The worlds first integrated process for portfolio, program, and project management!

A Process For Applying the Skills and Knowledge of Cost Engineering

Copyright 2006 by AACE International 209 Prairie Avenue, Suite 100 1 Morgantown, WV 26501 USA

TCM Is a Process For Applying the Skills and Knowledge of Cost Engineering
the effective application of professional and technical expertise to plan and control resources, costs, profitability and risks. Simply stated, it is a systematic

AACE Internationals Constitution

approach to managing cost

throughout the life cycle of any enterprise, program, facility, project, product, or service. This is accomplished service through the application of cost engineering and cost management principles, proven methodologies and the latest technology in support of the management process. process
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Cost Is Everything
It costs time It costs resources It costs money

EVERYTHING invested in assets and projects is a COST

That is why it is called TOTAL COST Management (TCM)
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For Business, TCM is An Integrated Recipe for Managing Portfolios, Programs, and Projects in Alignment with Business Strategy!

Better Control

Cost Engineering

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Resources

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isions Better Dec Better IRR

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For AACE, TCM is a Framework For Its Technical, Education and Certification Products

M
CCC CCE Skills PSP and EVP Knowledge (S&K)

TC
Recommended Practices (RPs) Professional Practice Guides (PPGs) Cost Engineers Notebook

Presentation Outline

TCM Benefits
Understanding TCM

Applying TCM
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Top-to-Bottom Business Benefits

Profitable Asset Portfolios
Makes sure your resources go where theyll get the best IRR/RONA/EVA

Integrated/Aligned Programs
Makes sure your projects are all integrated, aligned and coordinated

Controlled Projects
Makes sure each project gives business the results that were planned for

and, makes sure everything is aligned with Business Strategy!

TCM Combines Asset and Project Life Cycle Management

Return on Assets is largely driven by practices used before projects begin
With TCM, owners understand and manage the costs of their asset base over the entire asset life cycle

Successful Projects are required if the planned return is to be achieved

With TCM, owners and contractors control the costs of their projects over the entire project life cycle
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TCM Has Breadth and Depth

Builds on AACEs Breadth: We Cover More Than Just Projects

Strategic Functional
Builds on AACEs Depth: We Know How Things Really Work
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Presentation Outline

TCM Benefits
Understanding TCM

Applying TCM
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TCM Starts With a Simple Concept

Plan-Do-Check-Assess (PDCA)
PLAN (plan activities)

ASSESS (evaluate measures, act upon variances)

PDCA Cycle

DO (perform activities)

CHECK (measure performance of activities)

Based on the time-tested Deming or Shewhart cycle. In essence, TCM is a quality management process. 11

TCM Attributes
Continuous Improvement
PLAN (plan activities)

ASSESS (evaluate measures, act upon variances)

PDCA Cycle

DO (perform activities)

Every TCM process employs feedback and improvement! Integrated Every TCM process has P,D,C & A steps that are All linked back to business strategy!
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CHECK (measure performance of activities)

TCM Covers the Entire Asset and Project Life Cycle

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TCM: Level 1 Process Map

STRATEGIC ASSET PLANNING (3)

Plan

PROJECT PLANNING (7)

Plan

Assess
STRATEGIC ASSET PERFORMANCE ASSESSM ENT (6)

Strate gic Asse t Management Proce ss (2.3)

STRATEGIC ASSET PERFORMANCE M EASUREM ENT (5)

Assess
PROJECTS IMPLEM ENTATION (4) PROJECT PERFORMANCE ASSESSMENT (10)

Proje ct Control Proce ss (2.4)

PROJECT PERFORMANCE MEASUREM ENT (9)

PROJECT ACTIVITY IM PLEM ENTATION (8)

Do

Do

Check

Check

Portfoli o of EnterpriseAssets

Portfolio of Assets

Portfolio of Projects (Programs)

Portfol i o of Proj ects

Project Control is a Recursive Process Within the Strategic Asset Management Process
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The Framework Is Organized By Process

The Framework includes the Basis, Functional The TCM Framework Processes, and Enabling Processes

Basic Processes of Total Cost Management

1 Introduction 2 The TCM Process Maps 2.1 Basis 2.2 Total Cost Management 2.3 Strategic Asset Management 2.4 Project Control

