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@ SOCIETY FOR
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PRACTICAL ELEMENTS OF PROJECT MANAGEMENT

FOR UNDERGROUND CONSTRUCTION

D. R. Gehring

Hecla Mining Co.

Lovelock, Nevada

For presentation at the SME Annual Meeting

Phoenix, Arizona - March 11-14,1996

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MINING ENGINEERING
 1

ABSTRACT description of how the work is to be performed, but

rather, a specific description of what will be performed.
Effective project management is an excellent This distinction is discussed in detail later. For now,
technique for meeting a goal through set, well-defined consider the scope of work as being formed by the goal,
objectives. Even though project management is objectives and design criteria. These three items are
successfully used throughout the world in various viewed simply as:
construction projects, underground mining has unique
characteristics that require approaches that vary from Goal: "The reason the project exists, the
classical project management theory. Typically, a end result"
project includes four main stages: definition, planning,
implementation and control. Definition and planning Objectives: "The necessary tasks required to
are often the most overlooked stages, but are arguably meet the goal"
the most important. This paper addresses practical
techniques for the definition and planning of projects Design Criteria: "The rules that will be followed
for underground construction. when performing necessary
activities to meet the objectives".
INTRODUCTION
The scope of work has a direct relationship with the
Creating projects to reach a goal is not new to schedule and budget as illustrated in Figure 1 (Ira Bitz
American industry. In fact, all major construction & Associates, 1991).
projects from sky scrapers to bridges are completed
using similar project management techniques.
However, modern project management is relatively new
and was not formalized until 1962 when NASA and the
Department of Defense recognized the necessity to
develop uniform project management procedures
throughout the aerospace industry (Moder, Phillips,
Davis, 1983). This management method was not
intoduced to the mining industry until the early 1970s
(Britton, 1983). SCOPE OF WORK
Project management typically follows an organized
Figure 1
process comprised offour main stages: definition,
planning, implementation and control. To illustrate the
To understand this relationship, assume the length of
importance of effectively utilizing definition and
each leg of the triangle represents the magnitude of
planning, actual examples from the underground mining
each item, and the peak of the triangle is a fixed point.
industry are presented. These examples will
Therefore, if the scope of work expands, this is
demonstrate the complexities of project management
represented by increasing the length of this leg.
for underground construction and provide an
However, because the scope of work is directly linked
opportunity to examine practical alternatives where
to the budget and schedule, it is not possible to change
appropriate.
the scope of a project without effecting either the
budget or schedule, Figure 2. Similarly, it is not
PROJECT DEFINITION
possible to change either the budget or schedule without
affecting the scope of work.
Definition is the most critical stage of a project.
This stage is the foundation from which the project is
built. As in a building, if the foundation is faulty, the
rest of the structure will, at some point, fail.
Projects not properly defined from the beginning can
result in a tremendous amount of wasted effort.
Similarly, project risk escalates if the appropriate level
of definition is never introduced. Examples, discussed , ,
later in this paper, show that where the project
definition was not accurate, the project was not
._-------------_.
SCOPE OF WORK
successful. Figure 2
Scope of Work This relationship is realized even with small changes
in the scope of work. The result of small incremental
Project definition is accomplished, primarily, scope changes over the life of the project is kno\'m as
through the scope of work. For underground projects,
scope creep. Each change by itself may seem
the scope of work should not be considered a insignificant, however, when combined, they can have a
 2
dramatic effect on the scope and associated budget and
schedule. A properly generated scope of work will
~ enhance project success and minimize the potential of
scope creep.
To further examine the importance of a properly
generated scope of work, actual examples from
underground projects will be used. Following an
example, an alternative will be presented. The
alternatives presented should not be considered the
answer, but rather a workable solution.
In order to maintain company confidentiality, the
examples are taken from a variety of mining operations
and have been changed so as not to identify a particular
company. However, the content, including actual cost,
schedule, etc., have not been altered.
Goal: For many businesses, including many mining
companies, the concept of goal creation is second
nature. However to avoid confusion, a goal statement
here will be defmed as a one or two sentence statement
that accurately defines the expected end result of a
project. The statement should be non-subjective and
consistent with, and possibly even reference, a division
or company's overall goals.
Example I: Goal Statement
An underground mining company started a project to
identify ore reserves within close proximity to existing
operations. After the geology department had identified
an area that provided the greatest potential, the
following project goal statement was created:
Drill 10,000 feet of core to delineate the East Zone
Vein area.
The goal statement was generated by the exploration
department who knew what they wanted to accomplish.
The goal statement, to them, was something that
management required, and beyond that, had little value.
From the exploration department's perspective, the goal
statement was not a necessary form of communication
because the goal was obvious to everyone at the
property.
An inquiry of the other departments on the property
contradicted the goal statement assumption of the
exploration department. An examination of the
operations department revealed that the operator's
choice of project outcomes was immediate ore reserves.
From their perspective, the plan had to include
establishing haulage ways and performing other
activities to prepare for mining. Management thought it
had requested a project that would prove ore reserves so
- a new production area could be developed with a
