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ENGR 301 - Midterm Review notes

Engineering Management Principles and Economics (Concordia University)

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Section A:
Project:
A project is an endeavour undertaken to create a unique product or service or result.

 Temporary means that it has a sent beginning and an end. The project is ended when
objectives are achieved or can’t be met.

 Project management: The application of tools, skills, knowledge and techniques to

project activities in order to meet the project requirements.

 Project manager: person responsible for accomplishing the project objectives.

Project Management Knowledge areas:

 Project integration management: Process required to ensure proper coordination of

various project elements. Includes project plan development/execution and integration
change control.
 Project scope management: Process required to ensure that the project includes all the
work required. Includes scope planning/definition/verification/change control and
initiation.
 Project time management: process required to ensure timely completion of project.
Includes scheduling and activity duration and sequencing.
 Project cost management: process required to ensure that the project is completed
within the planned budget.
 Project quality management: process required to ensure that the project satisfies the
purposes for which it was build.
 Project human resource management: process required to ensure most efficient use of
people involved.
 Project communication management: process required to ensure timely and
appropriate handling of project information.
 Project risk management: process required for identifying, analysing and responding to
project risk

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 Project procurement management: process required to acquire good and services from
outside the organization.

To ensure management control, projects are divided into several pahses:

 Inception: project is first visualized, imagined.  investor/owner

 Planning and definition: rough estimate of the project’s duration and cost, etc. 
investor/owner.
 Design: project is designed  architect/engineer
 Procurement and production: purchasing necessary goods  contractor
 Start up and commissioning: project delivered to owner  contractor.

In generally, there is the initial, intermediate and final phase in a project. The intermediate one
is generally the most expensive and most time consuming.

At the inception phase, the level of influence on cost is 100%; however, the influence decreases
as we move through the phases. On the other hand, construction costs will keep increasing.

Project delivery method:

 Traditional: longest duration of time. The design phase and the building phase do not
overlap. (building activities start AFTER THE DESIGN)
 Phased: slightly shorter time duration than traditional. The design and building phase
overlap a little. (building activities start after design activities end)
 Fast track: shortest time duration of all. Design and building phases overlap a lot.
(building activities start BEFORE design is finished)

Project delivery systems:

A framework for the relationships between the owner and the other project participants.

Risk management is the primary basis for a project delivery system. In determining an
appropriate project delivery system, project risks should be firstly identified and analyzed to
determine whether actions of avoidance, transference, mitigation and acceptance will be taken.

Risk should be delegated to the party who has the most ability to control that risk.

Types of delivery systems:

-Traditional

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-Turnkey

-owner builder

-construction management at risk.

Traditional:

The owner enters into 2 separate contracts, one with a single designer and another with a
single general contractor. The single general contractor usually uses his own workforce and
enters into contracts with subcontractors. So the contracts used between the owner and the
general contractors can be: lump sum, unit price, guaranteed max, or cost + fixed fee.

Advantages: market place is comfortable with it and plans are usually complete prior to bidding
or final pricing.

Disadvantages: often contractor input during design, slower delivery time due to back-to-back
phasing.

Turnkey (design-build):

Single firm for design and construction execution, usually a specialty contractor, contract types
suitable to this system include: lump sum, guaranteed maximum, cost + fee, design
construction contract.

The contractor agrees to provide the completed facility on the basis of performance
specifications set forth by owner. Contractor can even assume the responsibility of operating
the project if the owner so desires. For the turnkey to succeed, the owner must provide
detailed plans and let the contractor do the work.

Contract type suitable for this: lump sum, guaranteed maximum price, cost + fee, design-
construction contract.

Owner builder:

Owner does design and construction. Types of contracts: lump sum, unit price or negotiated
contracts. Owner must have a steady flow of on-going projects in order to maintain a large
work force for in-house operations.

Construction management at risk:

The owner enters into two contracts, one with a designer and another with a construction
manager. Owner selects a construction manager (CM). The CM works with the designer during
the design phase and acts as a general contractor during the construction phase. The CM

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prepares a final cost estimate for the project and submits a guaranteed maximum price for the
project. CM manages construction as a general contractor and assumes all the responsibilities
for cost, time, safety and quality.

The advantage to the owner is:

 risk is reduce for the architect and owner

 More manageable and predictable project cost and schedule outcome
 Allows for an early start of construction by phasing the work

Project Stakeholders:

Individuals and organizations that are actively involved in the project, their interests are
affected by the project and can influence the project.

Key stakeholders:

 Project manager
 Customer/owner
 Performing organization
 Project team members
 Project management team
 Sponsors

Influencers:

-positive influencers: see benefit in from project’s success

-negative influencers: see negative in project’s success (hippies)

Organization structures:

 Functional
 Projectized
 Matrix:
o Weak

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o Balanced
o Strong

Functional organization:

Advantages:

o High stability
o High professional standard
o Incorporation of latest technology
o Excellent corporate memory
o Tightest discipline control

Disadvantages:

o Poor communication across functional areas

o Low adaptability
o Minimum appreciation of overall project objectives
o Resistance to change

Works best for traditional construction NOT (phased or fast track).

Projectized Organization:

Max power to project manager, he is in charge of a project team composed of a core group of
personnel from different functional areas and/or groups assigned on a full time basis.

Matrix Organization:

A blend of functional and projectized attempting to preserve the strong points of each.

Strong matrix: resembles projectized organization.  functional manager + managers of project

managers.

