1995AACE TRANSACTIONS

otalcost management(TCM) is the effective application of pro- 0

development,
fessional and technical expertise to plan and control resources, 0 execution, and
costs,profitability, and risk. Simply stated,it is a systematicap- 0 operationand maintenance.
proach to managing cost throughout the life-cycle of any enterprise,
Major stepsunder eachCPLC phaseare as follows:
program, facility, project, product, or service. This is accomplished
through the applicatiqn of cost engineering and cost managementprin- m
ciples, proven methodologies,and the latest technology in support of 0 identification of need,
the managementprocess. 0 feasibility and alternative analysis,
Methodologiesusedin achievementof TCM include businessand 0 conceptualdesignof alternatives,
program planning, cost estimating, economic and financial analysis, 0 order-of-magnitudeestimates,
cost engineering, program and project management, planning and 0 comparativeanalysis/selectionof best alternative,
scheduling, and cost and schedule performance measurement and 0 preliminary work execution plan, and
changecontrol. 0 project proposal.
This paper will focus on the discussion on the TCM of capital
projects throughout their life-cycle, namely identification, develop- Develoomer&
ment, execution, and operation and maintenance. Relevance of the 0 project prioritization,
multitude of different techniquesavailable under TCM methodologies 0 preliminary design,
to the phasesof capital project life cycle (CPLC) will also be dis- 0 budgetestimate,
cussed. 0 project execution plan, and
0 budgetapproval.
CAPlrlrAL PROJlIECTlLm CPCILE (CPLC)
Execution
The scope and objective of TCM has already been briefly dis- 0 releaseof funds,
cussed. Before proceeding to the methodologies, let us review the
0 contractprocurement,
CPLC.
0 detailed design,
AACE describesthe life-cycle phasesfor mostendeavorsto be, in
0 material procurement,
chronological order, asfollows:
0 construction,
recognition of needor opportunity; 0 start-upand turnover, and
statement of purpose-mission, goals, objectives, policies and 0 project close-out.
plans;
definition of requirementsand identification of supporting tech- Oneram and WI-
nologies; D operationand maintenance,
evaluation and selectionof alternatives; 0 enhancements/upgrades,
researchand developmentof new technologies,if required; 0 decommissioning/disposal,and
conceptualdevelopmentand designfor selectedalternatives; 0 TCM methodologies.
acquisition of facilities and resources; AACE has defined the following methodologies as means of
operation; achieving TCM:
modification and/or enhancement; 0 businessand programplanning,
decommissioningand redistribution of resources;and 0 cost estimating,
remediationand disposal. 0 economicand financial analysis,
The abovelisted stepsare applicable to the life cycle of any enter- 0 cost engineering,
prise, program, project, facility, product, or service. For capital 0 programand project management,
projects, these steps can be summarized under four basic phasesof 0 planning and scheduling,and
CPU=: 0 cost and scheduleperformancemeasurementand changecontrol.
0 identification,