secondary project.
The exploration department, when producing the
goal statement, was thinking in terms of delineation, not
definition to a standard of proven reserves. The actual
intent of the exploration department was to show that
enough ore existed in this area to warrant further
detailed exploration.
All of the perspectives of the project intent varied.
Consequently, the goal statement did not accurately
reflect the desires of any of the departments. To
examine the goal statement critically, it is sometimes
easier to take a literal perspective. For example, what
happens if a hole is abandoned before it reaches the
ore? The footage still counts against the 10,000 feet
even though no core is recovered from the area of
interest. Likewise, would four 2,500-foot long holes,
successfully drilled, complete the project? It may give
some limited delineation to the area but the exploration
department intended to recover more than four sample
intervals. Examination of this goal statement clearly
shows that it does not adequately define the end result
of the project.
This project failed as a result of not meeting the goal
that management had intended. Additional funds had to
be requested to complete the project.
Alternative to Example I:
The goal statement presented in Example I does not
convey the intended end result of the project. An
alternative goal statement could read:
Define the potential of the East Zone
area in a way that adds minable )
reserves to the operations plan by the
end of the fiscal year so that
uninterrupted production can
enhance the division's business plan.
In this example the end result, including a time
frame, is clear. Depending on one's perspective, there
may not be much difference between Example 1 and the
alternate goal statement. However, what may seem
obvious depends greatly on perspective. In order to
save time and not waste effort pursuing projects that
will never (or should never) be funded, it is important to
take the time to generate a goal statement that can be
agreed upon by everyone. Often the vision of a General
Manager is different from that of a front line supervisor
or exploration geologist.
Underground projects require particular attention to
the goal statement due to condition uncertainties. The
more familiar the project team is with a project, and all
of the parameters that affect its outcome, the less time is
required for goal generation. For example, the time
spent determining the goal of building a new
McDonald's restaurant is quite different from a project
to expand an existing underground mining operation.
The unknowns in each case are significantly different.
Objectives: After the goal statement is defined, the
next logical step involves determining which tasks are
required to achieve the goal. These systematic
definable tasks are the objectives. It is important to
note that the objectives are not a detailed description of
 3
how the work will be done, but rather the measurable
non-distinct tasks that are required to meet the goal.
) The objectives must be non-distinct, or general, so that
the desired end result is stated rather than the process
used to reach the objective.
Example 2: Objectives
An underground mining company started a project to
develop and mine a secondary ore body. The project
goal statement required the following objectives:
Objectives:
1) Complete all engineering and construction
drawings.
2) Procure equipment and materials for
development and mining.
3) Install 150 hp fans for ventilation.
4) Install services sufficient to support
development and production.
5) Develop access drift ...
Etc.
The objectives offered in this example are somewhat
simplified, but very similar to the actual project
objectives. This project ended with the successful
completion of all the objectives, however, the 150 hp
fans were the wrong choice for the application and did
) not provide adequate air flow.
The failure of this project resulted from unbudgeted
expenditures required to purchase larger fans.
Alternative to Example 2:
All of the objectives met the criteria of an objective,
except number three. For an objective to be in
existence, it must be required to meet the goal. An
alternate objective for number three could be:
3) Install the facilities to provide sufficient air
flow to maintain air qualities at or below
Threshold Limit Values.
This statement passes the test for valid objectives. It
is a measurable, non-distinct task that is required to
meet the goal.
As mentioned earlier, the objective must be
measurable so that everyone can tell when the objective
is reached, and it must be required to achieve the goal.
However, the objective must also be non-distinct in that
it should not address the specifics of the actual work
required.
A common problem in the mining industry is to skip
the goal statement and objectives and start with the
detailed description of the actual work to be performed.
In this case, the type of fan to be installed was a
description of the work to be performed, not a
description of what was required. I like to call this
condition Nike-itis, after the sales slogan popularized
by the Nike Company -- Just Do It! It may be because
the underground mining industry is very traditional, or
because project management is relativity new and
unfamiliar within the industry. However, there seems
to be a tendency to begin planning and scheduling the
detailed work without properly examining what
objectives need to be accomplished. Because
conditions of underground projects are rarely
consistent, similar experience does not always apply.
Therefore, it is important not to limit the project's
success by using historical procedures to pre-determine
what methods will be used to meet the goal.
Objectives should face great scrutiny during their
generation. It must be considered that every action that
brings the company closer to the goal is productive and
every action that does not bring a company closer to the
goal is not productive. (Goldratt, 1984). Therefore, if
an action, or task, is not required to meet the goal, it is
not an objective of that project. Conversely, if all the
objectives are not defined and carried out, then the goal
cannot be reached.
Design Criteria: The final step in the project definition
stage is the development of the design criteria. Design
criteria are the rules that are followed while working to
meet the objectives. Often people refer to this stage as
listing the assumptions. Even though the design criteria
contain assumptions, they must be a more
comprehensive list that identifies the known and
engineered physical characteristics of the project, e.g.,
