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Cost
Elements
Concept
Cost Structure
Direct Cost
Indirect Cost
Variable Cost
Fixed Cost
Cost Accounting
Cost Management
Cost Estimating
Cost Trending
Cost Fore Casting
Life Cycle Costing (LCC)
Ch 01 Cost Elements.mmap - 02-06-2010 - Mindjet
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Material
1. Material Competition
Material quality is driven by
those who are utilizing it
material must be procured in proper amount, at
right time at, right cost for efficient production
Characteristic of material are combination of ---> cost availability,
machinability, weldability, and other ease of fabrication criteria
2. Handling
Material Handling Principle
Poor handling can result in damage of raw material or the finished product
Material Handling Decision Factors
material to be handled
different system to handle
different material, viz,
front loader for clay,
structure steel overheadcrane etc.
Production system type
production type are - job
shop or batch process and
continuous type
fix-path equipment like
pipes, conveyor belts forcontinuous
Job shop or batch
processes need more
flexibility in their material
handling
facility type
head rooms - if less then
overhead cranes notpossible
material handling system cost
3.
Type of Material
and Related
Information
Raw Material
Bulk Material
Fabricated Material
Engineered/Designed
Material
4.
Production Material
Purchase and
Management
Material Quality
Material and Vendor
Surveillance and Material
Traceability
Material Quality
Economic Order Quantity
Just in Time vendor
Technique
Individual Purchasing
Order and SystemContracts
Expediting
Global Material Decisions
5.
Plant Material
ManagementSpecialized Plant Material
Plant Material
Benchmarking
6.
Material WasteProduct and Hazard
Issues
Material Safety Datasheet and Hazard
Communication
Environmental Regulations
Water Material and
Surplus Materials
Ch 03 Material.mmap - 02-06-2010 - Mindjet
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Labor
Labor Classifications
Direct Labor
Indirect Labor
Overhead Labor
Developing Labor Rates
Base Wages
Paid Time off (PTO)
Medical and Life Insurance benefit
Government Mandated benefit
Engineer Contractor
Overhead and Profit
Fully Loaded of Billing Rate
Overtime Wages
Weighted Average
Rates/Crew
Composition Rates
Indirect and
Overhead Labor
Estimating Work
hours to complete
the given work scope
Work Package and Work
breakdown structure
Cost to support the worker
Factor affecting
productivity
Productivity Improvements
Learning Curve
Productivity Improvements
Using Commercially
available info
Performance
Monitoring
WBS
Graphic Presentation of
Earn Value data
Work Sampling
Ch 04 Labor.mmap - 02-06-2010 - Mindjet
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Engineering
Product, Project and
Process Development
Pure and Applied Research
Product, Project and
Process Life Cycle
Computer-Aided Design (CAD)
Computer-Aided
Manufacturing (CAM)
Prototypes
Patents and Trade Secrete
Product Liability
Product, Project,
and Process Design
Standardization
Process Selection
Manufactuerbility
Constructibility
Make or Buy Decision
EngineeringProduction/Construction
Production Health and Safety
Facility Layout
Assembly and Flow Process Chart
Quantitative Analysis in
Facility Layout
Ch 05 Engineering.mmap - 02-06-2010 - Mindjet
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Equipment, Parts and Tools
1.
Equipment Value
categories
both -- current and
residual value
aim establish a reliable valuation database upon which to base estimates or
appraisals
quality and level of trade data being cataloged -> so values are good to use
Replacement Cost New
Reproduction Costcost for new identical item
Replacement Cost
cost of new of an item
having the same or similar
utility
Fair Value
adjusted new cost of an item - consider cot of similar items,
taking into account adjustments - like utilities, discount etc.
Market Value
Fair Market Value-in-Place 100%
money that may be
expected to be exchanged
between buyer and seller
under no compulsion
both knows about relevant facts
Fair Market
value-in-Exchange 73%
money that may be
expected to be exchanged
in third party transaction
again no compulsion & facts
are knows
Also known as retail value
Orderly Liquidation Value 64%
money that can be realized
from a properly executedorderly liquidation
maximum time to conduct
sale is six months
adequate fund for
re-marketing
Also called as wholesale values
Force Liquidation Value 55%
auction done
proper advertisement
where time is of essence
Under hammer or blow out value
Salvage Value 5%
component value of
equipment that can be
used or resold to enduser
for repair or replacement
purpose
Scrap Value 1% equipment basis commodity value
dollar per ton of steel or
pound of copper
2. Source of data for
Replacement Cost New
highest value that can be
attributed to equipment
i.e. 100% of value
Sources are
manufacturer price list
sales representative quotes
technical and trade
journals
trade show literatures
invoices
appraisals values -
insurances etc.