UBrE.1.1
 1995AACE TRANSACTIONS
AACE definitions of each of the above methodologiesare given
below in italics:
Business and Program Planning
The development of financial, production, sales, and/or service
goals and objectives for a business organization or government pro-
gram based on its stated mission or purpose; the definition of require-
ments forfulfilling the mission; and the identification of the resources,
technologies, methods, and procedures required to achieve established
goals and objectives within spec$ed budgets and timetables.
For capital projects, the business and program planning methodology
will be usedto accomplishthe following:
. development of long-range capital investment programs to
achieve the organizations goals and objectives in line with its
mission and purpose;
. development of methods and proceduresto achieve capital pro-
gram objectives; and
. preparation of capital budgets including required resourcesand
implementation schedules.
Someof the techniquesapplicable to this methodologyare
. forecasting,
. facilities planning,
. decision-makingtools,
0 investment appraisal,
e budgeting,
. life-cycle costing, and
e cashflow analysis.
Cost Estimating
The determination of resource and material quantities and the
predicting or forecasting of associated costs, within a defined scope,
that are required to conduct a program, construct, equip, and operate
a facility, manufacture a product, or furnish a service. Costs are deter-
mined by utilizing experience and available information to calculate
and forecast the future cost of required resources, methods, and man-
agement within a scheduled time frame. Included in these costs are the
results of assessments and evaluations of risks and uncertainties. Cost
estimating provides the basis for program, business, or project plan-
ning, budget preparation, and cost and schedule control.
Cost estimating methodology is usedthroughout the CPLC to pre-
pare cost estimates with varying degreesof accuracy. Following are
somecommon types of cost estimates:
. order-of-magnitudeestimatesduring identification phase;
. CPLC. Project schedulesare preparedright at the beginning of CPLC.
life-cycle cost estimatesfor alternative analysis during identifica-
tion phase;
. budget estimatesduring developmentphase;
. definitive estimatesduring execution phaseafter considerablede-
sign effort has been made;
. various other estimatesto support different decision making situa-
tions during operation and maintenancephase such as repair vs.
replacedecisions, etc; and
. estimatesassociatedwith changeordersand claims,
Economic and Financial Analysis
The evaluation of the economic considerations and financial re-
quirements of a program, operation, project, process, manufactured
product, or service within a spec@c timeframe.
U&E.12
The techniques available under this methodology are numerous
and mainly used during the identification phasefor comparisonof al-
ternatives. The techniques allow the decision-makers to compare
project alternatives with different service lives, cash flows, etc. Also,
decisionssuch as repair vs. replaceand make vs. buy can be SUppofied
by using thesetechniques.
Cost Engineering
The area of engineering practice that combines the application of
scientt$c principles and methods with economic andfinancial analysis
in order to minimize cost while achieving established objectives and
requirements.
Methods and techniquesrelated to cost engineering include feasi-
bility studies of different alternatives during the identification phase.
life-cycle cost analysis is also a major cost engineering techniqueused
to compare alternatives during the identification phase. Value engi-
neering (VE) and constructability analysis are used throughout the
CPLC.
Program and Project Management
The utilization of skills and knowledge in coordinating the orga-
nizing, planning, budgeting, scheduling, directing, controlling, moni-
toring, and evaluating of prescribed activities to ensure that
established objectives are achieved in a timely, cost-effective manner
that assures quality and complies with all applicable regulatory re-
quirements.
Techniquesavailable under this methodology are applied through-
out CPLC. Theseinclude the preparation,execution, and monitoring of
the organizations capital programto achieve establishedcorporateob-
jectives. Quality, contract, and materials managementtechniques,op-
erational research techniques such as inventory control models,
transportation problems, and various decision-making tools are in-
cluded.
Planning and Scheduling
Planning is the determination of objectives with identification of
the activities to be performed and the methods and resources to be
used for their accomplishment; the assignment of responsibility and
accountability for pe$ormance; and, the establishment of a schedule to
achieve completion as required within budget. Scheduling is the as-
signment of the estimated duration and the desired start and finish
times to each activity in a project within the overall time cycle required
for completion according to a plan.
Planning and scheduling techniques are utilized throughout the
bar chart schedulesand network diagrams(CPM) are used depending
on the complexity of the projects and the extent of monitoring and re-
porting required. The use of project managementsoftware packages
has simplified the application of relatedtechniques.
Cost and Schedule Performance Measurement and Change
Control
The systematic application of methods and procedures to monitor
performance against plan; to control cost and schedule as well as
changes to scope, configuration, and functionaVoperationa1 require-
ments; and, to measure and determine the cause of variance from es-
tablished baselines (for cost, schedule, scope, configuration, and
functionaboperational requirements) so that effective action can be
 1995AACE TRANSACTIONS