equipment, geology, ventilation requirements.
Establishing the design criteria may take the longest
amount of time in the definition stage. Depending on
the type of the project, varying degrees of engineering
may be required to determine some of the design
criteria. Additionally, if the project manager has been
given a goal, rather than discrete specifications, then a
short project should be undertaken to define the design
criteria (Ira Bitz & Associates, 1991).
For a large or complex project, risks can generally be
reduced by developing the design criteria during a
separate phase of the project. In this case, the
development of the design criteria is best handled by
sub-dividing the project into engineering and
construction phases. The engineering phase provides
the definition and estimation that is ultimately used to
obtain funding for the second, or construction phase.
This division places only the funds allocated for
engineering at risk without jeopardizing the funds
required for construction. It has the additional
advantage of formalizing the process of establishing the
design criteria.
Example 3: Design Criteria
An underground mining company began a project to
expand reserves and increase productivity by
constructing a system of drifts, continuous miners and
conveyors. The project managers did very well in
ensuring that the project had a well-defined scope of
 4
work consisting of a goal, objectives and design
criteria.
The entire project was estimated at nearly
$200,000,000. Unfortunately, during final engineering,
and after board approval, it was realized that the design
criteria for the particle size produced by the continuous
miners was incorrect. The mistake was fairly obvious.
However, none of the production engineers or operators
had taken the necessary time to review the design
criteria with close enough scrutiny to catch the error.
The miners and conveyors had to be re-sized to
account for the change in design criteria. The design
change increased project cost by $50,000,000 above the
original, board approved, estimate.
This project failed due to erroneous information in
the design criteria, resulting in a 25% increase to
project capital.
Alternative to Example 3:
The project scope of work was properly defined, and
the engineers that completed the initial design of the
miners and conveyor systems did so while considering
the design criteria. The failure occurred by not
effectively communicating all the aspects of the scope
of work to every department involved in the project.
The project team should take the time to review all
aspects of the project definition phase, including the
design criteria, with every department involved.
Project management is only successful when the
project manager and his team have a clear
understanding of the project objectives and the factors
needed to achieve the objectives (Britton, 1983). It is
not always easy to communicate with everyone because
operations people are busy. However, it is still critical
for the project manager to get input and buy-in for the
scope of work (Fudge, 1995). Communication during
the definition phase must be more direct than simply
circulating reports or memos.
To facilitate the buy-in process, the commitment to
give the definition stage a high priority must come from
the upper management level. Unfortunately, many
managers of mining companies do not request project
status information until after the definition and planning
stages. Usually the first reports circulated within a
company refer to the activities, budget and schedule and
are intended for managing project variance. Even
though this is an important function of project
management, it does nothing to assist in project
definition.
PROJECT PLANNING
After the scope of work is defined, the planning
stage can begin. For the project team it is important to
make the distinction between the definition and
planning stages. If the two stages are combined, it is
easy to leave the definition stage prematurely.
During the planning stage the schedule and budget
are developed. These two items are very much related
and are often developed simultaneously.
Schedule
The schedule is used to predict, and later track, the
duration of a project. Typically the schedule is
generated by determining the duration of the individual
tasks required to complete the project. The sum of
these tasks (taking into consideration parallel tasks and
dependencies) generally define the total duration of the
project.
In estimating an activity's duration, the activity
should be considered independently of activities
preceding or succeeding it. It is also best to assume a
normal level of manpower, equipment, or other
resources for each activity (Moder, Phillips, Davis,
1993).
Much work has been done on generating project
schedules through the use of Critical Path Method
(CPM), Program Evaluation Review Techniques
(PERT) and Dynamic Programming (Moder, Phillips,
Davis, 1993 & Hartman 1992). This paper will not
discuss the use of any particular technique, but rather,
the importance of generating the necessary information
to properly schedule a project regardless of the
scheduling technique applied.
To generate the schedule it is important to first
determine what tasks are required and what resources
are available to perform the tasks. These functions are
best handled through the use of the Work Breakdown
Structure (WBS) and the Organization Breakdown
Structure (OBS).
Work Breakdown Structure: The Work Breakdown
Structure (WBS) is an effective means for planning the
individual jobs or work packages that are required to
meet an objective. In 1962 the Department of Defense
and NASA jointly issued a manual entitled DOD and
NASA Guide, PERT/Cost Systems Designs which '
included as a key feature the utilization of a Work
Breakdown Structure. The DOD-NASA Guide
described the concept as beginning with the highest
level of the program and dividing them into their
component parts. These are further divided and
subdivided into more detailed units. The subdivision of
the work breakdown continues until it reaches the level
where the end item subdivisions finally become
manageable units for planning (Moder, Phillips, Davis,
1993).
The work package can be considered a WBS level
task if it is clearly a subset of an objective generated
during the definition stage. The WBS should be
continued to a level of detail that is appropriate for the
work to be performed. It is this level of detail and
planning that is important in underground mining where
logistics can seriously hamper project schedules. At the
same time it must be realized that a practical level of
planning should be performed. For example, while it
 5