Market Value
for used equipments
same as new but for used
equipments +
Auction sales catalogs
regulatory filings
past re-marketing and
sales result from own
firms
3.
Market Valuations
example ------------------------------------------------------------------------------------------------>
Equipment Condition
Very Good (VG)
Excellent appearance
being used to its full design specs without being modified and
without requiring any repairs or abnormal maintenance @ thetime of inspection or within the foreseeable future
Good (G)
equipment being used to its
full or near full
specification capacity ,
however the equipment was
modified or repaired
equipment used some point
below the specified
utilization
Initial Cost
hard cost
soft cost
Maintenance
Use/Wear and Tear
how it is used e.g. if used
in sand more wear and tear
most mechanical tend to
wear out around 10,000 to
20,000 hours rebuild and
refurbishment is required
1,700 to 2,000 first shift,
3,000 to 4,000 2nd shift
and 5000+ third shift
Third term usually contains
strong returns and
maintenanceprovisions
10.
Calculating Residual
ValuesMethodologies
11.
Residual Valuation
Format
should contain some basic
elements -
Market place
Manufacturer
Model Run - number of years equipment has been manufactured
US Market - numbers of units in the maket
Installation - estimated time to install
Software - used to control the equipment - is applicable
Versatility - number to uses for the subject equipment
life expectancy
Residual value
Manufacturer Name
Type of Equipment
Manufacturer market plans
Future Improvement - any tech break through on the horizon
Listing of price increase that are planned in future, as well as
analysis of past increase.
De-installation
Conclusion
12. Residual Curves
Standard Curve for indicative purposes can be developed through constant residual analysis over many years
use of these curve should be limited to Order of Magnitude calculations
Methodology
Three approaches
Cost Approach
Income Approach
Market data Approach
-best one - practical
standpoint of view
Market approach analysis
involves following approach
1. Compete market analysis
-all available sales trade
data for same or similar
equipments. Notation for
different trade levels -
like auctions, retail, retail
asking etc.
2. Current List (new) price,
adjust to discounts, =
100% price
3. Compile equipment trade
history, characterized by
the age of the equipment
sale
4. do average to enter into
residual analysis line
5. Residual value in % form
is calculated
6. Review and adjust to
factor like - maintenaince,
use, location, regulation,
technology etc.
7. Cross check with other
equipments curves
no inflation is considered here
13. Inflation Factor
Care must be taken in selecting index
trade association, insurances companies, appraisal companies, and/or government
index should be machine specific - industry specific, - not CPI -
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Economic Cost
1. Type of Cost
Opportunity Cost
foregone benefit forchoosing one option over
other
Sunk Cost
fund already spend by
virtue of past decisions
fund cost are ignored in
current or future decisionmaking
Book Cost
on the firms books
can not be taken into
economic analysis; takemarket value
does not implement cash flow
= Original value -depreciation
land cost - very less is
book but high in market
value
Incremental Cost
cost associate with production of additional unit on its balance sheet
2. Changes in Cost
Inflation
is risk in key prices of service or good (or their baskets)
four driving force forinflation
money supply
central bank role
loosing of monetary policy
- increase money inflow
exchange rate
rise of export commodity
due to change in exchange
rate
demand - pull inflation
Excessive money is chasinglimited amount of
goods/services
cost-push inflation
high input cost - material,labow wages etc.
cost has potential to change
cost changes are measuredby price indexes
irrelevant if product
quality are changed
Deflation
opposite of inflation
same factors as inflation
rise in currency price
advent of new technology
can reduce the cost somegoods or services
Escalation
escalation is technique to
accommodate price
increase or decreaseduring life of the contract
Without these clauses seller would include contingency amount
this contingency amount might be proven to be higher at later date
CurrencyVariation
for multinational tradesand contracts
currency future hedging
or value contract against
very stable currency - toprotect
Cost impact due togovernment can be both
direct and indirect
Taxes are direct
other like prohibiting orrequiring certain action are
indirect
Taxes
income tax, inventory tax, employment tax, gross receipt tax, sales taxes.
direct or indirect
cost to manage tax type .
tax department etc.