taken in a timely manner to a&eve minimum costs and duration in Major

meeting predetermined objectives. techniques that are
The performance of capital projects should be monitored right relevant here are the
from the beginning of CPLC using approvedplans and schedules,and ones related to fore-
budgets.Approved plans and budgetsare used as the baselinefor mon- casting. Forecasting
itoring cost and schedule performance of projects during execution. is carried out using
Cost and schedule performance curves are used to detect trends in two different groups
project performanceto take timely corrective action. Changecontrol is of techniques: 1)
also important in connection with cost/Schedule performance. CONCEPTUAL DESIGN quantitative tech-
Safeguardsshould be madeto minimize the changesduring execution niques, and 2) quali-
of projects and if the changeshowever happens,their effect on cost tative techniques.
and scheduleshould be clearly identified. Quantitative tech-
niques use past and
current datato make
TCM AND CPLC forecasts.In the ab-
TCM provides a systematicapproachto managing cost through- sence of relevant
out the CPLC using related methodologiesdescribed earlier, and the past data, the fore-
latesttechnology. casterhas to rely on
Basic requirementsof a successfulTCM effort include qualitative tech-
0 life-cycle view of situations, PROJECT PROPOSAL niques, which use
0 knowledge of factors affecting cost, judgment and expe-
0 awarenessof cost impact of events as they occur and existenceof rience of experts in
DEVELOPMENT
the field rather than
cost-consciousatmosphere, the past data. Most
0 ability to use the available cost managementtools, used
commonly
0 ability to forecasttrendsand initiate timely action, and quantitative tech-
0 plan to implement life-cycle cost management. Figwe I--Edentification Phase
niques are trend and
regressionanalysis which use mathematical models and assumesthat
Life-Cycle Cost (!L@C) the past data are indicative of future. Computer modeling has also be-
LCC indicates that the first cost alone is not enough to evaluate come popular due to the availability and affordability of personalcom-
fully a project or system;instead, all costs incurred over the life-cycle puters.
must be considered.The initial costs of a capital assetcould be only a
fraction of its total life-cycle costswhich normally include feasibility and alternative analysis
0 initial cost, Many alternativesmay be generatedto satisfy an identified need.
0 operation and maintenancecosts, Each alternative has to be studied for feasibility, compatibility with ex-
0 energy costs, isting system,reasonableness,etc. Benefit-cost analysis procedurecan
0 cost of capital, be applied to reducea long list of alternativesto a manageablenumber.
0 sparepartsinventory cost, conceptual design
0 safety and environmental regulation relatedcosts,and The short-listed alternatives are further evaluated using concep-
0 salvagevalue. tual designs.Conceptualdesignsgenerally involve preparationof basic
layouts, single-line diagrams,decisions pertaining to type of construc-
CPLC PlHLASlES AND TCM llX@mIlQW tion such asconcretevs. pre-engineered,etc. The details of the concep-
We have so far discussed the CPLC phases, different TCM tual design is sufficient to prepare order-of-magnitude estimates.
methodologiesin general, life-cycle costs, and the requirementsfor a Constructability analysis becomesrelevant during the conceptual de-
TCM system.Let us now review the TCM techniquesthat are applica- sign stageasit relies on the optimal use of construction knowledge and
ble under each CPLC phase.It should be noted that sometechniques experience in planning, design, procurement, and field operations to
are applicable to more than one CPLC phase. achieve overall project objectives.Operability, maintainability, and re-
liability considerationsare also considered.
Identification Phase
The major steps involved in the Identification phase are graphi- order-of-magnitude estimates
cally depictedin figure 1. Costs of selectedalternatives need to be estimatedusing their re-
spective conceptualdesigns.The accuracy of these estimatesis in the
identification of need range of +50% to -30% due to the limited design data available. The
Identification of needfor projectsis generally madeby a planning major order-of-magnitudeestimatingmethodsare
group that is dedicatedto study and proposecapital projectsthat are re- 0 end-productunits,
quired to achieve the overall mission of the organization. For an elec- 0 ratio or factor,
tric utility company, the planning group is the systems planning 0 physical dimensions,and
departmentthat will study the current and future demandsfor electric 0 parametricestimating.
power and propose timely construction of generation plants, substa-
tions, transmissionlines, etc.