may be important for an engineer to plan the logistics of The scope of work, once generated, should be
a four hour concrete pour, rarely is it necessary to plan subject to change only through a fairly high level of
each blast of a development heading (Fudge, 1995). authorization. To prevent scope creep, the finalized
To illustrate the use of a Work Breakdown Structure, scope of work should be looked at as law. The WBS on
an objective and associated work breakdown from a the other hand should remain somewhat flexible during
sample project are shown in Figure 3. For this example planning and construction stages to take advantage of
we will assume the requisite goal, objectives and design positive project variances.
criteria have been developed. Considering Figure 4, WBS# 2.2, if it was later
realized that the steel pipe could be replaced with a high
Objective: 2) Drive a drift from the 2300 Drill Station density polyethylene pipe, then the project should have
to the High Grade Vein the flexibility to allow for such changes. Provided the
change to the WBS does not affect the overall project
WBS 2.0 Drifting goal or objectives it should not be prevented. This does
not mean, however, that changes to the WBS should not
2.1 Clean-up and prepare 2300 Drill be communicated. One key to successful project
Station management is effectively communicating ideas,
2.2 Install new steel 2" water and 4" air desires and goals (Britton, 1983).
line from shaft station The completed WBS, when brought to the highest
2.3 Establish survey control practical order, will consist of the work tasks that can
2.4 Drive 100 feet of 12' x 13' drift be logically assigned to a person or group of persons.
Etc. From this detailed structure the resource assignment to
complete each task, known as the Organizational
Figure 3 Breakdown Structure, can be generated.