Functional Processes for Strategic Asset Management

3 Strategic Asset Planning 4 Project Implementation 5 Strategic Asset Performance Measurement 6 Strategic Asset Performance Assessment

Enabling Processes For Total Cost Management

11 Enabling Processes 11.1 The Enterprise in Society 11.2 People and Performance Management 11.3 Information Management 11.4 Quality Management 11.5 Value Management 11.6 Environment, Health and Safety

Functional Processes for Project Control

7 Project Control Planning 8 Project Control Plan Implementation 9 Project Performance Measurement 10 Project Performance Assessment

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The Framework Functional Process Sections

II. STRATEGIC ASSET MANAGEMENT

PROCESS

CHAPTER 3PLANNING
3.1 Requirements Elicitation and Analysis 3.2 Asset Planning 3.3 Investment Decision Making

III. PROJECT CONTROL PROCESS CHAPTER 7PLANNING

7.1 Scope & Execution Strategy Development 7.2 Schedule Planning and Development 7.3 Cost Estimating and Budgeting 7.4 Resource Planning 7.5 Value Analysis and Engineering 7.6 Risk Management 7.7 Procurement Planning

CHAPTER 4PROJECT IMPLEMENTATION

4.1 Project Implementation

CHAPTER 5MEASUREMENT
5.1 Asset Cost Accounting 5.2 Asset Performance Measurement

CHAPTER 6ASSESSMENT
6.1 Asset Performance Assessment 6.2 Asset Change Management 6.3 Asset Historical Database Management 6.4 Forensic Performance Assessment

CHAPTER 8PROJ. CONTROL PLAN IMPLEMENTATION 8.1 Project Control Plan Implementation CHAPTER 9MEASUREMENT
9.1 Project Cost Accounting 9.2 Progress and Performance Measurement

CHAPTER 10ASSESSMENT
10.1 Project Performance Assessment 10.2 Forecasting 10.3 Change Management 10.4 Project Historical Database Management 16

Each section has a process map and narrative that describes the process

Plan
Planning Processes: Scope and Execution Strategy Development (7.1) Schedule Planning and Development (7.2) Cost Estimating and Budgeting (7.3) Resource Planning (7.4) Value Analysis and Engineering (7.5) Risk Management (7.6)
Analysis Basis & Feedback

Stakeholders and Customers

Needs and Desires

Asset Historical Database Management (6.3)

Historical Data Actual Data

Do
Historical Data Actual Data

Enterprise Management

Business Strategies, Goals, Objectives

All Strategic Asset Management Processes (3.1 to 6.4)

Requirements Elicitation and Analysis (3.1)

Requirements Changes

Requirements

Asset Planning (3.2)

Decision (Resource Allocation for Projects)

Project Implementation (4.1)

Project Implementation Basis

Project Control (2.4)

Project Performance

Forensic Performance Assessment Performance (6.4)

Information

Asset Change Management (6.2)

Improvement Opportunities (variance from baseline plans)

Investment Decision Making (3.3)

Decision (Resource Allocation for Operations)

Asset Operation or Use

Asset Cost Accounting (5.1

Assess

Baseline Asset Management Plans Asset Performance and Valuation Measures

Asset Performance

Asset Performance Assessment (6.1)

Benchmarking Information

Check

Asset Performance Measurement (5.2)

Other Enterprises

TCM Level 2 Process Map Strategic Asset Management

Stakeholders and Customers

Needs and Desires

Enterprise Management

Business Strategies, Goals, Objectives

Planning Processes: Scope and Execution Strategy Development (7.1) Schedule Planning and Development (7.2) Cost Estimating and Budgeting (7.3) Resource Planning (7.4) Value Analysis and Engineering (7.5) Risk Management (7.6)
Analysis Basis & Feedback

Asset Historical Database Management (6.3)

Historical Data Actual Data Historical Data Actual Data

All Strategic Asset Management Processes (3.1 to 6.4)

Requirements Elicitation and Analysis (3.1)

Requirements Changes

Requirements

Asset Planning (3.2)

Decision (Resource Allocation for Projects)

Project Implementation (4.1)

Project Implementation Basis

Project Control (2.4)

Project Performance

Forensic Performance Assessment Performance (6.4)