VAT is only on value
4. Depreciation Techniques
Straight Line Depreciation
rate of depreciation isstraight
Double Declining Balance
Depreciation
double the rate fromstraight line,
salvage value not taken
into consideration
high rate of depreciation
than straight line method
Sum-of-Years DigitsDepreciations
5,4,3,2,1, reverse
N(N+1)/2 is sum of years
high rate of depreciationthan straight line method
Modifies Accelerated Cost
Recovery System
Asset class i.e. 3, 5, 7, 10 years
rate of depreciation based
on asset class
5. Economic Analysis Technique
Time Value of Money
to consider cost of money
overtime
Net Present Worth method
present value of Cost and benefit
Capitalized Cost Method (CC)
for indefinite analysis period
CC represents the present sum of money that need toset aside now, at some interest rate, to yield the fund
required to provide service indefinitely
CC = A/I, A = annual cost,I= interest rate
Equivalent Uniform Annual
Cost (EUCB)
Cost per year, while
considering time value of
money
applicable when the assetcompared are having
different economic life
Rate of Return Analysis (ROR)
Causes from incremental benefit
if it is incremental answerneeded if the additional
investment is need or not
P/F or P/A formula
Benefit Cost Ratio Method
NPW of cost and benefit
higher ratio attractive
Payback period method
not precise method does
not consider time value ofmoney
cost = 100, retun =10/year,
payback period = 10 years
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Estimating
Estimate Accuracy
estimating is iterative process which is defined, modifiedand refined as we go along the project life cycle
if wrongly estimated
for owner - financialreturn from capital
investment shall not be
realized
for contractor - his profit
margin is dependent uponaccuracy of estimate
in additional to beingbudget of the project
cost estimate serves astool or resource for
scheduling and cost control
estimate classification
is used to indicates over all maturity and quality of estimation
there are 5 classed as per AACEI 17R-97...
CLASS 5 (LEAST
ACCURATE)
CLASS 1 (MOST
ACCURATE)
five charactersics are -- degree of project definition, use of estimate, estimating
methodology, estimate accuracy and effort required to produce
estimate input checklist and maturity matrix can be developed.... as be go to class 1
engineering deliverable are more complete
estimating methodologies
conceptual estimating methodologies
types
a. end product unit method
cost of electric generating power plant ---> plant capacity in kilowatts
cost of hotel ---> numberof guest room
cost construction of
hospital ---> number ofpatient rooms
cost of parking garage --->
number of available parking
adjust for time and location
economics of scale is ignored
b. physical dimension unit method
based on length, area,volume...
per square feet costing....
economics of scale is ignored
c. capacity factor method
d. ratio or factor method
e. parametric method
need significant estimate
in data gathering
however preparation takes
less time.. sometime lessthan an hours
used for class 4, 5 (sometime 3) type of estimate.. 'order of magnitude' (OOM)
concept estimate are used for
screening estimate
feasibility of project
screening projectalternative
evaluate cost impact of
design alternative
estimating a preliminarybudget for control purposeduring design phase ofproject
deterministic detail methodologies
direct measure of item
being estimated
high degree of precision is needed in determiningquantities, pricing and completeness of scope definition
take offs
Cost vs Pricing
pricing is adjustment of cost to allow, overhead and profit, to improve cashflow orotherwise serve the business interest of the party preparing the estimate... specific
project condition
Estimate allowances
estimate to account for the predictable but
undefinable cost associated with project scope
there are also time when it is simply not cost effective toquantify and cost every small item included with project
design allowance forengineering equipments
to cover continuing designestimate.. 2 to 5%
material take off allowance
to cover cost ofundefinable at the time..cover both material and
labor cost... 2 to 15%
material losses to cover
material damages, cuttingloss & waste, theft,
Estimate review -a. for accuracyb. contain all the info required topresentThe estimate review cycle shall consistfor steps
Esti department review
Check the mathSpread sheet - sub total is missed etc.
Basis of Estimate -Estimate should use onepricing and labor rates.
Design
Scope summary
Specific inculsion and exculsions
All assumption w.r.t to project scope
Equipment list
List of drawing and specifications referred
Planning
Contracting strategy
Resources and project execution plan - workweeks, overtime, shifts.
Project schedule and keymilestone dates affecting the estimate
Cost
Source of all pricing used in the estimate, source of bulk material pricing, equipment pricing etc.
source of labor work hours should be documented
Allowances made in estimate to be identified
Risk
How contingencywas determined
Identifykey are of risk and opportunities to cost estimate
Estimate departmentguidelines - review the
standard followed bytheestimate department
Verifythat the proper estimating methods, techniques, and procedures were used that match the stage of project completeness
Confirm that the estimate summaryand details are organized and presented in the properformat (i.e., following the project WBS and code of accounts);
Ensure that all estimate backup information is organized properly.
Verifythat all allowances and factors are appropriate for the type of estimate being preparedand are consistent with comparable projects and estimates
Engineering Design Review(to be done by design team). The Idea is that the scope
of the project as understood by the design team inreflected in the estimate.
