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Common misconceptions about cost engineering

True and false signs, debunking misconceptions

Not everyone is familiar with cost engineering in the field of project controls. In the project team around you probably everyone has their own idea of how to assign costs and control the project. Let’s get some common misconceptions about cost engineering out of the way.

Running a household is totally different from managing a project

In the Jefferson household nothing seems to be out of the ordinary. It is Friday morning and Mr. Jefferson walks downstairs into the kitchen to find his wife and kids ready to dive into their breakfast. While reading the morning paper he sips from his coffee and thinks about his first job for today. A little bit later, his wife gets their kids to drive them to school. Then she will continue to the mall to do the weekly shopping. She returns home with $375 worth of groceries, nothing special there.

$375 worth of groceries! Now you are probably thinking that she is out of her mind! How can they spend that amount of money on food and still pay for their mortgage, college tuition, health care, clothing and all that? Indeed, the Jeffersons have credit problems. Every month, they spend $1500 on groceries, which leaves very little left for anything else. For us, this may seem like an easy problem to solve, but trying to change a way of living can be very difficult.

Running a project is not so different from running a household. The same mistakes are made and it is just as difficult to change the business culture with regard to cost awareness. For a cost engineer it is important to be in control of the expenditures and make sure money is spent effectively and within budget.

Therefore: treat your project as if it is your household.

Cost control is the same as cost accounting

Every day Bob drives his car to work. He has to travel 40 km to get there, which normally would take him about half an hour. Today, halfway to work, a colleague calls for advice about a complex project they are working on together. Bob thinks it’s best if they discuss this in a meeting room, so he makes a quick estimate of how long he still needs to get to the office.

Now you might think this is easy: he is halfway, so it will take him 15 minutes. However, Bob knows a bit more than we do: the first 20 km are easy, but during the last part he always encounters a traffic jam. Bob estimates he will need another 20 minutes before he arrives at the office. He is not thinking like an accountant, who would assume 15 minutes, but rather as a cost controller using information from the field to make a more realistic forecast.

In the discipline of cost accounting, you collect and assess cost data with regard to a completed project. You are basically looking through the rear mirror of your car, only looking back at what it took to get where you are right now. While this is perfect for when you already arrived at your destination, it is not enough when you are still on the road. Likewise, when driving it is not safe to only look ahead through your windshield. You need information about what’s happening around you in all directions.

The same thing is true for running a project: you consider for each activity what has been completed so far, what work still remains and what’s happening in the rest of the project. Only then you are really in control of your project.

Therefore: run your project like you drive your car

Cost engineering is not a profession

Typically, when the design for a solution is started it is passed on through the different disciplines involved, to finally end up with the estimator to calculate the cost of implementing this solution. Unfortunately, this is too late, as this process is often subject to time pressures that do not allow for a solution that is too expensive to be changed and repeat the design loop.

Awareness of the related cost is a key factor in the choice of approaches and design solutions, but traditionally the roles of establishing design solutions and of assessing the related costs have been separated both in time and responsibility. Cost engineering extends beyond the estimation and assessment of cost, because these capabilities can also be applied to support the aim of achieving more cost-effective results.

The discipline of cost engineering can be considered to encompass a wide range of cost-related aspects of engineering and program management, but in particular cost estimating, cost analysis/ assessment, design-to-cost, schedule analysis/planning and risk assessment. These are fundamental tasks that may be undertaken by different groups in different organizations, but they are undertaken throughout the project life-cycle by trained professionals using appropriate techniques, cost models, tools and databases in a rigorous way, and applying expert judgment in relation to the project circumstances and the information available. In most cases, the output of a cost engineering exercise is not an end in itself but rather an input to a decision-making process.

Therefore: cost engineering is a profession.

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