UgLE.l.3
 1995AACE TRANSACTIONS
comparative analysis
This stepleads to the selection of the best alternatives.A thorough
knowledge of the LCC of each alternative is essential to conduct a
soundcomparativeanalysis. The following methodsare used:
. discountedcash flow rate-of-return,
. CPLC: Figure 2 de-
net presentvalue,
.
.
uniform annual cost,
return on original investment,
. return on averageinvestment,
. payout time,
. discountedpayout time, and
. payout time with interest.
The uniform annual cost method is commonly used to compare
projectswith different durations of service life.
selection of best alternative
Basedon the comparativeanalysis, the economically best altema-
tive can be selected.The alternative with highest net presentvalue or
shortest payback time or highest discounted cash flow rate-of-return,
etc. may be selected.The best alternativesare usually selectedby using
a combination of above techniques. However, the organizations may
sometimes decide to implement alternatives different from the best
onesdeterminedthrough the comparativeanalysis due to noneconomic
reasons.
preliminary project execution plans (PPEP)
As the selected alternative now has a completed conceptual de
sign and order-of-magnitudecost estimate,it needsa preliminary pro-
ject execution plan (PPEP).
PPEPincludes project schedulesusing bar charts or network dia-
grams.PPEPsalso addressthe contracting strategies,groupsresponsi-
ble for project implementation, project control methods, and
commitmentand expenditure forecasts(CEFs).
Project schedulesare preparedusing commonbar charts showing
activities, their durations, and milestone events. Network diagrams
using PDM and ADM methods can also be prepared if projects are
large and the details required by managementare high. Presently,there
is a wide range of PC and mainframe-based project management/
scheduling software available that could produce the project schedules
with ease.Contracting strategiesused to implement the project are also
identified in the PPEP.The common contracting strategiesusedare: 1)
unit rate, 2) cost reimbursable,and 3) lump sum. Selectionof the con-
tract type will be dependentupon the type of project, the amount of
scope development at the time of contract award, and the amount of
control the owner wishes to have on the contractor. Under the project
control, the frequency of progressreview meetings,type, and detail of
reporting is addressed.CEFs are also part of the PPEP. Timing of
major commitmentssuch as contract award and placementof purchase
orders are identified, and rate of expenditure by way of contractor/ven-
dor invoice (progress) payments is reflected on the scheduled time
frame.
project proposal
Project proposal constitutes the final step in the Identification
phaseof the CPLC. The proposalincludes conceptualdesign,cost esti-
mates, CEFs, PPEPs, next-best alternatives, etc. Project proposals
combined into one packagewith necessarygroupings, summaries,etc.,
are presentedto the organizations executive managementfor review
and approval as a program.
UBrE.l.4
Project
Development
Phase
This is the sec-
ond phase in
I BUDGET ESTIMATE
I
picts the major
steps involved un-
der the develop-
I PROJECT EXECUTION PLAN
I
ment phase.
prioritization
BUDGET PROPOSAL
All the project
proposalshow well
DEVELOPMENT may be prepared
PHASE and justified, can-
I not possibly be
implementedsimul-
Figure 2-Development Phase taneously due to fi-
nancial and other
considerations.Proposalsmay include facilities that are essentialto the
organizations stated mission and that are secondary to that mission.
Even the nonessentialfacilities need to be built to improve operational
flexibility, productivity, the organizations image with the local com-
munity, etc. In order for the project proposals to be reviewed, ranked
and/or prioritized in a systematic manner, the organization should
adopt a priority ranking procedure that assigns priorities/ranking to
projectsbasedon organizations prime mission and priorities. This step
producesa prioritized capital programwith implementation schedules.
preliminary design
Based on the approved priorities/implementation schedules,pre-
liminary designs are preparedfor selectedprojects. At this stage,the
value engineering (VE) and constructability considerations become
very important. VE as a multidisciplinary, systematic, and proactive
function is aimed at the design itself. Objectives of VE are to developa
facility or item design that will yield the least life-cycle costsor pro-
vide the greatestvalue while also meeting all functional, safety,qual-
ity, and other criteria set for it. Incorporation of constructability
conceptsin the design will result in a smoother construction process
and minimize the necessity for rework/redesignand alterationsduring
construction,thus saving time and resources.
Coordination and close participation by all concernedpartiessuch
as operation and maintenancestaff together with user representatives
during the preliminary design phase will pay off during construction
stageby minimizing potential changeordersand contract amendments.
Scopecontrol should be madeto suit the primary project objectiveand
the availability of funds for implementation.
budget estimate
Once the preliminary design has beencompleted,a more accurate
budget estimate can be prepared. Accuracy of budget estimatesis
higher than that of study estimatesas more design/scopedata draw-
ings, standards,etc, are available to the estimator.The accuracyof the
budget estimatesrangesfrom +30% to -15%. The budget estimatesare
usedby owners to allocate funds for their capital programs.
project execution plan
Through the previous stepsin the developmentphase,the project
scopeshave been further defined through preliminary designs, and
more accuratecost estimatesare made. The project schedule should
 1995AACE TRANSACTIONS