Completeness ofEngineering deliverables
Review list of drawings, sketches and specs - ensure that it is complete and theymatch theintended revision for estimate. If late design change occurred - check that if it affects the estimate.
Equipment ListIf equipment involved - check equipment pricing for completeness and accuracy
Design Basis of Estimate
Engineer to verify the their understanding to project scope with the estimate
Exclusion in BOE should be agreed too
All allowance and assumption verified
Estimator and engineer should - for interpretation of drawing
All drawing used byestimator should be available for review
Engineering/Design CostsReview the cost and assumption for design portion of cost
Risk Basis of Estimate
Review the risk basis of estimate
Agree the analysis of cost risk associated with estimate
level of risk associated with risk definition
Estimate documentation - ensure that estimate ispresented in understandable way. review the docs -->. PM
to understand how the estimate is prepared.
BOE
Estimate summary
Estimate detail pages
- Verifythat the latest project schedule agrees with the estimate (particularly as it relates to escalation).-Examine the project administration and other home office related costs for reasonableness(engineering/design costs should have alreadyb een reviewed)
Reviewing estimateprepared by others
Basis of estimate
Basis of estimate in well organize and complete
Is it well-organized and complete? Does it provide the required information regarding the design basis, planning basis, cost basis, and risk basis of the estimate? Does thedesign basis clearly document the scope of the project, and have all engineering deliverables used in developi ng the estimate been identified? Have all scope assumptionsbeen acknowledged? Is the planning basis (schedule, resource plan, construction plan, etc.) reasonable? Is the basis of cost (material prices, labor rates, labor productivities)reasonable, in line with expectations, and consistently applied throughout the estimate? Has the risk basis been clearly defined, and is it reasonable for the level of informationavailable to prepare the estimate?
Estimating personnel used
Who has prepared , their experience??
Do theyhave procedure and guidelines
Estimating methodology
and procedures
What estimating methods, techniques and procedures were used in preparing the estimate? Are theyappropriate for the level of information available and projecttype? Were different estimating methods used for different parts of the estimate? Is the level of detail in the estimate sufficient for the purpose of the estimate?Were parts of the project difficult to estimate, and why? Was sufficient time available to prepare the estimate? What adjustments were made to the estimate forlocation, complexity, etc., and are they reasonable? Was the estimate prepared utilizing a code of account structure?
Estimating documentation
Is the estimate documented clearly? Are the estimate summaryand detail pages well-organized and presented at an appropriate level of detail? Is everycostappearing on the estimate summary traceable to the estimate detail and other estimate backup?
Estimate validation
Metrics report project administration costs as percent of total project cost, engineering costs as percent of total project cost, ratio of equipment cost to total project cost, construction labor as percent of total field cost, total field costs as percent of total project cost, project cost per unit of capacity, and average composite crew rate bytrade.
Quick using conceptual estimating technique
Estimate details
ensure that estimate is prepared in professional manner
80/20 rule -- identifycost diver
Select an area of estimate and review how quantities are arrived.
Ask estimator to show the drawing from which the estimate is being arrived.
The goal of an estimate is to predict the probable cost of a project. The goal of an estimate review is to determine that a high quality andsufficientlyaccurate estimate has been prepared. The review should ensure that the proper estimating methods, procedures, techniques,data, and guidelines have been employed in the preparation of the estimate. The use of a structured estimate review cycle and estimatingreview techniques will help to ensure that quality estimates are consistentlyprepared which effectively support the decision making processbymanagement.
Presenting theestimate
Numbers are useless without supporting documents. Supporting
info to describe what the number represent.
Estimate report to inculde -- basis of estimate (BOE)- Estimate summaries- Estimate details- Estimate benchmarking details- Estimate reconciliation report-Estimate backup
Can be summaries against WBS
to show bench mark metrics
EstimatingResources
Info needed to prepare estimate - conceptual estimating factors; material cost and pricing information;
labor workhour charts and information; labor productivity information; labor wage rates, composite crew mixes, etc.; and other estimating factors and information.
In-house cost history manual
Every complete project should have be documented by a final design report
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Discrete
ProductManufacturing
Philosophies
Concurrent Engineering
Basic Cost Relationship
Group Theory
Just-in-Time
Computer Added Process Planning
Lean Manufacturing
Material Requirement Planning
Supply Chain Management
Total Quality Management
Cost Estimating for
discrete partmanufacturing Direct and Indirect Cost
Cost Estimating Guide Form
Break-even Analysis
Shutdown (SD)
Cost Point (C)
Required Return Point (RR)
Required Return after Tax
Point (RRAT)
Ch 11 Discrete Product Manufacturing.mmap - 10-06-2010 - Mindjet
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Process
Product
Manufacturing
Type of Operation
cost estimate and
estimating forms
Operating cost is non-liner
to production rate
therefore should be done
full and part production
Incremental cost
estimation
Effect of change or addition to existing
process cost analysis should be done on
incremental basis as project change can beeconomical however overall project can be or
vice versa
Daily vs Annual Cost
estimates
Annual cost of estimation is preferred
over daily as it covers it dams out
seasonal variations, considers equipment
operating time, periodic large cost like(schedule maintenance, vacation shutdown,
major repairs. It is convertible to other
basis as daily cost, unit of production,
yield annual mean.
