, proven methodologies and the latest technology in support of the management process. [ ]. This Edition has been organized into six sections comprising thirty-four chapters. The Preface from the 5th Edition offered a good description of cost engineering and has been included in this Edition as an introduction under the title cost Engineers: Who Are They and What Do They Do? However, for the Canons of Ethics, another essential area of Knowledge for a cost professional, please refer to the association website for the latest description. At the AACE Education Board, we continuously strive to enhance the value offered by this publication and would appreciate any suggestions for improvement.

7 Also, we would like to hear from you if you would be interested in contributing to future editions of E. this publication. You can send your comments to the AACE HQ at: Please note that the proceeds from the sale of this and other publications published by the AACE Education Board help in providing scholarships to deserving undergraduate and graduate students from all locations where AACE Sections exist. PL. A work of this magnitude and quality could not be completed without dedicated contributions from (i) the Education Board champions who identified subject matter experts and diligently followed up with them to write and/or revise the chapters, (ii) all the authors for their contribution to this body of Knowledge , (iii) the reviewers who methodically evaluated each chapter for accuracy and depth of coverage, as well as, (iv) my graduate students - Sayanti Mukhopadhyay and Saumyang Patel and all the AACE staff who worked with me and contributed countless hours in making this project successful.

8 I feel honored to have worked on this project with these dedicated individuals and their efforts and support are much appreciated. A special thanks to all the past editors M. for their significant contribution to this preface, particularly in documenting the history of this premier publication. The History of This Publication This AACE International publication had its beginning in 1985, when the Education Board started to work on the AACE. Recommended Practice: Required Skills & Knowledge of a cost Engineer. Board members included: Brian D. Dunfield (Chair), Dr. SA. Brisbane H. Brown Jr., Frank J. Kelly Jr., CCP, James M. Neil, PE CCP, and Gord Zwaigenbaum, CCP, and they were supported in this effort by Barry G. McMillan, the AACE International Executive Director at the time. The document, Required Skills & Knowledge of a cost Engineer was published in August 1986 in the cost engineering journal.

9 In 1987, a 13-session workshop on the Required Skills and Knowledge of a cost Engineer was organized and presented at the AACE. Annual Meeting in Atlanta. Similar sessions have been presented at the AACE Annual Meetings ever since that first effort in 1987. The instructional material presented in this workshop was edited by Dr. James M. Neil, PE CCP, for a new AACE publication called the, Special Supplement-1987 Transactions. This was the 1st Edition of the present S&K. Later that year, the 2nd Edition was published with its present title, Skills & Knowledge of cost engineering . Dr. James M. Neil, PE CCP, again served as the editor. The content was increased to 17 chapters and a consistent style was adopted. Five years later (1992), the 3rd Edition was published with Donald F. McDonald Jr., PE CCP, and Dr. James M. Neil, PE CCP, serving as co-editors. A large number of AACE International members became involved in the updating and revising of the published materials.

10 The 18 chapters in this Edition were compiled as a system for teaching the basic Skills and Knowledge that any cost engineer should possess. The 4th Edition was published in 1999, with Dr. Richard E. Larew, PE CCP, serving as editor. In this Edition , new chapters, problems and solutions were added, while grouping closely-related chapters into eight parts. The AACE International Canons of Ethics was also included as an appendix. The 5th Edition , published in 2004, was edited by Dr. Scott Amos, PE, and included 31 chapters organized into seven sections. The addition of 13 new chapters to this Edition was a result of the attempt to align the content of the educational materials within the Association to improve its value in the certification preparation process. Special care was taken to align the material presented in the Skills & Knowledge of cost engineering and the AACE International Certification Study Guide.