This example shows a second order WBS. The first Organizational Breakdown Structure: The
order would be considered the primary category of Organizational Breakdown Structure (OBS) is
Drifting. If necessary, additional orders of the WBS generated by assigning people or groups of people to
can be generated as depicted in Figure 4. the Work Breakdown Structure. Assigning resources to
each task of a properly generated WBS ensures that no
WBS 2.0 Drifting job will "fall through the cracks". Considering our
previous drifting example, an associated OBS is
2.1 Clean-up and prepare 2300 Drill combined with the WBS as represented in Figure 5.
Station
2.1.1 Remove drill deck WBS# Description OBS
2.1.2 Remove slimes dam 2.0 Drifting
2.1.3 Muck out drill mud 2.1 Clean-up and prepare 2300 Drill
2.2 Install new steel 2" water and 4" air Station
line from shaft station 2.1.1 Remove drill deck A-Crew
2.3 Establish survey control 2.1.2 Remove slimes dam B-Crew
2.4 Drive 100 feet of 12' x 13' drift 2.1.3 Muck out drill mud C-Crew
Etc. 2.2 Install new steel 2" water and 4" Utility
air line from shaft station Crew
Figure 4 2.3 Establish survey control Survey
2.4 Drive 100 feet of 12' x 13' drift Z-Crew
The WBS order required is usually dictated by the
complexity of the tasks involved and the varying
Figure 5
resources that are required to perform each task.
Dividing the work into small manageable work
The completed Work Breakdown Structure and
packages makes it easier to generate the schedule and
Organizational Breakdown Structure give an exact
bUdget.
representation of who is responsible for each tasks.
Projects that have fallen prey to Nike-itis, or the Just
Do It! syndrome, often skip project definition and start
Budget
with the WBS. A second and more subtle error is to
consider the WBS as part of the scope of work. Both of
The budget and associated project economics are
these should be avoided. Starting the WBS before
often considered the single determining factor to project
project definition creates an obvious risk of project
viability. There is a true cost to complete any project,
failure. Including the WBS within the scope of work
and it is the charge of the project estimators to predict
complicates scope generation and limits the WBS to
this cost as accurately as possible. After the final
being considered as "the plan", as shown previously by
project budget number is generated, this amount is
the fan selection in Example 2.
 6