now be firmed up through project execution plan (PEP). Similar to divided into job orders, then to phasesand finally to entry codes that
PPEP, PEP includes the project implementation/contracting strategy, identify the details of the expenditure. After the opening of charge ac-
project organization, resourcerequirements,and most importantly an counts, the total budget amount will be broken down according to the
agreed and committed project schedule, CEF, etc. The contracting cost structure, and the amount under each charge(sub) account will be
strategy considered under the PPEP will be reassessedbasedon the the approved budget amount for the scope representedby that ac-
further defined scope and benefits/liabilities of each type of contract count. This amount is usedfor comparisonwith actual expenditure and
available. Coordination and commitment by all concernedparties in- computing variances.After the opening of charge accounts,the accu-
volved in the project execution including operation/usergroups to a mulated expenditure under Special project accountson pre-budgetap-
firm schedulewith dedicatedresourcesare essential.Simple bar charts proval activities are transferredthereto.
or network diagrams (CPM) need to be prepared based on the
size/complexity of the project, and the degreeof monitoring/control re- contra& procuremenUand award
quired. A suitable project managementsoftware from the wide-range Contract procurement is actively pursued after the budget ap-
of such programsavailable should be selected. proval. Selection of the appropriatecontract type is madeprior to this
step. Provision of conditions for fair and healthy competition among
budgedapproval bidders helps in concluding sound contracts with reasonableprices.
This is the final step in the developmentphase.The approval of The bid packagethat is presentedto the bidders includes the details of
funds for implementationof the project are sought from the organiza- the completed preliminary design; contractual terms and conditions;
tions board of directors. Most organizations do have mechanismsto and quality, safety, cost control, reporting, legal, and other require-
approvefunds to carry out prebudgetapproval efforts such as identifi- ments. A clause encouraging the bidders to submit alternative design
cation and developmentphasesdescribedabove. Funds are approved proposals basedon VE considerations can bring benefits to both the
under special projects by higher managementto carry out these ef- owner and the contractor.Constructability considerationssuggestedby
forts. the contractorsshould also be positively reviewed.
The board of directors will be presentedwith a summaryscopeof Efforts should be made to minimize the number of potential
work, justification of the need for the project, agreedproject schedule, changeorders. Precautionsshould also be taken to avoid ambiguity in
cost estimate,and CEF for individual projects as well as for the entire the scopeof work and contract wordings. Since it is practically impos-
capital programwhich includes other proposedand on-going projects. sible to totally avoid changeorders,it is mutually beneficial to agreein
Basedon the capital outlay required per the CEFs, availability of advance by the owner and contractor on a certain schemeon how to
capital funds, and ranking of projects according to the organizations cost/chargethe changeorders.
businesspriorities, the board of directors may approvethe entire capi-
tal programin full or part for implementation. detailed design
Depending on the type of contract, the detailed design could be
ExecuUionPhase carried out by a turnkey contractoror a separatedesign contractor.The
The third phasein the CPLC is the execution phase.Major steps contractorsshould be encouragedto incorporateVE and constructabil-
involved in this phaseare shown in figure 3. ity considerations into their designs. Appropriate rewards need to be
defined in the contracts as an incentive to the contractors.Better de-
releaseof funds for signs associatedwith lesslife-cycle costsare obviously of great advan-
expenditure tage to the owner as he is to operateand maintain the facility for many
Although the capital years after construction. The time and effort spent in the design stage
funds are will be time well spent as it will result in smootherconstruction, less
approved, their re- RELEASE OF FUNDS rework and overall life-cycle costs,
leasefor expenditure
will be only for the material prcbcurement
portions of scope CONTRACTPROCUREMENT&AWARD Material procurement can be handled by a design contractor,
that are ready for turnkey contractor,specialcontractor or by the owner himself. delivery
commitment by way of right materials at the right time in the right quantities to the right
DETAILED DESIGN
of placementof pur- place is very important for completing projects on time. Long-lead
chase order or con- items should be identified early in the detailed design stage. Their
tract award. After specificationsshould be completedand purchaseordersplaced early to
MATERIAL PROCUREMENT
the funds have been ensuredelivery in time for construction. Coordination with the suppli-
released, charge ac- ers, follow-up and clearancefrom ports, etc., should be closely moni-
counts will be CONSTRUCTION tored. Planning and Scheduling efforts are important here. Inspection
opened in the finan- and quality control of materials delivered is also important. This in-
cial books. The START-UP & TURNOVER
volves coordination betweenconstruction and quality groups.
charge accounts are
divided into subac-
counts based on the I
PROJECT CLOSE-OUT
consUrucUion
This is the final step in actual building of a project. Construction
organizations ap- could be handled by a turnkey contractor or a separateconstruction
proved cost structure contractor depending on the contracting strategy.Close monitoring of
for control purposes. contractor progresstakes place during construction. Construction can
For example, a capi-
tal project can be Figure 3--ExecuUion Phase