Nelson Index ?
M&S Index ?
ENR
Index
?
Cost of operation at
less than full
capacity
Semi-variable Cost
Fixed Cost
Depreciation
Property Taxes
Insurances
Variable Cost
Raw Material
Utilities
Royalties (however can be
Fixed and Semi variable
too)
Packing (however can be
semi-variable)
% Capacity
Shutdown Point = fixed
component of variable cost
recovered
Break even point = fixed
and variable cost
recovered
Minimum Return Point =
fixed, variable cost and
minimum return obtained
Raw Material CostInfo on Raw material needed
Unit of purchase
Unit cost
Source of material
Quantity required per unit of time
Quality of material
By-Products Credit
and Debits
Utility cost increase as
demand increase
Electricity
electricitycost is dependentupon load
factor i.e. rate preferences to steadyconsumption
Natural Gas
Steam
Water
Type of fuel
Btu (British Thermal Unit value
Royalties and
Rentals
General Work
Expenses
Depreciation
Depreciation Basis
Straight Line Method
Double declining balance method
ACRS
MARCS
Depreciation is FIXED,INDIRECT COST
Contingencies
Amortization
Writing of or recovering
any portion of the initial
expenses which is
intangible in nature and as
such has no definable
useful life.
Same calculation techniqueis used as depreciation or
as function of production
Depletion
Deduction from gross
income prior to calculation
of taxes on income
For natural resources e.g..
gas, coal mines
Insurance
Real Estate Taxes
Distribution Costs
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Progress Measurement and
Earned Value
Measuring Work Progress
Method 1 - Unit Completed
applicable where repetitive production of easily
measurable works
when each piece requires approximate same level of efforts
most cases sub-task are not mixed
E.g. Pile number counting
Method 2- Incremental Milestones
applicable for sub-task that must be handled in sequence
e.g. installing a equipment can be done in steps a) receive the equipment
b) Setting c) Alignment d) Utilities connection e) Commissioning
Rules of Credit - segmenting a task into subtasks and assigning each an
increment of progress for the entire task
Method 3 - Start Finish
Applicable when lack readily definable intermediate milestone
difficult to determine the % complete.. when work done --> then done
Method 4 - Supervisor Opinion
take supervisor opinion on judgement of % complete
can be used in minor project
Method 5 - Cost Ratio
% complete = actual cost or work hours to
date/forecast at completion
task that involves long period of time
applicable for project management, quality assurance,
contract administration, and project control
Method 6 - Weighted or Equivalent Units
task ins controlled over long period of time
rules of credit - according to level of efforts
Earn Value for Fixed BudgetIntroduction
The System
Earn value = % complete x budget for that account
Cost and Schedule PerformanceThe system
Productivity
Ch 14 Progress Measurement and Earned Value.mmap - 02-06-2010 - Mindjet
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Earned Value for Variable
Budget
Earned Value -
Variable Budget
The System
What is quantity adjusted budget (QAB)
is adjusted budget - varies
with quantities of works x
budgeted work hours rates
Final quantity can not be
adjusted until the design is
over this is well after
start of the project
Cost and Schedule Performance
SPI, CPI, SV and CV have
same meaning as they have
in Fixed budget
Earned Work = ..... check
Productive Analysis
under variable budget
system - CPI=PI as
quantity adjusted budget
account for quantity
variation
Credit Work hour = EV
Rework in Reimbursable project
it is incorrect to include
reworked portion of
budget or
hours earned when doing
the replacement of work
Original budget unit rates
must represent realistic,achievable objective, or
the quantity adjusted
budget will be invalid for
all purpose
Fixed System
Used where project is well defined
Characteristics
It provides direct
evaluation of cost and
schedule performance
It requires supplementary
system for productivityevaluation
Bookkeeping is simplified
there is no potential for
operator caused error.
Fixed Budget provides
constant target for
manager to see.
Fixed budget provides an incentive for working smarter
Cost performance Index(CPI) and Productivity
Index (PI) can not be same
Performance data is susceptible to distortion if project
budget is not realistically distributed
Variable System
Characteristics
CPI and PI are same
Cost will also be same if
wages are not having any
variance
Separate system is required if operating against fixed or
target budget
It provides moving budget that varies directly with both
actual qty of works and budgeted productivity rates of
includes tasks.