viewed as the ''true'' cost of the project regardless of the expenditures. Using one spreadsheet for the entire
accuracy. project cycle, from estimating to tracking, provides
To simpliry the discussion of generating a project instant information for managing variance. An
budget, consider the budget to be the result of a base example of a project cycle spreadsheet that uses the
estimate and contingency. previous drifting example is shown in Figure 6.

Base Estimate: The base estimate is the most likely Contingency: Contingency typically refers to a certain
true cost. During the estimating phase it is best to take amount of expenditure above the base estimate that will
an approach of total honesty. Being optimistic or be spent somewhere in the project. Contingency is in
pessimistic is detrimental. Underestimating the project place to cover any unforeseen costs. Therefore if a
may lead to inevitable economic failure. particular item is expected to cost more than the base
Overestimating may cause the project to appear estimate, it should not be considered an unknown cost
uneconomic and consequently, not be approved for assumed to be covered by contingency. If it is known
funding. A second problem caused by overestimating that the cost estimate is low, the estimate should be
results when a project is able to obtain funding due to changed to reflect more accurately the true cost.
favorable economics, but results in the company tying Contingency is also used to account for items that
up funds that could be used to fmance other projects. cannot be adequately defined. It is not always practical
Project costs are effectively estimated using the to generate a detailed cost estimate on every line item.
Work Breakdown Structure while referencing the Consequently, accuracy can vary depending on the
design criteria. This method of estimating is similar to amount of effort expended to generate the estimate.
zero based budgeting and is helpful to include all the It should be noted that contingency is different than
items that contribute to the cost of the project. Using accuracy. Contingency is in place to account for parts
the WBS as an outline for estimation decreases the of the estimate that are missing, where accuracy is a
potential for leaving out parts of the estimate. It is a measure of the variance between the base estimate and
much more significant error to omit a line item estimate true cost. Accuracy is typically proportional to the
then it is to under or overestimate a line item (Fudge, amount of engineering applied to the estimate, and/or
1995). the experience of the estimator.
An additional advantage of doing a line item The accuracy should be such that there is an equal
estimate is the application of contingency. For review probability of being under or going over the base
purposes and to guard against the possibility of estimate. In cases where the accuracy is more likely to
overestimating, it is important to never hide the go over the estimate, e.g., growth allowance, escalation,
contingency by inflating the base estimate. Rather, etc., the upper accuracy limit should be included within
produce the most the accurate base estimate possible the contingency. Depending on company philosophy,
and apply a realistic contingency to each item or logical the upper accuracy limit may only be used for
area of the project. sensitivity analysis. Administering accuracy is a
Designed properly, an estimating spreadsheet subject that must be discussed by the project team so it
showing line item estimates can also be used to track can be clearly communicated. For the purposes of this

PROJECT CYCLE SPREADSHEET

ESTIMATED MATERIAL COSTS MATERIAL COSTS TR<l.CKI"G

WBS# Material!. COSI Unil Cost ConI. Quantity Qt,. Coni Base Costs Conllngency Estlmaled COS! Actual Remainm!! Coni, Used O.. cr-run
1.0 Drifting
,Bolts & Plates $ 4.64 ea 2% 300 5%. $ 1.391.00 7% S 1.489.44 $ 1.489.44 $
~Sholcrele
.,
'$ 235.00 yd 2% 5 100% $ 1.175.00 102% $ 2.373.50 $ 2.373.50 S
Powder S 0.16 'Ib, 2% 2500 10% S 405.00 12~o S 45360 $ 453.60 S
:Primers S 1.40 ea 2% 550 10% $ 770.00 12% S 862.40 $ 862.40 S
iBits $ 10.00 ea 2% 9 10% $ 90.00 : 12% S 100.80 $ 100.80 S
'Drill Sleel $ 37.40 ea 2% 4 20%J S 149.60 22% S 182.51 $ 182.51 S
'Ventilation Supplies S 4.80 fI 2% 100 20% S 480.00 22% S 585.60 $ 585.60 S
:2" Steel pipe '$ 1.22 :ft 2% 100 S 12i.oo 2% $ 124.44 S 124.44 S
4" Steel pipe ,S 3.40 fI 2% 100 $ 340.00 2% $ 346.80 S 346.80 S
12" Couplings $ 4.31 'ea 2% 6 10% $ 25.86 12% S 28.96 $ 28.96 S
,4" Couplings '$ 7.90 ea 2% 6 10% $ 47.40 12%, $ 53.09 $ 53.09 S
,2" Ball valve S 38.28 ea 2% I $ 38.28 2% $ 39.05 $ 39.05 $
14" Ball valve '$ 84.93 .ea 2% I ,$ 84.93 2'% S 86.63 S 86.63 S
;Loader fuel & main!. $ 8.90 ft 25%, 100 S 890.00 25% S 1.112.50 $ 1,112.50 S
'Small lools and misc supplies S 2.00 ft 25%, 100 S 200.00 25% S 250.00 S 250.00 S