U&E. 1.5
 1995AACE TRANSACTIONS
be smoother if the project design is sound and the material procure-
ment hasbeen closely monitored.
Progressmeasurementduring design, material procurement,and
construction steps is done using agreed schedules usually finalized
shortly after the contract award. Each main activity in the project
schedule is assigneda weight based on its relative work content/cost
comparedto the overall scopeof work. A baseline progressS curve
will be agreedupon by the parties to reflect the budgetedcost of work
scheduled(BCWS). During the execution, actual completedwork will
be measuredagainst the baseline schedule and budgetedcost of work
performed(BCWP) or earnedValue will be computed.The actual cost
of work performed (ACWP) will also be plotted on the samegraph
with BCWS and BCWP for variance analysis. Based on thesecurves,
estimatedcost at completion (EAC) and estimatedcompletion date are
derived. These curves provide basis for forecasting cost and schedule
overruns and to initiate timely corrective action.
start-up, turn-over, and project close-out
After the construction is over facilities have to be started-up,
tested, commissioned and turned-over. These activities are imple-
mentedaccording to the approvedproject schedule.A greatdeal of co-
ordination among various parties such as contractor, inspection, user,
and other groups is necessary.Quality monitoring should be active
throughout the project, performancetests are also carried out to ensure
that the new facility is performing according to the design criteria.
Once the project has been acceptedby the owner representatives
as performing satisfactorily, the contract has to be closed-out,and the
project should be financially closed. After settling the punch list
items, claims, if any, and outstanding payments,the contracting par-
ties will be relieved of responsibilities and the contract will be closed-
out. Also, the charge accountsopenedat the beginning of the project
execution need to be closed. Monitoring and reconciliation of charges
bookedto each account should be a continuous processduring the pro-
ject execution. At the end of the project, all charges should be re-
viewed, transferred, if necessary, and reconciled. Then the charge
accounts will be closed and transferred from construction work-in-
progressaccountsto the organizations fixed assetregister. The addi-
tion of new assetswill be reflected in the organizationsbalancesheet,
Operation and Maintenance Phase
This is the final and the longest phasein the CPLC, which could
be many times longer than the first three phasescombined. Figure 4
representsthe major stepsinvolved.
operation and maintenance
All TCM efforts from the start of the project should be directed to
achieve an O&M phasewith reasonablecosts.VE and LCC considera-
tions are madeat the beginning of CPLC to avoid situations of low ini-
tial costs and high O&M costs.As the O&M costs are recurrentduring
the facilitys life, the selection of the type of project with low O&M
costs during the identification phase is very important. Selection and
implementation of appropriatepreventive maintenance(PM) programs
will result in overall reduction in O&M costs, Scopeand frequency of
maintenance cycles depend on the type, age, and sophistication of
equipment, and other factors such as cost effect of downtimes on pro-
duction/sales,availability of spare capacity through alternative equip-
ment, etc. Scheduling of PM activities with minimum possible effect
on the operations is essential. Availability of materials and equipment
in time for maintenanceactivities is critical. Inventory control models
can be used to determine the economic order quantity in order to opti-
mize the total cost by striking a balance between stock-holding and
U8LE.1.6
stock-run-outcosts.
Techniques such as
Pareto analysis can
be applied to cate-
;,
gorize the spare
I parts into high,
UPGRADE medium, and low
I value items. The
I purpose of this
I
I
OPERATION & MAINTENANCE
I
I
analysis is to iden-
tify and closely
I monitor the few
DECOMMISSIONINGfDISPOSAL
high-value items
, I
(20%) that are re-
sponsible for a
large portion (80%)
of the total inven-
tory. Study of lead
Figure A&M Phase times of high-value
items for possible
improvementwill also help keepthe stock-holding costsdown.
Selection of work schedules,types of fuels, combination of equip-
ment/ processesto cost-effectively match different levels of operation,
availability of portions of plants/facilities with low operationalcoststo
meet base loads/demands,etc., could help keep the operational costs
down. Operationalresearchtechniquessuch as linear programmingcan
be usedto arrive at optimum solutions.
upgrade
As the plants are operatedand maintained for sometime,their up-
grading becomesnecessarydue to various reasonssuch as increasein
demandfor the output of the plant, to keep up with increasedquality
standards,technological advances,environmental considerationsetc.
The activities related to upgradesare similar to the initial construction.
However, the considerationsrelating to upgradevs. new facility or up-
gradevs. bought power from anotheragencyin caseof an electric util-
ity company are applicable. Economic analysis and cost comparisons
of various alternatives to upgradeshould be considered.Operationand
maintenancecost of the plant after the upgrade through end of plant
life should also be considered against other alternatives such as new
plant or bought/leasedcapacity or output.
decommissioning/disposal
When the plants become old and maintenance-intensive,techni-
cally obsolete,or environmentally unacceptable,they needto be closed
down, decommissioned,and/or demolished. Demolition and disposal
of decommissionedplants can be very expensive.In the economiccon-
siderationsof the projectsat their initial stages,salvagevalues arecon-
sidered. Attempts should be made to dispose of plant componentsin
the most economical manner with recovery of as much salvagevalue
aspossible.
MANAGEMENT CONTROL SYSTEMS
Systemssuch as planning and scheduling, budgeting,cost estimat-
ing, work authorization, cost accumulation,performancemeasurement,
etc,. are usedby owners, contractors,and others to plan and control the
cost and schedule of work. For successful cost management of
projects,it is important to have an integrated managementinformation
and control systemwhich will enablethe project costsand schedulesto
be monitored from identification through operation and maintenance.
Such systems can be built using or customizing and integrating
 1995AACE TRANSACTIONS