Information

Asset Change Management (6.2)

Improvement Opportunities (variance from baseline plans)

Investment Decision Making (3.3)

Decision (Resource Allocation for Operations)

Asset Operation or Use

Asset Cost Accounting (5.1

Baseline Asset Management Plans Asset Performance and Valuation Measures

Asset Performance

Asset Performance Assessment (6.1)

Benchmarking Information

Asset Performance Measurement (5.2)

Other Enterprises

Strategic Asset Management Deploys Business Strategy

Stakeholders and Customers

Needs and Desires

Alternative Alternative Investm ent Business Investment Enterprise Enterprise Enterprise Strategies, Scope Scope Requirem ents Decision Requirements (3.2) Decision Goals, Management (3.2) (3.1) Policy (3.1) Policy Objectives

Planning Processes: Scope and Execution Strategy Development (7.1) Decision M aking Criteria Schedule Planning and Development (7.2) Decision Making Criteria Cost Estimating and Budgeting (7.3) Resource Planning (7.4) Value Analysis and Engineering (7.5) Alternative Alternative Risk AlternativeManagement (7.6) Business Investm ent Risk Alternative Investment Business Risk Investm ent Planning Valuations Investment Planning Valuations Factors Factors Scope Valuations (revenues, Analysis Basis & Feedback (revenues, Scope Valuations (7.6) (7.6) (3.2) (costs, etc.) etc.) (3.2) (costs, etc.) etc.) (3.2) (3.2)
Decision

Asset Historical Database Management (6.3)

Historical Data Actual Data Historical Actual Asset Life Cycle Data Data Asset Life Cycle Forecast Forecast (5.1, (5.1, 5.2 and 6.1) 5.2 and 6.1)

All Strategic Asset Management Processes (3.1 to 6.4)

Decision M aking

Requirements Plan for Elicitation and RequireDevelop the Plan for ments Investment Analysis Develop the Decision Model Investm ent Decision Making (3.1)
Requirements Changes

D ecision M odel
Stakeholder Input

Project Make, Document Project Project Asset (Resource Evaluate Models Implement- ake, Docum ent M and Control Quantify Allocation Implementation Planning Evaluate M odels ation and Recommend for Q uantify and Value and Risk (4.1) (2.4) (3.2) and Recom m end BasisCommunicate Action Projects) Decision unicate Value and R isk C om m

Action

D ecision Project
Performance Project Historical Business Information Decision Project (6.3) Historical Basis Business Asset Cost (4.1)

Forensic Performance Assessment Performance (6.4)

Information

Asset Change Inform ation Management (6.3) (6.2)

Improvement Opportunities (variance from baseline plans)

Historical Information (6.3) Historical

Historical Decision Stakeholder Information Input (6.3) (Resource Investment Historical Asset Allocation Stakeholder Stakeholder Dom ain Decision Making Inform ation for Operation or Input Know ledge Input (3.3) (6.3) Operations) Domain Knowledge Issues requiring further analysis

Use

Inform ation Decision Accounting (6.3) Basis (5.1 (4.1)

Develop and Historical Maintain Information Asset Decision Making (6.3) Performance Toolsand D evelop Assessment Historical M aintain (6.1) Inform ation Decision M aking (6.3)
Benchmarking Information T ools

Baseline Issues requiring Asset Management Plans

further analysis

Asset Performance

Example: Investment Decision Making

Asset Performance and Valuation Measures

Asset Performance Measurement (5.2)

Other Enterprises

Each Block is a Working Level Process Map

Project Historical Database Management (10.4)

Historical Data Actual Data Historical Data Actual Data

Iterative, concurrent processes

Plan

Schedule Planning and Development (7.2)

Schedule Baseline (Activities) Cost Baseline (Budget) Resource Baseline (Quantities)

All Project Control Processes (7.1 to 10.3)

Strategic Asset Management Process (2.3)

Project Implementation Basis (Asset Scope, Project System Requirements, Budget, etc.)

