PPC ASME Professional ucla lacy Levi dirat6] (Olea) Project Management Series ASME SETTING THE STANDARDASME The ASME Professional Practice Curriculum: The ASME PPC is a program of study for engineering students and early career engineers that will supplement the formal college/university engineering curriculum in helping you be better prepared for entry into and early advancement in the engineering profession. It is a major aim of ASME to help colleges of engineering guide the development of students and teach the principles of engineering practice and professionalism without overburdening an already full undergraduate curriculum. The PPC is meant to supplement the formal college/university engineering curriculum and aid engineering faculty in better preparing graduates for entry into and early advancement in the engineering profession. The ASME PPC is a joint project of the Board on Student and Early Career Development and the Board on Education and is funded by the ASME Foundation. Its existence is made possible through the valuable expertise and support of individual contributors a (© 2003-2011 ASME Intemational All Rights ReservedASME The ASME Professional Practice Curriculum: (© 2003 - 2011 ASME Intemational. All Rights Reserved.ASME The ASME Professional Practice Curriculum: Volume 1 The Project Management Series Volume 2 The Product Management Series Volume 3 Writing Winning Proposals Volume 4 The Engineering Design Series Volume 5 Sustainability Series Volume 6 Business & Legal Series Volume 7 Entrepreneurial Series Volume 8 Career Transition Series Volume 9 Sales and Marketing for Engineers Volume 10 Communications Series Volume 11 Management & Leadership Skills Series Volume 12 Industry Series a (© 2003-2011 ASME Intemational All Rights ReservedThe ASME Professional Practice Curriculum: Project Management Series Volume 1 BE Project Management. .............60000.0 0s BE Project Controls .. . E Contracting Organizations and Options ..... (© 2003-2011 ASME Intemational All Rights ReservedE Project Management TABLE OF CONTENTS Introduction Part 1: About Projects Part 2: Project Management Functions Part 3: Engineering Functions Part 4: Planning Cycle Part 5: Planning Steps Part 6: Work Breakdown Structure (WBS) Part 7: Project Schedule Part 8: Scheduling Tools Part 9: Project Budget Part 10: Project Controls Part 11: Project Management Software Part 12: Sample Project Schedule Part 13: Conclusion Glossary Quiz Quiz: Answer Key a (© 2003-2011 ASME Intemational All Rights Reserved 10 10 " 12 13 14 14 15 16 18 19 20 22ASME D Project Management B® Introduction ‘As mechanical engineers, we are involved in a wide variety of industrial de- velopment activities, from design of components, equipment, systems or facilites through various phases of manufacturing, construction or operation. In the context of business, we apply our skills to help our organizations pro- vvide a competitive benefit or develop a solution to a unique challenge. eM trecriey oe en ay Reeds 'Houston, Tranquility Base here, the Eagle has landed.” These words of See UU astronaut Neil Armstrong demonstrate not only the technical achievements Dae ee of 20th Century America, but also the successful application of a complex complex projects project management process. Cua eee tics Any development activity ("project") requires that unique tasks be per- peu oe) formed, resources allocated, and a time frame established. In ordar that all uo involved apply their talents in the best ways and at the appropriate times, it PU hae is generally necessary to implement some form of project management. reaking engineering Peer so Allprojects that contain multiple tasks andor involve multiple resources are Leam now to set-up candidates for project management techniques. This module wil introduce and use tools to man: you to the basic principles, concepts, and tools for managing a project. Beene While this module demonstrates a business application of project manage- rn ‘ment, the same principles apply to managing mult-task school or personal projects. Understanding how to do a schedule IS a critical success factor in project management. It can’t be delegated to a specialist unless there is a basic understanding of the principles and the ever-changing critical issues ona project. a About Projects Projects are risk enterprises... Projact Management helps us to achieve the end objectives in the face of all the tisks and problems encountered along the way. Success depends largely on careful planning, carrying out the constituent tasks in a sensible sequence, and deploying resources to best advantage. Projact managers often do not develop the project concept or quality (also known as scope), but are responsi- bie for bringing the concept to reality. Please note that in this module, scope and quality are used interchange- ably. The nature of a project requires focus on three basic goals: qually, cost, and time. A successfully managed project is one that is completed at the spectied level of quality, on or before the deadline, and within budget Each of these goals is specified in detail and constitutes the plan of the project. These specifications then form the basis for project control While itis possible to strive to meet all three of these basic goals, it has been said that one can only specify two of them. For instance, if you have a critical set of features to implement, and a fixed set of resources, it may not be possible to fix the duration of the project. a (© 2003-2011 ASME Intemational All Rights ReservedASME ‘ D Project Management Project Management Functions Effective project management may be summed-up with the acronym POWER. This stands for Plan, Organize, Work, Evaluate and Revise the plan. Pictorally, itis shown below. eg Peet nts Organizing & Se ee caer Controlling feet The dotted line, reporting activity” is very important to keep the clientcustomer informed that the project is on track. Atypical project is broken into several phases in order to develop the concept scope or quality and complete the work. These phases are typically used by businesses to define and control project activities and allocate resources betore costs are well defined. Each project phase must be POWERed and integrated into an overall budget and schedule. The following is an example of discrete project phases. Note that the cost accuracy improves as a de- sign is developed. a (© 2003-2011 ASME Intemational All Rights Reservedeee D Project Management Anticipated Accuracy of Predicted Costs Project Phase Cost Estimate Accuracy 1 - Completion of Planning Study 340% 2 - Completion of Conceptual Engineering (Concept 25% Design) 215% 3 - Completion of Basic Design Package 4 - Completion of Detailed Design Engineering and 10% Procurement or Construction Planning* A"eontingency''s often included to address uncer- tainty in the cost estimate. "ote that project headed oward quant manufacture and projet eam ring in omsracton of nique rfc while ver sir, have ome gn: eam elierences. Me nical engneee work a both son of projects The planning accomplished during the early phases of a project, particularly the work done before Conceptual En- gineering (Concept Design) is completed, determines how smoothly a project will progress through further phases of engineering, procurement, construction or introduction to manufacture, operational planning, commissioning and startup, or product launch, 3 | Engineering Functions Project organizations consist of many different functions, such as marketing, finance, engineering, etc. A project manager may be chosen from any of these functions. The engineering activity is the fist step (Planning Study) of project or product development. As discussed in the last section, other engineering phases often follow. The goals to achieve sufficient detail to obtain an ‘investment grade" estimate, Some businesses perform their engineering function, while others seek outside assistance. Many businesses-for example a company whose strength is in manufacturing and marketing-purchase these services from an- other company ("butsourcing"). Whichever path is chosen, effective poet management is essential, AS a minimum, this means al costs must be included in the project budget and control of scope changes is essential Wa progcthas a relatively complete scope definition, based on past experience, forexample, outsourced serv are generally purchased via a fixed price (lump sum) contract, This is because changes to the scope are not antici pated and resulting cost ortime impacts are minimal. For a project without past experience (new product develop- ment, forexample), costs or durations can be expected to change because of the unce tainty of the reference scope basis, These services are usually done on a reimbursable (cost plus) basis, whe ther outsourced or in-house. Familiarity with these types of contracts - fixed price and reimbursable - is essential in pre paring the project plan and procuring further services for manufacture or construction, a (© 2003-2011 ASME Intemational All Rights Reserved10 D Project Management Planning Cycle Planning is critical in project man- agement. Planning means listing, in detail, what is required to successtul- ly complete the project and meet the three critical goals of quality, time and cost. The five basic elements of rare proeet lang ao shown pcoraly + ama below. These five elements are pic- torially represented in the "Project Triangle" shown on the right, rrr Pet ucem = uel! Time uatty/ \ Time ‘ine Tee n a Em. Pret aime Peete «+++ Planning Steps Establishing clear project objectives and goals is critical at the outset. A project justification (why is it required or what are the benefits?) and a project scope (what is applicable?) are examples of project objectives. The project justification specifies the reason for pursuing the project and is expressed in quantitative, or measurable terms, often sales volume or dollars. The project justification should relate to a Business Plan, and is typically developed not by Engineering but by Marketing or Product Management. Completion of the frst phase of the Business Plan lets engineers move ahead with planning the project develop- mentidesign. Typical steps are to: Choose a basie strategy for achioving the objective. 1, Break the project down into sub-units or steps ("Work Breakdown Structure” or WBS"). 2, Break the project down into sub-units or steps ("Work Breakdown Structure” or WBS"). 3. Determine the performance standards for each sub-unit (deliverables). 4, Determine how much time is required to complete each sub-unit (resources and schedule). 5. Determine the proper sequence for completing the sub-units and aggregate the information into a schedule for the total project (critical path chart) 6. Identity codes and standards which apply. (Some of these should be in the Business Plan). a (© 2003-2011 ASME Intemational All Rights ReservedASME i D Project Management 7. Develop the cost of each sub-unit and aggregate costs into the project budget. 