If applied on fixed or target budget, a quantity variance
account will be required to balance additions and deletions in
the work accounts
Continuously changing baseline requires operator attention
Case # 1 - Fixed Budget Approach for Fixed
Price Contract
Budget works hours are redistributes within the
available (fixed) budget
There will be budgeted
unit rate and required unit
rate
therefore, PI and CPI are
different
Case # 2 - Variable Budget Approach for FixedPrice Contract
same unit rate
Budget(original) unit hour
and revised budget is used
Variance is compared
between Original budget
and Actual
Case # 3 Variable Approach with Variable Budget
Variance is equal to revised
budget and actual work
done
Ch 15 Earned Value for Variable Budget.mmap - 02-06-2010 - Mindjet
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Performance
and
Productivity
Management
Success Index
Overall performance issue
the challenge
losses through inefficiency
other time wasters
Waste through rework
the solution
The Productivity Issue
the challenge
variability
sociological (area) factors
location factor
project and contract
characteristics
Human factor
Field organization and
management factor
accounting and estimate
Promoting productivity
Incentives
Why incentive
The stimuli
Reward within the winning scenario
Example of incentive programmes
Open-Book Management
good news bad news fully
share with employees
the theory being employee
will make better decisionand perform better if they
know exactly how the
company operates and what
contribute to profit and
loss
The Green Stamp
Programme
employee earn credits for objective such as zero defect,
no accidents, no late start/early quits, absenteeism
credit are allowed to
accumulate in the
employee's account for
conversion to gift
certificates
employee can pick up reward
the accumulation features
stimulates continuingachievement
employee family comes in
the influence
its open to all the
employee
Suggestion Programme
employee suggests
committee reviews
adopted suggestion are
reward-> money or letter
Sharing savings
much Fixed or target price
contract
field employee shall share
in any saving realized
basis shall be their salary
no penalty for overruns
programmes promotes teamwork and crew balancing, safety,
conservation of material and improved productivity
target bonusesBy owner knowing that exceptional efforts would be required
sum of money kept aside
honoraria
to individuals for specific
achievements relating to
professional development
like professional
registration, writing paper
etc.
based on length of service
Productivity Index
Evaluation Worksheet
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Project Organization Structure
Matrix Structure
Demingism and Total
Quality Management (TQM)
Project Organization Chart
Project Manager Authority
Project Control Function Reports
Directly to Project or Business Manager
Ch 19 Project Organization Structure.mmap - 26-05-2010 - Mindjet
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Project Labor Cost Control
Why manage labor costlabor cost is most variable cost element of construction project
contractor is more concerned to control the labor cost, howeverif the project is cost plus owner two is concerned.. owner to look
into the cost of his in-house works
Labor cost and Productivity
labor cost is function of worker hourlywage rate and worker productivity
hourly rate are easy to predict, thru variableis productivity
labor cost control methods are applicable to those
organizations which are at risk due to labor inefficiencies
factor affecting construction craft productivity include-
crew size and craftcomposition
craft density (area per worker)
interference with other crew
scheduling
material availability
equipment and toolavailability
rework due to design
site layout
weather
Constructibility
cost control of cost control technique
implementing labor costcontrol can be costly
cost of cost control shouldbe less than money saved
by using it
pareto law is applied ---monitor the cost which has
got greatest impact onfinal cost
ultimate goal of labor costcontrol is to expend the
fewest dollor to complete
the project
project management must
measure the efficiency orcost effectiveness of each
dollar spent
labor input is measured by
workhour or by dollarspent
large number of measure
are used for output
cum of excavation, sqm offormwork etc.