Cost Estimating and Budgeting (7.3)

Do
Project Control Plan Implementation (8.1)

Change Management (10.3)

Scope Change & Forecasts

Forecasting (10.2)

Project Scope and Execution Strategy Development (7.1)

Resource Planning (7.4)

WBS & Execution Strategy

Baseline Plans

Procurement Planning (7.7)

Contract Requirements

Improvement Opportunities (variance from baseline plans)

Analysis Basis & Feedback

Project Cost Accounting (9.1)

Baseline Plans

Project Performance Assessment (10.1)

Status Checks & Feedback

Analysis Basis & Feedback

Value Analysis and Engineering (7.5)

Risk Management (7.6)

Performance and Performance Measurement (9.2)

Cost, Progress and Performance Measures

Assess

Check

TCM Level 2 Process Map: Project Control

Project Historical Database Management (10.4)

Historical Data Actual Data Historical Data Actual Data

Iterative, concurrent processes

Information for Analysis Asset Project Technical WBS, Strategic Asset (7.5,7.6,7.7) Alternative Planning (including All Project Control Work Packages, Scope Basis Contractual) Management and Processes (3.2) Execution (4.1) Deliverables Process Strategy 10.3) (7.1 to (7.1) (2.3)

Schedule Planning and Development (7.2)

Requirements and Objectives (4.1) WBS (7.1)

Chart of Schedule Accounts Baseline (9.1)

Chart of Accounts Change (9.1)

Quantify Plan for Project Implementation Basis the Scope Estimating and (Asset Scope, Project System Content (takeBudgeting Requirements, Budget, etc.) off)

Cost Estimating and Budgeting (7.3)

Price the Cost Estimate

(Activities)

Schedule Historical Cost Review Information (7.2) (10.4)

Management (10.3)

Schedule Durations Scope (7.2) Resource Quantities (7.4)

Change & Forecasts

Forecasting (10.2)

Project Scope and Execution Cost WBS & Execution Scope Strategy Content Strategy Development (7.1)
Contingency from Risk Analysis (7.6)

Simulate and Optimize the Costs

Resource Planning (7.4)

Resource Baseline (Quantities)

Budget Costs

Cost Baseline (Budget)

Basis Review and Plan and Document the Implementation Cost Control Cost Estimate Baseline

Project Control (8.1)

Estimate

(3.2, 3.3, 8.1)

Analyze Cash Flow

Maintain Methods and Tools

Procurement Planning Develop and (7.7)

Contract Requirements

Bid Baseline the Cost Plans Estimate

Schedule (7.2)

Improvement Opportunities (variance from baseline plans)

Analysis Basis & Feedback

Historical Information (10.4) Chart of Accounts (9.1)

Project Cost Accounting (9.1)

Baseline Plans

Example: Estimating

Project Performance Assessment (10.1)

Status Checks & Feedback

Analysis Basis & Feedback

Value Analysis and Engineering (7.5)

Risk Management (7.6)

(Bid is a cost input for the recipient)

Performance and Performance Measurement (9.2)

Cost, Progress and Performance Measures

An Example Project Control Working Level Process

The Framework Also Covers Enabling Processes

11.1 The Enterprise in Society 11.2 People and Performance Management 11.3 Information Management 11.4 Quality and Quality Management 11.5 Value Management and Value Improving Practices (VIPs) 11.6 Environment, Health, & Safety Management

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Presentation Outline

TCM Benefits
Understanding TCM

Applying TCM
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How Business Can Use the TCM Framework

Use it as a guide for process development or re-engineering
A go-by that can be modified to suit each company's processes, phasing, org., lexicon, etc. Can be applied in parts, but take care that the resulting process is integrated

Use it as a business reference

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How Educators/Trainers Can Use the TCM Framework

Use it to structure your programs
A go-by that can be modified to suit your institutions programs, lexicon, etc. Can be used in parts, but its main value is in the integration of practice areas Uniquely covers cost engineering as an integrated professional discipline

Use it as a course text or reference

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How Individuals Can Use the TCM Framework

Use it to broaden your perspective
Examples:
Contractors will better appreciate their owner clients point of view Specialists will gain understanding of how their field fits in the bigger scheme

Study it in pieces
Read Chapters 1 & 2 through Then tackle other sections of interest
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Let Us Know What You Think!

To comment:

[email protected]
To contact the editor:

[email protected] To contact key contributors: see text Acknowledgments

To obtain copies:

www.aacei.org/bookstore/
To read online:

www.aacei.org/tcm/

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