8. Design the necessary staff organization, including the number and kind of positions, and the duties and respon sibilities of each, within the project team. 9. Determine what training, if any, is required for project team members. 10. Develop the necessary policies and procedures. ‘A good project plan is understandable to all users to facilitate inputs on scope (quality), schedule (time) and budget (cost). Work Breakdown Structure (WBS) The WBS is a project management tool for defining the project deliverables to be provided and the tasks to be ac- complished. The purpose of this step is to establish the project outputs that will meet the project goals, to facilitate latest assignment of project responsibilties, and to facilitate progress measurements and updating project plan- ning. ‘The basic idea of the work breakdown struc- ture is to divide the total work of the project into major groups, then to subdivide these groups into tasks, and then if necessary divide these tasks into sub-tasks, to a level where a specitic organization, sub-team or individual can be identified to be responsible for completing the particular activity. The lowest level of subdivid- fed work should be small enough to permit ade- quate control and visibility without creating an unwieldy administrative burden. The figure here shows a simple example of a WBS for a construction project. (© 2003-2011 ASME Intemational All Rights ReservedASME D Project Management 12 Criteria for developing a WBS: ‘+The WBS and work description should be easy to understand. ‘+ No attempt should be made to sub-divide work arbitrarily to the lowest possible level. Go only far enough to identity assignable tasks. ‘+The WBS should resuit in a list of discrete, measurable, and tangible deliverables, which can form the basis for schedule milestones that everyone will recognize when they are achieved, + Tasks should have clearly defined start and end dates; it should be possible to construct a schedule for a WBS task. No effort should be made to extend the WBS to the same number of levels for al parts of a project. After completion of the WBS, resources (supervision, labor and materials) and timing/sequencing of each task are evaluated to develop the costs and schedules. You can take the WBS and cost and schedule summary and use them with project software to create project schedules in various formats. The Microsoft® Project Building Remod- eling Schedule shows the results of the WBS and duration/sequencing information trom the example. Please note that resources have not been included, there‘ore, there is insufficient information to develop the cost of each task. ther items to note are: + Where numbered predecessors are shown, a FS (FinishiStart) relationship exists. That is, an activity cannot start until its predecessor is complete. ‘+ FF (FinishiFinish) denotes an activity will finish the same time as the predecessor activity, + SS (Start/Start) denotes an activity will start the same time as the predecessor. + Underground work is shown “leading” completion of the foundation by one day. This means work can start pri ‘or to completion of excavation. + Utilities are shown ‘lagging start of interior partitions by 5 days This means work can start as partitions are being erected + Ceiling finishes has multiple predecessors. * Concrete Foundation is a summary task and its duration consists of the sum of the sub-tasks, See task 6 in the sample schedule. "Note: the product mentioned on this page is for illustrative purposes only. No A.S.M.E endorsement is intended or implio. Project Schedule Any project without a schedule understood by all is doomed to failure. Thinking in terms of sequential phases en- sures that all decisions are made and all resources are allocated for efficiently moving into each succeeding phase. The previous example was for a Construction Phase schedule. The objectives of scheduling are to: ‘+ Identity calendar completion dates and constraint. + Identify relationships among various parts of the project. ‘+ Determine resource requirements as a function of time, ‘+ Identity key points (milestones) where approvals will be needed, + Communicate al of this to all participants and stakeholders. ‘+ Maintain good project control. Scheduling is an iterative process, with a fixed overall duration and adjustments applied to resources and sequenc- ing of tasks to achieve project goals. Its important to note that developing a project schedule often requires input from others. Therefore, the schedule should be a team document with which all participants agree to comply. Sim- ple schedules (with under 25 activites and simple logic as shown in the previous example) can be created without the use of software. a (© 2003-2011 ASME Intemational All Rights Reserved3 eee D Project Management Network diagrams can be used where the logic relationships are not obvious, as in the previous example. Because networks and schedules are inter-twined, network diagrams (tasks and deliverables shown linked togeth- er in the order in which they must be completed) show how the elements of the WBS relate to one another. ‘Superimposing a network on a calendar becomes the basis for creating a detailed project schedule. Here are some key steps to creating a schedule: ‘+ Identity all major events and dates. ‘+ Decide in detail and in what sequence WBS tasks need to be done, and develop a network or interrelationship of tasks, ‘+ Estimate the duration of each separate activity + Activities should be relatable to the WBS. + Use the activity duration estimates to calculate the estimated project duration ‘+ Identity the time constraints and relate the significance of each activity to the timetable and major events. Identity resource constraints. Scheduling Tools PERT and CPM are pian- ning and control tools for ARROW DIAGRAM METHOD (ADM) defining the parts of a pro- ject and putting them to- gether in a network form so that the person responsible for each element of work knows what is supposed to happen and when in relation to other project activities. The basic difference in PERT and CPM methods is the reliabilty of the estimate of the duration of each ac- tivity. PERT is used when durations are based on sto chiastic (probabilistic) data. CPM, on the other hand, is utilized when durations are known or can be reasonable estimated. In most applica- FINALIZE covet "BD. gD CONSTRUCT rocimsrecs SPE oe 88, SOREDCE x 7 OR ORO ORO DESIGN | concer efeum FAL coord comet SAPPY STRUCT STRUCT O68 ONGE PRELIM FNAL | MECH E MECH | FLED ELEC 7 PRELM FINAL ARCH, /~\_ARCH eG tions, CPM is utilized, although PERT is often used in government-sponsored projects ‘The CPM schedule example shows the dependencies of one task on another in a Gantt (bar) chart format. Another type of presentation is a network (flow chart) diagram. Because the latter becomes increasingly difficult to under- stand as the number of tasks increases, Gantt charts are more commonly utilized ‘A Gantt Chart is a horizontal bar type chart developed as a production control tool by Henry Gantt. A Gantt Chart, today, provides a graphical illustration of time related logic and scope, a (© 2003-2011 ASME Intemational All Rights ReservedASME “4 sonal Practice Cure D Project Management Project Budget Every project needs a budget against which to measure costs that are expended. The overall pro: BASELINE BUDGET ject budget requires buy-in from management and Planning Study Costs 126,000 from the owners of the Business Plan. Breaking this Fyther Engineering Costs $200,000 overall budget into WBS-related parts permits the Equipment Costs $600,000 project manager and each task leader to control a 0000 their own performance. Installation Labor $300, Testing/Inspection $100,000 ‘Some inaccuracies in the budget are inevitable, but Manufacturing Materials (5 years) $50,000 they should not be the consequence of insufficient Manufacturing Lebor (5 years) $300,000 work on the original plan. Costs and resources. ianufacturing Overhead (5 years) $60,000 should be identiiad forall tasks on the project ee subtotal $1,736,000 schedule, including management. The objective is c aot $520,000 to be as realistic as possible and provide an allow- ‘ontingency (30%) , ance for uncertainty or inaccuracy (see discussion Five Year Manufactured Cost $2,256,000 of accuracy in section 2, Project Management Func- tions). You cannot estimate the cost of a project until you know how long it wil take (labor inflation, ete.). Therefore, the work breakdown structure and project schedule are the key supporting documents for developing a project budget. The following is an example of a summary level budget (that which contains many components associated with each line item) developed at the completion of a Planning Study. This information is the basis for the next phase of development and of financial analysis to determine ifthe costs support the economic benefit forecast and contin- ued development is warranted. Please note the correlation between accuracy and contingency. Proeet Contos Just having a schedule and budget is not sufficient. As the project work proceeds, itis necessary to constantly manage performance to the schedule and budget. Performance will not always be pertect-work will sip and costs may increase. But by constant monitoring and applying corrections whenever possible, itis usually possible to stay very close to both the schedule and the budgel. This is often called "Variance Control.” ‘Should the time come when itis no longer possible to control the variance in either the schedule or the budget, it may be necessary to re-negotiate either or both. All stakeholders-especially the owners of the Business Plan- must be part of this negotiation. But do not do this lightly; itis a matter of importance for the engineering team to achieve the schedule and budget to which they originally committed, if at all possible, ‘Schedule variances are identified when completion progress is regularly incorporated into the baseline schedule, Negative variances (increases in project duration) require re-sequencing or additional resources to minimize the variance from the baseline. Completion progress must be related to “physical progress” (.., quantities actually installed) and not the percent of resources expended, During engineering as well as construction phases, physical progress must be measured against start and end dates of individual tasks in the WBS. For example, during the engineering phase, engineering man-hours can be gauged to the number of expected engineering deliverables (Drawings and Specifications) to determine physical progress. The application of physical progress measurement utilizing the WBS is also an important part of cost control for labor related activities. a (© 