existing project management,cost estimating and other related soft-
ware. Typical usageof such software in a project-relatedmanagement
information/control systemwould be for
0 network analysisand scheduling,
0 resourceanalysis,
0 cost estimatingand expenditure forecasting,
0 managementreporting, and
0 decision-making.
Therefore,it is obvious that a successfulcost managementsystem
should have computer-basedtools/software to achieve its objectives.
Such tools will enable availability of timely information necessaryfor
successfulcost management.
arious TCM methodologiesthat are applicable during different
phases of capital project life cycles have been identified.
v Knowledge of their appropriatenessand ability to use them
during the life cycle are essentialfor successfulTCM. Life-cycle view
of costsby all concernedparties and creation of a cost-consciousenvi-
ronment are very important in achieving TCM objectives.
Computerizedmanagementinformation/control systemsare also useful
for early detection of deviations for corrective action, comparison of
various alternatives for better decision-making, and timely manage-
ment reporting.
1. AACE Education Board. 8kilBs and Knowledge of Cost
IEngineering, 3rd ed. Morgantown, WV: AACE International,
Inc. 1993.
2. Humphreys, K. K., and L.M. English, eds. Project nnd Cost
Engimers Hhdbook, 3rd ed. New York: Marcel Dekker, Inc.
1993.
3. Humphreys, K.K., ed. Jelens Cost and Optinnimtion
Ihgiwering, 3rd ed. New York: McGraw-Hill. 1991.
4. Manzanera,I. Cost Engineering References: AACE Arabian Gulf
Section. 1992.
5. Padmaperuma,Gamini A. K. Capita2 Project Monitoring System.
1993 Tramsactionsof AACIE hternational. 1993.

Gamini A.#. Padmaperuma,CCE

Saudi ConsolidatedElectric Co.
P.O. Box 5190
Damman31422
Saudi Arabia

Khalid A. Al-Mansour
Saudi ConsolidatedElectric Co.
P.O. Box 5190
Damman31422
Saudi Arabia

Dr. NasserF. Akeel

Institute of Public Administration

U&E. 1.7