Tolal Mattrial Cost S 6,210.01 30% S 8.089.32 S S 8.08932 S S

ESTIMATED L<l.BOR COSTS LABOR COSTS TRACKING

WBS' Labor COSI Unit COSI ConI Quanti!)' Schedule Cont. Base Costs Contingency Estimaled COSI AClual Remaining ConI. Used Over-run
2.0.Drifting
Miner ,$ 150.00 shifl 5% 8 15% S 1.200.00 20% $ 1.440.00 S 1,440.00 S
!MinerlMechanic ,$ 130.00 .shifl 5% 8 lS% S 1.040.00 20% $ 1.248.00 S 1.248.00 S
iMiner helper $ 110.00 shifl 5% 8 15% S 880.00 20% $ 1.056.00 S 1.056.00 S

Total Labor Costs S 3.120.00 20% $ 3.144.00 S S 3.744.00 S S

Figure 6
 7
discussion, estimation accuracy is not addressed
separately, but rather is included within the
contingency. Therefore if the confidence of an estimate
is low, i.e., low accuracy, a higher contingency is
applied.
With a line item cost estimation, contingency can be
applied to each individual item. This method of
estimation can be taken a step further and actually be
used to track the cost for each line item to determine
how much contingency has been used and in what areas
the project may be over budget.
Underground construction projects contain a certain
degree of estimation risk that few surface projects
share. Therefore, to appropriately manage the use of
contingency, it is helpful to view contingency from four
perspectives: cost, quantity, schedule and scope
change.
COST CONTINGENCY: Cost contingency can be
viewed as the degree of confidence the estimator has in
a cost quote or estimate for a line item unit price.
Considering Figure 6, because the unit price for the
shotcrete was obtained with a quote from a vendor, the
degree of confidence in the price per yard is quite high,
and a low contingency of 2% is appropriate to cover
any escalation. If on the other hand, a particular line
item could only be estimated, and it was not practical to
obtain a hard quote, then the unit cost contingency
would be higher.
Cost contingency should also apply to labor. The
unit rates are subject to change sometimes regardless of
project schedule. For example, if a labor contractor is
selected due to a manpower shortage, the unit rates may
increase with little change to the schedule. Also, it is
possible to require overtime to maintain a project
schedule when it was not considered in the base
estimate.
QUANTITY CONTINGENCY: Quantity
contingency refers to the number of units required for
the project. Again, looking at Figure 6, there is a good
estimate of the price per unit of shotcrete, however,
there is little confidence in the estimated number of
yards required. Therefore, the estimator applied a
contingency of 100% to indicate a low confidence in
the estimate.
Showing the 100% quantity contingency serves as a
PROJECT SUMMARY
TOTAL PROJECT COSTS
Estimated Estimated
WBS# Description Material Costs Labor Costs
1.0 Engineering $ 3,400.00
2.0 Drifting '$ 8,089.32 '$ 3,744.00
3.0 Track Installation $ 2,500.00 $ 2,600.00
4.0 Grizzly Installation $ 4,500.00 $ 3,200.00
Total Project Costs $ 15,089.32 $ 12,944.00
Figure 7
reminder, and indicates to anyone reviewing the project,
that the estimate of shotcrete usage is not certain and
requires additional engineering. If the estimator had
simply doubled the estimate and applied a lower
contingency, it would appear that the required quantity
of shotcrete was known.
SCHEDULE CONTINGENCY: Schedule
contingency shows the degree of confidence in the
estimate for the units oflabor. For this example the
schedule contingency reflects some degree of
uncertainty that could be related to an unknown rock
type or geologic structure that may cause ground
control difficulties. Again, this contingency indicates
that additional engineering or other information is
required to "firm up" the estimate. It is important to
note that the base unit rates, e.g., development feet-per-
manshift, must not include any contingency. The
development rates must be those that can be reasonably
expected, neither the optimum, theoretically
determined, nor the pessimistic "padded" rate.
The schedule contingency, when multiplied by the
base duration, produces a number of manshifts, or
equivalent days a project may overrun. These "overrun
days" should then be added to the schedule to reflect
the schedule contingency. The addition of these days to
the schedule will add cost to all of the fixed, or time
dependent, cost of the project, e.g., manpower,
overhead, power, etc.
For many estimators the idea of applying a general
10% to 15% contingency to a project is acceptable.
This across-the-board contingency is usually applied to
the total project base estimate that includes costs for
material and labor. However, for underground projects,
it is difficult to add people to reduce, or make-up, time
on the schedule. Therefore, what typically happens, is
that any contingency manhours required are worked by
the same crews, which results in a schedule overrun.
SCOPE CONTINGENCY: Scope contingency
reflects the confidence that all the estimating items are
accounted for and that the proj ect scope of work is not
subject to change. In a thorough estimate where the
project team feels all items have been accounted for.
this contingency may be small, 1-2%. If the project
team is not confident with the estimate the contingency
may be 10% or more. In Figure 7 the application of
Subtotal Scope Total Total
Costs Contingency Costs Contingency
$3,400.00 5% $3,570.00 10%
$ I 1,833.32 5% $12,424.98 33%
$ 5,100.00 2% $5,202.00 12%
$ 7,700.00 $7,700.00 5%
$ 28,033.32 3% $ 28,896.98 23%
 8