2003-2011 ASME Intemational All Rights Reserved1s D Project Management Gocekaers Cost variances are identitied as costs are committed (intent to purchase or com- mit resources). By comparison with the corresponding cost in the baseline budg- ee et, variances can be identified. Negative variances (increases above budgeted ier tras amount) can only be mitigated by cost savings from another item or utilization of an allowance for uncertainty (contingency). Referring to the project triangle, the impact of variances can be visualized. Usu- ally, by providing sufficient budget and schedule allowances, one or two of the three project goals can be maintained. After variances are identified and recovery efforts have not been successful, vay raaiaeetvon Poreeas ine, timely forecasting of the change in project goals (cost or time) is important. tis [Mtyeraomrerearni hy essential to keep management and the owner informed, ay ery ee Peete eae a peta ii | Project Management Software ‘The Work Breakdown Structure (WBS) can be incorporated into software packages to provide ease of manipula- tion and analysis. Features include: Tasiclevel Work Breakdown Structure. Resource assignments for each project task. Task dependencies (What things need be to done first?) which help determine the sequence of project work. Use of a Critical Path Method (CPM) algorithm to determine project duration. (Based upon the sequence of tasks which must be completed as planned in order for the entire schedule to be maintained.) Identtication of key milestones (significant events). ‘+ Measurement of progress by tracking progress at several levels (eg. Actuals by task, Actuals by resource). Software facilitates development of baseline schedules and analysis of delays that may be encountered. When a project is delayed, a recovery plan is needed. Because Schedule tasks may be concurrent, shortening of the critical path may require different approaches. See the recovery figure below, depicting both sequential and concurrent approaches. a (© 2003-2011 ASME Intemational All Rights Reserved16 D Project Management ‘Sequential Logic - Accttoral Rescues Neesed to Recuce Delay -Focecas! Delay ‘Coneurrane Lagie - Rescquencing of Tasks Neeeeto Reauce Delay ete fess eoeesaa 2 New Cita Ptn- === === =e EO Sample Project Schedule Inthe development of a CPM Schedule, either the overall project duration is known, requiring task durations and sequencing to complete on time, or the task durations and sequencing are fixed and the overall duration is devel- ‘oped manually or by the algorithm in the software, In order to shorten the overall duration of a project, critical path activities must be evaluated. Since task durations depend on resources, resources must be increased or some tasks must be started before all work of other tasks is completed. While each project may be broken into phases, each phase must be analyzed to identity tasks and the required resources to complete each task. By so doing, an estimate of the time for completion may be obtained. ‘The example WBS and schedule shown in section 6 are for a project for which detailed design (engineering) was complete and construction was ready to be awarded, Even al this stage, however, engineering delals or correc tions are part of a project and usually preceded applicable tasks. As an example, the HVAC, Electrical, and Plumb- ing tasks will require, at least, purchase and manufacturing of components prior to installation. A more complete WBS and schedule would include these activities. ‘The following exercise will alow you to develop a schedule manually. Table 1 is an example of a WBS with an esti- mate of resources, duration, and sequence for each task, for the design of a new product Using this table, develop a Gantt chart, identity the critical path and estimate the completion date of the work. In order to prepare a schedule, a calendar is needed to convert the duration into calendar days. Utilizing Table 1 and and the calendar Table 2 is developed. The results are shown in the Product Design Baseline Schedule a (© 2003-2011 ASME Intemational All Rights ReservedD Project Management TABLE NEW PRODUCT DESIGN EXAMPLE Project Sart ate: 1609 (Monday) WorkDaysPervieek: 5 ‘Assume One] Prion Worng he Duration Shown . Task DURATION | paeecEsEoR 1 | Ahoraatonia Proceed ‘ 2 | Eebinn Ojecives and Goa ofProaut | 42 + 2 | Prepare Detaied Schematic ‘ 2 4 | ntly Loads nd Seve Conctons . a 65 | sie Mami for Compenents 2 ‘ |e Conbe Sears rs FaRIS |g : 7_| Reve Denn as Aproprate . . 1 | Develop Component Design Dravings 0 7 | beep component Desi speeatens | 10 7 Desiop a PrelinnayWanutotving Devlop a Prernary Buget 12 | Present Propessl fr Futer Development | 0 “ TABLE 2 TASK ID START FINISH, 1 Tanuary 6 January 6 2 January 6 January 22 3 January 23 Tanuary 30 4 January 31 February 7 5 Febavary 10 February 11 6 February 12 February 19) 7 February 20 February 27 8 February 28 March 13 9 February 28 March 13 10 February 28 ‘March 7 in “March 14 March 27 2B March 27 March 27 018 D Project Management Product Design Baseline Schedule Ccriteal Path: Taste 23. Completion Waren 27,2008, (ero [El conctusion This module has introduced the subject of project management. The integration of scope, schedule and budget into a project plan is not an easy task. Engineering education has prepared you with the requisite skils to develop the technical part (scope) of the plan. The other elements, scheduling and budgeting, and contracting methods for services, will require additional information and experience. In addition to the "mechanics" of project management, there is a human dimension, that of team “players” and leaders. A successful project benefits all participants. ‘Some people view project management as a tool for forcing people into meeting schedules and keeping to budg- ets. It is easy to envision this scenario: Our data shows that you are late! Get back on schedule!” If the contract allows, a far more effective scenatio is for the project manager to approach an owner who appears to be at risk of missing a scheduled commitment, and asking "is there any help you could use that would enable you to meet this upcoming commitment?" Often, success is not possible without a leader (as differentiated from a manager). When it seems impossible to achieve the goals, a leader's determination and vision can change things. George Bernard Shaw best summarized a leader when he said: "You see things; and you say, ‘Why But | dream of things that never were: and | say, ‘Why not?” a (© 2003 - 2011 ASME Intemational. All Rights Reserved.ASME PPC Cas 19 or eee D Project Management (0) atessary Because projects vary in scope, how resources are applied, and how significant the considerations of timely com- pletion and funding sources are, there are many engineering/business wordsiterms that are used. The following are incorporated in this Guide. Baseline - The initial budget and schedule developed to achieve the goals. Basic Design Package - Further development of Conceptual Engineering to be able to solicit independent contir- mation of the project costs and timing (when construction or manufacture is involved). Conceptual Engineering - Further development of the concept from the Planning Study to arrive at a decision to invest (apply additional resources). Critical Path - The critical path is, by definition, the subset of activities that must be completed on schedule in or- der to complete the overall projact on time. Deliverables - A performance standard for each sub-unit or task. Examples are drawings or specifications, or fin- ished products. Milestones - When depicting a Project Schedule, it sometimes becomes necessary to introduce a milestone in order to preserve the accuracy of the representation. A milestone is a fictitious activity of null duration. It has a cost of zero. However, it does have a reality in that it may not commence before any ofits precedents are completed and none of its successors may begin unti it has been completed. Itis usually reserved to demonstrate a signiti- cant event. Examples are "Ready for Testing’ or Manufacture. Network - The interdependencies of the component tasks. Physical Progress - A measurement of actual items not related to the cost. For example, the number of drawings issued that can be related to the total expected, Planning Study - The initial technical and financial evaluation of a concept to determine if adcitional investment in resources is warranted. Predecessor - An activity that must precede another. Quality - An attribute that describes an acceptable element of scope or design detail Resources - Capital or Human resources. Scope - The project scope defines technical requirements (systems, equipment, facility requirements) for the product or faciity. Successor - An activity that must follow another. Work Breakdown Structure - Project activities broken down into sub-units or steps that are of a reasonable duration. a (© 2003-2011 ASME Intemational All Rights Reserved20 eee D Project Management () auiz 1. The types of organizations that employ engineers and how they are utilized in a project team is the subject of a future module. However, the engineering involvement in the development of a project was presented. Consider the following An energy company utilized its in-house resources to estimate the cost of a new facility, when it would be operable, and the economic benefit. The basis of these estimates was a Planning Study done by its staft Because the project looks attractive, further development is warranted. However, the accuracy of the work pre- sents an unacceptable risk of cost overrun and, theretore, significantly more engineering resources are needed to complete additional development of the design, and construction and commissioning planning, to reduce the risk. Ifthe difference in time and costs to complete a Conceptual Engineering "package" verses a Basic Design Pack- age is not significant in terms of the project economic benefit, but the funding risk is critical (you can't overrun the budget by a specified amount), which level of development (completion of project phase) would you seek? Why? 1.a. Conceptual Engineering Package. AA you have to do is add 25% to the budget to cover the accuracy. If you missed some detall, itis not important. We ‘can bet on the precision of 25% accuracy based on statistics. 1b. Basic Design Package. ‘The anticioated cost accuracy discussed for various phases implies that completion of a Basic Design Package would provide an accuracy of +/- 15%. This means that more of the project details (auxilary systems, local construction and ‘operating labor costs, et.) are addressed. Thus, the high accuracy means a more complete scope definition as well as less risk of overtun. tic. Detailed Design, Because of the higher accuracy, 10%, the project should wait until completion of this higher level of detail. Always take as long as is needed. 