cost control requiresmatching of output to input
each required category of
output requires separatecost code
how to improve cost
accounting
train all to use costaccounting time card
checking time card forcorrect cost codes beforerecording it to cost control
system
developing and maintaining
a well documented WBS
it is more difficult tomeasure when quantities
i t ll d i l
two way variance analysis
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Leadership and Management ofProject People
Leadership Style
Today leaders must work to promote a team cultureand establish partnership with customer and suppliers
communication is needed
leaders are team players
does not control team but obtain commitment from them tosupport goal and objective by fostering open communication
Douglas McGregor
Human side of Enterprise
2 theoretical construct of humannature in relation to work
X theory
a person .... dislike work... will avoid... must be coerced,controlled, directed threatened with punishment
person prefers... to controlled and directed from outside
Y theory
people are self-motivated... will exercise self direction
average person will apply and accept responsibility
people are capable of high degree of imagination, ingenuity,and creative in solving organizational problems
average person intellectual is only partially used
Federick Herzberg
he studied work and working condition
motivation hygiene theory based on concept of satisfiers and dissatisfiers
real motivation resulted from worker involvement in accomplishing an interesting
task, not from the working condition or environmental factors
however the hygiene
factor must adequate
job enrichment ----> by increasing the challenging content of the job wouldcause employee to grow both in skill and in a feeling of accomplishment
Chris Argyris
highlighted dichotomy between individual and organization need
noted that the problem were due to org bureaucratic and hierarchical structure
early proponent of concept of ad hoc
groups, cross cut organization lines
climate of trust are needed
interpersonal competence and authenticity in relationship is needed
as interpersonal competence and authenticity can blockinformation flow and understanding
Rensis Likert
attitude measurement approach
developed concept of linking pin
shows that entire organization is viewed as aset of overlapping and interacting group
real authority of manager is what subordinates allows the
manager to exert over them regardless of his formal authority
degree of group commitment are based on extent to whichthe manager considers the opinion of subordinates in
reaching a decision whose outcome has impact upon group
leadership styes ---------------------------------------------------.>
exploitive and authoritative
benevolent and authoritative
consultative, and
participative group
Robert Blake and Jane Mouton
developed concept of managerial grid
there was unnecessary dichotomy in mind for'people problem' and 'production problem' both are interdependent
81 possible position on the their grid -these represent leadership styles ideally on grid manager should be 9,9
manager job is one of coach, advisor, or a consultant
Teams
team out performs individuals
team don't form because the people are associated but
but collective commitment andmutually accountability is required
wisdom of team comes with a focus on collective workproducts, personal growth and performance result
meaningful team us always a result ofpursing a demanding performance challenge
people can have different goals
some what to be part of team -- some not
some want to lead some follow
individual accountability must be merged mutual accountability
clear goal can help reduce the potential for future disruption
Cross Cultural Concerns
manager must be aware of cultural differences
birth culture has more effect on person than organization culture
wide range of challenges from language barriers
l d l d ff
challenges
uncertain organization resource support
for the projectextreme time pressure
first time challenges to solve unique andcomplicated problems
a wide variety of personnel and other
resources interdependencies
challenges in obtaining resources from seniormanager - who may not totally support the project
special skills for successful
apply both technical and managerial skill
motivate team
create group cohesion
think and thrive under pressure
drive theteam towardexcellence
Motivators and
De-motivators
What is motivations
that process, action, or intervention that serves as an incentive for ateam member to take the necessary action to complete a task within the
appropriate confines and scope of performance, time and cost
nature of motivation can be bothintrinsic or extrinsic
"intrinsic" - coming from inside
- stimulating challenges"extrinsic" - source is outside the
individual, peer recognition, pay increase
Motivational Challenges
continuing ongoing reduction in force
even successful organization are downsizing, those left havefeeling of anger and guilt that clearly decrease guilt
they are cynical and skeptic such environmentmakes motivation difficult
unspoken contract between employee and employer
now focus is if organization owning thejob employee has carrier
in past quality job performance andloyalty would be in turn rewarded
increase in number of team members from different backgroundsnorms of motivation can be different
knowledge is required as to what motivates each individuals
Other Motivational Considerations
baggage becomes impediment to the persons'positive engagement with the work to be done
baggage are the negative feeling, attitudes result ofprevious negative personal or professional experiencethese baggage are
previous or ongoing organization issues
industry changes
health issues
career stalling andpersonal problems
some motivational mistakes
what motive me will motivate other
money is primary motivator
everyone want to receive formal award
team member are motivated by quotas slogan
best leader is strong cheerleader
professional do not need motivation
motivate if there is problem
everyone should be treated the same
just find one thing that motivates each person and then stay with it
Theories of Motivations
Biological perspective