scope contingency is shown in relation to the drifting
project presented in Figure 6.
Contingency is not intended to "pad" a project or
add "fudge factors", the purpose is to get the estimate as
close as practical to the true cost of the project.
Consequently, contingency reported in this manner, is
more accurate, easier for review, and reduces the
possibility of "double dipping".
The previous example shows a very rigorous
approach to the application of contingency. Many
estimators mentally combine these contingencies and
report contingency by objective, or even only one for
the total project. Combining contingencies can work if
the project is low risk, or if the estimator has a lot of
experience with similar projects.
Fudge, T.F., September, 1995, Manager, Hecla Mining
Company, Lucky Friday Mine, personal phone
interview.
Hartman, H.L., 1992, SME Mining Engineering
Handbook, 2nd ed. Vol 1, Society for Mining,
Metallurgy, and Exploration, Inc., Littleton,
Colorado.
Moder, J.J., Cecil, P.R., Edward, D.W., 1983, Project
Management with CPU PERT and Precedence
Diagramming, 3rd ed., Van Nostrand
ReinholdCompany Inc.

CONCLUSION

Project management is proving to be a useful

management technique for managing underground
projects. However, the difficult, and often uncertain,
conditions of underground projects require particular
attention to definition and planning. It is rarely
practical to plan for all possibilities for underground
construction projects, however, if the project is well
defined with an accurate scope of work, decisions that
must be made in the field are more effective.
The techniques presented here are simply an
overview and are intended as guidelines for
defining and planning underground projects. Each
technique deserves considerably more time and could,
in itself, be the topic of books or papers. These
techniques may not be applicable for every project,
however, the basic concept of taking an appropriate
amount of time to define and plan a project will result
in increasing the chance of success for underground
mining projects.

ACKNOWLEDGMENTS

The author would like to thank Hecla Mining

Company for the permission to submit this paper. The
author would also like to thank Mr. Art Verdugo, the
manager of engineering for Magma Copper Company,
for his inspiration and guidance.

REFERENCES

Bitz, I. & Associates, 1991, Basic Project Management,

Unpublished, presented by American Management
Association.

Britton, S.O., 1983, Construction Engineering in

Underground Coal Mines, Society of Mining
Engineers of the A.I.M.E., New York, New York.

Eliyahu, O.M. & Cox, l, 1992, The Goal, North River

Press.