1d. Any of the above. 2, What were the three goals in President Kennedy's vision of landing a man on the moon and safely returning him to Earth before the decade was out? 2.a, Only one—beat al nations to the moon at any cost. Others were secondary 2b. Reliable design completed by the end of the decade at any cost. 2.0. Reliable design, completed by the end of the decade with non-military budget that could be supported by the taxpayers — to be developed. 2d. Reliable design completed by the end of the decade for $1 billion. a (© 2003-2011 ASME Intemational All Rights ReservedD Project Management 21 eee 3. It engineers from one organization are responsible for completing a design for a customer, what risk is incurred by the customer in obtaining a fixed price contract for manufacture or construction before scope definition is ap- proved by the user? 3a. 3b. Be. 3. 4a. 4b. 4e. 4. 5a. 5b. Se. 5. ‘The prestige of the engineering organization might surpass that of the customer, There is no risk. Engineers only need to take direction trom their customer. lobvious changes are needed, they will always be reimbursed. No risk because the end user is not usually significant. Ifthe scope of work is not well defined, an increase in cost and/or time required ‘or completion should be contemplated. Why is it important to maintain a Baseline Schedule for comparison? Need to keep a record so no changes are made. Need to use as a defensive weapon for disputes if the project goals are rot met, A Baseline assists in identifying negative trends in the updated schedule so that recovery efforts toward achieving the original completion date may be instituted, or potential time related cost increases identified, Al of the above. Why is it necessary to track total invoiced costs and % physical completion? Companies diain't invoice for more than that which is completed. Measuring actual, physical, work provide good records to review atter project completion. Measuring physical completion is necessary for comparison with invoiced costs oniy betore final payment. Itis important to evaluate the cash flow only. Itis essential that the funds that have been paid and those that are to be paid shortly do not exceed that which is actually completed. Budget trends can then be identified and productivity evaluated. (© 2003-2011 ASME Intemational All Rights ReservedD Project Management 1b. 2e 3a 4c 5a. (© 2003-2011 ASME Intemational All Rights ReservedEE Project Controls TABLE OF CONTENTS Introduction Part 1: Control Tools Part 2: Identication of Performance Part 3: Analysis of Goals Part 4: Attenuation of Problems Part 5: Critical Tasks vs. Delays Part 6: Oversight Part 7: Conclusion Quiz:: Quiz: Answer Key a (© 2003-2011 ASME Intemational All Rights Reserved 24 25 26 31 31 33 33, 34 36 37 2Bm D Project Controls ® Introduction As we know, the best-laid plans for any project won't succeed unless the work is systematically managed and monitored as it progresses. That is the Project Con- trol function. This process gives all participants the information to make correc- tions as needed, to bring the project to completion, on time and on budget. Maybe, ideally, even ahead of schedule, ifdelays are averted and the allotted "float time” is not used Pree eee ee eee Ernest eee cuca t PeSeerere en s Toe Persie ty To begin, it is useful to review previous topics in the Professional Practice Cumieu- Jum. In the Project Management Module, the interrelationships of scope, schedule and budgets were discussed. The importance of budget and schedule controls were recognized. These issues are analyzed on a typical project by various con- ceptual tools. Typical tools provide the information for both cost and schedule vari . ances, as wellas trend analysis. SR Ure ET) Preteens In the Contracting Organizations and Options Module, the various contract issues CEL were discussed. The contracts between the various project entities such as the tematically throughout owner, the designer and the contractor, contain the definition of scope, the project a cast and timing, and a protacol for prompt response should these ‘performance* issues deteriorate Baseline budgets and schedules contain the essential reference points for analysis. The project baseline budget is a breakdown of the contractually agreed to cos|, while the project baseline schedule is a breakdown of the contrac- tually agreed to timing. The breakdowns for these documents should contain similar information (tasks or cost grouping). Inconsistencies will cause delays while they are resolved, Abudget breakdown should list elements of costs that could be monitored as the project progresses. For example, ifequipment (materia) tems will be “packaged” into the scope ofa purchase order and the installation (Iabor) of this equipment will be contracted from a diferent service provider, each would be separately listed as budget items. ‘The Work Breakdown Ssructure (WBS) identified on the project schedule would contain the timing of the work sub- divisions for key equipment (drawing/specification approval, purchase, fabricate and ship) and installation (setting, alignment, grouting) and the logical relationships between each element that comprises the entire scape of work. ‘The WBS should be organized to incorporate different budget elements Since the project scape typically includes regulatory issues at the beginning (permits), during (inspection/QC), and the end (Certificate of Occupancy, Testing Ceriifcations, etc.), these elements should be part ofa baseline sched- ule Since projects are typically broken into phases, separate budgets and schedules are essential for each of the pro- {ect phases. A design, procurement, and construction schedule, applied during the construction or installation phase, must often be supplemented by a separate system testing and commissioning schedule (including warran- ties, as-built drawings, etc.) and phased turnoverftraining and acceptance. However, the overall budget must con- tain sufficient detail for all phases ofthe project - from the be ginning (baseline). a © 2003-2011 AS Iovernatioal, All Rights Reserved2s L Sones D Project Controls i Control Tools Project controls are necessary to manage both variances (actual changes in planned items) and trends (anticipated changes or risk) for elements of scope, cost and timing. (For purposes of this Module, scope is defined as the equipment, materi- als, and labor required in the design basis, for a designer, or the design documents, for a contractor, and the means and methods required to complete the work.) Be- cause variance and risk management require the elements of identification, analysis, and attenuation (the minimizing of potential problems), the focus of project manage- ment must be on communication (and, therefore, understanding) by each party of the issues and risks involved. Tools must be in place to evaluate completion pro- gress against the intial, or baseline,” plan to the satisfaction of each party Identification and analysis of cost and schedule issues (which often are the result of scope changes) begin with an evaluation of variances from the baseline pian, at the smallest definable task. For example, tasks such as the work of an engineer include the labor means and methods to develop a drawing, speci- fication, etc. These tasks can cause problems in timely completion, due to changes in the scope of work or to the planned design sequence. Attenuation requires an understanding of contractual requitements to rapidly respond to project scope or other changes, as well as frequentiperiodic monitoring of cost and schedule variances and trends, implementation of effective safety and quality assurance plans, and also flexibility in the application of resources. Flexibility must be built into a project budget (additional contingency to recover lost time] and schedule (ability to re-sequence work to recover lost time without increasing costs). With early application of a "semi-continuous" process to address posi- tive and negative impacts to budget procurement activities, the progress of critical tasks, and potential or pending scope changes, these variances and risks can be managed. It should be noted that positive variances are also im- portant because it may be possible to exceed the goals or provide offsetting allowances as the project progresses. The focus of controls is not only on issues, but also on the timeliness of the decision-making process. To avert costly delays, issues must be resolved as soon as possible within a phase, and certainly prior to moving to the suc: ceeding phase. This is shown via the dotted line "loop shown in Figure 1 a (© 2003-2011 ASME Intemational All Rights Reserved6 D Project Controls PROJECT RISK MANAGEMENT PROCESS | Planing Phase Cokes ‘rane chang ‘Atenuation ILEngneeinavesgn?nase “Coan bes se Ienfication| cet iy Change napa ‘Attenuation 1 ConstuctionComissonina Phase Swpeoendove ‘Bemyeronse Siew Fe ua oa Rapin Chm ninepere ‘Attenuation Identification of Performance Overview The identification of performance begins with an understanding of the business plan (in the private sector) or pro- gram plan (for the public sector); especially the elements of scope, cost, and schedule. At each phase of a pro- ject, negative variances in budgets and schedules are the most common areas to be identified and investigated, Time-tested project control tools (such as scheduling software, cost-forecasting reports, and documentation pro- cedures) must be integrated at each phase of the project. A risk management process (beyond the scope of this presentation) can be used to supplement typical trend analysis tools. Identification consists of observing a deviation from a "baseline". These deviations either have obvious conse- quences (they clearty will increase cost or duration), or they may not be able to be quantified without further anak ysis. Not only is the nature ofthe variance important, but also the contractual responsibilty. For example, site conditions (nature of the soil, unknown buried components, etc.) that differ from the defined basis should be con- tractually addressed in terms of who will pay for any impact, should mitigation fail. a (© 2003-2011 ASME Intemational All Rights Reserved2 L Sones D Project Controls Since identitication is the starting point in the process, and essential for notification and communication with the project participants, the importance of complete documentation must be emphasized. Without a clear definition and presentation of predicted and evolving variances and risks, resolution will not be possible. The key areas include: ‘Scope Definition, Project Cost/Budget, and Project Schedule. Scope Definition While contract and delivery method risks were previously addressed in the Contract: ing Organizations and Options Module, the primary focus of uncertainty lies in ade- quate