Week matrix: resembles the functional organization

Balanced matrix: functional manager + project manager.

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Contract types:

 Lumb sum contract

 Unit price contract
 Cost + fixed percentage contract
 Cost + fixed fee contract
 Cost + fixed fee + profit sharing
 Cost + fixed fee + sliding fees
 Guaranteed maximum cost contract

Lumb sum contract:

This type of contract is used for building projects for which it is possible to accurately calculate
the quantities of work required. The contractor quotes a price which includes direct and
indirect costs as well as mark-ups, which are higher to accommodate for risks. The payment is
made to the contractor according to % completed and hence, the risk shifts to the contractor.

 Advantages: owner knows exactly how much the project costs, because the price
quoted is a guaranteed price.
 Disadvantages: the plan must be ready and well prepared by owner, no room for
flexibility, if a change needs to occur, it can lead to $$ problems

Unit price contract:

This is the opposite of the lump sum. This is the type of contract for a project for which the
exact quantity of materials cannot be calculated ahead of time. So the total price will be:

Price per unit quoted by contractor X the quantity estimated by the engineer.

Disadvantage: the price of the project cannot be known until the end of the project. Less risks
for the contractor than lumb sum.

Cost + fixed percentage contract:

The contractor is reimbursed for all direct and indirect expense that is paid out of his pocket. He
is also paid a fixed percentage of the total cost of the project. If the project goes over budget,
the contractor will get an amount equal to the percentage of the total cost + the
percentage(same percentage) of the surplus cost + his reimbursement.

This doesn’t encourage the contractor to be economical and the risk is shifted to the owner.

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Cost + fixed fee contract:

The contractor is reimbursed for all his direct and indirect expenses. They are also paid a fixed
fee which does not change regardless of fluctuations. So the contractor is paid a percentage of
the total cost and this is his fee even if the project goes over budget.

Disadvantage: contractor might use expensive materials to finish faster

Advantage: will encourage the contractor to finish ASAP.

The Owner runs a risk ONLY in direct costs.

Cost + fixed fee + profit sharing:

This is like the cost + fixed fee contract but it has a bonus to reward the contractor. If the
contractor builds the project under the target price, the savings are shared between the
contractor and the owner. Generally the contractor gets 25% of what was saved.

Advantage: encourages the contractor to be smart with money management.

Cost + fixed fee + sliding fee:

This is the cost + fixed fee with a bonus or a “punishment”. If the project is under the target
price, then he gets a bonus like the profit sharing. If the project is over the target price, then the
contractor is penalized. This is the equation:

Fee = R (2T – A) T = target price; R = base percent value; A = actual cost of construction

Risk of overrun distributed between the owner and contractor.

Guarantee Maximum Cost Contract:

The contractor takes full responsibilities in terms of project cost and time. The project must be
well defined with extremely minor changes from owner. Project CANNOT exceed the maximum
cost established. Ideal for turn key operations.

Cost estimate:

Direct cost:

 Labour

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 Materials
 Equipment
 Subcontracting

Indirect cost:

 Supervision
 Taxes/insurance
 Overhead

Mark-ups:

 Profit
 Risk

Costing: cost of materials, labour, and equipment

Cost DOESN’T equal price.

Price: cost + amount of overhead + profit.

Critical Path method:

The longest time duration path through the network and establishes the minimum overall
project time duration.

 The early start time and late start time for a particular activity are the same
 The early finish time and late finish time for a particular activity are the same

Section B:
BCWS = PV  will be given. BCWS is how much of the budget should have been spent in view
of the baseline cost of work (planned cost of work).

BCWP = EV: How much of the budget should have been spent in view of the amount of work
performed.

EV = BCWP = % completed X total budget cost (BCWS)

The alternative way is to measure the amount of sections of work completed and the amount
of section of work per section, and do: $/hours.

ACWP = AC: actual cost incurred for work already performed.  given

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CV = cost variance:

CV = BCWP – ACWP

 If CV is positive then the cost is currently under the budget or baseline amount
 If CV is negative then the cost is currently over the budget or baseline amount

SV = schedule variance:

SV = BCWP – BCWS

 if SV is positive, then the project is currently ahead of schedule in term of cost

 if SV is negative, then the project is currently behind schedule in term of cost

CPI = cost performance index = EV/AC

SPI = schedule performance index = EV/PV

EAC = project total cost at completion = ETC – AC

ETC = estimated remaining cost to completion = (BAC – EV) / CPI  use when current variances
are seen as typical of future variances

Or

ETC: (BAC – EV)  used when current variances are seen as atypical of future variances.

BAC = budget at completion

Section C:
2 types of network diagrams:

 PERT
 CPM or AON

CPM or AON = critical path method. It uses deterministic estimates of activity durations. In the
network diagram is displayed by activities being represented as nodes and arrows are used to
link the nodes to show their relationships. AON  ACTIVITIES ON NODES.

Forward pass (early start time and early finish time):

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The purpose is to determine the earliest (soonest) possible start time and finish time for each
activity.

The early start time:

ESn = max(EFn-1)

The early finish time:

EFn = ESn + Dn

D = duration

Backward pass:

Late start time:

LSn = LFn – D

Late finish time:

LFn = min(LSn+1)

Critical Path method:

The longest time duration path through the network and establishes the minimum overall
project time duration.

 The early start time and late start time for a particular activity are the same
 The early finish time and late finish time for a particular activity are the same

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