action or behavior that contribute favorably tothe preservation and expansion of species
most basic human nature
drive theories
drive are considered complex combinations of
internal stages of tension that causes the individualto take action to reduce the level of tensione.g. sex drive
goal is to reduce tension and achieve balance 'homeostasis
incentive theories
states that individual behaviors is pulled in certain directionbased on the e xternal conditions in specific settings
this approach can work in setting when the manager and teammember have the ability and the resources to identify a desired
behavior that can be awarded by providing the identified incentive
theory of needs
as humans challenging environments provides opportunities to achieveexcellence or to compete against other successful will provide motivation
people who value need for achievement are often those people who arethe leaders in the area of creativity and economic growth
fear of failuremotivational basis to act and succeed
hierarchical theory
Abraham Maslow
L1 - Physiological Needs (food, thirst)
L2- security and safety need (stability and survival)
L3- belonging need (affiliation, love)
L4- esteem need (achievement and acquisition of recognition)
L5 - Cognitive need (knowledge)
L6- Asthetic need (beauty, order)
L7- Self actualization need
Carrier Stages
1 to 10 from.. early years of carrier to retirementvalues are
technical - functional
general and managerial
autonomy and independence
security and stability
entrepreneurial creativity
service and dedication to a cause
pure challenge
lifestyle
personal value affects our enjoyment andpursuit of various task in workplace
therefore motivation will be greatest when we pursuetask and functions consistent with our values
empowermentmeredith and mantel
Ethical theories and
applicationsethics is science of judging specifically human endsand the relationship of means to those end
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Quality
Management
HistoryRenewed Emphasis on
Quality Management
Productivity Paradox
Roles of Continuous
ImprovementPrograms
Why is traditional
Accounting failing
quality management
Bring fact no
hunches
What is quality
Impact of Poor Quality
Quality Planning
Quality Control
Quality Improvement
Categorizing quality cost
Where do quality cost resides in theaccountant's financial statements
Benefit of measuring total expenditure
when measuring quality
Goal and uses for the COQ information
Quantifying the magnitude of the
costs of quality
Continuous improvement with
benchmarking and unit costs
Deconstructing COQ categories
Ch 24 Quality Management.mmap - 02-06-2010 - Mindjet
16 Changes
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Contracting forCapital Projects
1. Requirement of Contract
Offer
Clear, unequivocal offer to perform the work or services
Offer must be definite, seriously intended and communicate other party
Acceptance
other party accepts the
offer - contract can be
formed
acceptance must be communicated to the party making the offer
if party (contractor) accepts the offer with
condition not included in the original offer - this is
rejection of original offer and a counteroffer
in this case offer is not
accepted and no contract
exists
Party receiving the counteroffer and thus form a contract
Legality of Purpose
to be an enforceable contract, the work and
services performed must involve legal activities
Competent Parties
Parties to be content
Legal and mental capacity
to form a contract
both parties executing the
contract should have legal
capacity to do so
in private contract is both
parties is presumed to
have legal authority, in
public contract risk shift
to party making the offer.
in public contract a party making the offer has responsibility
to check if public official asking for offer has the authority
to execute the contract and legal bind their public agency to
the terms and condition of the contract
contract with minors,
insane individuals,
intoxicated person,convicts and enemy aliens
is not legally binding
Consideration
Court will enforce contract only when there is consideration
is whatever one party demands and receives in
exchange for the work or services performed
2.
Mistakes that makes
contract defectives
Mistake as to the nature
of transactions
Mistake as to Identity of party
Mutual Mistake as to the
Identity of the subject matter
Mutual Mistake as to the
Existence of the subject matter
3.Mistakes that do notmake contract defective Mistake to value quality or Price
Mistake as to terms of Contract
4.
Other factor effecting
contract enforceability
5. Parties to Contract
6. Why have written Contracts?
Project Delivery Method and
Project Delivery methods
Design Bid Built Method
Design-Build Method
Indefinite Quantity
Contract Method
Single Prime Contractor
13. Decision to Bid
Expertise
Financial Capability
Bonding Capacity
Personnel
Equipment
Specialized Knowledge
Risk Analysis
Work Load and other potential projects
14. Key Contract Clauses
Audit
Changes
Contractor Responsibilities
Delays
Deferring site condition or
Changes Conditions
Dispute Resolution
Force Majeure
Governing Law
Indemnification
Insurance
Late Completion Damages
Limitation of Liability
No Damages for Delay
Order of Precedence
Owner Responsibility
Payments
Quantity Variations
Schedules
Suspension of Works
Termination
Time of Essence/Time of Performance
Warranty
Contract Notes
Constructive
15. Claims
Definition
Universe of Claims
Directed Changes
Constructive Changes
Differing site condition
Suspension of works
Constructive suspension of Works
Force Majeure
Delays
Acceleration
Constructive Acceleration
Termination for Convenience
Termination for Default
Successful Claims
Liability
Causation
Damages
Dispute Resolution
Negotiation
Mediation
Arbitration
Litigation
16. Changes
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Strategic
AssetManagement
TCM and Strategic
Asset Management
Performance Measurement
Performance Assessment
Planning
Implementation
Asset and Project System
Performance Measurement Asset Performance Assessment
Asset Planning
Implementation
Application - Capital
of Fixed Asset
Application -Products
Application - Software
Ch 26 Strategic Asset Management.mmap - 02-06-2010 - Mindjet