scope definition in the contract attachments, Because a typical projact plan development consists of discrete phases, uncertainty can be related to complete- ress of scope definition at the end of each phase. At the inception of a project, the end user or owner may not be 100% certain of the scope of a project designed to fulfill his needs. The desired "program of needs’ may also continue to evolve during the design and construction phases. Similarly, envi- ronmental issues (e., asbestos abatement, lead abatement, etc.) may not be fully defined. The variabiity in design requirements, operational needs of the owner's business, and unknown conditions, therefore, play an important role in identification of impacts to the project goals. While cisputed scope definition and schedule delays attect project costs, change orders due to owner-intiated scope changes or unanticipated field conditions are typically the most frequent contribution to cost overruns for an ‘owner. Cost overruns and schedule delays apply equally to fixed cost and reimbursable cost contracts. Of course, the timely resolution of all changes is essential to address the cost increase, especially where the change order ‘work impacts other ongoing work or also has a time impact. All change orders (whether between owner and con. tractor of contractor and subcontractor) should be tracked to identity how long a change order isin the process of approval. This “aging” information is useful for determining the need for management intervention, Change order costs that are associated with significant redeployment of resources or delays can be evaluated it the project schedule is cost- or resource- loaded. The project schedule is a useful tool to assess the costtime trade -otfs for such changes. Finally, for relatively larger change orders, an owner could obtain an independent estimate from a specialist esti- mating entity to validate the contract change proposal. This will faciate a decision on both the method and amount of payment. If cost or time impacts cannot be agreed to, a "force account,” or time and materials tracking system, are typically implemented to allow the work to proceed while discussions are ongoing. Alternately, a con: tract provision for an independent dispute mediator can expedite critical change order negotiations. Project Cost/Budget ‘As shown in the Project Management Module, during the course of a project from the planning phase through con- struction bid preparation, more accurate estimates are developed to reduce uncertainty. Typically, information trom informal quotations, or historical information, engineering judgment, and experience factors are used by owners or designers in assembling cost data during early project phases. As more scope definition is developed, cost data are obtained from suppliers, manufacturers, and contractors, Its important to note thal since 100% design completion is rarely attained when going out for bids, final completion costs above the bid cost should be expected - even for a lump sum bid. Therefore, an owner's project budget must include an adequate contingency to account for both the accuracy of an estimate and an allowance for unforeseen conditions and changes. a (© 2003-2011 ASME Intemational All Rights Reserved28 os D Project Controls Figure 2 depicts the components of a budget. The dotted boxes shown are the ones that are unknown prior to bid. All should be self-explanatory, except General Conditions. While the definition of General Conditions varies, these are costs related to performing the work in the field that do not include a permanent feature of the final asset. The- se include trailer rental, small tools, supervision costs, telephone, etc. Ater the detailed design is com- pleted and the contract docu- [cost esate] ments are finalized, the project owner is ready to go to the mar: a kotplace and find the true cost maa of constructing the project. DIRECT COST MoARECT Cost [oor While the designer has been 1 I ; I estimating the costs throughout pi-ct Laie] | [maanment [eenont) [Dread] ‘Ait the design phase, they are all theoretical, Until a contractor {Masri} [Subsontreet] [Taree submits a price for the work, Prot: ‘Sontromay which may be backed up by a contract and a performance bond (see Contracting Organizations and Options Mod- Ule), the owner can't be sure of the price of construction. As stated before, the contractor's risk requirements can- not be estimated and will only be evident atthe time of bid. Because of this, the more the design is complete and clearly presented, the better the opportunity to obtain competitive bids. A well-coordinated set of design documents for the different construction trades is essential for competitive bidding, and will provide the information for pro- gress measurement during construction. At this point, the cost estimate box in Figure 2 becomes the “project budg- er. (Once a budget has been established, each element of expenditure must be compared with the budget and some means applied to reduce or eliminate cost increases (value engineering, spitting or combining bid packages, etc). Cost variance analysis is an essential part of a project controls process. Cost variances are identified as the actual costs committed, via purchase awards and payments. Eamed costs are developed from a budget task grouping (24, installation of piping in an area) where each element of work is quantified (.., feet of various types and sizes of pipe to be installed) and the unit cost of each is identified. As a quantity of work is complete, the value, or earned value, of the work can be computed. This, then, allows a compar'son with the actual costs incurred, which will per- mit productivity or other variance evaluations. Utilizing the incividual variances, a ‘forecast for the entire task group may be made. By applying this to all tasks in the Work Breakdown Structure, weighted on a total budget costs ba- sis, an overall percent complete and resulting forecast to compete can be developed. Without a change in scope, resulting from value engineering or some other technique, negative trends (increase above the budgeted amount) can only be relatively mitigated by cost savings trom another budgeted item, or util zation of a contingency (which is an allowance for uncertainty). Figure 3 is a contractor Cost Tracking/Forecast ‘Summary for the construction and commissioning phases of a project. This summary shows variances compared to the budget and includes a physical completion evaluation so that productivity may be factored into the forecast- ing methodology. This is a simplified format. Typically, a summary would also include columns that show changes from the prior period; this information is vital to timely identification of variances. a (© 2003-2011 ASME Intemational All Rights ReservedASME PPC D Project Controls 29 poe [ ‘COST TRACKING/FORECAST SUMMARY wudoved | Acai | reat roweantat fenasaan feargrs— fever fare fewer? —proraa eat eas iesureet— tsa a Siesta a fietiat "asus ee ae ae ae faxoe = ‘feasts, 4er87a9 ‘soe-ecr” guerre] steve] sab 70] Posing aan Beso "tesa ee —_yerecs| Sosa a sane light ala sis alas eas i Kaeser BEaoe wal a 3 Saar Baer] a : Tn : Lene aoc The amount of contingency remaining and variances are critical indicators. Forecasting not only includes evalua~ tion of the variances iscussed above, but also identification of trends. Trends are an early warning that a reasona- bly expected cost increase or decrease will occur at a later point. Depending on the magnitude or how long it takes to quantity, it may be added with the related line ites (as a committed cost) in the variance analysis or else incor- porated as a trend via an adjustment to the Contingency. Project Schedule Thinking in terms of sequential phases ensures that all decisions are made and all resources are allocated for eff- cient movement into each succeeding phase. The initial owner-approved schedule represents a fully integrated (all phases) project with additional dafintion for the current project phase. Its the planned, or baseline schedule, for future reference until changes are authorized. As discussed in the Project Management Module, the objectives of scheduling muttiple tasks (from a work breakdown structure, WBS) include: + Providing for owner input via milestones, approvals or other activities + Identifying calendar completion dates and constraints ‘+ Determining cash or cash flow requirements + Determining resource requirements ‘+ Refining estimating criteria (validating the budget) + Obtaining improved project control capability via what-if analyses capability + Providing effective communication for buy-in by all participants (including subcontractors) ‘+ Providing a basis for easy revision and comparison to the baseline schedule Al participants must contribute to, or "own’, the schedule and all revisions as the projact progresses. Otherwise, coordination breaks down. — (© 2003-2011 ASME Intemational All Rights Reserved30 In order to own a schedule, the baseline or updated information must be provided in a user-ftiendly manner. The demands and the varying requirements for timely information by different participants often results in the need for difierent formats, or different levels of detail extracted from the schedule database, for owners, subcontractors, ete This is done to enhance communication so all parties can review issues and that time related impacts can be iden tified and quantificd. Of particular importance to all participants is the focus on the project's critical path (or longest path of related tasks), Inconporation of cost and resources associated with activites, especially near or on the critical path, allows discussion and decisions regarding correction of negative schedule impacts. Whether from scope changes, man- power, or material issues, these impacts could introduce a time-related cost to the contractor or owner, or both In onder for the project schedule to be a useful tool to identify, analyze, and prioritize the related impacts (and asso- ciated costs), certain factors must be incoxporated: 1. This Critical Path Method (CPM) schedule should clearly demonstrate how the work is o be completed. The work sequence and time durations should be the actual intended ones, not simply approximations to satisfy the contract requirements and use up all the available time in the schedule 2, Total loat should be available, with flexibility built into sequencing to "recover" lost time. Total float is the sched- ule equivalent of budget contingency, and is equally important. 3. The schedule should be sufficiently detailed (using the WBS) to clearly show the use of major equipment (e.g., crane for steel erection), sequence of activites by task and location, etc., as wellas regulatory milestones. 4. Schedule activities should be cost- and/or resource loaded, to adequately evaluate options to sequencing and durations planned. 5. The actual progress of he job should be tracked and recorded in acconlance with the original (baseline) sched. uke or authorized changes. 6, Near term (two-week), look-ahead bar charts (by trade) are used to supplement the cPM. ‘Tracking progress should be related to a ‘physical progress” measuring system, and not be merely an echo of the percent of resources expended from the budget, or the construction duration expended from the schedule. The application of physical progress measurement is an important part ofcost and schedule control for all design and construction activities. Within reason, the greater the detail, the greater the accuracy. In order to identify variances in @ timely way, the schedule should be updated periodically throughout the life of the project. Usually this is a once-a-month occurrence, with distribution of the resulls to all involved parties. Afier each update, all parties should ask themselves the following three questions (1) Where are we now? (2) Why are we here? (3) What should we do about it? As a project nears completion, the focus of scheduling changes from construction completion by area, to comple- tion by systems or phased operational needs. Pre-commissioning and construction completion must be treated as concurrent activitics. As such, the CPM, while essential for completion tracking from start to finish, must be supple- mented with a pre-commissioning or operational transfer schedule. Without this, time impacts eannot adequately be identified nor analyzed In summary, schedule variances can be identified when completion progress is regularly compared with the ap- proved baseline schedule, and supplemental schedules. Negative trends (increase in project duration) may require a © 2003-2011 AS Tovernational, All Rights Reserved31 re-sequencing or additional resources to minimize the variance from the baseline. They must be evaluated and acted upon promptly 3 | Analysis of Goals Similar to identification via use of project control tools, analysis involves quantitica- tion of the impact on the project goals. I the impact is first identified in quaitative terms, it must be further developed into quantitative terms. Only quantitative values can be related to the business plan performance goals of project cost and schedule duration. The numbers are what “count.” The qualitative rating, or prioritization, however, is often used to help focus further analysis and attenuation activities. Figure 4 shows a qualitative ranking of risks to, various goals. In his example, action plans are required for any risk with a value higher than 2 FIGURE 4 RISK RANKING - PROJECT X (Low = 1, High = 4) Trdlirert Control Behedule [Cow [Safer [Quality Vague Contract Claas [Wearker [[Maeerial Delivery Nacerial Quality ‘Unknown Site Conditions Labor Avauabalits Tabor Quabity AmveseSequence Direct Control | Desiga BrrorsJOnissions Estimate Quality Construction Complety Plan, Schedule Pisibily [Team Relationships a Attenuation of Problems Once the variances from project goals are quantified and their responsibilties assigned, informed team decisions may be made and the necessary management support provided to mitigate the impact. Time is of the essence in engineering and construction, and, therefore, for the decision-making process. The importance of quick and early action should be obvious. Changes to scope made at the start of a project phase can generally be accommodat- ed with the least cost and time impact. {As discussed in the Project Management Module for the three project goals of scope, cost, and schedule, a change in one will impact at least one of the others. Therefore, it is important to prioritize the goals at the start of a project. Effective control of scope changes, adequate budget contingency, and baseline schedule “total float” (time allowed for a task to slip behind without impacting the completion date) are essential in reducing the a (© 2003-2011 ASME Intemational All Rights Reserved32 os D Project Controls variances of the three goals. Project scope and cost attenuation methods were discussed in the previous section The means and methods are the remaining issues that impact schedules. Maintaining the Schedule Early and continuous planning and scheduling of a project allows for prompt detection of schedule impacts with sufficient time to expiore a range of options to maintain the schedule. Scheduling the projact from beginning to end provides the benefits of expending resources early to stay on or ahead of schedule. This avoids expending even greater staffing resources at the end of the projec, trying to catch up. ‘As an example of resource options, Figure 5 shows a sequential or finish-to- stat (.e., finish the entire preceding task before starting the next) schedule that satisfies the contract duration. However, you should realize that ths is ‘not the typical way the project is to be built. It is essential that the work is broken into tasks of reasonable work-day duration. 15-day tasks, in this example, are difficult to manage unless subdivided into smaller tasks. A sequential plan often does not provide adequate tlexibily to respond to delays. By subdividing the activities into concurrent (those that may occur simultaneous'y) tasks, the work can be completed in a shorter time with the same total re: sources. Figure 6, shows a possible approach, given manpower availabilty. The critical activities are connected by logical constraints and durations. A delay in one activity will delay the project completion date. The critical (longest) path is determined by summing up the longest activities for each sequence below. In essence, because of the shorter overall duration, Figure 6 builds in "total float" (the schedule equivalent of budget contingency) to the con- tract completion date, thereby providing for potential disruptions. This shows that projects can also be accelerated by re-sequencing, as well as the obvious method of providing additional resources to reduce critical path durations. Figure 5: IN [Contract Completon 0 WORKDAYS, TRENCH BEDDING TAY PPE pPaTesT BACKFIL oom [| asda {| ssone [P| rays |__| so 0 Figure 6: Cumulative Days 2 5 8 u 4 7 ao a1 3 alle Fs = ~h =} les 1, se le Tee a (© 2003-2011 ASME Intemational All Rights ReservedASME 3 poe D Project Controls 5 | Critical Tasks vs. Delays The engineer cannot attord to spend a great deal of management time and re- sources on activities that are not “ertical” to project completion. On many projects, a small percentage of the schedule activities are critical. Because some of the “near critical” activities (those that are closest to critical path activities), could subsequent- ly prove to be the bottlenecks that ruin any chance of on-time project completion, near critical activities snould also be closely monitored. Early knowledge of a delay will allow exploration of options such as: ‘+ Identifying those critical activities which could be shortened by the application of additional resources (ie., increased stating or solacted overtime); ‘+ Identifying those activity sequences which constrain the completion date and then considering re-sequencing to eliminate or reduce the constraint + Accepting the reality of a delayed completion date and planning alternatives to the entire projact being done ‘on time, (phased completion) In determining the responsibilty for recovery of a delay of project completion, consider that there can be two basic types of delays on a project: excusable and non excusable. These terms apply to the contractor's perfor mane requirement. Unusually severe weather and delayed access to the site are two examples of excusable delays to a contractor. Excusable delays are often compensable by the owner and the contract time is extended, so that liquidated dam- ages or other owner contractual delay remedias do not apply to the extended contract duration. Inadequate staffing of the project and rework by the contractor resuits in non-excusable delays. Non-excusable delays are not compensable and could expose the contractor to owner's delay-related remedies. If an excusable and a non-excusable delay occur during the same time period, they are said to be concurrent delays. (D0 not confuse concurrent tasks with concurrent delay responsibilities.) Typically, an extension of con- tract time is granted for concurrent delays (owner-delay remedies do not apply) but no compensation is granted to the contractor. These are excusable but not compensable, The contract should identify which delays are excusable, as well as which are compensable. As an example, some contracts contain a No Damages for Delay clause, which is intended to deny compensation to a contractor for owner-caused delays by granting only a contract time extension. In this example the contractor also bears full responsibilty for concurrent delays; thus, the delay is neither excusable nor compensable. Because there are limits to appiication of this clause, documentation and cone'se presentation of unusual impacts related to the schedule is important. By oversigns In addition to establishing a good project implementation plan, oversight, or independent periodic review, should be considered an element of the project controls process. On-site project personnel can become overwhelmed in the details of construction and, thus, delay control activities. Otten this results in inaccurate reporting and a loss of ca- pabilty for timely response. The independent reviews nelp keep events on track Oversight is not an audit. Audits are post-mortem examinations and deal with performance in the past. They carry a (© 2003-2011 ASME Intemational All Rights Reserved34 os D Project Controls an undertone of erticism and punitive connotation. By contrast, oversight teams use past performance to lear from, and to encourage future excellence while discourag- ing poor performance. What is going right and why, is just as important as what is going wrong and why. Through observations of past performance and projections for future performance, Project Oversight may result in recommendations and a com- prehensive action plan to implement improvement opportunities. The goal is to as- sist in meeting (or exceeding) all project and organizational goals. In addition to these processes, operating companies often conduct formal reviews prior to construction funding approval. This “design review" focuses on the elements of risk identified previously (contract type, delivery method, completeness of scope, definition, budget, cost contingency, schedule, schedule contingency, and planned resources). This effort is intended to support that of the project teams and confirm that the project goals are consistent with organizational goals. Eh conctuson In any project, variance from the project plan is to be expected. But all successful projects have procedures in place, from the beginning, to deal with anticipated vari- ances. The most successful projacts minimize variances by anticipating or evaluat- ing potential risks and addressing them as early as possible. In shor, effective "continuous variance seeking” management is the first step in ef- fective control. The timely analysis of negative variances and trends will allow quan- tification and evaluation of the best available opportunities (not just a single oppor- tunity) for attenuation, and therefore, success. For this, intricate coordination and communication are the project managers best frend, a (© 2003-2011 ASME Intemational All Rights ReservedD Project Controls | | Quiz 1. WBS” stands for: a, Workers Best Systems b, Worldwide Basic Structures c. Work Breakdown Structure 4d, Waste and Breakage Standards 2. Project budgets can be: a, Designed as a whole after supplier's bids amive . Parceled out to suppliers by the week. «Integrated into initial overall planning, 4. Phased in as work progresses 3. Variations in plan: a. Are always negative b. positive, enable goal to be exceeded, Only affect the budget, 4. Only affect the schedule 4, Deviations from baseline plans a. Always suggest immediate solutions b. May need further analysis ¢. Have nothing to do with getting permits 4d, Can't be solved by the engineers 5. The final goals of a project a. Are always clearly defined at the start b, May evoive as work progresses. Cannot be changed once work be gins. 4. Are not affected by budget considerations. 6. The most common cause of cost overruns is a, Changes in government regulations b. Schedule delays due to bad weather. ¢ Owner-initiated changes in plan. 4. Accounting project mistakes. 7. The design is finalized before going to work: a. Always b, Never c. Seldom 4d, Usually 8. Acontingency: a, Can be adequately predicted. b, Is an allowance for uncertainly in the plan ¢. Is an excuse for delays 4. Should not be factored into the schedule or budget, a © 2003-2011 AS Tovernational, All Rights Reserved 3536 D Project Controls 9, Scheduling multiple tasks does not include: a. Using identical formats forall parties involved. b. Cash-tlow requirements. c. Completion dates. d. List of possible ‘what: problems 10. The project schedul a. Needs to list if cranes are needed for construction. b. Contains two-week schedule precictions. c. Lists ways to recover lost time, with a total float calculation. 4. All of the above. 11, Progress schedules should usually be updated how often: a. Daily b. Weekly «, Monthly 4. As needed, to report to owners, 12. The Critical Path Method of tracking: a. Is a self-sufficient method, b. Is the only way to manage a project. ‘c, Must be supplemented by other methods. 4d. None of the above, 13. All delays: a. Are of equal importance to completion. b. Have equal impact on the budgat . Can sometimes be excusable, 4d. Can be blamed on bad weather. 14, Independent project oversight: a. Is needed because on-site personnel are immersed in daily details. b. Is the same as an audit «.[s intended to assign blame for mistakes and delays. 4. Has nothing to do with staying on target. 15, Successtul project management depends on: a. Sutticient budget to pay for overruns, b. Complex coordination of work phases, from the start. ‘¢, Owner's staying at a distance during work. 4. Elimination of all risks and possibilty of error a (© 2003-2011 ASME Intemational All Rights ReservedD Project Controls | | Quiz: Answer Ke a (© 2003-2011 ASME Intemational All Rights Reserved 37E Contracting Organizations and Options TABLE OF CONTENTS Introduction Part 1: Parties to Contract Part 2: Delivery Options Part 3: Definition of Scope Part 4: Contracting and Delivery Methods Part 5: Contract Elements Part 6: Conclusion Glossary: Quiz: Quiz: Answer Key a (© 2003-2011 ASME Intemational All Rights Reserved 39 39 a 42 42 44 48 49 56 87 3839 D Contracting Organizations and Options D Introduction Many engineers are involved in the construction of facilites. Even if you do not work in the construction indusiry, you may be called upon to work on a consiruc- Pareto eo tion project in some capacity, For example, you may work ata research lab and need to oversee the design and construction of a facility, or work for a uiity or Afier completion of this manufacturing company that is expanding, upgrading, or mothbaling facilities, all | Tanya lanes of which may include extensive design and consiruction. Ata personal level, you may build your own house, or, as an engineer, be called upon by your neighbor- encore hood association or other organization in which you are involved to provide assis- Peretti tance or input into local construction projects Serta Deere ‘The nature ofall projects equtes focus on three basic goals: qualiy, cost, and cf time. A successfully managed project is one that is compicted safely a‘ the speci Tanck fied level of quality, on or before the desited deadiine, and within the available Core None budget. Each ofthese goals is specified in detail and constitutes the plan of the (asaapmacan cn project. These specifications then form the basis for project control, or mana ge- nas ment; the PPC module "Project Management” provides an introduction to this pro- An element of project management is the establishment of contracts defining and governing the project. Many types of contracts exist for the design and construction of projects, describing the scope, ar quality, of the project (the detail of which may vary widely), the relationships of the parties involved, the compensation for work, the distribution ofrisk among the parties, and other legal aspects of he project. In select- ing and defining the contract to use fora construction project, a thorough understanding of your situation and care- ful consideration of the pro and cons ofthe various options are crucial to the success ofa project. This module will introduce you to the parties and the types of contracts involved in construction projects, their advantages and dis advantages, and considerations involved There are generally three parties involved with the design and construction of project: the owner, the engineer and the contractor (also known as the constructor), In many cases, these functions may be combined or further divided. For example, a project owner may also be the engineer or hire one organization to perform both the engi- neering and/or construction, or the owner may decide to hire multiple engineers and contractors to provide the en- gineering and construction services, Contracting options must reflect the risks of all parties to a contract You may find yourself involved in a project in a variety of capacities. I's important that you thoroughly understand you role as wellas that ofall the other players. In this section, we'll introduce you to the typical parties that enter info construction projects. The Customer While not necessarily a party to the contract itself, customers are key players in any construction project. Each en tity, or party involved in a project, may have a different cusiomer. The owner, for example, may need to respond to the requirements ofits Board of Directors, or it may be building a facility to lease to another entity, who would then be its customer. Forthe engineers and contractors involved, the owner is the customer. For subcontractors, the entity with whom they contract is the customer. Ultimately, the owner or the owner's customer are customers of all the parties involved in a project, and, wherever possible, involvement ofall parties in understanding the needs ofASME 40 poe D Contracting Organizations and Options the owner's customer is an essential first step in establishing the project basis or scope. Each party considers the requirements of their customer before investing financially or entering in binding contacts. I, for example, the owner of a restaurant intends to lease the facility to another party, then the owner must have a clear understanding of the customer's requirements and may need participation of the customer in the engineering and construction activities which further develop the needs. During engineering and construction, itis not uncom mon for requirements to change, and the customer(s) may need to be involved at various times throughout the pro- ject. The Project Owner The project owner is an individual or organization that has a need to have a facilty designed and constructed in order to carty out its goals or obligations. This might be as simple as an individual wanting a new restaurant builtin a period of six to nine months, or as complex as the Federal Government wanting to build a nuclear waste pro- cessing facility, with expansion phased over a period of twenty years. As such, the owner identifies the scope of the project, in performance terms, and the financial and timing restraints. The owner must have a clear understand- ing ofits customer's requirements and may need participation of the customer in any engineering and construction activities which further develop the needs. In some instances, the owner may have the resources for complete engineering design. For larger projects, how- ever, the project owner usually needs to procure the services of other organizations to design as well as build the project. The project owner wants the project scope completed safely, on schedule, within budget, and of the re- quired quality Thus, a key assumption in contract execution is that the owner understands, or will develop, the project require- ments to convey complete and unambiguous direction to the engineer or constructor, and that the owner can pro: Vide unrestricted access to the work area in a timely manner. The Engineer The engineer, alternately referred to as the designer or architectiengineer (A/E}, is an individual or organization that is able to assist the project owner to mest its needs by designing (developing and specifying in detail the scope, cost and timing of) the project. In addition to the actual design services (preparation of plans and specifica- tions), the engineer might also assist the owner in determining its full needs, by activities such as procuring spe- cially items, providing construction bid documents and post-design completion services, and assisting the owner in starting up and operating the facili. Because the engineer may perform work that has either a well-defined basis or that requires investigation and analysis in order to improve the definition of scope, cost and timing more accu rately betore proceeding to construction, these services may be provided on either a fixed cost or reimbursable cost basis. (To be discussed later.) The Contractor (Constructor) Contractors can vary in capabilly, depending on the complexity of the project. The contractor may be as small as a one-man carpentry service performing work in a local community or as large as an international organization em- ploying tens of thousands of workers across the globe. The contractor will construct the facility as defined by the engineer, for an agreed upon price and duration, utiizing its own means and methods. Prior to contract award, itis essential that the design be comprehensive and that access to the construction site(s) be provided in a timely man- ner. Here are some of the basic types of contractor organizations a (© 2003-2011 ASME Intemational All Rights ReservedASME a Sones D Contracting Organizations and Options General Contractor - This is an individual or organization that typically contracts with the project owner to construct the facility. The general contractor typically does not perform the design of the project. The general contractor gen- erally performs the work with a combination of direct hiring of individual craft workers and the use of subcontrac- tors. Oiten, the work is bid as a fixed price, and the general contractor is responsible for safely “delivering” the en- gineered scope at the specified price, within the time allotted. This is reterred to as being "at risk," because the Contractor assumes any financial burdens that might result from project delays or cost overruns In some instances, a reimbursable contracting method is used when the engineered scope is not sutfciently detailed. Subcontractor This is an individual or organization that typically contracts with a general contractor to perform a specified part of the work as shown below, the subcontractor may directly hire craft personnel to perform the work oF use a sub/subcontractor Specialty Contractor - This is an individual or organization that provides specialized construction services, usually involving a regulatory licanse or technical specialty (i.e., romoval of contaminated soils, lead or asbestos abate- ment, x-ray inspection, electrical, plumbing, mechanical - or heating, ventilation and air conditioning, HVAC, ete.) They may be contracted directly to the project owner (in which case they are referred to as a “prime” contractor) or as a subcontractor to a general contractor. i Delivery Options The successful completion of a project is referred to as its “delivery.” The “delivery method” describes the structure of the working relationships among the owner, engineer, and contractors), in other words, their roles and responsi- bilities as well as the overall project risk sharing. Itis essential that all parties involved combine in a torm (delivery method) that allows each to manage the risks for individual and project success. In addition to the general contractor and prime contractors, other participants can include: Construction Management When a project owner uses a number of separate, or ‘prime contractors to construct a facility rather than hire a general contractor, and does not have sufficient resources fo manage the work, the project owner may hire a con- struction manager to assist in obtaining bids, manage the construction, and interface with the AVE. This is referred to as the design/bidibuild delivery option. Design/Build This is an individual or organization that has the capability to both design and construct the facity that the project owner requires, and turn over a facility ready to be operated. A Design/Build Contractor can be referred to as a "Turnkey" contractor or an Engineer/Procura/Construct (EPC) contractor. Often this type of approach is sought in order to accelerate completion of an ambiguous project. Both reimbursable and “at risk" (ixed price) services are utilized, depending upon the TET adequacy of scope definition. As scope becomes defined, a reimbursable contract may ae be converted from reimbursable to fixed price (convertible contract) or guaranteed ca maximum price. In the designbuld method, scope is offen presented in terms of facility performance standards, such that further design detail is necessary. A variation of the above is a DesighBuild/Operate contract where the contractor also operates the facility for the owner. baler [ow a (© 2003-2011 ASME Intemational All Rights ReservedASME PPC ieee 42 D Contracting Organizations and Options 3 | Definition of Scope At the inception of a project, the end user (the owner or its customer) may not be 100% certain of the scope of a project to fulill their needs. The end-user's desired ‘program of needs” may also continue to evolve during the design and construction phases. Similar, environmental issues (i2., asbestos abatement, lead abatement, etc.) may not be fully defined. The variability in design requirements, operational needs of the owner's business, and unknown conditions, therefore, piay an im- portant role in contract options. An example of a well-defined project would be a "duplicate" of one that was previ- ously designed and constructed, such that this “duplicate” project benefited from changes incorporated in the design phase of the first one. An example of a project with evolving definition would be a first-of-a kind process or manufacturing facity. a Contracting and Delivery Methods Important decisions in the project execution strategy include which delivery method to utilize and which type of contract will best support the method selected. For example, should there be multiple contracts for design and con- struction (design/bid/build) or just one (design/build), and should the contracts be reimbursable (cost plus) or fixed price (lump sum)? The elements of that decision may determine the priority goals (cost or schedule) and how they are to be managed. While there is much attention paid to design/build, or EPC, today, please note that one ap- proach cannot be used for al projacts, and no contract isolates participants from risk. ‘The owner has a number of choices in delivery approach and contract types. Key elements affecting the choices include: 1. A focus on a particular business need relative to cost, schedule, quality and safety. For example, does the need for a short duration ("fast track" schedule) just’y potentially increased costs? 2, How the risks of design cost and/or schedule increase relative to completeness of scope definition, and how to manage them. This is sometimes dictated by "perceived" risk avoidance (design/build) 3. The turnover or commissioning requirements. How extensive will training be, or will build/operate requirements apply? 4, The view of the contracting method from the owner's, engineer's, and contractor's points of view. How can we maximize the probability of a win-win outcome? 5. Where "management responsibilty” will lie, and how interfaces among engineering, construction, and owner will function. 6. The construction industry climate and potential contractor interest. 7. The project funding source. Since this is the lte-blood of the project, al participants should understand how a project is funded and the restraints and timing of approval for potential changes. ‘As montioned earlier, there are two basic contract types: Fixed Cost (or Lump Sum) and Reimbursable Cost (or Cost Plus), with many variations (Guaranteed Maximum Price, Unit Prices, etc.) and combinations of these two — (© 2003-2011 ASME Intemational All Rights ReservedASME 4B poe D Contracting Organizations and Options basic types. The most common include: Cost Plus - This type of contract works best when the scope of the required work. cannot be established al the time the parties enter into the contract. The project owner agrees to pay the designer or constructor their costs plus a tee. The tee could be a fixed amount or a percent of the actual costs. Lump Sum - This type of contract works best when the scope of work (quantity of ‘work and duration of project) are clearly stated in the contract documents and not subject to major change. This type of contract would be used for a building project ‘when the design is complete and the project drawings and specifications can be in- cluded as part of the contract. It must be noted that a fixed price contract is not a zero risk (for the owner) option. Any contract is dependent on the completeness of the scope documents and possible unknown field conditions. Unit Price - This type of contract works best when the type of work is known, but the quantities cannot be deter- ‘mined prio to the work being performed. This contract form might be used for the installation of a sewer line when it has been determined (trom soil borings) that there will be some rock and some earth in the area where the sewer is to be installed, However, the quantities of rock and earth cannot be determined, with certainty, until the work is actually performed. With a unit price contract the bid documents usually contain the engineers estimate of the ex- pected quantities of each bid item. Many contracts have a clause that allows for an adjustment of the unit price in the event the quantities vary by a stated amount from those estimated quantities shown on the bid documents, ‘Schedule considerations should be included by incorporation of a schedule of planned durations. Guaranteed Maximum Price (GMP) - This type of contract works best when the design is based on conventional means and methods, but insufficient information is available for construction bidding at the time of award. Typically, the "Guarantee" (fixed Price) contains a reimbursable contingency to cover the Contractor's uncertainty. There may also be an agreement for the owner to share in the savings or overruns against the GMP. In either case the con- tract must clear'y spell out what costs are to be reimbursed and what costs are fixed. Convertible Contracts, unlike GMP contracts, usually remain reimbursable until the scope is fully defined. At that point a fixed price arrangement is usually implemented. This allows the owner to reduce the contingency available to the contractor. As discussed, the owner's experience and available resources are essential in determining the contract type & de- livery method. Your thorough understanding of the available options will allow you to be more useful in providing guidance to the owner, or to your customer. Understanding how the different choices affect your roles, responsibil ties, and the risks you are assuming wil also help you make the best decisions for you. Attachment 1 shows the many variations of the above, along with typical advantages and disadvantages and scenarios for which they may bbe appropriate. You'll need to consider the unique requirements of every project. Other considerations include: 1. The engineer's or contractor's experience with similar projects and the projact location, and the experience of personnel assigned. 2. Effective and equitable use of monetary incentives (bonuses) or remedies (liquidated damages, etc). 3. Owner approval and quality control. Will there be access restrictions, quality checkpoints, inspections, etc., to incorporate in the schedule? Decisions on contracting and delivery methods are often made on a qualitative basis. Table 1, is an excerpt from a (© 2003-2011 ASME Intemational All Rights Reserved